The Pension Protection Act Blog

On July 22, 2008, the Dept. of Labor released new proposed regulations on fiduciary requirements for disclosures in participant-directed individual account plans effective for plan years beginning after January 1, 2009. Participant-directed Individual account plans are plans such as 401(k) plans where each participant has an account which they can select how they want invested. Specifically, these proposed regulations require disclosures regarding fees and expenses, and contain specific timing requirements for providing the information to participants and beneficiaries.

Within these proposed regulations, the DOL created 4 separate categories of information which must be disclosed to participants and beneficiaries – general plan information, administrative expense information, individual expense information, and investment-related information. For each category of information disclosures, the DOL has also imposed timing requirements for the disclosures. Additionally, for each category, the DOL is suggesting whether the required disclosures can be made in the summary plan description, the quarterly benefit statement, or on a separate disclosure form.

General Plan Information

Before the date an individual becomes eligible to become a participant or beneficiary under the plan, the plan sponsor must provide information on how participants and beneficiaries may give investment instructions, including specified limitations such as restrictions on transfers to or from a designated investment alternative; how the exercise of voting, tender or similar rights in a designated investment alternative will occur, what the specific designated investment alternatives offered under the plan are; and who the designated investment managers are to whom participants and beneficiaries may give investment directions. This information can be provided to participants and beneficiaries in the summary plan description. Material changes to this general plan information must be furnished to participants and beneficiaries no later than 30 days after the date such changes are adopted by the plan.

Administrative Expense Information

Before the date an individual becomes eligible to become a participant or beneficiary, and at least annually thereafter, they must be provided with an explanation of any fees and expenses for plan administrative services, such as legal, accounting, and recordkeeping services to the extent that such fees may be charged against, or affect the balance of, the individual accounts of participants and beneficiaries. The DOL states that the intent behind this requirement is to ensure that the plan fiduciary informs all participants and beneficiaries about the plan’s day-to-day operational expenses which will be charged against their accounts.

Additionally, at least quarterly, participants and beneficiaries must be furnished with statements containing the dollar amounts actually charged during the preceding quarter to their accounts for administrative services along with a general description of the services to which the charges relate. This information can be combined, and included, with the quarterly benefit statement provided to participants and beneficiaries pursuant to ERISA section 105(a)(1)(A)(i). The DOL states in these proposed regulations that it does not believe that it is necessary, or particularly useful, for participants to have administrative charges broken out and listed on a service-by-service basis.

Individual Expense Information

Information about expenses which might be assessed on an individual-by-individual basis, such as expenses related to a qualified domestic relations order, a participant loan, or investment advice services, can be disclosed in the plan’s SPD. When an individual expense is actually assessed against a participant’s or beneficiary’s account, that information may be disclosed in a quarterly benefit statement .

Investment-Related Information

For investment-related information, the DOL is proposing a number of specific requirements, including providing information to participants and beneficiaries in a chart or similar format which allows straightforward comparison of the plan’s designated investment alternatives. The DOL has also provided a model disclosure form.

Next week, I will be discussing these proposed regulations in detail in QPC’s live web seminar, “The DOL’s New Proposed Fee Disclosure Regulations”, on July 29th at 11am ET and again on July 31st at 2pm ET. As part of that live web seminar, my company will be distributing our comprehensive guide to these proposed fee disclosure regulations.

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