More than four months after the Department of Labor's qualified default investment alternative regulations became effective, the Department last week issued much needed guidance clarifying the rule's application in a number of contexts. Perhaps most notable for readers of this blog, the Field Assistance Bulletin (FAB 2008-3) contained important guidance on how to deal with the overlapping and seemingly conflicting notice requirements. The Department also released amended regulatory text, and a fact sheet explaining the guidance.E
As we have blogged about before, the Department is in the midst of a separate regulatory initiative to enhance the disclosure of plan fees and expenses that flow to fiduciaries and plan participants. There appears to be some cross-pollination of efforts here, as the Q-6 indicates that, in the absence of further guidance, in order to meet the notice requirements in the final QDIA regulations, plans must provide information to participants and beneficiaries concerning: (1) the amount and a description of any shareholder-type fees such as sales loads, sales charges, deferred sales charges, redemption fees, surrender charges, exchange fees, account fees, purchase fees, and mortality and expense fees; and (2) the expense ratio for investments the performance of which may be expected to vary over the term of the investment.
Because ERISA and the Code require many different notices to be provided to participants and beneficiaries, Q-7 attempts to streamline and coordinate some of the notification efforts. In Q-7, for instance, the Department clarifies that the QDIA notices may be distributed in accordance with Department of Treasury electronic distribution regulations. However, when it comes to pass-through investment materials, the Labor Department stops short of endorsing Treasury's rules, indicating instead that the DOL is "currently working on a separate regulatory initiative concerning the broader application of disclosure by electronic means." This may be a reference to yet-to-be-issued proposed regulations on disclosure to plan participants. Those regulations, which will be the third and last set of disclosure-based rules in the Department's three-step initiative, are currently being reviewed by the Office of Management and Budget, and are expected to be released in proposed form sometime this summer.
In Q-8 and Q-9, the Department addresses the interaction between the notice requirement in the QDIA regulations and the separate notices required under rules governing qualified automatic enrollment arrangements (QACAs) under Code section 401(k)(13) and eligible automatic enrollment arrangements (EACAs) under Code section 414(w). According to Q-8, the timing of the separate QACA and EACA notices may -- but are not required to -- be coordinated with the QDIA notice. The FAB also provides a link to a sample notice created jointly by it and the Internal Revenue Service that sponsors may wish to use to satisfy all notice requirements.
In Q-9, the Department further explores the timing interaction between the Code's notices and the QDIA notices, concluding that "plan sponsors could easily satisfy" the annual notice requirement for both sets of regulations by providing an appropriate notice at least 30 but no more than 90 days before the beginning of the plan year. Q-10 clarifies that the notice required under the pre-PPA safe harbor 401(k) plan (i.e. non-automatic enrollment safe harbor plan) can be combined with the QDIA notice as well.
FAB 2008-3 addresses other issues as well, but leaves many other questions unresolved. It is not clear at this time whether we can expect additional guidance from the Department on QDIAs, or if this FAB is as much as we will get. In either case, plan sponsors would be well advised, IMO, to carefully review the FAB to be sure they are complying with the QDIA regulations.