New Participant Fee Disclosure Regulations: Major New Burden Is Right Around The Corner
For the last four years, the Department of Labor (“DOL”) has been ratcheting up the amount of information that must be disclosed regarding the administrative operations and expenses of qualified retirement plans. While the DOL’s intentions may be noble – enhancing the transparency of the fees that such plans incur and the impact of those fees on participants’ individual accounts – the burden and expense of complying with these new significant disclosure obligations is not to be minimized.
(To read in PDF format, click on New Qualified Plan Participant Fee Alert.)
The new participant fee disclosure regulations will soon impose significant reporting requirements on every participant-directed individual account plan that is subject to ERISA. This includes 401(k) plans, 403(b) plans, and many profit sharing plans.
The regulations mandate that all participants be provided with annual and quarterly disclosures from the plan describing certain general plan information as well as the expenses that may be (or have been) charged to their accounts as part of plan administration costs, investment fees, and other individual expenses. Much, if not all, of this information will reside solely with the plan’s service providers (e.g., recordkeeper, investment fund, etc.). However, the regulations place ultimate responsibility for the required disclosures on the plan administrator (which, in most cases, is the plan sponsor/employer).
Meanwhile, the penalty for failing to comply with these new obligations is that the plan administrator will be deemed to be in breach of its fiduciary responsibilities. This can invite participant lawsuits, DOL enforcement actions, and a host of other unpleasantries.
The first required disclosures under the new regulations are currently slated to be distributed no later than August 30, 2012. Although it is possible that the DOL will extend the effective date, there is no guarantee that this is going to happen.
There is a significant amount of work that every plan administrator must do before the participant fee disclosure regulations kick in. Plan administrators will want to familiarize themselves with all of the new disclosure obligations and work closely with the plan’s service providers to determine who will take responsibility for ensuring that the disclosure requirements are met. This should include a thorough review of the administrative services agreement that is currently in place with the service provider.
It is a virtual certainty as well, that participants will have questions about the fees and expenses that are being charged to their individual accounts once this information is disclosed for the first time. Plan administrators who are prepared for these questions will save themselves time, money, and aggravation.
These requirements, and the plans they apply to, are explained in more detail in the accompanying Memorandum we have prepared. We strongly urge you to read this Memorandum.
If you have any questions regarding the impact of participant fee disclosure regulations, please feel free to call Eric Namee, Brad Schlozman, or Steven Smith at (316) 267-2000.