Fee and Investment Disclosure in Participant-Directed Plans: Final Rule
The Department of Labor has announced a final rule (RIN 1210-AB07) requiring disclosure of certain information to participants in a participant-directed retirement plan regarding related fees, expenses and investment options under the plan.
Understanding the final rule is critical so that employers can respond to anticipated questions or complaints from plan participants and in order to justify, from a fiduciary standpoint, the fees, expenses and investments offered under the employer's plan.
(For a related topic please see our recent Employee Benefits Alert on the interim final rule on fees and other information that service providers must disclose to plan fiduciaries.)
The final rule establishes specific disclosure requirements so that participants in participant-directed plans receive, in an accessible and consistent format, the following information:
- General Plan Information: Information on the structure and mechanics of the plan. For example, an explanation of the process for giving investment instructions under the plan, a current list of the investment options offered under the plan, and a description of any arrangement that enables the selection of investments beyond those offered under the plan (such as "brokerage windows").
- Administrative Expenses Information: An explanation of any fees and expenses for general plan administrative services that may be charged or deducted from all individual accounts. For example, fees and expenses for legal, accounting, and recordkeeping services.
- Individual Expenses Information: An explanation of any fees and expenses that may be charged to or deducted from the individual account of a participant or beneficiary. For example, fees and expenses for plan loans and for processing qualified domestic relations orders.
This plan-related information must be given to participants on or before the date they are first eligible to make investment decisions under the plan, and each year following. In addition, participants must receive, at least quarterly, a statement showing the dollar amount of any plan-related fees and expenses (whether "administrative" or "individual") actually charged to or deducted from their individual account, along with a description of the services for which the charge or deduction was incurred. These specific disclosures may be included in quarterly benefit statements sent to plan participants.
- Performance Data: Specific information about historical investment performance, including, for investment options that do not have a fixed rate of return, the average annual total return (expressed as a percentage of the investment over 1-, 5- and 10-year periods, and for investment options that have a fixed rate of return, the annual rate of return and the term of investment.
- Benchmark Information: For investment options that do not have a fixed rate of return, the name and returns of an appropriate broad-based securities market index over 1-, 5- and 10-year periods (matching the Performance Data periods).
- Fee and Expense Information: For investment options that do not have a fixed rate of return, the total annual operating expenses (expressed as a percentage of assets and as a dollar amount) and any shareholder-type fees or restrictions on a participant's ability to purchase or withdraw from the investment. For investment options that have a fixed rate of return, any shareholder-type fees or restrictions on the participant's ability to purchase or withdraw from the investment.
- Internet Web Site Address: An internet web site address that is sufficiently specific to provide access to specific additional information about the investment options for participants or beneficiaries who want supplemental or more current information.
- Glossary: A general glossary of terms to assist participants and beneficiaries in understanding the plan's investment options, or an internet web site address that is sufficiently specific to provide access to such a glossary.
This investment-related information must be given to participants on or before the date they are first eligible to make investment decisions under the plan, and each year following. This information must be furnished in a chart or similar format designed to facilitate a comparison of each investment option offered under the plan. In this regard, the final rule contains a Model Comparative Chart which may be completed and used by a plan administrator to satisfy this comparative format requirement.
Under the final rule, plan administrators are protected from liability for the completeness and accuracy of information provided to participants if the plan administrator reasonably and in good faith relies upon information provided by a service provider.
Although effective December 20, 2010, the final rule is not applicable until the first plan year beginning on or after November 1, 2011. For calendar-year plans, therefore, the final rule is not applicable until January 1, 2012.
If you have any questions about the final rule, please contact Jim Karas or Amanda Albert of Riker Danzig's Employee Benefits and Executive Compensation Group.