New Rule Requires Full Disclosure of 401(k) Data

The U.S. Dept. of Labor’s (DOL) Employee Benefits Security Administration (EBSA) issued final regulations involving 401(k)-type pension plans in October 2010 and implemented a deadline for employers in August, with the first regular reporting due in November of this year. The rule change didn’t get much publicity—is your company’s plan in full compliance? The new rule, simply stated, requires employers or their benefits administrators to publish full disclosure of fees, as well as provide participants with investment information about their 401(k)’s and other retirement plans. EBSA, an agency responsible for approximately 483,000 participant-directed individual account plans (such as 401(k)’s), envisions the regulation as an opportunity for more plan participants to make educated decisions. While the rule may hold good intentions, the requirements for employers increased considerably, requiring information to be disclosed in two separate categories: plan-related information and investment-related information.

Plan-Related Information

Plan-related information refers solely to the individual’s retirement plan. Such information includes:

  • List of investment options
  • An explanation of how to direct your plan’s investments
  • Description of any “self- directed brokerage options” and other features, as well their mechanics.
  • Fees or deductions incurred due to plan administrative services (e.g. legal, accounting, record-keeping fees)
  • Fees or deductions incurred due to individual participant reasons (e.g., loan and distribution transaction fees, brokerage windows fees, etc.)

This information should’ve been presented before or on the date that the participants began directing their investments, as well as annually after the first disclosure. In addition to the upfront full disclosure (and annual disclosure), the employer or its benefit provider must give the participant quarterly statements that reflect the fees and expenses actually deducted from the account

Investment-Related Information

Investment-related information describes a participant’s investment options, fees, deductions, etc. Below are examples of investment information that employers or their benefits administrators are required to disclose:

  • Performance data
  • Specific benchmark information for investments without fixed rates of returns
  • All fee and expense information on the investment options, as well as an available website describing the details of the investment options
  • Glossary of investment-related information to assist participants and beneficiaries in understanding the plan’s investment options

You May Have Missed…

The initial disclosure of all required information under the new rule was due to the individual plan participant or beneficiary by August 31, 2012, and the first of regular quarterly statements provided by the investment provider should’ve been furnished no later than November 14, 2012.

This final rule imposed on investment options was created to give participants an easier route to navigating investment options. Regulators believe the extra reporting requirements imposed on employers and their plan providers will enable investors to compare their options and make educated decisions, while encouraging the employers to look at available options and evaluate their current plans.

As plan fiduciaries, employers must ensure arrangements with their plan service providers are “reasonable” and that only “reasonable” compensation is paid for services. By reviewing the disclosures received by covered service providers, employers are supposed to be armed with sufficient information to make decisions about an employee benefit plan’s services, the costs of such services and the service providers.

Bill Hart is a Partner at Retirement Strategies, Inc. in Jacksonville. He can be reached at (904) 730-3863 or BHart@RetirementStrategies.net.