Continuing its recent focus on increased disclosure to plan participants, this week the Department of Labor ("DOL") published a proposed rule ("Proposed Rule") requiring additional information to be provided to participants and beneficiaries of participant-directed individual account plans (such as 401(k) plans) regarding qualified default investment alternatives and specific disclosures regarding target date retirement funds and similar-type investments.
Prior regulations released in 2007 (and later amended in 2008) (the "QDIA Regulations") provide certain relief from fiduciary liability arising from an investment in a qualified default investment alternative if a plan complies with the QDIA Regulations.
Among other things, the QDIA Regulations require plan fiduciaries to furnish an initial notice with certain investment-related information about each designated investment alternative under participant-directed individual account plans, including any target date funds, as well as an annual notice with the same information for subsequent plan years. Participant-level disclosure regulations (the "Participant Disclosure Regulations"), released in October 2010, also require plan fiduciaries to furnish participants and beneficiaries with certain investment-related information (such as fee and expense information) about each designated investment under the plan, including any target date funds. The Proposed Rule amends and strengthens the notice requirements under the QDIA Regulations and the Participant Disclosure Regulations, including specific requirements to provide detailed information regarding target date funds to participants and beneficiaries.
The Proposed Rule expands the disclosures to be provided for qualified default investment alternatives, including information regarding the investment's principal strategies and risks, historical performance data, applicable fees, and operating and ongoing expenses. The Proposed Rule also includes specific disclosures for target date investment alternatives that are intended to ensure that plan participants and beneficiaries receive the information necessary to evaluate target date funds and determine whether such funds meet their investment objectives.
In addition to the information already required by the current QDIA Regulations and the Participant Disclosure Regulations, plan fiduciaries also must provide participants and beneficiaries: (1) an explanation of the target date fund's asset allocation, how that allocation will change over time, and the point in time when it will reach its most conservative position; (2) an illustration (through a graph or chart) of how the target date fund's asset allocation will change over time; (3) for those target date funds that reference or are designed with respect to a particular date (i.e., "Retirement 2050 Fund"), an explanation of the age group for whom the investment is designed, the relevance of the date and any assumptions about a participant's or beneficiary's contribution and withdrawal intentions on or after such date. The disclosures also must include a statement that the participant or beneficiary may lose money by investing in the fund, including losses close to retirement, and that there is no guarantee that investment in the qualified default investment alternative will provide adequate retirement income.
The DOL is seeking comments on the Proposed Rule through January 14, 2011, and intends for the new requirements to be effective 90 days after publication of a final rule in the Federal Register. In the meantime, plan fiduciaries should acquaint themselves with the requirements of the Proposed Rule and coordinate with third-party administrators to ensure that future notices include the required information regarding qualified default investment alternatives and target date funds.