• Print
  • Default text size A
  • Larger text size A
  • Largest text size A

FAQs: Disclosure Regulations for Sponsors

On October 14, 2010, the Department of Labor (DOL) released a participant disclosure regulation under section 404(a) of the Employee Retirement Income Security Act of 1974 (ERISA). The regulation imposes a duty on plan administrators to provide participants and beneficiaries with certain plan information and related fees as well as information related to the plan investment options in a comparative format. By establishing a mandatory uniform set of disclosure rules, the DOL hopes to ensure that all participants have access to the information they need to make informed decisions regarding management of their plan account and investment of their retirement savings.

The final transition rule provides that the initial disclosures to participants (both existing and newly eligible) must be furnished no later than either 60 days after the plan's applicability date or 60 days after the effective date of the DOL service provider fee disclosure regulation under ERISA 408(b)(2). The rule is applicable for plan years beginning on or after November 1, 2011. By coordinating the transition rule with the 408(b)(2) effective date, the DOL intends to allow all plan fiduciaries to receive required disclosures from service providers prior to having to send notices to participants. The DOL also clarified that the first quarterly disclosures under the regulation should be provided 45 days after the quarter in which the initial disclosures have been made.

  • Why was the final rule issued?

    The Department of Labor (DOL) states that the rule is intended to establish uniform, basic disclosures to participants and beneficiaries (referred to collectively as "participants") in participant-directed plans to allow them to make informed decisions about how to invest their plan account.

  • Who is obligated to make the disclosures mandated by the regulation?

    The plan administrator has the duty to make the disclosures mandated by the regulation. As the disclosures are a fiduciary responsibility under ERISA, failure to make such disclosures is likely a violation of the plan administrator's fiduciary duty under ERISA.

  • Which plans are subject to the new disclosure requirements?

    The final regulation applies only to ERISA-covered pension plans, such as defined contribution and defined benefit plans. Owner-only plans, or plans without common law employees are not covered under the regulations. SEP IRAs and SIMPLE IRAs are excluded from the regulation. It does not apply to welfare plans, such as health plans.

  • What disclosures are generally required under the regulation?

    There are two main categories of information that must be disclosed:

    1. Information about the plan (plan-related information)
    2. Information about the plan's designated investment options (investment-related information)

    Fidelity Retirement Plans contain what is considered a "brokerage window" and they do not offer designated investment options. Therefore, this portion of the regulations would not apply to a Fidelity Retirement Plan.

    Generally, this information must be provided initially, as well as annually. Certain fees actually charged to a participant's account must be reported quarterly.

  • What plan-related information must be disclosed?

    Plan-related information includes three types:

    1. General information
    2. Administrative expense information
    3. Individual expense information
  • What is included as general information?

    The following general information must be disclosed:

    1. An explanation of the circumstances under which participants and beneficiaries may give investment instructions
    2. An explanation of any specified limitations under the terms of the plan on such instructions, including any restrictions on transfer to or from a designated investment alternative
    3. A description of or reference to plan provisions relating to the exercise of voting, tender, and similar rights, as well as any restrictions on such rights
    4. Identification of any designated investment alternatives offered under the plan
    5. Identification of any designated investment managers
    6. A description of any "brokerage windows," "self-directed brokerage accounts," or similar plan arrangements that allow the selection of investments beyond those designated by the plan
  • What administration expense information is required to be disclosed?

    An explanation of any fees and expenses for plan administrative services that may be charged against the individual accounts of participants and that are not reflected in the total annual operating expenses of any designated investment option must be disclosed. Also, the basis on which such charges will be allocated to, or affect the balance of, each individual account (for example, pro rata, per capita) must be disclosed.

    In addition, the dollar amounts actually charged during the preceding quarter to the participants' accounts for administrative services and a general description of the services to which the charges relate must be disclosed.

    Also, if applicable, an explanation that some of the plan's administrative expenses for the preceding quarter were paid from the total annual operating expenses of one or more designated investment options (for example, revenue sharing). Note that this requirement was not included in the proposed regulation and the DOL indicates that it was added so participants would understand that some of the fees and expenses of their plan might be underwritten by the investment alternatives offered in the plan. This provision does not require disclosure of the "rate" of such payments, nor does it require that the disclosure be provided only to participants who have invested in the specific designated investment options which make such payments.

  • Must the disclosures be made in a particular format?

    Plan-related information does not need to be disclosed in a particular format and may be included in a summary plan description if desired. Quarterly disclosures of actual fees assessed from participant accounts may be disclosed in quarterly statements but are not required to be. See the DOL website for more information.

    Generally, fees and expenses may be expressed in monetary amounts, formulas, percentage of assets, or a per capita charge.

  • When do the initial disclosures need to be provided to new participants?

    On or before the date the participant can provide investment direction. Note that the DOL changed this provision from the proposed regulation, which provided that the initial disclosure be provided upon eligibility to accommodate plans that provide for immediate eligibility.

  • To whom do the disclosures above need to be made?

    Participants who have the right to direct the investment of assets held in their accounts. Under ERISA, a participant is defined as an individual who is eligible to participate, so it includes employees who have not yet enrolled in the plan. Annual notices must be provided to such participants even though they may have no balance in the plan.

  • How will Fidelity help plan fiduciaries meet the new disclosure requirements?

    Fidelity is evaluating the details of the final regulation and defining its approach to helping its clients fulfill their fiduciary responsibilities.

  • How will Fidelity keep clients informed as this evolves?

    Fidelity will post the latest fee disclosure developments to a new fee disclosure resource center on Fidelity.com.

    If you have any further questions, please contact us at 800-544-5373.

Questions?

Fidelity does not provide legal or tax advice and the information provided above is general in nature and should not be considered legal or tax advice. Consult with an attorney or tax professional regarding your specific legal or tax situation.

596815.3.0