By: Juhl Stoesz, Associate Counsel, TSC
On July 15th, the Department of Labor (DOL) announced that final deadlines had been set for compliance with the new disclosure rules under ERISA §§408(b)(2) (service provider disclosure) and 404(a)(5) (disclosure to participants). According to the announcement, the effective dates for these two disclosure rules will now be more closely aligned. The service provider disclosure rules are now scheduled to go into effect on April 1, 2012 with the disclosures for participants becoming effective either May 31, 2012, or 60 days after the first day of the plan year beginning on or after November 1, 2011 (whichever is later).
The DOL’s New Disclosure Initiatives
As 401(k) plans increasingly become the primary source of retirement income for American workers, the U.S. Department of Labor’s Employee Benefits Security Administration (hereinafter referred to as the “DOL”), the agency charged with regulating private retirement plans, has turned its focus towards creating more transparency and consistency around the operation and arrangements of private retirement plans. The DOL believes that to better-prepare workers for retirement, plan participants, sponsors, and the DOL itself need to receive and evaluate more specific information regarding plan arrangements. To that end, the DOL has recently launched three distinct disclosure initiatives. In doing so, the DOL has relied on its authority to implement standards and requirements for plan fiduciaries along with its ability to issue regulations and exemptions under ERISA’s prohibited transaction rules – namely that arrangements and fees must be reasonable. While TSC is focused on this issue and is committed to helping you comply with the new requirements, it is important that you, as the sponsor of a private retirement plan, be aware of the coming changes.
- Service Provider Disclosure – to employers (408(b)(2)): On July 16, 2010, the DOL published an interim final regulation under ERISA §408(b)(2) that requires most service providers for retirement plans to disclose to plan fiduciaries comprehensive information about their arrangements with the plan including information regarding fees and possible conflicts of interest. This regulation, which is now scheduled to go into effect beginning on April 1, 2012, would require that service providers describe in writing (1) the services that they intend to provide to the plan, (2) whether the service provider intends to assume a fiduciary role with respect to the plan, and (3) the costs and fees associated with the provision of services. The DOL intends that plan sponsors use this information to evaluate the reasonableness of the arrangement and the fees paid to the service provider. You should expect to receive these disclosures from service providers by early 2012. Once you receive these disclosures, you should use them as a tool to evaluate the various service providers for your plan.
- Participant Disclosure – from the employer to participants (404(a) participant disclosures): On October 20, 2010, the DOL published in final form a participant fee disclosure regulation under ERISA §404, requiring that employers sponsoring retirement plans provide disclosures containing information regarding plan and investment costs to participants who direct their own investments. This regulation will be effective either May 31, 2012, or 60 days after the first day of the plan year beginning on or after November 1, 2011 (whichever is later). The regulation requires two types of disclosure to participants (1) plan-related information and (2) investment-related information.
Plan-Related Information
Plan-related information must include general investment information, a description of administrative expenses, and a description of individual expenses. The general plan information and expense descriptions must be provided to participants before they can initially direct their accounts and annually thereafter. Information regarding actual fees and expenses paid from the participants’ accounts must be provided quarterly.
Investment-Related Information
Investment-related information must be provided to participants before they can initially direct their accounts and annually thereafter and must be provided in a chart format. The information contained in this disclosure must include the name and type of each investment alternatives under the plan, its historical performance data, fund benchmark information, and a description of the fees associated with the investment.
In most cases, your investment platform provider will provide you with the information and/or disclosures needed to comply with this requirement. TSC is also preparing to assist its clients in meeting this new participant disclosure requirement.
Government Reporting Disclosure – from employers to the DOL (Form 5500 Schedule C reporting)
On November 16, 2007, the DOL published a final regulation providing new requirements for reporting service providers and their fees to the DOL by listing them on the Schedule C of the Form 5500. This information was required to be reported by large plans beginning in 2009. Importantly, only large plans, generally those with over 100 participants at the beginning of the plan year, must comply with this reporting requirement. The regulation also requires that service providers who received $5,000 in fees during the year report to large plan sponsors the amount of direct, indirect, and bundled compensation that they received. The plan sponsor must then list the name of the service provider and its fees on Schedule C to the Form 5500. TSC has been assisting its clients meet this disclosure requirement since it was first required in 2009 and will continue to provide this assistance.
This article is only intended to give you a brief overview of three new and complex requirements and does not attempt to explain the details of each requirement. It is our hope that this article will familiarize you with the changing regulatory landscape so that the impending changes will not come as a surprise. Again, TSC is well-versed in the new regulations and is committed to helping you maintain compliance. If you have any questions regarding any of these new regulations, please contact your TSC Retirement Plan Administrator.
- Juhl Stoesz, Associate Counsel, TSC
Need more information? Contact:
Matt Slyter, QKA
Vice President, Operations
TSC
direct: 952.806.4329
matts@tsc401k.com
www.tsc401k.com
Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.
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