3/25/2011
Retirement Plan Sponsors - Fiduciaries Need to Plan Now to Comply with DOL’s Final Regulation on Transparency of Fees and Expenses Beginning January 1, 2012 (for calendar year plans), the Department of Labor’s Employee Benefits Security Administration ("EBSA") will require retirement plans that allow participants to direct the investment of their accounts (typically 401(k) and 403(b) plans) to provide extensive information regarding fees and expenses related to a plan’s investment options so that plan participants can more easily compare the costs of various investment options.
This annual disclosure must also include performance information for each investment option offered under a plan. Additionally, participants must receive quarterly disclosure of the amounts and nature of expenses deducted directly from their accounts. The burden of this new and complex set of disclosures will rest with a plan’s fiduciaries, who are typically officers of the plan sponsor. The investment of a plan’s assets is a fiduciary act governed by the fiduciary standards in ERISA. Plan fiduciaries may allow participants to self-direct investments under ERISA section 404(c), which has always required the disclosure of information about a plan’s investments under a participant-directed plan.
This requirement has typically been met by making available fund prospectuses (or equivalent information) or information generated by software providers that consolidate such information. Knowledgeable plan participants have been able to make informed investment decisions under the existing regulations; however, EBSA believed that enabling the average plan participant to make informed decisions required the use of standard methodologies when calculating and disclosing fee, expense, and investment return information in order to provide ease of comparison between investments. Consequently, the final regulation requires plan fiduciaries to provide the information discussed below.
Initial and Annual Disclosure
The information below must be given to participants on or before the date they can first direct their investments, and then annually thereafter.
Plan-related information:
Investment-related information
Quarterly Disclosure
In addition to the above information, participants must receive statements, at least quarterly, showing the dollar amount of the plan-related fees and expenses actually charged to or deducted from their individual accounts along with a description of the services for which the charge or deduction was made. These disclosures may be (but are not required to be) included in the quarterly benefit statements that are required to be provided to plan participants who participate in participant-directed plans.
Other Requirements
The investment information required under the final regulation must be furnished in a chart or similar format designed to facilitate a comparison of each investment option available under the plan. The good news is that the final regulation includes a model comparative chart that may be used by a plan administrator to satisfy the regulation’s requirement that a plan’s investment option information be provided in a comparative format. The bad news is that the information required is extensive and plan fiduciaries are going to need to spend a considerable amount time and money if their plan’s investment advisor can not produce the information in a compliant format. If requested by a participant, the plan sponsor or plan fiduciaries must also furnish prospectuses, financial reports and statements of valuation of assets held by an investment option under a plan.
Impact on Plan Sponsors and Fiduciaries
This new requirement will create additional work and/or costs for plan sponsors. Plan sponsors and fiduciaries need to begin now in order to identify and quantify all expenses paid from their plan’s assets and then decide on a compliant format and medium for communicating this information to plan participants. Additionally, discussions should begin now with the plan’s investment advisor or investment provider to determine whether compliant performance data, performance benchmarks, and a glossary of terms will be provided timely for inclusion with the general information required under the final regulation, as well as how such information will be maintained and updated. The final regulation will become applicable for plan years beginning on or after November 1, 2011. For calendar year plans, compliance will be required on January 1, 2012.
For more information, please contact Saltmarsh, Cleaveland & Gund. This publication is intended to provide general information to our friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter. This publication has been prepared by EisnerAmper LLP for informational purposes only.
These materials do not constitute accounting, tax or legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code. Redistributed by Saltmarsh with permission.