DoL Issues Final Rule on 401(k) Fee Disclosure

The DoL also announced a three-month extension to the rule’s effective date, meaning service providers must be in compliance by July 1, 2012 for new and existing contracts or arrangements between Employee Retirement Income Security Act (ERISA)-covered plans and service providers.

“As President Obama has said, we’re at a make or break moment for the middle class and those trying to reach it,” said Secretary of Labor Hilda L. Solis.

“What’s at stake is the American value that hard work pays off. The common-sense rule that we are finalizing today will shed light on the true costs of 401(k) accounts and ultimately reward those working hard and saving for retirement.”

Solis continued, “This rule, and its companion participant-level fee disclosure rule, will greatly increase the level of transparency in retirement plans. When businesses that sponsor retirement plans, and the workers who participate in those plans, get better information on associated fees and expenses, they’ll be able to shop around and make informed decisions that will lead to cost savings and a larger nest egg at retirement.”

The DoL’s rule requires service providers to furnish information that will enable pension plan fiduciaries to determine both the reasonableness of compensation paid to the service providers and any conflicts of interest that may impact a service provider’s performance under a service contract or arrangement. It requires disclosures of direct and indirect compensation certain service providers receive in connection with the services they provide.

The rule applies to those service providers that expect to receive $1,000 or more in compensation and provide certain fiduciary or registered investment advisory services, make available plan investment options in connection with brokerage or recordkeeping services, or otherwise receive indirect compensation for providing certain services to a plan.

The DoL also announced that in the near future it intends to publish for public comment a separate proposal that would require service providers, in addition to providing the required fee and investment expense information, to furnish a guide or similar tool to assist plan fiduciaries in identifying and locating the potentially complex information that must be disclosed and which may be located in multiple documents.

The DoL said the three-month extension of the effective date of the final rule was provided to allow service providers sufficient time to prepare for compliance. Service providers not in compliance as of July 1, 2012 will be in violation of ERISA’s prohibited transaction rules and subject to penalties under the Internal Revenue Code. (see DoL Extends Applicability Dates for Fee Disclosure Rules).

The effective date of the final rule works in conjunction with the compliance date of the department’s participant-level disclosure regulation (29 CFR § 2550.404a-5), which requires plan administrators to give workers who direct their retirement accounts in 401(k)-type plans easy-to-understand information to comparison shop among the plan investment options available to them.  Due to the extension of the effective date of the final rule announced Thursday, plan administrators for calendar year plans now must make the initial annual disclosure of “plan-level” and “investment-level” information (including associated fees and expenses) to participants no later than August 30, 2012, and the first quarterly statement (for fees incurred July through September) must be furnished no later than November 14, 2012.

Plan sponsors and service providers with questions about the final rule can contact EBSA's Office of Regulations and Interpretations at 202-693-8500. 

A fact sheet on this regulation is also available on EBSA's website at http://www.dol.gov/ebsa/newsroom.