On Oct. 14, 2010, the Department of Labor issued final rules related to the disclosure of fees to defined contribution retirement plan participants. This new rule is effective for plan years beginning after Nov. 1, 2011.
Essentially, for calendar year plans, this means compliance is required by Jan. 1, 2012. The intent of this regulation is to provide plan participants with the information they need to make good investment decisions in employee-directed DC retirement plans.
Under the new rules, participants are required to receive:
* Plan information, including a description of investment options, participant ability to direct their investments, and any voting or tender rights. Expense information related to administrative expenses (such as legal, recordkeeping and accounting) and individually charged fees (including loans, QDROs, distributions and withdrawals).
* Investment information, such as performance, benchmark and fee information for one-, five- and 10-year periods for each investment option. A glossary of financial terms, and descriptions of annuity and target-date options, if offered.
The investment-related information is required to be distributed in comparative chart form. DOL has helpfully provided a suggested model which can be found at www.dol.gov/ebsa/modelcomparativechart.doc.
Information must be shared with plan participants before their initial participation in the plan, annually and quarterly. So anyone eligible to participate in your 401(k) plan after Jan. 1, 2012, will need to receive the initial information.
The first quarterly information will have to be delivered with your March 31, 2012, participant statements and the first set of annual information will need to be shared with your Dec. 31, 2012, participant statements.
Good news, bad news
One common question plan sponsors ask is, "Who will be collecting and sharing this information with my plan participants?" In other words, "Please tell me it's not me!"
Good news: It probably will not be you. Most retirement plan administrators and recordkeepers are developing plans to collect and share this information with plan participants. Keep in mind though, that as a plan sponsor and fiduciary, you are responsible for ensuring that the required information is provided.
You probably won't be surprised to learn that there may be some additional fees for these services from your recordkeeper.
The fees you'll be charged will probably be related to the complexity of your plan (multiple locations or employee groups), your plan design (loans and different types of withdrawals), the number of investment options you have and the degree to which your plan will need to be customized.
In general, the more complex and larger your plan, the more likely it is that you'll incur some sort of additional fee. The smaller, more vanilla your plan, the less likely you are to incur any extra fees.
To prepare, I suggest you:
* Touch base with your recordkeeper to see how they will be addressing this new regulation for your plan. Make sure that they're planning to take this new pile of work off of your desk.
* Verify that your recordkeeper's call center will answer participant questions. Someone is going to have to answer the questions that will result from sharing this new information. It will be important to make sure you have help.
* Budget for any additional costs associated with compliance in 2011 and future years. Even though compliance isn't required until January 1, 2012, your recordkeeper may have development, programming and/or mailing expenses, which may be charged to you in late 2011.
* Celebrate! It is likely - but not guaranteed - that these are the last of the fee disclosure regulations from DOL, at least for a while.
Contributing Editor Robert C. Lawton is an accredited investment fiduciary. He leads the Graystone Consulting retirement plan advisory group in Madison, Wis. Graystone Consulting is a business of Morgan Stanley Smith Barney and provides investment advisory services to corporations, not-for-profits, endowments and individuals. He can be reached at firstname.lastname@example.org or 608-283-2304.
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