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DISCLAIMER: This blog is published for general information only - it is not intended to constitute legal advice and cannot be relied upon by any person as legal advice.  U.S. Treasury Regulations require us to notify you that any tax-related material in this blog (including links and attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties, and may not be referred to in any marketing or promotional materials.  While we welcome you to contact our authors, the submission of a comment or question does not create an attorney-client relationship between the Firm and you. 

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Participant-Level Fee Disclosure for ERISA and Non-ERISA Plans

After our recent post on the fiduciary-level fee disclosure rules under ERISA Section 408(b)(2), we wanted to complete the picture for plan fiduciaries by revisiting the participant-level fee disclosure rules under ERISA Section 404(a).  These rules require fiduciaries of participant-directed individual account plans (such as 401(k) and 403(b) plans) to periodically disclose certain plan- and investment- related information to plan participants, beneficiaries, and eligible employees (without regard to whether an eligible employee has actually become enrolled in the plan).  The rules were finalized in July, 2011 and are effective for the first plan year on or after November 1, 2011 (January 1, 2012 for calendar year plans). 

Non-ERISA plans are not required to comply with these disclosure obligations, though it may become a best practice to do so.  More on that later.

Plan-Related Disclosures       

Plan administrators must provide the following on or before the date a participant (including an eligible employee who is not enrolled in the plan) or beneficiary can first direct investments, annually thereafter, and quarterly as noted:

  • General plan information regarding investment options, instructions, and limitations;
  • Explanation and quarterly statement of administrative fees and expenses, including revenue-sharing arrangements; and
  • Explanation and quarterly statement of individual fees and expenses.        

Recipients must be notified of any change in plan-related information 30 to 90 days before the change’s effective date.

Investment-Related Disclosures

Plan administrators must provide the following, in chart format (the regulations include a model), on or before the date a participant (again, including an eligible employee who is not enrolled in the plan) or beneficiary can first direct investments and annually thereafter: 

  • Identifying information for each investment alternative;
  • Performance data and benchmarks, fee and expense information, and updated website;
  • Glossary of investment terms; and
  • If applicable, other information on annuity options, qualifying employer securities, etc.

Timing and Form

Initial disclosures must be furnished by the later of 60 days after the fiduciary-level disclosure effective date (August 30, 2012 for calendar year plans) or 60 days after the participant-level disclosure applicability date.  The initial disclosure may be placed in the most recent annual disclosure, and plan-related disclosures may be included in an SPD or individual benefit statement.  Disclosures must be based on the latest information available to the plan. 

Although plan administrators are ultimately responsible for providing the disclosures, much or all of the disclosure material may be furnished by service providers.  Plan administrators should carefully review service provider materials for compliance with the regulation.

One final note regarding the voluntary disclosure of plan- and investment- related information by non-ERISA plans.  Some have warned that disclosures by non-ERISA plans would be subject to the requirements of Rule 482 of the Securities Act of 1933 (governing advertising and marketing).  This concern is based on an SEC no-action letter, coordinated by the SEC and DOL in response to questions from plan administrators and financial service providers regarding their obligations under ERISA and Rule 482, which does not specifically address non-ERISA plans.  We hear that industry groups have requested clarification regarding this issue.  Until the matter is resolved non-ERISA plan administrators might wish to hold off complying with the new rules.

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