Michael Del Conte, Employee Benefits Law Specialist with the Office of Regulations and Interpretations in the Division of Regulations, noted a plan sponsor may use providers’ assistance with providing participants fee information and explained under the innocent fiduciary provision of the regulations, the sponsor will not be held liable for incomplete or inaccurate information provided by a service provider if the sponsor used the information reasonably and in good faith in disclosures to participants.
In addressing the question of whether a sponsor must integrate investment information from different vendors in a single chart, or if it can use separate charts, Del Conte said the preamble of the regulations has a fairly lengthy discussion on this. He noted that nothing in the regulations itself requires the comparative chart to be laid out in certain way. The model provided by the DoL lays the information out by asset type, but sponsors can lay them out by provider. The key is to present it in whatever way is best for participants, Del Conte said, but he added vendors cannot send their own charts to participants separately, all charts must arrive at the same time in the same envelope, and they also must be comparable.
In addressing wrap fees – a charge put on top of fees for investments to pay for other services – Del Conte says he has seen charges added to underlying investment fees to give a total annual investment expense to participants, but they also can be reported separately as administrative fees.
For the Web site required by the regulations to be provided for participants, Del Conte said a plan can set up its own Web site, which includes content from other sources, or a third party can set up the Web site.
Jeffrey J. Turner, Acting Deputy Director of the Office of Regulations and Interpretations, explained if there is a change in plan-related information after the disclosure is made, sponsors must notify participants at least 30 and no more than 60 days from the change. For investment-related information, the requirement is at least 30 and no more than 90 days.
Turner noted brokerage windows are not subject to investment-related disclosures but are subject to expense disclosures, which includes the general cost of setting up of the brokerage window, an annual fee, plus commissions.
Turner told attendees the comparative chart model provided by the DoL is not required, but if used, the sponsor will be considered compliant with the required format.
On the selection of benchmarks for the plan funds, Turner noted if the fund tracks a major index, selection of the benchmark is easy, but if the fund holds a combination of asset types, as long as the plan sponsor complies with the general benchmarking requirement, it is not precluded from including other benchmarks, blended in same ratio with fund, to match the composite.Turner added the regulations include detail on benchmarking for annuities and fixed income products.
Summary of Requirements
The speakers for the DoL Webcast explained under the participant fee disclosure regulations, there are two types of disclosures: automatic and on-request. Automatic disclosures must be provided annually and at least quarterly. There are two types of annual disclosures: plan-related information and investment-related information. Investment-related information must be provided on or before date of first ability to direct investment and at least annually thereafter.
Plan-related disclosures must include:
- General plan operational and identification information;
- Explanation of administrative expenses (e.g., legal, accounting, recordkeeping);
- Explanation of individual expenses (e.g., fees for processing loans or QDROs)
- Circumstances under which participants and beneficiaries may give investment instructions;
- Limits/restrictions on transfers;
- Plan provisions on voting, tender, and similar rights;
- Identity of designated investment alternatives and managers;
- Description of any brokerage window, self-directed brokerage account or similar arrangement;
- Explanation of any administrative expenses which may be charged on a plan-wide basis against participants’ and beneficiaries’ accounts;
- Basis on which such charges will be allocated among accounts (e.g., pro rata, per capita); and
- Explanation of any individual expenses which may be charged against a participants’ or beneficiaries’ account.
Investment-related information should be provided regarding each designated investment alternative, but not investments selected through a brokerage window. It must include information essential for workers to consider in evaluating their investment choices, not just fee and expense information. It must be in a comparative chart or similar format. A model comparative chart is in the appendix to the regulations.
Investment-related information should include:
- Performance data (1, 5, 10 years);
- Benchmark returns over comparable periods;
- Fee and expense information;
- Total annual operating expenses;
- Shareholder-type fees;
- A glossary; and
- A Web site address that is sufficiently specific to provide access to objectives and goals, principal strategies and risks, portfolio turnover rate, updated performance data, and fee and expense information.
Additional details on the comparative chart should include the date of chart, shown prominently; how to obtain free paper copies of information required to be on Web sites; and contact information for plan administrator or designee.
At least quarterly, sponsors must provide a statement of fees actually charged against participants’ or beneficiaries’ accounts, and if applicable, explanation of payment of a plan’s administrative expenses from annual operating expenses of designated investment alternatives. This information may be combined with quarterly benefit statements.
Disclosures that must be provided on request include prospectuses or similar documents for investments not registered with the Securities and Exchange Commission (SEC); financial statements or reports, if provided to the plan; and a statement of the value of a share or unit in each designated investment alternative and valuation dateThe DoL will allow plan sponsors to provide information required under the final participant disclosure rule electronically, including through the use of Web sites, if certain conditions and safeguards are met (see "DoL Will Allow for Electronic Disclosure to Participants").
The DoL Webcast noted that the applicability date of the participant fee disclosure regulations is the first day of plan year that begins on or after November 1, 2011. For calendar year plans, that means they would be applicable on January 1, 2012.
The DoL has published special Transition Rules (see "DoL Extends Applicability Dates for Fee Disclosure Rules"), which provide that initial disclosures may be made by the later of 60 days after the plan’s applicability date or 60 days after the effective date of the regulations. The first quarterly disclosures may be made no later than 45 days after the end of the quarter the initial disclosures are furnished.
For example, with calendar year plans the first comparative chart must be furnished by May 31, 2012, and the first quarterly disclosure must be furnished by August 14, 2012.To view a recording of the Webcast, visit https://s3.amazonaws.com/si-interactive/prod/planadviser-com/wp-content/uploads/2017/10/03193441/Bettinger.htm?e=351703&s=1&k=34CA2A6FC7D964DC7E44A921C8EC0480.