Just when we were getting geared up for the second round of fee disclosure notices, we got a reprieve from the Department of Labor!  The DOL announced that they are allowing a one-time “reset” date so that plan sponsors can schedule the delivery of these required notices at the most convenient or appropriate time of their plan year.  We emailed to our clients last week a FIDUCIARY BULLETIN that outlines these new rules. View a full text of the reset rules. 

BACKGROUND

Retirement plans that allow participant-directed accounts must provide plan participants with a comparative chart of investment alternatives at least once per year.  This fee disclosure requirement was initially effective on July 1, 2012, with the first notices required no later than August 30, 2012.  Subsequent notices are required annually thereafter.  As a result, the 2013 notices would be due no later than 364 days after the previous year’s notice.  It is the Plan Sponsor’s fiduciary responsibility to see that this annual notice is prepared and delivered to plan participants, beneficiaries, and employees who are (or will become) eligible for the plan.

OPTIONAL “RESET” OF NOTICE DUE DATE

On July 22, 2013 the Department of Labor (DOL) announced that Plan Sponsors may issue their 2013 fee disclosure notice and comparative chart up to 18 months from the date that their 2012 comparative chart was issued.  This “reset” option will allow Plan Sponsors to develop a delivery schedule that coincides with delivery of other plan-related notices, open enrollment, or some other annual event.

For example, if your plan delivered the 2012 fee disclosure notice on August 25, 2012, then you will have until February 24, 2014 to deliver your 2013 notice.  Then every year in February an updated fee disclosure notice and comparative chart must be delivered.  February would be your “reset” date.  You are only allowed this reset one time.

Note: if you have already delivered your 2013 notice, you can use the “reset” for your 2014 notice.

FEE DISCLOSURE NOTICE

The participant fee disclosure regulation, referred to by the DOL as 404(a), requires Plan Sponsors of participant-directed ERISA plans to make specific disclosures about plan fees and investments to participants, beneficiaries and employees eligible but not yet participating in their retirement plan.

The fee disclosure notice is designed to enable participants to compare investment performance and investment-related expenses and fees for each of the plan’s investment options.  Fees related to a given service must be included in the notice (e.g., distribution processing fees).  The fee disclosure notice must also provide information about where additional information can be found, and the name and contact information of the Plan Sponsor representative.

ANNUAL COMPARATIVE CHART

The comparative chart must include the following information:

• Investment name
• Average annual return for the 1-, 5-, and 10-year periods
• A comparison of the investment return against the fund’s benchmark
• Total annual operating expenses expressed as both a percentage and the amount per $1,000 invested

PREPARATION OF THE NOTICE AND CHART

It is the Plan Sponsor’s fiduciary responsibility to make sure that the annual participant fee disclosure notice and the comparative chart is prepared.  Check with your providers to see what assistance they may provide to help meet this responsibility:

• Fee disclosure notice – the DOL has a basic template that can be followed.  Many investment providers are preparing the notice as a courtesy for their clients.  BRI can be engaged to draft a basic notice for clients as well.
• Comparative chart – most investment custodians will provide the comparative chart, or at least provide the information to be included on the chart.  This chart is an integral part of the fee disclosure notice that must be provided to participants annually.
• Service-related fees – BRI will provide you an updated participant fee pass-through notice that can be distributed to eligible participants.  BRI provides this updated notice around the first day of your plan year.  This information can be sent with your fee disclosure notice, or separately as long as it is provided to the participants at least annually.

DELIVERY OF THE NOTICE AND CHART

It is the Plan Sponsor’s fiduciary responsibility to make sure that the annual participant fee disclosure notice and comparative chart is delivered to the appropriate individuals.  The delivery can be in the form of e-mail, regular mail, or hand delivery.  Regardless of the delivery method, the Plan Sponsor should retain records of who received the notice and when.  Posting one copy in a public place is NOT an acceptable method of delivery.  Click here if you would like to discuss with BRI how we can be engaged to assist in meeting your delivery requirements.

The following groups of people must receive the notice:

• Active plan participants with money in the plan
• Current employees
• Former employees
• Beneficiaries with money in the plan
• Deceased employees
• Alternate payees under a qualified domestic relations order
• Employees who are eligible for the plan
• Who are not currently participating
• Who will become eligible before the next notice delivery date

TIMING OF DELIVERY

The Plan Sponsor should discuss and determine the most appropriate time for delivery of their annual participant fee disclosures.  Some will choose 30-90 days prior to the beginning of the plan year (November) to coincide with other notices that must be delivered.  Others may choose 30-60 days after the end of the plan year (February) so that the information is relatively recent.

Whatever timing is chosen, the date should be included on your fiduciary compliance calendar to insure that you meet this requirement every year.

BEWARE OF PITFALLS!

Now that we have gone through the first year of fee disclosure requirements, we are finding that many custodians failed to provide adequate assistance to their clients.  Of particular concern are 403(b) plans where each participant may have an individual account – sometimes at various providers.  Individual insurance products and brokerage accounts are often problematic too.  We recommend that Plan Sponsors ask their investment advisor and/or investment custodian to assist them in generating an appropriate notice.

If the DOL audits a plan they are asking for a copy of the notice for each and every investment alternative offered to participants, and the date/address listing/method of delivery.

SUMMARY

At BRI we are actively working with our clients to remind them of their responsibilities as a plan sponsor.  Fee disclosure rules are just one of many proactive reminders that we send throughout the year.  If you would like to work with a TPA that stands shoulder-to-shoulder with you to help you meet your fiduciary responsibilities, contact us today!  Click here to request a call from one of our team members.

Image courtesy of Ambro / FreeDigitalPhotos.net