New Fee Disclosure Regulations: What Plan Sponsors Need to Know

September 9, 2011, 2:58 PM

The benefits community has been awaiting major changes to the rules governing disclosure of plan-related fees for several years, but it has taken some time for final regulations to take shape. The Department of Labor in 2010 issued provisional regulations that were originally scheduled to go into effect on July 16, 2011, but the compliance deadline was recently extended into the 2012 plan year. It is likely that additional changes to the proposed rules will be made prior to the effective date.

Sponsors of 401(k) plans, 403(b) plans, and other plans that permit individual investment direction should be aware that beginning in mid-2012, several new categories of information relating to plan investments and fees will need to be disclosed for the first time. The required disclosures will most likely be combined into two separate documents, one that is provided at enrollment then annually thereafter, and one that is provided in the form of quarterly statements.

General Plan Information This disclosure must be provided to participants before they enroll in the plan and at least annually thereafter. This notice:
  • describes the method of giving investment directions;
  • discloses the investment alternatives and any brokerage windows or similar arrangements;
  • describes all applicable administrative expenses and the manner of allocation among participant accounts;
  • includes various other pieces of required language; and
  • contains a table disclosing detailed fee and performance information related to each available investment alternative.
Quarterly Fee Disclosure This disclosure must be provided on a quarterly basis (with an annual summary once each plan year) to each participant, disclosing all fees actually charged to the plan in general (e.g., administrative record-keeping fees) or to the participants account in particular (e.g., fees to process loans or QDROs), including fees charged indirectly through funds by means such as 12b-1 fees or revenue sharing arrangements.
At present, compliance with these rules would be difficult if not impossible since some of the information required to be included in the notice (such as 12b-1 or revenue sharing fees) is currently hard to come by. Before the participant disclosure rules go into effect, however, the new regulations will require investment companies and other service providers to provide detailed disclosure to plan sponsors containing all required information. This will make the task of drafting these new disclosures much less daunting.

The general compliance deadline for these new disclosure rules has been postponed until April 1, 2012. The initial participant disclosure must be made no later than May 31, 2012, and quarterly statements must commence no later than August 14, 2012. Plan sponsors should plan accordingly as a good deal of effort may be required to produce the first round of disclosures. Specifically, plan sponsors should soon begin the process of inventorying all plan-level fees and expenses; communicating with service providers to ensure receipt of necessary fee information; and drafting form disclosures that comply with the final regulations, with specific data for each fund to be provided as it becomes available.

The members of our Employee Benefits Practice Group stand by to assist with the drafting of these new disclosures and to answer any questions you may have. --Shad C. Fagerland