What do the fee disclosure regulations require?
The final fee disclosure regulations require the following three actions:
- Covered service providers receiving $1,000 or more in direct or indirect compensation from the plan must annually disclose that compensation to retirement plan sponsors of ERISA-governed plans. Covered service providers include registered investment advisers, investment providers, recordkeepers, brokers, TPAs, consultants, attorneys, auditors and accountants.
- Plan sponsors of ERISA governed plans must annually disclose certain plan and investment information to participants
- Plan sponsors of ERISA governed plans must provide a quarterly statement to participants in the plan disclosing the fees actually paid by the participant during the quarter.
When do the final fee disclosure regulations take effect?
Covered service providers (as described above) must provide the initial annual fee disclosure to plan sponsors no later than July 1, 2012.
Plan sponsors operating on a calendar year (or a plan year ending March 31 or June 30) must provide the initial annual fee disclosure to participants no later than August 30, 2012. Plan sponsors operating on a plan year ending after August 30 (e.g. September 30), must provide the initial annual fee disclosure notice to participants no later than November 29, 2012. If your plan year end falls on a date not described above, contact your Multnomah Group consultant for assistance in determining your applicable effective date.
Plan sponsors operating on a calendar year must provide the first quarterly disclosure statement to participants by November 14, 2012. For plan sponsors operating on an off-calendar plan year, the initial quarterly statement must be provided to participants no later than 45 days after the quarter during which the initial annual notice was provided.
What information will be contained in the annual fee disclosure notice that my plan receives from its covered service providers?
Notices received by plan sponsors from covered service providers must:
- Describe the services being rendered;
- State whether the covered service provider is or is not acting as a fiduciary to the plan;
- Report all direct and indirect compensation received by the covered service provider;
- Report compensation received in the event of a contract termination, including surrender charges and other loads; and,
- Explain the manner in which compensation is received.
What information will be contained in the annual fee disclosure notice that plan participants must receive from plan sponsors?
The fee disclosure notice from plan sponsors to participants must include certain fee related plan and investment information including:
- A statement as to whether participants may direct their own investments, or limitations on the participant’s ability to direct investments
- A list of all designated investment alternatives, including:
- The type/category of the investment,
- 1, 5 and 10 year average performance relative to benchmarks,
- Operating expenses and loads,
- Fixed returns, if any,
- Investment term, as applicable,
- Minimum guaranteed rate, as applicable
- A description of any available participant-directed brokerage windows and applicable fees
- An explanation of limitations on the participant’s ability make withdrawals
- A list of all fees and expenses related to the plan’s administration and how those fees may be allocated to participant accounts
- A list of all participant-paid transaction processing fees
- Information regarding the effect of fees on investment returns
- A website address that can be used to obtain additional investment information
Other information such as prospectuses, financial statements, valuation statements and investment portfolio asset information must be furnished to the participant upon request.
Which employees must receive the annual fee disclosure notice from plan sponsors?
The annual fee disclosure notice must be provided to all eligible employees and participants with a balance in the plan, irrespective of whether they are actively participating or terminated.
What information must be included in the quarterly fee disclosure information provided to participants maintaining an account balance in the plan?
The quarterly fee disclosure notice to participants maintaining an account in the plan must describe the fees that were actually paid by the participant during the quarter.
Which employees must receive the quarterly fee disclosure notice from plan sponsors?
The quarterly fee disclosure notice must be provided to all participants maintaining an account balance in the plan, irrespective of whether they are or are not currently employed by the plan sponsor.
How can the annual participant fee disclosure notices be delivered to eligible employees and participants?
Employees who use a computer in the course of their normal daily work may receive the annual participant fee disclosure notice via their workplace email address. Employees who do not use a computer in the course of their normal daily work and terminated participants who maintain a balance in the plan must receive the annual fee disclosure notice via paper hard copy, or via their personal email account. Delivering the annual participant fee disclosure notice via personal email address requires advanced consent, and may otherwise be difficult to administer.
How can the quarterly participant fee disclosure notices be delivered to participants?
