[I am pleased to post this very informative blog written by Crystal Smith, manager in our attestation practice. She is a skilled auditor and a fine writer, as you can read for yourself. Thank you, Crystal. -Vance]
Since April 2007, the Employee Benefits Security Administration (EBSA) has been soliciting comments and suggestions from the general public regarding their thoughts on employee benefit plan fee disclosure. After almost five years of reviewing comments, the final ruling is here. Participants will no longer be engulfed in the never-ending game of hide and seek when it comes to identifying expenses and fees charged to their retirement accounts.
In February 2012, the EBSA ruled that the fiduciary responsibility includes the investment of plan assets which is governed by Section 404(a)(1)(A) and (B) which requires a fiduciary to act “prudently and solely in the interest of the plan’s participants and beneficiaries.” The rule also states that the plan administrator must ensure that participants or beneficiaries are advised of their rights and responsibilities in regards to their investment options and activity in their account including but not limited to contributions, fees and expenses. The plan administrator must also provide certain plan and investment related information to each participant or beneficiary. So now you’re thinking, ‘Whew. That was close. Glad, I’m not the plan administrator. I pay XYZ Company to do that for me.’ Not so fast—While a plan sponsor may outsource the plan’s administration, the plan sponsor remains the responsible party and maintains the fiduciary responsibility.
So now that you know that you can’t outsource your fiduciary duty along with the administration of your plan, what information should your service provider disclose to participants in your plan?
Plan Related Information
Plan related information consists of three categories: General plan information, administrative expense information and individual expense information.
- General information includes information about the structure of the plan as well as the investment options and any brokerage windows.
- Administrative expense information includes an explanation of fees and expenses for general administrative services that may be charged to participant accounts such as accounting, legal or recordkeeping fees.
- Individual expense information includes information related to the respective participant’s account such as fees charged for loan and distribution processing.
Investment Related Information
Investment related information includes five categories: performance data, benchmark information, fee and expense information, internet web site address and glossary.
- Performance data – The historical investment performance such as 1, 5 and 10 year returns for investment options that do not have a fixed rate of return should be disclosed; investments with a fixed rate of return must disclose the annual rate of return and the term of the investment.
- Benchmark information – If investments do not have a fixed rate of return, the name and returns of an appropriate broad–based securities market index over 1, 5 and 10 year periods must be provided. If an investment has a fixed rate of return, this requirement does not apply.
- Fee and expense information – If the investment does not have a fixed rate of return, the total annual operating expenses expressed as a percentage of assets and a dollar amount for each $1,000 invested as well as any shareholder type fees or restrictions that may restrict the participant’s ability to purchase or sell the investment must be disclosed.
- Internet web site address – A web site address that gives participants and beneficiaries access to additional information should be made available.
- Glossary – A general glossary should be provided to assist participants and beneficiaries in understanding the plan’s investment options or an internet web site that provides access to such information.
This information is required to be comparative and was effective July 1, 2012. Annual disclosure of plan level and investment level information must be furnished to participants no later than August 30, 2012 for calendar year plans. The first quarterly statement must be furnished to participants no later than November 14, 2012 for information July through September (45 days after the end of the third quarter July – September). In addition, participants must receive statements at least quarterly showing plan and individual fees charged to their accounts with a description of the fees.
Plan sponsors are protected from liability related to the completeness and accuracy of the information provided to participants if the plan sponsor reasonably and in good faith relies on the service provider to whom the plan administration is outsourced.
For more information, please visit www.dol.gov.
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