Department of Labor Provides Flexibility for Annual Participant Fee Disclosure
March 31, 2015
The U.S. Department of Labor (“DOL”) announced on March 18 that it is providing more flexibility with respect to the timing of the provision of the annual participant fee disclosure required under DOL Regulation section 2550.404a-5 (404a-5) for qualified retirement plans that permit plan participants to direct their investments in the plan. The DOL will amend its definition of ‘at least annually’ for this purpose to mean a 14 month period rather than a 12 month period. The regulation previously defined ‘at least annually’ as ‘at least once in any 12 month period’ (365 days as typically defined by the DOL). This allows plan sponsors and plan administrators the flexibility to provide the disclosure at approximately the same time each year rather than have to be concerned that they have provided the disclosure at least once in the last 12 months.
The final 404a-5 regulation applies to the plan administrator (typically the plan sponsor) of “covered individual account plans,” which means any participant-directed individual account plan that is subject to ERISA except employer-sponsored, ERISA covered plans such a SEP and SIMPLE plans that are funded by individual retirement accounts.
The first annual disclosure under the 404a-5 regulation was required to be provided by August 30, 2012. The required disclosures include plan-related information such as general plan information, administrative expense information, and individual expense information. The information related to plan investments that must be disclosed includes performance data, benchmark information, fee and expense Information, an internet web site address for participants to obtain more information, and a glossary of terms used in the disclosure. A covered participant includes those employees who are eligible to contribute to the plan, but who are not currently making contributions and accordingly may not have an account balance in the plan.
The new regulation, which was issued as a final regulation, is effective June 17, 2015. However, the DOL stated that plan sponsors may rely on the new rule immediately if they believe it will benefit the plan’s participants and beneficiaries.
The new regulation gives plan sponsors and administrators additional flexibility for the timing of the disclosure each year and more importantly will help them avoid unintentional violations of the requirement to provide the disclosure at least annually simply due to issuing the disclosure on the same day each year or during the same week each year, which could be beyond the prior regulations 12 month period (365 days).