The August 30 Deadline For Distributing Participant Fee Disclosures Is Upon Us: What To Do Next
The August 30, 2012, deadline for distributing the newly required fee disclosures to participants in most qualified retirement plans (such as 401(k) plans, 403(b) plans, and profit sharing plans) is just around the corner.
To read this Alert in pdf, click here.
In April, we sent out a client Alert summarizing these new Department of Labor requirements, which apply to most qualified plans that allow participants to direct their own investments. That Alert can be found here. By August 30, 2012, most plans subject to these new mandates must provide their participants with a wide array of paperwork detailing the investment alternatives offered by the plan as well as the specific administrative- and investment-related fees and expenses that may be charged (directly or indirectly) to participants’ accounts.
For these plans – and, for that matter, all qualified retirement plans – another critical date was July 1, 2012. That date represented the deadline by which entities providing services to a qualified plan had to provide detailed written disclosures to the plan’s fiduciaries about the various services they perform for the plan and the compensation they receive for doing so. The July 1 service provider disclosures are essential to plan fiduciaries as they evaluate whether their service provider arrangements are reasonable. They are also critical to plan fiduciaries that are subject to the participant fee disclosure mandates, because much of the information in the service provider fee disclosures will be necessary to complete the participant fee disclosures that must be distributed by most plans no later than August 30.
We understand that some of you may be struggling over what to do with what may be a large pile of paperwork that you have received from your service providers. You are not alone. The task of evaluating these materials is a complex one, and the issues can be tricky for even the most sophisticated benefits specialist. Therefore, in the attached Memorandum, we have attempted to make your life a little easier by outlining some key steps to help you fulfill your legal responsibilities as a plan fiduciary under the new federal regulations. In conjunction with our April 2012 Alert, this new Memorandum identifies five key steps that plan fiduciaries must take immediately to ensure that the plans they administer are in full compliance with all of the new participant fee disclosure regulations.
Very briefly, the five key steps are as follows:
1. Identify the Plan’s Covered Service Providers. Only “covered” service providers are required to provide fee disclosures to the plan.
2. Determine Whether the Service Provider Fee Disclosures Are Adequate. The fee disclosures should include sufficient information to allow the plan fiduciary to do the following:
- Evaluate the reasonableness of the service provider’s pricing;
- Identify any conflicts of interest; and
- Satisfy the requirements for the participant fee disclosures (which are described in detail in our April 2012 Alert).
3. Act Promptly If the Service Provider Fee Disclosures Have Not Been Provided or Are Insufficient. The plan fiduciary is required to take specific action if any service provider fee disclosures are incomplete, erroneous, or not provided at all. Failure to follow the prescribed steps will be regarded by the Department of Labor as a breach of fiduciary duty.
4. Evaluate the Reasonableness of the Covered Service Provider’s Fees. All of the fees must be “reasonable” – the meaning of which varies depending on the specifics of the plan.
5. Prepare and Distribute the Participant Fee Disclosures. The plan fiduciary (which is typically the employer acting as plan administrator) is legally responsible for preparing and distributing the participant fee disclosures. For most plans, including calendar year plans, the deadline for distributing the participant fee disclosures is August 30, 2012.
These steps are explained in more detail in the accompanying Memorandum we have prepared. We strongly urge you to read this Memorandum by clicking here.
If you have any questions regarding the service provider fee disclosures or the participant fee disclosure requirements, please feel free to call Eric Namee, Brad Schlozman, or Steven Smith at (316) 267-2000.