By Darcy Norville
New Department of Labor (DOL) rules go into effect in 2012 that will require administrators of participant-directed 401(k) and other ERISA plans to provide each plan participant or beneficiary with certain plan-related and investment-related information, including information about the fees that investment advisers and other plan service providers charge. Initial disclosures must be furnished no later than 120 days after the start of the plan year that begins on or after November 1, 2011. For calendar year plans, this means that the initial disclosures must be provided no later than April 30, 2012. The DOL delayed the applicability date of these new rules to coordinate with the new service provider fee disclosure rules, which go into effect January 1, 2012.
The new disclosure obligations may increase plan sponsors’ scrutiny of the fees being charged by investment advisers and other plan service providers.
The following plan-related information must be furnished to participants by the effective date (April 30, 2012 for calendar year plans) or, if later, on or before the date they can first direct their investments, and then again annually thereafter:
- General Plan Information – The structure and mechanics of the plan, such as how to give investment instructions, a current list of the plan’s investment options, and a description of any “brokerage windows” or arrangements that enable participants to select investments beyond those designated by the plan.
- Administrative Expense Information – An explanation of any fees and expenses for general plan administrative services that may be charged to all individual accounts, such as fees for investment advice, recordkeeping, legal and accounting services.
- Individual Expenses Information – An explanation of any fees and expenses that may be charged to the individual account of a particular participant based on actions taken by the participant, such as loan fees or fees for processing domestic relations orders.
At least quarterly, participants must be provided with statements of actual charges showing the dollar amount of the plan-related fees and expenses (whether “administrative” or “individual”) actually charged to their individual accounts, along with a description of the services for which the charge was made. Calendar year plans must furnish the first quarterly statements no later than May 15, 2012.
Investment-related information, which must be furnished to participants on or before the effective date or, if later, the date they can first direct their investments, and then again annually thereafter, must be in the form of a chart or similar format that enables participants to compare each investment option available under the plan. The DOL published a model format that can be used to provide the required investment-related information. The investment-related information that must be furnished includes:
- Performance data – One-, five-, and ten-year returns must be provided for investment options that do not have a fixed rate of return. If an investment option has a fixed or stated rate of return, the annual rate of return and the term of the investment must be disclosed.
- Benchmark information – For each investment option that does not have a fixed rate of return, the plan administrator must disclose the name and returns of an appropriate broad-based securities market index over one-, five-, and ten-year periods.
- Fee and expense information – Any shareholder-type fees or restrictions on the participant’s ability to purchase or withdraw from the investment must be provided. For investment options that do not have a fixed rate of return, other information that must be disclosed includes the total annual operating expenses expressed as a percentage of assets and as a dollar amount for each $1,000 invested.
For more information about the participant-directed plan disclosure rules, please contact Darcy Norville (darcy.norville@tonkon.com, 503-802-2036) or another member of the Financial Services Practice Group.
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