The Employee Benefits Security Administration (“EBSA”) has issued a notice proposing an extension to the rules regarding required fee disclosures to plan fiduciaries and participants. On July 16, 2010, the EBSA issued an interim final rule on required disclosures by service providers to plan fiduciaries (the “fiduciary-level disclosure rule”); the rule contained an effective date of July 16, 2011. Later last year, on October 20, 2010, the EBSA issued a final rule on required disclosures to plan participants (the “participant-level disclosure rule”); the rule is scheduled to be effective for plan years beginning on or after November 1, 2011. The recent notice provides for an extension of certain effective dates for these rules.
Fiduciary-Level Disclosure Rule
The fiduciary-level disclosure rule is designed to assist plan fiduciaries in assessing the reasonableness of contracts with service providers including the reasonableness of the service provider’s compensation and potential conflicts of interest that may affect the service provider’s performance. The EBSA received numerous requests for a general extension of the effective date. On February 11, 2011, the EBSA announced its intention to extend the effective date until January 1, 2012. In the recent notice, it seeks to amend the interim final rule to formalize the change in the effective date. The change is welcome news to service providers, particularly since the rule was issued on an interim basis and could be changed. The EBSA has specifically indicated that a separate summary document may be required, and the extension will provide time for the EBSA to issue guidance and for service providers to comply.
Participant-Level Disclosure Rule
The participant-level disclosure rule requires disclosure of certain plan and investment-related information, including fee and expense information, to participants and beneficiaries in participant-directed plans (such as 401(k) plans). It is intended to provide participants and beneficiaries with information needed to make an informed decision about their individual accounts and the investment of their accounts. Under the current rule, a plan is required to provide initial disclosures to participants within 60 days of the effective date. For a calendar-year plan, this would be within 60 days of January 1, 2012. However, under the proposed change, the EBSA wants to extend the initial disclosure requirement to 120 days, which would result in the initial disclosure for a calendar-year plan by no later than April 30, 2012. This change will give plans more time to comply with the initial disclosure requirements and to coordinate the disclosures with the third-party administrators.
The notice requests comments by June 15, 2011. However, it is expected that the changes will be adopted as proposed. Although the changes provide welcome relief for service providers and fiduciaries, plans should not wait too long in working towards compliance with the new rules.