Participant Summary of Disclosure Regulations

To help you, as a plan sponsor, understand the disclosures you are required to make to participants, these are highlights of the regulations.

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 accounts 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.

Plans subject to disclosure requirements: The final regulation applies only to retirement plans, both defined contribution (DC) and defined benefit (DB), covered by ERISA. Plans that do not have any common law employees, or owner-only plans, are excluded from the regulations. IRAs, SEPs and SIMPLE IRAs are specifically excluded. Welfare plans are also excluded, but may be considered at a later date.

Who is required to disclose: Plan administrators; who may delegate the responsibilities to another individual or entity.

What needs to be disclosed: Generally, two broad types of information: (1) plan information, including administrative and individual expenses that may be charged against an individual's account; and (2) investment-related information for the plan's designated investment alternatives. Additional information must be available upon request. Self-directed brokerage accounts were excluded from the regulations for investment-related information.

Who needs to receive the disclosures and when: Participants and beneficiaries who have the ability to direct the investment of their accounts. Generally, the disclosures need to be provided prior to when an individual can first provide investment direction and annually thereafter. In addition, certain fees actually charged to a participant's account must be reported quarterly.

Format in which the information must be disclosed: There is no required format for the plan information. However, investment-related information must be provided in a format that facilitates comparison. The DOL has issued a model chart which may be used for this purpose.

Penalties for non-compliance: The disclosure requirements are a fiduciary obligation and there are no specific monetary penalties for failing to provide notices as there are with other ERISA-required disclosures. However, failure to meet the requirements could be considered a breach of fiduciary duty, exposing plan administrators to remedies under ERISA.