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DOL Issues Final Regulations on Mandatory Fee-Disclosures

By Marcia S. Wagner
January 27, 2011

On Oct. 14, 2010, the Department of Labor (DOL) finalized its regulations concerning the fee and investment-related disclosures that must be provided to participants in 401(k) plans and other defined contribution plans with participant-directed investments. The final regulations are generally consistent with the DOL's 2008 proposed rules, reflecting modest changes based on comments received by the agency.

In its press release announcing the issuance of these final rules, the DOL explained that existing law did not require plans to provide workers with “the information they need to make informed investment decisions regarding the investment of their retirement savings,” such as fee and expense information. However, the new rules would enable the estimated 72 million affected participants “to meaningfully compare the investment options under their plans.”

Law firms should determine how they will comply with these rules and educate their employees regarding the fees they pay for their 401(k) plans, and educate their clients as well about these new law changes.

Types of Plans Covered

The new participant disclosure requirements only apply to participant-directed individual account plans, such as 401(k) plans, and they do not apply to defined contribution plans with employer-directed investments.

Many participant-directed plans are designed to comply with the requirements of ERISA Section 404(c), a provision that relieves plan sponsors of any fiduciary responsibility for the investment allocation decisions of individual participants. However, the new participant disclosure requirements cover all participant-directed plans, even if they are not designed to comply with ERISA Section 404(c). The fiduciary obligation to provide the mandatory disclosures is generally imposed on the plan sponsor.

Coverage of Participants

The new disclosure requirement applies to all eligible employees, and not merely participants who have actually enrolled in the plan. Thus, the entire eligible employee population will need to receive the relevant disclosures on an ongoing basis. The required disclosures include both plan-related information and investment-related information.

Annual and Quarterly Disclosure of Plan-Related Information

Under the DOL's final regulations, participants must be furnished general information about the plan annually, including an explanation of how participants may give investment allocation instructions and information concerning the plan's investment menu. Plan participants must also receive an annual explanation of the general administrative service fees that may be charged against their accounts as well as any individual expenses charged for individualized services (e.g., plan loan processing fee). With respect to new participants, this information must be provided before they can first direct investments under the plan.

Participants must also receive certain information on a quarterly basis. They must receive statements that include the quarterly dollar amounts actually charged to their plan accounts as general administrative service fees and as individual expenses, as well as a description of the relevant services.

The annual and quarterly fee disclosures for general administrative services and individual expenses only apply to the extent such fees are not already reflected in the total annual operating expenses of the plan's investments. For example, if a service provider is wholly compensated through indirect compensation flowing from a plan's investment funds (i.e., the provider's fees are already reflected in each fund's per-share market value or “NAV”), the provider's fees and services would not be subject to these annual and quarterly fee disclosures. However, if any portion of the fees for general administrative services are paid from the total annual operating expenses of any of the plan's investments (e.g., through revenue sharing or 12b-1 fees), an explanation of this fact must be included in the quarterly statements.

Annual Disclosure of Investment-Related Information

Plan participants must receive certain fee and performance-related information relating to the plan's various investment alternatives in a comparative format, for which the DOL has created a “model comparative chart.” This information must be provided on or before the date on which a participant can direct investments, and annually thereafter.

The comparative information which must be provided includes: 1) the name and type of investment option; 2) investment performance data; 3) benchmark performance data; 4) fee information, including both the total annual operating expenses of each investment alternative and any shareholder-type fees that are not reflected in the total annual operating expenses, such as commissions and account fees; and 5) the Internet Web site address at which additional information is available.

Information That Must Be Available Upon Request

Upon request, participants must be provided copies of fund prospectuses (or other corresponding documents) as well as any shareholder reports and related financial statements provided to the plan.

Form of Disclosure

The annual disclosures required under the DOL's regulations may be provided separately or as part of the plan's summary plan description (“SPD”) or participant benefit statements. The required quarterly statements may also be provided separately or as part of the plan's participant benefit statements. All disclosures must be written in a manner calculated to be understood by the average participant.

Impact on Plan Sponsor's Other Fiduciary Duties

As expressly provided in the new DOL regulations, a plan sponsor's compliance with the new disclosure rules will not relieve it of its fiduciary duty to prudently select and monitor the plan's providers and investments.

The new regulations modify the DOL's existing regulations under ERISA Section 404(c). As discussed above, a plan sponsor can be relieved of any responsibility over the investment allocation decisions of individual participants, provided that the regulatory conditions under Section 404(c) are satisfied. To comply with the applicable investment-disclosure requirements under the 404(c) regulations, as modified by the DOL's new rules, participants simply need to receive the annual and quarterly disclosures required under the new regulations.

Effective Date

Although the DOL's participant disclosure regulations have been finalized, they have a delayed application date. The new disclosure requirements will be imposed on plan sponsors for plan years beginning on or after Nov. 1, 2011. In the case of calendar year plans, they will go into effect on Jan. 1, 2012.


Marcia S. Wagner, a member of this newsletter's Board of Editors, is the Managing Director of The Wagner Law Group. She was recently named as the one of the top 40 most influential people in the 401(k) industry. Ms. Wagner serves on the Internal Revenue Service Advisory Committee on Tax Exempt and Government Entities and is the 2010 Chair of the Employee Plans Section of the Advisory Council, which provides advice and consultation to the IRS on pension matters. She can be reached at 617-357-5200 or at [email protected].

