A Summer Present from the Regulators: What You Should Know

On July 22, the Department of Labor provided last-minute relief for the second round of annual participant-level fee disclosure, which must be distributed to retirement plan participants with participant-directed account options, e.g., 401(k) and profit-sharing plans. This news came as a welcome development to the retirement community–plan sponsors and retirement professionals alike.

Background

Participant fee disclosure regulations, which came into effect in 2012, required that plan sponsors annually provide certain plan and investment-related information to their plan participants by the end of August 2012. That disclosure has been referred to as the “initial” fee disclosure notice. Subsequently, participants had to receive that notice at least once every 12 months; therefore, the second notice had to be given sometime before August 31, 2013 for most plans. The industry responded by pointing out to the DOL that, because distribution of this mandatory disclosure did not coincide with the timing of other required participant notifications, it created additional operational and financial burdens on plan sponsors and providers. As a result, its effectiveness was likely diminished. The retirement community requested that the DOL reset the timing for participant-level fee disclosure to work in synch with other information participants are already required to receive.

DOL Responds

The DOL provided a one-time reset opportunity by allowing the investment-related information for 2013 to be provided within 18 months from the time the initial disclosure document was provided. This gives plan sponsors an opportunity to align their investment fee disclosure with other annual notices. For example, if a plan provided its initial participant-fee disclosure information on August 5, 2012, it now has until February 5, 2014 to distribute this document and can time it with notices typically provided in November or December. Under the old rule, the discourse would have had to be provided by August 5, 2013.

What Does an Annual Notice Contain?

Plans that allow participants to self-direct their investments are required to disclose the following information:

• Plan-related information: general plan information, administrative expense information, and individual expense information
• Investment-related information: performance, benchmarking, fee and expenses, Internet Web access to investment-related information, and a glossary of investment-related terminology

Notice Preparation and Distribution

Typically, investment platform providers assist in the preparation and, sometimes, distribution of these notices. That said, many providers chose to make the notice available to retirement plan sponsors, leaving the task of distribution in plan sponsors’ hands. In circumstances when a provider assists in notice distribution or makes the notice available online, it’s important to make sure that all eligible participants receive this disclosure, regardless of whether they have an account balance or not.

The table below shows a sample list of investment platform providers and how they assist with notice distribution:

Steps to Consider, if…

The 2013 disclosure has already been provided: Plan sponsors may reset the deadline next year to align with other notices, as long as they are provided no later than 18 months after the date the 2013 disclosure was distributed.

The 2013 disclosure has not yet been provided: Plan sponsors may adjust the timing of notice distribution to align with other year-end participant notices as long as it is completed within the 18-month timeframe from the initial disclosure date.

On the Radar

We are continuing to monitor the DOL guidance as it relates to this and other important topics. The regulators indicated that they are considering giving additional flexibility in the timing of participant-level fee disclosure. We will communicate any new developments via bulletins and in the course of our ongoing consulting interactions.

If you have any questions, please do not hesitate to contact your Retirement Services subject matter experts at (888) 926-0600 or pensions@firstallied.com .