The DOL issued final regulations under ERISA that require the disclosure of certain plan and investment information, including fee and expense information, to participants and beneficiaries in participant-directed individual account plans (for example, 401(k) plans). According to the regulation, the new rules are intended to ensure that all participants and beneficiaries in participant-directed individual account plans have the information needed to make informed decisions about the management of their individual accounts and the investment of their retirement savings. The regulation also contains conforming changes to the disclosure requirements for plans that elect to comply with the existing ERISA section 404(c) regulations.
While the regulation is effective as of December 20, 2010, the final rules and amendments will not apply to individual account plans until plan years beginning on or after November 1, 2011, or January 1, 2012, for calendar year plans. The preamble to the regulation notes that the regulation will affect plan sponsors, fiduciaries, participants, and beneficiaries of participant-directed individual account plans, as well as providers of services to such plans.
Overview of Regulation
The new regulation provides that where investment responsibilities are allocated to participants and beneficiaries, the plan administrators must take steps to ensure that participants and beneficiaries are made aware of their rights and responsibilities with respect to their investments and are provided sufficient information regarding the plan, including fees, expenses, and investment alternatives, to make informed decisions with regard to the management of their individual accounts. The regulation provides a fiduciary duty to disclose certain plan-related information and investment-related information. Thus, the new regulation makes the disclosure of the plan-related and investment-related information an affirmative fiduciary duty of the plan administrator. Some of the key highlights of the new regulation are discussed below.
Disclosure of Plan-Related Information
The regulation requires that the plan administrator provide each participant or beneficiary specific plan-related information on or before the date on which the participant or beneficiary can first direct his or her investments and at least annually thereafter, including:
- General plan information, including an explanation of the circumstances under which participants and beneficiaries may give investment instructions, identification of investment alternatives and investment managers, and a description of any "brokerage windows," "self-directed brokerage accounts," or similar arrangements that allow participants and beneficiaries to select investments beyond those designated by the plan.
- Administrative expense information, including an explanation of any fees and expenses for general plan administrative services (for example, legal, accounting, recordkeeping) which may be charged against the individual accounts of participants and beneficiaries.
- Individual expense information, including an explanation of any fees and expenses that may be charged against the individual account of a participant or beneficiary on an individual, rather than on a plan-wide basis (for example, fees attendant to processing plan loans or qualified domestic relations orders, fees for investment advice, fees for brokerage windows, commissions, front- or back end loads or sales charges, and redemption fees) and which are not reflected in the total annual operating expenses of any investment alternative.
Additionally, and at least quarterly, the plan administrator must provide a statement of the administrative and individual fees and expenses that are actually charged during the preceding quarter to the participant's or beneficiary's account for such services.
Disclosure of Investment-Related Information
The regulations require that the plan administrator must provide to each participant or beneficiary on or before the date on which he or she can first direct his or her investments and at least annually thereafter, certain information with respect to each investment alternative offered under the plan, including investment identifying information (for example, the name of each investment alternative and the type or category of the investment), specific performance data depending on the type of the investment, and benchmark information that identifies an appropriate broad-based securities market index.
In addition, certain fee and expense information related to the individual investment alternative must be disclosed, including, for example, each shareholder-type fee (fees charged directly against a participantʼs or beneficiaryʼs investment, such as commissions, sales loads, sales charges, deferred sales charges, redemption fees, surrender charges, exchange fees, account fees, and purchase fees) which are not included in the total annual operating expenses of any designated investment alternative. Furthermore, the regulations require the disclosure of Website addresses that provide access to certain specific information regarding the investment alternatives, and a general glossary of terms to assist participants in understating the investment alternatives.
Comparative Format Requirement
The investment-related information required to be disclosed must be provided in a chart or similar form that is designed to facilitate a comparison of each investment option available under the plan. The regulation provides a model of the required comparative chart, which if accurately completed by the plan administrator, will satisfy this requirement.
A plan administrator will not be liable for the completeness and accuracy of information used to satisfy these disclosure requirements when the plan administrator reasonably and in good faith relies on information received from or provided by a plan service provider or the issuer of a designated investment alternative. The final rule is available at http://edocket.access.gpo.gov/2010/pdf/2010-25725.pdf. The model comparative chart is available at www.dol.gov/ebsa/participantfeerulemodelchart.doc.