Update: The Final DOL Disclosure Initiatives

The U.S. Department of Labor (DOL), the agency charged with regulating private retirement plans, has recently increased its focus on creating more transparency and consistency around the operation and arrangements of private retirement plans.  In an effort to meet that goal, the DOL has launched several distinct disclosure initiatives.  Two of those initiatives, the 408(b)(2) service provider disclosure rules and the 404(a) participant disclosure rules, have been in the works for several years, but until recently, did not have final effective dates.  On February 2, 2012, the DOL announced the release of the long-awaited final 408(b)(2) service provider disclosure rules.  In addition to finalizing these regulations, the announcement also provided new effective dates for both the 408(b)(2) service provider rules and for the 404(a) participant disclosure rules.

1. Service Provider Disclosure (408(b)(2))

The service provider disclosure rules issued under ERISA § 408(b)(2) require 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 rule, which is now scheduled to go into effect beginning on July 1, 2012, requires 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.  Once you receive these disclosures, you should use them as a tool to evaluate the various service providers for your plan.  Most of TSC’s clients have a service and fee agreement for our services that already complies with the requirements.  We have identified a small group of clients who may need additional information to achieve full compliance.  TSC will send those clients new disclosure documents in the form of a new service and fee agreement.  We expect to have these to our clients in the next few months, well in advance of the effective date.

2. Participant Disclosure (404(a))

The participant disclosure rules issued under ERISA § 404 require 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 August 30, 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.

TSC will support its clients by coordinating with their recordkeeper / investment providers to help ensure that employers have the information that they need to provide to their employees and other plan participants.  The specific format and content of this disclosure will depend on the structure of the plan and the materials available from the plan’s investment provider.