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What are the “participant fee disclosure” rules that I keep hearing about?

Posted on Mar 30, 2012 by  in Changes in the Law: What You Should Know, Retirement Plans for Business

This is the second part of a two-part series on the U.S. Department of Labor’s (DOL) new fee disclosure initiatives. 

Like the 408(b)(2) “service provider disclosure” rules discussed in part one of this series, the participant fee disclosure rules are an important piece of the DOL’s initiative to create more transparency and consistency around the operation of employer-sponsored retirement plans.  Basically these participant disclosure rules require that employers provide written disclosures containing information regarding plan and investment costs to all participants who can direct their own investments. This rule will be effective August 30, 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.  The first such initial or annual notice must be provided to participants on or before the date the rule becomes effective (the later of August 30, 2012 or 60 days after the first day of the plan year beginning on or after November 1, 2011).  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.  Again, the first  such initial or annual notice must be provided to participants on or before the date the rule becomes effective (the later of August 30, 2012 or 60 days after the first day of the plan year beginning on or after November 1, 2011).  This investment-related information must be provided in a chart or similar format (the DOL has developed a model comparative chart for this purpose).  The information contained in this disclosure must include the name and type of each investment alternative under the plan, its historical performance data, fund benchmark information, and a description of the fees associated with the investment.  Finally, participants must also have access to an internet website where they can obtain additional information regarding each investment alternative.  Because of the detailed nature and complexity of this investment-related information it will have to be developed and provided by the institution or company that handles the investments for the plan.

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