On Tuesday, HR/benefits practitioners got some free legal advice regarding their specific obligations under new Department of Labor 401(k) fee disclosure rules, which go into effect next month.
At the Society for Human Resources Law and Legislative Conference, questions abounded on the exact deadlines for the three separate disclosure regulations. The first disclosure, by service provider to plan fiduciaries, means vendors should be getting in touch with employers, according to Antoinette M. Pilzner, attorney at law firm McDonald Hopkins.
As for the last two — a general disclosure from plan fiduciaries to participants and beneficiaries by Aug. 30 of this year, and quarterly disclosures to plan participants by Nov. 14 — they have “to be done in writing and you have to give all the information, which may be stuff they already have,” Pilzner said. She also said that service providers must disclose how much they’re getting paid for recordkeeping services — which is where things can get legally problematic for plan sponsors. “If they don’t give you disclosures under regulations, you may be liable for a breach of fiduciary duty,” Pilzner warned.
After 90 days, if a service provider hasn’t provided adequate disclosures, it’s up to employers to report service providers to DOL’s Employee Benefit Security Administration. Once employers report recordkeeper fees, they must “justify why you are continuing to engage them. They’re making you enforce these regulations for them.”
Plan fiduciaries also will be liable for a breach of ERISA fiduciary duties if they fail to disclose to participants the circumstances under which participants can give investment directions, descriptions of accounts available, plan administration fees and expenses that may be charged on an annual basis and performance data for one-, five- and 10-year periods. She added that each retirement option must be summarized, which might make employers more weary to offer 40 or 50 options. The way the fees must be expressed has to be clear, and “expressed both as a percentage and then translated into dollars based on $1,000 investment.”
Once the initial disclosure materials are distributed to participants, Pilzner said the best annual time to give periodic disclosures is during open enrollment. The general disclosure can be included in a summary of plan design, which just had rules released under Patient Protection and Affordable Care Act, but then the SPD has to be published every year as well. Quarterly statements must detail the description and amount of plan administrative expenses charged against the plan in the quarter. If there were no admin or individual expenses, there’s no need to put out a quarterly disclosure. However, only the service provider will have that information, placing greater oversight onus on plan sponsors.
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