On Oct. 14, 2010, the Department of Labor (DOL) finalized its regulations concerning the fee and investment-related disclosures that must be provided to participants in 401(k) plans and other defined contribution plans with participant-directed investments. The final regulations are generally consistent with the DOL's 2008 proposed rules, reflecting modest changes based on comments received by the agency.

In its press release announcing the issuance of these final rules, the DOL explained that existing law did not require plans to provide workers with “the information they need to make informed investment decisions regarding the investment of their retirement savings,” such as fee and expense information. However, the new rules would enable the estimated 72 million affected participants “to meaningfully compare the investment options under their plans.”

Law firms should determine how they will comply with these rules and educate their employees regarding the fees they pay for their 401(k) plans, and educate their clients as well about these new law changes.

Types of Plans Covered

The new participant disclosure requirements only apply to participant-directed individual account plans, such as 401(k) plans, and they do not apply to defined contribution plans with employer-directed investments.

Many participant-directed plans are designed to comply with the requirements of ERISA Section 404(c), a provision that relieves plan sponsors of any fiduciary responsibility for the investment allocation decisions of individual participants. However, the new participant disclosure requirements cover all participant-directed plans, even if they are not designed to comply with ERISA Section 404(c). The fiduciary obligation to provide the mandatory disclosures is generally imposed on the plan sponsor.

Coverage of Participants

The new disclosure requirement applies to all eligible employees, and not merely participants who have actually enrolled in the plan. Thus, the entire eligible employee population will need to receive the relevant disclosures on an ongoing basis. The required disclosures include both plan-related information and investment-related information.

Annual and Quarterly Disclosure of Plan-Related Information

Under the DOL's final regulations, participants must be furnished general information about the plan annually, including an explanation of how participants may give investment allocation instructions and information concerning the plan's investment menu. Plan participants must also receive an annual explanation of the general administrative service fees that may be charged against their accounts as well as any individual expenses charged for individualized services (e.g., plan loan processing fee). With respect to new participants, this information must be provided before they can first direct investments under the plan.

Participants must also receive certain information on a quarterly basis. They must receive statements that include the quarterly dollar amounts actually charged to their plan accounts as general administrative service fees and as individual expenses, as well as a description of the relevant services.

The annual and quarterly fee disclosures for general administrative services and individual expenses only apply to the extent such fees are not already reflected in the total annual operating expenses of the plan's investments. For example, if a service provider is wholly compensated through indirect compensation flowing from a plan's investment funds (i.e., the provider's fees are already reflected in each fund's per-share market value or “NAV”), the provider's fees and services would not be subject to these annual and quarterly fee disclosures. However, if any portion of the fees for general administrative services are paid from the total annual operating expenses of any of the plan's investments (e.g., through revenue sharing or 12b-1 fees), an explanation of this fact must be included in the quarterly statements.

Annual Disclosure of Investment-Related Information

Plan participants must receive certain fee and performance-related information relating to the plan's various investment alternatives in a comparative format, for which the DOL has created a “model comparative chart.” This information must be provided on or before the date on which a participant can direct investments, and annually thereafter.

The comparative information which must be provided includes: 1) the name and type of investment option; 2) investment performance data; 3) benchmark performance data; 4) fee information, including both the total annual operating expenses of each investment alternative and any shareholder-type fees that are not reflected in the total annual operating expenses, such as commissions and account fees; and 5) the Internet Web site address at which additional information is available.

Information That Must Be Available Upon Request

Upon request, participants must be provided copies of fund prospectuses (or other corresponding documents) as well as any shareholder reports and related financial statements provided to the plan.

Form of Disclosure

The annual disclosures required under the DOL's regulations may be provided separately or as part of the plan's summary plan description (“SPD”) or participant benefit statements. The required quarterly statements may also be provided separately or as part of the plan's participant benefit statements. All disclosures must be written in a manner calculated to be understood by the average participant.

Impact on Plan Sponsor's Other Fiduciary Duties

As expressly provided in the new DOL regulations, a plan sponsor's compliance with the new disclosure rules will not relieve it of its fiduciary duty to prudently select and monitor the plan's providers and investments.

The new regulations modify the DOL's existing regulations under ERISA Section 404(c). As discussed above, a plan sponsor can be relieved of any responsibility over the investment allocation decisions of individual participants, provided that the regulatory conditions under Section 404(c) are satisfied. To comply with the applicable investment-disclosure requirements under the 404(c) regulations, as modified by the DOL's new rules, participants simply need to receive the annual and quarterly disclosures required under the new regulations.

Effective Date

Although the DOL's participant disclosure regulations have been finalized, they have a delayed application date. The new disclosure requirements will be imposed on plan sponsors for plan years beginning on or after Nov. 1, 2011. In the case of calendar year plans, they will go into effect on Jan. 1, 2012.


Marcia S. Wagner, a member of this newsletter's Board of Editors, is the Managing Director of The Wagner Law Group. She was recently named as the one of the top 40 most influential people in the 401(k) industry. Ms. Wagner serves on the Internal Revenue Service Advisory Committee on Tax Exempt and Government Entities and is the 2010 Chair of the Employee Plans Section of the Advisory Council, which provides advice and consultation to the IRS on pension matters. She can be reached at 617-357-5200 or at [email protected].

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