December 30, 2010 - New Disclosure Regulations are Here
First Plan Sponsors. Now Participants. New Disclosure Regulations Are Here.
On the heels of the release of plan sponsor fee disclosure regulations, the DOL recently published final regulations establishing the type of information employers must provide participants and beneficiaries in “covered individual account plans,” such as 401(k) and ERISA 403(b) plans. Set to take effect for plan years beginning on or after November 1, 2011, the requirements serve to provide participants with:
- Plan-related information about the operation of the plan, fees and expenses
- Investment-related information about plan investments
This information must be provided in a format that is easily understood and useful to the participant. It must also be delivered in a timely manner—before participants are first able to direct the investment of plan assets, annually thereafter and when there is a change in the information.
There are three general types of plan-related information that must be included:
- General: the structure and mechanics of the plan, including how to make investment elections, types of investments and special arrangements with investment providers
- Administrative Expenses: information on legal, accounting and recordkeeping costs
- Individual Expenses: fees charged to participants accounts based on their actions (e.g., distribution fees, qualified domestic relations orders and investment fees)
In addition, participants must receive quarterly statements of the amounts that were actually charged to, or deducted from, their individual accounts.
The following investment-related information must be sent out in a chart (or similar format) for easy comparison by the participant:
- Performance Data: for investments without a fixed rate of return—historical performance information, including 1-, 5- and 10-year rate of return (or since inception if < 10 years).
- Benchmark Information: for investments without a fixed rate of return—benchmark performance for the same periods of time as the investment performance data.
- Fee and Expense Information: for investments without a fixed rate of return—annual operating expenses in both a dollar amount (based on $1,000 invested) and a percentage of assets as well as any fees and any purchase or withdrawal restrictions. For investments with a fixed rate of return—any fees and any purchase or withdrawal restrictions.
- Internet Website: the web address for a website with investment-related information. The website information must be available in a paper format upon request.
- Glossary: definitions of terms needed to understand the plan’s investment options