After much regulatory noise over the past few years, participant fee disclosure looks to finally become a reality later this summer. While most people are currently planning their vacations, retirement plan sponsors and industry practitioners are strategizing on how to meet the new fee disclosure requirements.
Retirement plans subject to ERISA that allow for participant investment direction, including 401(k) and 403(b) plans, must provide participant fee disclosures for the first time later this year. There are two types of disclosures that must be provided to plan participants. Note that these disclosures are directly to plan participants and any financial statement disclosures are unaffected. For calendar year plans, the initial annual notice is due August 30, 2012 and the initial quarterly notice is due November 15, 2012. The annual notice must include general information on the plan’s operation and investments. Some of the required information includes plan level fees and expenses, available investments and associated costs, and fund performance compared to a benchmark. The quarterly fee disclosure must include information related to fees being paid directly by the participant.
The vast majority of retirement plan vendors have been preparing for these disclosures for the last few years and should be well prepared to assist their clients. Plan sponsors should have a game plan in place as to how and when they will be communicating with their plan participants. If not, then they should engage their plan providers as soon as possible to gain an understanding of what information they will be providing and determine if additional information is needed.
The Department of Labor and industry as a whole believes these new disclosures are very important and will have a significant impact on fee transparency. Failure to adhere to the content requirements and meet the deadlines may result in an unwanted visit from the DOL and potential penalties.