New Guidance Published on Required 401(k) Fee Disclosures

Contributed By: Rebecca L. Dobbs
We have previously written on the final regulations published on October 20, 2010 by the Department of Labor (DOL) with regard to the requirements of plan administrators to disclose plan and investment-related info, including fee and expense info, to participants.  We wrote on the subject again after additional final regulations were published on February 3, 2012 by the DOL with regard to disclosure requirements for covered service providers.
Now, the subject rears its head again as the DOL recently published further guidance on May 7, 2012 in the form of a Field Assistance Bulletin. Some highlights of the bulletin include the following:

  • Plan Administrators can furnish the information in one single document. The DOL has indicated it does not intend for participants to receive unnecessary duplicative information.
  • Although easier said then done, the disclosures should be specific to describe monetary amounts, formulas, percentage of assets or per capita charges – yet be written in a manner calculated to be understood by the average participant.  To assist further, the DOL provides several examples of language which it would view as consistent with these principles.
  • While it seems obvious, if administrative expenses are paid by forfeiture funds and/or the general assets of the plan sponsor (and there is no intent in the foreseeable future to charge participants), the administrative expenses do not need to be disclosed to participants.
  • But, be careful.  If administrative expenses are paid from revenue sharing received by the plan (and even though no fees or expenses are charged to individual accounts), explanation of the revenue sharing must be provided to participants.
  • Where fees and expenses are only associated with select investments, plan disclosures need to be made to all participants and not just those who have elected the specific investments.
  • Although the final rule requires participants be provided with a glossary of terms, the DOL will not be publishing a sample glossary for plan sponsors/plan administrators to use.
  • The disclosures do not have to be stand-alone documents.  They can be part of the SPD or included in participant statements as long as they are furnished in compliance with the applicable timing requirements in the regulations.

Remember, covered service providers are required to make disclosures by July 1, 2012 and employers/plan sponsors are required to make disclosures by August 30, 2012. The DOL indicates, however, that they recognize there may not be enough time to change current systems already in place. They also indicate the significance of the disclosure rules is too great to delay the deadlines for compliance yet another time. In turn, the DOL has made it clear in this newly published guidance that for enforcement purposes, they will take into account whether there has been good faith compliance based on a reasonable interpretation of the new regulations.  In such a case, enforcement actions should generally not be necessary.