DOL allows 401(k) plans to re-set deadline for providing comparative chart of investment information to participants

In a field assistance bulletin, the Labor Department’s Employee Benefits Security Administration (EBSA) has announced a temporary enforcement policy that will afford 401(k) plans a one-time option to re-set the time by which they must distribute to plan participants the comparative chart of investment information (i.e., fee and expense information) required for 2013 or 2014 under the participant level fee disclosure rules. The re-set is intended to enable plan administrators to align the furnishing of the comparative chart with the provision of other required disclosures to participants in a cost-effective manner.

Annual fee disclosure

Plan administrators, in satisfaction of their fiduciary duties under ERISA, are required to provide participants and beneficiaries in participant-directed plans with plan and investment-related information (including details of fees and expenses assessed to and deducted from their individual accounts) on an annual and quarterly basis. The governing final rules require the disclosure of investment-related fee and expense information (e.g., sales loads, deferred sales charges, redemption fees, service charges, exchange fees, account fees, purchase fees, and the expense ratio for the total operating expenses of the investment) to be made in a chart or similar format that would allow for a comparison of the plan’s investment options.

The initial disclosures required under the rules were to be made on or before the date on which a participant or beneficiary can first direct his or her investments, and must be furnished no later than the later of: (a) 60 days after the plan’s applicability date or (b) 60 days after the effective date of ERISA Reg. §2550.408b-2(c). Consequently, a majority of plans were required to provide the first annual disclosure by August 30, 2012. Future annual disclosures are required to be provided “at least annually thereafter.” Thus, a plan administrator that furnished the first required chart on August 25, 2012 is required to provide the next comparative chart no later than August 25, 2013.

The governing regulations define the term “at least annually thereafter” to mean “at least once in any 12-month period, without regard to whether the plan operates on a calendar year or fiscal year basis.”

Plan administrators are allowed to combine the required 404a-5 disclosures with other documents (i.e., SPD or pension benefits statement) in order to reduce administrative costs.

Plan sponsors typically prefer that service providers combine the 404a-5 disclosures with year-end disclosures (qualified default investment alternatives and safe harbor 401(k) notices) or send the 404a-5 disclosures after the start of a new calendar year when year-end investment alternative performance and benchmark information is available. However, it has been charged that the requirement to make disclosures “at least annually” has effectively created an annual August deadline that has no correlation to the timing of any other disclosures that the plan may be required to make. Not being able to combine the disclosures with other required notices, plan administrators and service providers have alleged, will force sponsors to incur an uneconomical stand-alone expense.

Temporary enforcement policy

Pursuant to the temporary enforcement policy, a plan administrator may provide the 2013 comparative chart no later than 18 months after the furnishing of the prior comparative chart. Thus, if the first comparative chart was furnished on August 25, 2012 and the 2013 comparative chart would be due by August 25, 2013, the DOL will not take enforcement action based on timeliness, if the 2013 compartive chart is provided by February 25, 2014.

EBSA is also providing relief to plan administrators who have already furnished the 2013 comparative chart or have incurred administrative costs and taken steps towards furnishing the 2013 comparative chart by August 30, 2013. Under the relief, these plan administrators may furnish the 2014 comparative chart no later than 18 months after furnishing the prior comparative chart. Thus, if a 2014 comparative chart would be due by August 25, 2014, the DOL would not take enforcement action if the chart was not furnished until February 25, 2015.

Note: Assistant Secretary for Employee Benefits Security, Phyllis C. Borzi, cautions that the deadline for furnishing the comparative chart may be re-set “only if the responsible plan fiduciary determines that to do so will benefit the plan’s participants and beneficiaries.” The FAB does not address this requirement, but presumably, plan administrators will need to document the reasons for exercising the re-set option.

The FAB further stresses that the temporary enforcement policy does not relieve plan administrators of their obligation to provide participants and beneficiaries with continued access to updated investment-related information. Accordingly, changes to the plan’s investment instruction procedures or designated investment alternatives must be disclosed in a timely manner to participants and beneficiaries. Moreover, the investment information that is available at the required Internet Web site address must continue to be updated.

Source: Field Assistance Bulletin 2013-02.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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