On February 3, 2012, the IRS issued final regulations compelling service providers to furnish plan sponsors with information regarding administrative and investment costs associated with qualified plans, including 401(k) plans. The final rule requires plan service providers, who expect at least $1,000 in compensation, to disclose information necessary to: (1) assess reasonableness of total compensation, both direct and indirect, received by the service provider, its affiliates and/or subcontractors; (2) identify potential conflicts of interest; and (3) satisfy reporting and disclosure requirements under ERISA. The final regulations also include a three-month extension with respect to the effective date of this new rule. Plan sponsors should receive these required disclosures in writing from all new or existing, covered service providers no later than July 1, 2012.
The new effective date for the service provider fee disclosure regulations will also impact the timing for the recently enacted participant level disclosure regulations. Under these participant disclosure regulations, a plan sponsor must annually provide participants with specified plan-related and investment-related information in a comparative format in order to provide greater transparency regarding the true costs of a plan's investment options and plan-related expenses. Plan sponsors must also begin to provide a quarterly statement of the fees actually charged against a participant's or beneficiary's account, and if applicable, a statement that some of the plan's administrative expenses for the preceding quarter were paid from the annual operating expenses of one or more of the plan's designated investment alternatives. Due to the extension, initial annual disclosures must be provided to all plan participants, eligible participants, and beneficiaries who have the right to direct investments by August 30, 2012 and initial quarterly disclosures must be provided by November 14, 2012.