On July 13, 2011, the U.S. Department of Labor (DOL) extended the compliance deadlines for the regulations concerning (i) service provider fee disclosures to pension plan fiduciaries under ERISA section 408(b)(2) and (ii) plan administrator fee disclosures to participants and beneficiaries of participant-directed plans under ERISA section 404(a). Service providers now have until April 1, 2012 to comply with the fee disclosure rules under ERISA section 408(b)(2). Plan administrators of calendar year participant-directed plans now have until May 31, 2012 to provide participants and beneficiaries the initial annual fee disclosures required by the final regulations under ERISA section 404(a).
Service Provider Fee Disclosure Regulations
On July 16, 2010, the DOL released interim final regulations requiring certain retirement plan service providers to disclose fee-related information to a plan’s fiduciaries for purposes of assisting the fiduciaries in evaluating the “reasonableness” of the service contract or arrangement under ERISA section 408(b)(2).1 The regulations were originally scheduled to become effective for all new and existing service provider contracts and arrangements on July 16, 2011.
The newly released final rule extends the effective date for the service provider fee disclosure regulations under ERISA section 408(b)(2) to April 1, 2012, which the DOL believes should provide adequate time for service providers and plan fiduciaries to bring applicable service provider arrangements into compliance with the final regulations.2
Participant-Level Fee Disclosures by Plan Administrators
On October 14, 2010, the DOL released final regulations under ERISA section 404(a) requiring a plan administrator of a participant-directed individual account plan (e.g., a 401(k) plan) to provide certain fee and expense information to participants and beneficiaries of the plan. The regulations apply to covered plans as of the first plan year beginning on or after November 1, 2011. For calendar year plans, this means that these participant-level disclosure obligations would apply as of January 1, 2012. A transition rule in the final regulation required plan administrators to furnish the initial disclosures required under the regulation no later than 60 days after the date the regulation first applied to each participant or beneficiary who had the right as of the effective date to direct plan investments.
In an effort to coordinate the application of the ERISA section 408(b)(2) service provider fee disclosure rules and the ERISA section 404(a) participant-level fee disclosure rules for participant-directed plans, the new final rule amends the transition rule under the participant-level disclosure regulations to provide that the required initial fee disclosure be furnished to participants and beneficiaries no later than 60 days after the later of:
- April 1, 2012 (i.e., the effective date of the service provider fee disclosure rules) or
- the date the participant-level disclosure regulations would otherwise apply.
Additionally, the new final rule clarifies the deadline for providing the initial quarterly disclosures to participants and beneficiaries required under the rule. The quarterly disclosures must first be furnished no later than 45 days after the end of the quarter in which the initial fee disclosures are required to be provided to participants and beneficiaries.
For example, the new final rule for participant-level disclosures will impose the following deadlines on calendar year plans and March 31, June 30 and September 30 year-end plans:
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Covered service providers, plan fiduciaries and plan administrators subject to the fee disclosure rules under ERISA sections 408(b)(2) and 404(a) should review all current third-party arrangements, plan documents and participant communications to determine what additional information must be provided or processes put into place to comply with the rules and the new compliance deadlines. Covered service providers and plan fiduciaries should also be monitoring the release of the final regulations under ERISA section 408(b)(2) and be prepared to make any changes that are necessary in light of the final regulations. Plan administrators will also need to coordinate with third-party service providers to ensure that information necessary for the participant-level fee disclosures is provided to the plan administrator in advance of the plan’s compliance deadline under the new final rule. Last, plan administrators should carefully review all current plan-related documents to determine what additional information must be provided under the participant-level fee disclosure rules.