Most typically, the quarterly fee disclosure notice requirements will be integrated with the normal quarterly statements that are mailed by recordkeeping vendors or TPAs to participants maintaining a balance in the plan. To be sure, contact your recordkeeping vendor for confirmation.
Will my plan’s recordkeeper or TPA assist me with the annual participant fee disclosure notices?
Retirement plan recordkeepers have indicated that they will provide a varying level of support to plan sponsors regarding the requirement to deliver the annual fee disclosure notice to participants. To be sure of the support you can expect from your plan’s recordkeeper, contact the vendor as soon as possible.
If the fees applicable to my plan change during the year, how frequently does my covered service provider need to report the changes in fees to me?
Under the final regulations, changes to investment fees occurring during the year must be reported by covered service providers at least annually. Changes to other, non-investment fee information (e.g. transactional processing fees, annual administration fees, contract termination fees, etc.) covered under the fee disclosure regulations must be reported to plan sponsors within 60 days. Errors in previously disclosed information must be corrected within 30 days.
My organization sponsors a 403(b) plan. Are there any special considerations for 403(b) plans?
Yes. If your plan uses (or has used in the past) multiple vendors to provide investments and services to your plan, the participant disclosure requirements mandate that the annual participant disclosure information related to each vendor be consolidated in some way. Ideally, the disclosures from each vendor will be consolidated in a systematic way, but clipping notices from multiple providers together and sending them in the same envelope or email will suffice.
Additionally, 403(b) plan sponsors were allotted a special exemption from the requirement to report pre-2009 assets on the plan’s Form 5500 for the 2009 filing year and subsequent years. The final fee disclosure regulations make it clear that if a plan sponsor is not reporting pre-2009 assets on its Form 5500, covered services providers do not need to provide that information to plan sponsors.
What is the objective of the fee disclosure regulations?
The objective of the covered service provider-to-plan sponsor fee disclosure requirements is to provide plan sponsors with enough information to ensure that fees are reasonable, which is a fiduciary duty under ERISA. The objective of the plan sponsor-to-participant fee disclosure requirements is to ensure that participants have relevant information necessary to make informed choices about how to participate in the plan, which is also a fiduciary duty under ERISA.
What are the consequences associated with not complying with the final fee disclosure regulations in a timely manner?
A plan that is not in compliance with the plan sponsor-to-participant fee disclosure regulations will be considered to be in violation of ERISA, and the entire plan arrangement will be considered to be a prohibited transaction, which carries numerous negative consequences.
A covered service provider that does not comply with the covered service provider-to-plan sponsor fee disclosure regulations will also be said to have committed a prohibited transaction under ERISA, and IRS penalties may also be levied. Plan sponsors have a duty to follow up with covered service providers that have not provided the required information in a timely manner. If the covered service provider still does not provide the required information within 90 days of the written follow up, the plan sponsor must terminate the service arrangement with the noncomplying covered service provider as soon as possible. Additionally, plan sponsors must report covered service providers that have not provided the required information under the covered service provider-to-plan sponsor fee disclosure regulations on Schedule C of their annual Form 5500.
Where can I find more detailed information regarding the fee disclosure requirements?
The Multnomah Group has prepared an in-depth presentation summarizing the final fee disclosure regulations, and will be happy to assist you with any specific questions that you may have. You are also encouraged to contact your recordkeeping vendor or TPA to determine what level of support you can expect from them. The EBSA’s Office of Regulations and Interpretations is also available to answer questions related to fee disclosure and can be reached at 1.208.693.8500.
This FAQ is not intended to be legal advice and should not be construed as such. Information relayed herein is representative of the Multnomah Group’s current understanding of the law. While the Multnomah Group has made every reasonable effort to ensure that the information contained herein is factual, we do not warrant its accuracy. Additionally, this FAQ does not embody a comprehensive legal study, but rather reflects the information most often sought by our clients. As the information contained herein is general in nature, you are urged to contact your legal adviser with questions related to the specific application of these rules to your plan.