SPARK Asks for Flexibility on Fee Disclosures

The SPARK Institute Inc., a lobbying group for retirement plan service providers, is hoping to secure more flexibility from federal regulators regarding certain investment-related disclosure requirements.

In an open letter to John Canary, Director of the Office of Regulations and Interpretations at the Department of Labor’s Employee Benefits Security Administration (EBSA), SPARK entreats the EBSA to make permanent compliance relief measures outlined in Field Assistance Bulletin (FAB) 2013-02.

In that publication, the EBSA agreed to introduce more flexibility into compliance deadlines covered by 29 CFR § 2550.404(a)(5). The regulation requires that plan administrators disclose detailed investment-related information to plan participants and beneficiaries about the plans’ designated investment alternatives. Under the 404(a)(5) rules, covered plans operating on a calendar-year basis must furnish a comparative chart of the investment alternatives for the first time no later than August 3, 2012, and subsequently at least annually thereafter.

When the EBSA introduced that regulation, some plan administrators and service providers expressed concern that the annual August deadline for the second comparative chart has no correlation to the timing of any other annual participant disclosures—potentially making the new disclosure requirements overly burdensome. Specific concerns included the costs for additional mailings not sent with other required disclosure documents, along with the increased chance for participants to overlook the separate disclosures and the potential that the regulations, as written, could require firms to file twice in certain years to maintain compliance.

While the EBSA denied that it failed to take these considerations into account when choosing the August deadline—maintaining instead that it chose the deadline from the fact that, for most plans, the first comparative chart had to be provided no later than 60 days after the July 1, 2012, effective date of 408(b)(2)—it announced in FAB 2013-02 that it would treat a plan administrator as satisfying the “at least annual thereafter” provision if he sent the disclosure documents within 18 months of the prior disclosure.

For example, if a plan administrator furnished the first comparative chart on August 25, 2012, the EBSA would take no enforcement action based on timeliness if the plan administrator furnishes the following disclosure chart by February 25, 2014.

Now, SPARK wants the EBSA to make the spirit of that rule permanent. In its letter, SPARK urges the EBSA to amend its final regulations under 404(a)(5) to allow service providers to take an additional 45 days following the anniversary of the day on which disclosure materials were furnished to make the next round of disclosures. SPARK argues the requested relief will provide plan sponsors and service providers the additional time and flexibility to furnish required materials as soon as practical each year without accelerating the deadline for subsequent years.

Additionally, the letter argues, the requested flexibility mitigates the incentive hazard that plan sponsors and service providers may have to delay furnishing the materials when they may otherwise be able to send them sooner, in order to avoid accelerating subsequent compliance deadlines. A 45-day window, SPARK says, will mitigate concerns that some providers may have about providing materials early in one year and not receiving necessary information from third parties in a timely manner in subsequent years.

Resolving the concern will also benefit plan participants, SPARK says, in that it will still facilitate expedited furnishing of the materials when it is feasible for providers and plan sponsors to do so.

The SPARK letter, along with the advocacy group’s other letters and publications, can be read here.