FROM:
Thought Capital
Thought Capital
New Participant Fee Disclosure Rules:
What Plan Sponsors Need to Know
TO:
The new participant disclosure rules are intended to help ensure that all participants and beneficiaries in participant-directed individual account plans have the information necessary to make informed decisions.
TO:
The new participant disclosure rules are intended to help ensure that all participants and beneficiaries in participant-directed individual account plans have the information necessary to make informed decisions.
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| Compliance
should not be terribly burdensome for plan sponsors. |
Effective date update: On July 13, 2011, the Department of Labor
(DOL) announced an extension of the deadline for the participant disclosure
rules.
Initial disclosures must now
be furnished no later than the later of:
·60 days after the plan's anniversary date that occurs on or after Nov. 1, 2011, or·60 days after the effective date of the plan sponsor-level fee disclosure rule (April 1, 2012)
Please take this change into account as you proceed in reading.
Executive Summary
In October, the Department of
Labor ("DOL") published final regulations that require plan
administrators (typically the plan sponsor) to disclose certain fee and
investment information to participants and beneficiaries in Employee Retirement
Income Security Act of 1974 (ERISA) covered participant-directed individual
account plans, which include the vast majority of 401(k) and private-sector
403(b) plans. The final regulations will
apply to plan years beginning on or after November 1, 2011. Thus, for calendar-year plans, the
regulations will become effective January 1, 2012.
The new participant
disclosure rules are intended to help ensure that all participants and
beneficiaries in participant-directed individual account plans have the
information necessary to make informed decisions about plan participation and
selection of investment choices for their accounts.
Of course, record keeper and investment service providers to individual account plans have long helped plan sponsors make information about plan fees and investment-related expenses available to participants and beneficiaries, typically through a secure website. The new regulations, however, require plans to affirmatively provide specified information to "participants," defined broadly to include all individuals eligible to participate in the plan (without regard to whether an individual has an account balance).
Of course, record keeper and investment service providers to individual account plans have long helped plan sponsors make information about plan fees and investment-related expenses available to participants and beneficiaries, typically through a secure website. The new regulations, however, require plans to affirmatively provide specified information to "participants," defined broadly to include all individuals eligible to participate in the plan (without regard to whether an individual has an account balance).
For the most part, the
information required to be disclosed under the regulations is not dissimilar
from the information that is typically made available to participants and
beneficiaries today, although the new regulations require disclosure of
investment-related performance and fee information in a comparative format,
which may differ from current practice.The new rules also create more uniform fee and performance disclosure
requirements for different types of investment options, which may help plan
sponsors as well as participants effectively compare investment alternatives.
"The new rules also create more uniform fee and performance disclosure requirements for different types of investment options, which may help plan sponsors as well as participants effectively compare investment alternatives. "
Compliance should not be
terribly burdensome for plan sponsors.
Plan administrators should work with their record keeper to see that the
necessary information is gathered and the required disclosures developed. Helpfully, plan sponsors are permitted to
rely in good faith on information provided by their service providers, such as record keeper and investment providers, who will assist with providing the
required information and developing the required disclosures.
The new rules may have
broader repercussions. It is possible
that the new rules and their comparative format requirement will indirectly
affect covered individual account plans by helping to inform the number and
types of investment alternatives that plans offer to participants. In addition, since the regulations highlight
the manner in which plan administrative services are financed, they may
influence plan sponsors' approach to financing plan costs.
By Davis and Harman LLP, for the Principal Financial
Group*
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| Hollis Lamon Lamon & Stern Atlanta, Georgia |
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