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DOL Proposes Regulations for Required Disclosures of Investments and Fees for Participant-Directed Retirement Plans

    Client Alerts
  • July 25, 2008

Earlier this week, the U.S. Department of Labor released proposed regulations continuing its “fee transparency” initiative.  The proposed regulations will require specific disclosures to participants in 401(k) and other participated-directed retirement plans with respect to their plans and investment options, including fees, expenses and investment performance.  The guidance follows the November 2007 release of a revised Form 5500, effective for plan years beginning in 2009 and designed to expand reporting of plan service provider compensation.  It also follows the December 2007 issuance of proposed regulations regarding new disclosures requirements for plan service provider compensation and conflicts of interest (link here to a related December 2007 EmployNews article).

The new proposed regulations, if finalized in their current form, would require fiduciaries of all plans with participant-directed investments to provide disclosures to participants when they first become eligible to participate, and annually thereafter.  The disclosures should typically consist of a chart used for comparing investment options and also must include the following:

  • General plan information, including the investment options available under the plan, how to provide investment direction, and limitations on transfers among alternatives;
  • Details on each investment option, such as performance data (with benchmarks), a direct web site for the fund, type of investment and investment management style, and fee and expense information;
  • Fees and expenses charged to participants for administrative services, such as legal, accounting, and recordkeeping, including how the charges will be allocated to individual accounts (e.g., pro rata or per capita); and
  • Individual fees and expenses borne specifically by participants, such as loan processing charges or investment advice.

Link here for a model chart provided by the DOL for comparing investment options.  Under the proposed regulations, fiduciaries using the model chart are deemed to satisfy disclosure requirements for certain investment-related information.

In addition to the required annual disclosures, plan fiduciaries would need to provide certain disclosures more frequently.  For example, if there are material changes to the general information described above, participants must be provided a description of the changes within 30 days.  In addition, participants must be provided on a quarterly basis a statement that includes the actual dollar amount charged to their accounts during the preceding quarter for specified administrative and individual expenses.

The DOL has proposed that the final regulations become effective for plan years beginning on or after January 1, 2009.  However, the DOL has specifically requested comments regarding the effective date so a later effective date appears possible.  In any event, plan fiduciaries will need to pay close attention to the issuance of final regulations in case they need to work quickly with their service providers to implement the disclosure requirements on relatively short notice.