The compliance dates are quickly approaching for the Department of Labor's ("DOL") mandatory participant fee disclosure regulations, which require disclosures (1) by service providers to fiduciaries of qualified retirement plans and (2) by plan administrators of defined contribution plans that permit participant direction of investments to participants and beneficiaries.
Employer plan sponsors should keep in mind the following deadlines as they prepare to comply with their disclosure obligations:
• July 1, 2012 - First disclosure of fees by service providers - including employers - to plan fiduciaries. Thereafter, fee disclosure is required reasonably in advance of the date a contract is entered, extended or renewed. This requirement applies to all types of retirement plans, both defined benefit and defined contribution.
• August 30, 2012 - First annual participant notice of plan investment-related information to participants and beneficiaries. The notice applies for plan years beginning between November 1, 2011 and July 1, 2012. The initial notice for plans with plan years beginning after July 1, 2012 is due 60 days following the first day of the plan's 2012 plan year. Thereafter, notice is required on or before the date a participant is first eligible to direct plan investments and annually.
• November 14, 2012 - First quarterly disclosure notice to participants and beneficiaries of administrative and individual expenses actually charged to their accounts for calendar year plans and most non-calendar year plans. The ongoing due date is 45 days after the end of each quarter.
Disclosures by Service Providers to Plans
As July 1 approaches, employers sponsoring ERISA retirement plans should begin receiving fee disclosures from their plans' service providers regarding the service provider's direct and indirect compensation. Only those vendors who are paid by the plan, as opposed to the plan sponsor, and who expect to be paid more than $1,000 by the plan are required to make the disclosures. It is important for plan sponsors not to overlook their obligations upon receipt of the service provider disclosures. As plan sponsors begin to receive disclosure information from service providers, each disclosure must be evaluated to determine whether the fee disclosed is "reasonable" for the services being provided. Although ERISA has always prohibited fiduciaries from paying more than reasonable fees for plan services, employers now must formally evaluate those fees. If a fee disclosed is considered unreasonable, the plan sponsor should take action, such as re-negotiating the fee or changing service providers, to ensure compliance with its fiduciary obligations.
Disclosures by Plans to Participants and Beneficiaries
After the evaluation of the fee disclosures from service providers, plan sponsors should begin to prepare to meet their own annual disclosure requirements, which for most plans will be effective August 30, 2012. The required participant disclosures, which are ultimately the responsibility of the plan administrator or its delegate, generally break down into two categories - plan information and investment information.
Plan information disclosures include: (1) general information regarding investments and fees, including how to designate investments under the plan, a current list of the plan's investment options and a description of "brokerage windows" or similar arrangements allowing a selection of investments beyond those offered by the plan; (2) any upcoming administrative expenses that may be allocated to all participant accounts (e.g., recordkeeping fees, estimated annual legal fees, etc.); and (3) any individual expenses that may be charged to a participant's account (e.g., loan fees, QDRO fees, etc.).
Investment information disclosures include: (1) historical investment information for those investments that do not provide for a fixed return; (2) fund benchmark information; (3) investment fee and expense information for each fund; (4) a website address where participants can access updated fee information; (5) a glossary of terms; and (6) a comparative chart of investment information with respect to the designated investment alternatives.
If a plan is administered by a third-party administrator or record keeper, the plan sponsor should contact that party to ensure that they will prepare the required disclosures and distribute them to participants and beneficiaries. Plan sponsors should review all annual disclosure materials prior to their distribution.
If the required disclosures will not be prepared by the plan's third-party administrator or record keeper, plan sponsors, with the assistance of third-party vendors and legal counsel, must take the following actions in preparing disclosures to plan participants and beneficiaries in compliance with the regulations:
• Identify the plan's "designated investment alternatives."
• Prepare or identify documents that provide the following information:
o An explanation of the circumstances under which participants may give investment instructions;
o An explanation of any limitations on such instructions, including any restrictions on transfers to and from designated investment alternatives;
o A description of voting, tender and similar rights, as well as any restriction on such rights, under an investment in a designated investment alternative;
o An identification of any designated investment alternatives offered under the plan or any investment managers; and
o A description of any "brokerage windows," "self-directed brokerage accounts," or any other arrangement which allows participants to choose investment options other than those selected by the plan.
• Prepare an itemization of any upcoming administrative expenses which may be allocated to all participant accounts and include a description of any expenses offset by revenue sharing;
• Prepare a chart comparing designated investment alternatives over 1, 5- and 10-year periods and identify appropriate benchmarks;
• Set up (unless already in place) a website address to provide updated investment information;
• Prepare a description of how any applicable brokerage window operates and any fees or expenses associated with such a brokerage window;
• Prepare a glossary of terms; and
• Begin preparing for the quarterly disclosure of actual expenses.
Plan sponsors that take steps now to comply with the regulations and compile the necessary information and data will be better able to troubleshoot any issues that arise during the implementation of these rules.
If you need assistance in preparing participant disclosures or want copies of the Department of Labor's model disclosure charts, which can be used to satisfy the plan disclosure regulations, please call Charlotte Offerdahl or Katie Iams in our Employee Benefits Group at (704) 335-9853 or (704) 335-6640, respectively.