New Disclosure Regulations
The Department of Labor (DOL) has issued final regulations regarding two disclosure initiatives that will impact employee benefit plan compliance requirements.
- Regulation 404a-5 requires specified disclosures at the participant level.
- Regulation 408(b)(2) requires certain service providers to furnish specified information to plan administrators so that they may comply with their participant-level disclosure obligations.
The participant-level disclosure regulation, Regulation 404a-5, applies to plan years beginning on or after November 1, 2011. As part of your fiduciary duties you are required to meet the following requirements:
- Provide participants and beneficiaries quarterly statements of plan fees and expenses deducted from their accounts, including the type of service, the cost of the service and the plan’s allocation method for service fees.
- The initial quarterly disclosures must be furnished no later than 45 days after the end of the quarter in which the first set of initial disclosures is required to be furnished, or November 14, 2012, for a calendar year plan.
- Provide participants and beneficiaries core information about investments available under the plan, including investment costs prior to the participant’s initial plan investment and at least annually thereafter.
- Plan administrators must furnish the initial disclosures no later than 60 days after July 1, 2012, or if later, 60 days after the first day of the first plan year that begins after November 1, 2011, which is August 30, 2012, for a calendar year plan.
- Assure that information prepared by the plan administrator related to fee disclosures is written “in a manner calculated to be understood by the average plan participant.”
Regulation 408(b)(2) brings a new transparency to the process of selecting and monitoring plan service providers, and establishes comprehensive disclosure requirements for service providers concerning services, fees, and potential conflicts of interest. The disclosure requirements apply to contracts greater than $1,000 and are effective for contracts entered into on or after July 1, 2012. All contracts entered into prior to July 1, 2012, must be brought into compliance by July 1, 2012.
The following service providers are covered under the regulation:
- Persons who provide services as an ERISA fiduciary
- Investment advisers registered under Federal or State law
- Persons who provide certain record keeping or brokerage services and make designated investment options available to be offered by the plan.
- Persons who receive or may receive indirect compensation from services, such as: accounting, auditing, actuarial, banking, consulting, custodial, insurance, investment advisory, legal, record keeping, securities brokerage, third party administration, or valuation.
The regulation requires that certain information must be disclosed by a “covered service provider” and furnished in writing to a “responsible plan fiduciary.” The consequences for non-compliance are as follows:
- Contracts or arrangements will be considered prohibited transactions.
- The “responsible plan fiduciary” violates 406(a)(1)(C) and (D) by causing the prohibited transaction.
- The “covered service provider” is a “disqualified person” under the Code’s prohibited transaction rules and will be subject to excise taxes under Code section 4975.
The regulation includes an exemption from the prohibited transaction rules for a “responsible plan fiduciary” that did not know that the “covered service provider” failed or would fail to make required disclosures and reasonably believed that the “covered service provider” disclosed the required information. Upon discovery of the “covered service provider’s” failure to disclose the required information, the “responsible plan fiduciary” must request the information from the “covered service provider” in writing. If the “covered service provider” fails to comply within 90 days, the “responsible plan fiduciary” must notify the DOL as outlined in the regulation.
Field Assistance Bulletin 2012-02 issued by the DOL on May 7, 2012, provides guidance on some of the most frequently asked questions concerning Regulation 404a-5. In addition, due to the relationship between the two disclosure initiatives, the Field Assistance Bulletin also provides some guidance relevant to Regulation 408(b)(2). The Field Assistance Bulletin may be found at www.dol.gov/ebsa/regs/fab2012-2.html.
We Can Help
These new regulations will have a significant impact on your retirement plan. It is your responsibility to work with your service providers to ensure that your plan stays in compliance with all regulations.
Decosimo’s Employee Benefit Plan audit specialists can advise you on compliance with DOL, ERISA and IRS requirements. Contact our EBP team leaders if you have questions or would like to discuss these new regulations further.