In this ALERT we will focus on the plan sponsor’s responsibility to provide fee disclosures to participants in participant directed individual account plans (except SEPs, IRAs, SIMPLEs and governmental plans) by August 31st. The ball is now in the plan sponsor’s court and it is getting close to the end of the overtime period
We have issued numerous ALERTs over the past few years regarding the various disclosures (ErisaALERT 2010-12 which discusses the final 404(a)(5) regulations and contains links to our previous ALERTs). Even if your plan vendor is assisting in the preparation of the disclosure, the plan sponsor must read and understood the information that will be sent to your plan participants – opportunities abound.
You have the opportunity to:
- Educate participants to the importance of actually reviewing their statements
- Remind participants of the investment education and possibly advice services already offered
- Remind participants of the value of saving for retirement
- Inform participants regarding the due diligence you and your plan committee exercise in running the Plan
You may be well along the way to realizing the opportunities or you may not have had a chance to really focus on them; but focus you must and quickly!
Reviewing the participant disclosure
The DOL places the accountability for the notice on the plan sponsor. In addition to the logistics of production and distribution, the plan sponsor needs to make sure the notice contains all of the elements required by the DOL such as:
- Road map on where to find information in the notice.
- Fund information with performance and expense data.
- Explanation of plan provisions that could result in fees charged to a participant.
- Glossary of terminology.
We have developed a checklist to help you with the review process.
Distributing the Disclosures
Plan sponsors should identify who will help them distribute the notice to participants by the deadline. Many bundled plan providers provide tools to develop the annual notice. While this may seem like an easy solution, the plan sponsor needs to identify:
- Who will use the tool and input the required information.
- Names and addresses for everyone who must receive the notice (including employees who are eligible to make deferrals but do not, terminated participants with balances, beneficiaries with balances and alternate payees with balances.)
- Who will produce copies of the notices?
- Who will distribute the notices (hand out, mail…)?
The notices will be big packages commonly with a dozen or more pages. The notices can be made available on a web site, but this requires a separate process for participants to elect out of receiving paper (see ErisaALERT 2011-13). The time before the August 30th is too short for many plans to solicit participants.
For unbundled plans or plans with providers in addition to bundled providers, the plan sponsor needs to identify either a provider who will take the lead to accumulate the information from all other providers, or the plan sponsor needs to take ownership of that role.
Preparing for participant questions
Much of the required plan related (investment option related) participant disclosures is already provided to participants in one form or another. The new requirements bring it all together which may result in a rather large document delivered to participants. Some participants will say “you can’t expect me to read all this, tell me what it means”; other participants will throw the disclosure statement in a folder with other plan information to be read when the need arises; others will read it carefully and have questions. You might want to consider distributing FAQ with the disclosures; you know your participants so you should have some idea who will ask what. In addition, the DOL is recently released a short video regarding plan fees which your participants may view. You might want to consider providing answers to the following questions:
- Why do I have to pay fees to save for retirement?
- Why does my spouse pay lower fees than I do?
- How do I know that you have selected the cheapest service provider?
- What do you do to keep fees down?
- Can’t we have funds that are less expensive?
- What is the point of saving with all these fees?
What should Plan Sponsors do?
- Try to view the fee disclosure process as an opportunity to:
- Communicate value to plan participants
- Fulfill fiduciary responsibility of monitoring plan providers
- Engage the investment/administrative committee
- Make sure you know who is doing what, do not take anything for granted.
- Consider engaging an independent investment advisor to review fund fees and fund line-up (we will have more on this in our next ALERT).
- Develop a communication campaign geared to answering as many questions as possible up front.
- Document, document, document.
As you grapple with fee disclosures, it is full steam ahead on Affordable Health Care. We will discuss the opportunity in the Affordable Health Care requirements in an upcoming ErisaALERT.
You may want to check our facebook page periodically for quick updates on compliance issues.
Note: all links are active as of the date of issuance of this ErisaALERT.
Disclaimer: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plan. For more information on this ErisaALERT contact us by phone at 610-524-5351 and ask for Mary Andersen, 610-337-7270 and ask for Paul Protos, or 973-994-7539 and ask for Theresa Borzelli.
