Q-1: What are the categories of general plan disclosures the plan administrator must provide?

The participant fee disclosure regulations list 6 categories of information the plan administrator (or a designee) must provide to participants and beneficiaries (collectively referred to in this Technical Update as “participants") in a participant-directed individual account plan. The categories are:
1. Explanation of circumstances under which participants may direct their investments;
2. Explanation of limitations on investment direction under the plan terms;
3. Description of (or reference to) plan terms relating to exercise of voting and similar rights appurtenant to investment in a designated investment alternative, and any restriction on such rights;
4. Identification of any designated investment alternative under the plan;
5. Identification of any designated investment manager; and
6. Description of any brokerage window, self-directed brokerage account or similar arrangement.

Q-2: What are the “circumstances" under which participant may give investment directions?

The disclosure regarding circumstances of a participant’s investment directions could include specific directions for making or changing a participant’s investment instructions online (including a Web address) or by using a paper election form, any limitation on the days or times participants may give investment instructions (e.g., only on the first 5 business days of each month), any limitation on the frequency of change opportunities (e.g., you may change investments only quarterly except for stated circumstances), any limitation on accounts available for investment direction (e.g., only your deferral account, and not your employer contribution account), and a contact person to whom the participant may direct any question regarding investment directions.

Q-3: Is the explanation of limitations on investment direction “under the plan terms" limited specifically to provisions of the basic plan document?

No. If the plan permits the plan administrator to adopt a separate policy to permit participants to direct their investments, the explanation should include any limitations established under that policy.

Q-4: If a participant-directed individual account plan (e.g., 401(k) plan) gives the trustee authority to exercise any voting or other rights associated with plan assets, does the trustee still need to comply with disclosure 3 in Q&A-1 above? If so, how does the trustee comply?

Yes. If the trustee does exercise such rights, the disclosures should inform the participants of this policy. Conversely, if the plan administrator, pursuant to authority in the plan document, adopts a policy of passing through to participants in a participant-directed plan voting rights with respect to the shares of designated investment alternatives in which the participants invest, the disclosures should inform the participants of their ability to exercise voting or other rights passed through.

Q-5: If the plan provides a brokerage account option, must the plan administrator provide disclosures with respect to the brokerage account option?

Yes. Of the six disclosure items listed in Q&A-1, item 6, of course, directly relates to brokerage accounts. Items 3 and 4, which apply only to designated investment alternatives (e.g., 10 specific mutual funds that the plan provides for participant investment), would not apply to the brokerage account option. The remaining three items, items 1, 2 and 5 (but as to 5, only to the extent the plan names a designated investment manager), would apply to the brokerage account option.

Q-6: What is a “designated investment alternative" for purposes of the general plan disclosures?

A designated investment alternative is any investment alternative the plan designates into which participants may direct the investment of their individual account assets. For example, if the plan designates 10 identified mutual funds into which participants may direct their investments, each of the 10 funds is a designated investment alternative. The term does not include a brokerage window, a self-directed brokerage account or similar arrangements permitting participants to select investments beyond the designated investment alternatives. This definition is identical to the definition of the same term used in the July 2010 service provider fee disclosure regulations.

Q-7: When must the plan administrator provide the general plan disclosures?

The plan administrator must provide the general plan disclosures on or before the date a participant can first direct his/her investments, and at least annually thereafter.

Q-8: Must the plan administrator give the participants the initial general plan disclosures on the first day of eligibility?

No. The DOL modified the requirement under the proposed regulations to provide the initial disclosures “on or before the date of plan eligibility." In response to comments concerning compliance with this requirement when a plan provides for eligibility on the first day of employment, the DOL, in the final regulations, requires the initial disclosures on or before the date a participant “can first direct his or her investments" (and annually thereafter). Presumably this provision gives the plan administrator a few days to deliver the initial disclosures, provided the participant has the disclosures in connection with other investment election materials, so that the participant may consider the disclosures prior to making an investment election.

Q-9: What does “at least annually thereafter" in Q&A-5 mean?

The requirement to provide the general plan disclosures at least annually after the initial disclosure means at least once in any 12-month period, regardless of whether the plan operates on a calendar or a fiscal year basis. For example, assume a participant enters the plan on July 1, 2012, and receives the initial disclosures on July 5, 2012. Therefore, the plan administrator must provide the annual disclosures to that participant by each subsequent July 5, but could provide the disclosures during the month of January of each year beginning 2013 (when the plan administrator provides the disclosures to all current participants).

Q-10: What obligation does the plan administrator have in case of a change occurs in the information described in Q&A-1?

If a change occurs in any of the required disclosures, the plan administrator must provide each participant a description of the change at least 30 days, but not more than 90 days, before the effective date of the change. However, if the advance notice is not possible due to events that were unforeseeable or circumstances beyond the plan administrator’s control, the plan administrator must provide the notice as soon as reasonably practicable. For example, if the plan administrator immediately eliminates a designated investment alternative because it no longer is a prudent investment alternative, it must provide the information as soon as reasonably practicable.

Q-11: Do the change rules discussed in the previous Q&A depend upon whether or not the change is “material"?

No. While the proposed regulations limited their application to “material" changes, the DOL has taken the view that virtually any change in the disclosure information would be material, and therefore eliminated the qualifier “material" from the final regulations. Note that the DOL took the same approach in the final service provider fee disclosure change rules.

Q-12: What documents may the plan administrator use to satisfy the obligation to provide the plan-related disclosures on or before the date the participant first can direct his/her investments?

The plan administrator may satisfy the initial disclosure requirement by providing to the participant the most recent annual disclosure furnished to participants under the annual notice requirement, and any update to the information furnished to participants. Therefore, the plan administrator does not need to create a separate “package" of disclosures as of each plan entry date, provided the plan administrator keeps track of and distributes to new participants any update to the annual disclosure with the annual disclosure itself.

Plan Fees Workshop: Navigating the Maze – Jan/Feb 2011
The DOL has spent years working on guidance related to plan fees. What can the plan pay? How can fiduciaries understand what the plan is paying? What must fiduciaries tell participants? What must fiduciaries tell the DOL? What must those charging the fees disclose? Finally, it is all coming together, with several sets of new regulations and new requirements. Unfortunately, the various pieces of guidance use different thresholds and different terminology (or, even worse, the same terms to mean different things). The result, instead of understanding, is a maze of confusion and frustration. Attend this new workshop to find out what the rules are and what they mean for you. Learn what to expect and what to do. We will help you get through the maze of regulations to achieve compliance with the new disclosure requirements. We also will provide sample forms to facilitate compliance with the new regulations. Register for the workshop on our Web site.

Orlando Advanced Pension Conference – Early Fee Ends January 10
February 9-11, 2011. Timely topics include: keeping current – a summary of changes over the past year, including the DOL’s expected new rules on fiduciaries and investments; Washington update with Craig Hoffman; service provider fee disclosure regulations; overview of the anticipated participant fee disclosure rules; designing service agreements under the new rules; DB and cash balance plans for DC practitioners; mock IRS audit; troubleshooting EFAST2; plan correction; and more. Plus, earn up to 19 hours of continuing education credits including 1 ethics hour. Register by January 10 and save $150. View the complete agenda and register online.