Second, before a participant or beneficiary can first direct investments, and at least annually thereafter, he or she must be given an explanation of plan administrative expenses (e.g., accounting, recordkeeping and legal expenses) that may be charged to an individual plan account, and how those expenses are allocated (e.g., pro rata or per capita). At least quarterly, the participant or beneficiary is to receive a specific statement that includes the dollar amount of such administrative fees charged to the individual’s account in the prior quarter and the administrative services to which the charges relate.

 

And third, before a participant or beneficiary can first direct investments, and at least annually thereafter, he or she must be given an explanation of any individual fees and expenses (such as participant loan fees, QDRO processing fees, “brokerage window” fees and individual investment advisor fees) that may be charged against the individual account of a participant or beneficiary who incurs the fee rather than against all accounts. Here again, at least quarterly, the participant or beneficiary is to receive a specific statement that includes the dollar amount of such individual account expenses actually charged in the prior quarter and the types of individual account expenses incurred. 

 

In the case of changes in any of the plan-related information summarized above after disclosures are provided, the participants and beneficiaries are to be given an advance description of the changes within the 30- to 90-day period preceding the effective date of the change.

 

There are two sets of investment-related disclosures, one consisting of information to be distributed to participants automatically each year and the other of information to be provided upon participant request. The automatic disclosure includes historical investment performance data relating to each investment alternative available under the plan, which must be provided in a comparative, essentially side-by-side manner (the regulations include a suggested format for this presentation). The disclosure includes identifying information, such as fund name; its type or category; one, five and ten calendar years of investment performance results; one, five and ten calendar years of performance results for an appropriate benchmark; applicable fee and expense information; and any purchase, transfer or withdrawal restrictions or limitations that may be imposed. The plan administrator must also provide a website address that participants can access for additional details, and a glossary of investment-related terms (or internet access to such a glossary). 

 

The investment-related information to be provided upon request includes copies of prospectuses, copies of any other materials relating to an investment alternative that may have been provided by the investment alternative to the plan, a statement of the value of a share or unit of each investment alternative, and a list of assets held in the portfolio of each investment alternative that meets the DOL’s definition of a “plan asset,” including their value. 

 

When must these newly-required participant disclosures be made? 
This new DOL participant disclosure regulation is effective for plan years that begin on and after November 1, 2011 (therefore, for calendar year plans, they are effective January 1, 2012, subject to the transition relief described below). The general rule regarding the plan-related and investment-related disclosures described above is that they are to be provided to participants on or before the date the participant can first direct his or her investments, and then at least once per year thereafter. The individualized participant statements relating to fees charged to his or her account are required each quarter. 

 

The initial disclosures of the annually-required plan-related and investment-related information is required by the 61st day of the first plan year that begins on or after November 1, 2011 or, if later, by May 31, 2012. The initial quarterly disclosures of the fees charged to individual plan accounts are due 45 days after the end of the quarter when the plan first has to provide the annual plan-related and investment-related disclosures. Therefore, the typical calendar year plan will have until May 31, 2012 to make the initial annual disclosures, and the initial quarterly statement deadline for such a plan will be August 14, 2012. 

 

What penalties apply if the new disclosure requirements are not met? 
There is no defined and automatic monetary penalty payable to participants or the DOL if the new required disclosures are not timely or fully provided. However this disclosure obligation is a fiduciary duty imposed by the regulation on the plan administrator. A failure by the plan administrator to satisfy this obligation will open the door to legal claims by participants who suffer investment losses on grounds that the non-disclosure of the required information was a breach of a clearly-defined fiduciary duty which resulted in those losses.

 

What steps should retirement plan administrators take now to prepare for these new disclosure obligations?

Confirm whether the plan is a participant-directed individual account plan and therefore subject to these new disclosure rules. Meet with the relevant plan vendors (trustees, record keepers and third party administrators) to establish who will bear responsibility for compiling and providing the new required disclosures, and to coordinate between the plan administrator and vendors the compilation of data that will go into the required disclosures. This may require renegotiation of service provider contracts, with one or more vendors taking on this disclosure responsibility. 

 

Since employees who are eligible to participate must receive the disclosures, even if they have not as yet elected to participate, plan administrators must identify these eligible non-participants and ensure that any vendor sending disclosures has their information. 

 

Consider and settle upon a distribution method or methods that will be used for disseminating disclosures, including such alternatives as hard-copy versus electronic distribution, mail versus workplace delivery, and coordination of delivery with other already-required disclosures such as annual or quarterly account statements or summary annual reports.

 

If the plan has any unique or plan-specific investment alternatives, such as an employer stock fund or a guaranteed investment contract, the plan administrator must pay particular attention to who will take the lead in compiling the data and preparing the disclosures related to that plan-specific investment alternative. 

 

For more information, or if you have questions or require any assistance in connection with the new self-directed plan disclosure requirements, please contact a member of the Employee Benefits Group.