In August, 2006, Congress passed the Pension Protection Act. One of the more significant changes made by the new law was the requirement that participant directed plans provide quarterly benefit statements. While many plans already were providing such statements, the new law required the plan to include additional information (e.g., restrictions on right to direct investment, vesting) and statements (e.g., diversification, DOL Web site).

The new participant fee disclosure regulations require the plan administrator of a participant directed defined contribution plan annually to provide participants with new disclosures in three broad categories: (1) plan related information regarding how a participant directs investments; (2) an explanation of the administrative and individual expenses that may be charged to a participant’s account; and (3) information about the plan’s designated investment alternatives. In addition, the regulations require the plan quarterly to disclose administrative and individual expenses actually charged to the participants’ accounts during the previous plan year quarter.

Probably the most significant concern regarding the participant fee disclosure regulations is the cost associated with implementing and delivering the disclosures. Many plans are looking to reduce the cost of the new regulations by adding some of the disclosures to statements that it already is providing. Plans also intend to use electronic delivery (“e-delivery") methods to reduce costs.

The DOL has general guidance on the electronic delivery of required disclosures but many practitioners consider the guidance outdated and too burdensome. The DOL has indicated that it may modify its e-delivery guidance to make it more useful, but the DOL will not complete those modifications before employers must modify their systems to provide the new participant fee disclosures required on May 31, 2012. Therefore, the DOL issued temporary guidance regarding the e-delivery of the participant fee disclosures. The following FAQs discuss the use of the quarterly benefit statement as well as electronic delivery in making the participant fee disclosures.

May a plan administrator use the quarterly benefit statement to make the required disclosures of the participant fee disclosure regulations?

A plan may include the plan related information and the disclosures regarding the administrative and individual expenses (annual and quarterly) in the quarterly benefit statement. However, the plan administrator may not use the quarterly benefit statement to disclose the investment information (including the comparative chart).

How would a plan include the annual disclosures into the quarterly statement?

Perhaps the simplest method is to add these disclosures once per year. For example, suppose a calendar year plan provides quarterly benefit statements in February, May, August, and November. The plan could add the annual plan and fee disclosures to the May statement. The quarterly disclosures would appear in each statement, beginning with the August, 2012 statement.

Must a plan use the quarterly benefit statement to make the disclosures regarding the plan related information and the plan administrative and individual expenses?

No. The plan may provide the disclosures separate from the quarterly benefit statement.

May a plan administrator use e-delivery to provide the quarterly benefit statement?

FAB 2006-03 allows e-delivery of quarterly benefit statements using the DOL rules or the more liberal IRS rules. The IRS rules permit e-delivery if the recipient has reasonable access to the delivery system, the information is as understandable as a paper document and the plan advises the recipient of the ability to request a free paper copy. Treas. Reg. §1.401(a)-21.

The DOL also permits delivery of the quarterly benefit statement through 24/7 access to a secure web site. However, participants must receive an annual notice explaining the availability of the information and how to access it, and advise them or their right to receive a free paper version of the information. Note: The plan may use the DOL or the IRS e-delivery rules to provide this annual notice.

What e-delivery methods may the plan administrator use to deliver the investment disclosures?

The plan administrator may use the DOL rules or it may use the new rules provided in DOL Technical Release 2011-03.

What requirements must a plan comply with to take advantage of the alternative e-delivery method of DOL Technical Release 2011-03?

In order to use the alternative e-delivery method, the participant must voluntarily furnish an email address to the plan, after receiving notice requesting the address. A plan may not require the participant to furnish the address as a condition of employment. However, the plan may condition web site access on providing the email address. Our September 16, 2011 technical update describes the content of the initial notice.

May the plan use e-delivery to transmit the notice requesting the email address?

Yes. Of course, if a participant does not receive the notice, the participant would not be providing the email address and the plan could not take advantage of the alternative e-delivery method for that participant. Unless the plan complies with the cumbersome DOL e-delivery safe harbor, however, the plan will want to have proof that the participant receive the notice prior to providing the email address. Perhaps the easiest way to have that proof is for the participant to fill in the email address on a copy of the disclosure form itself.

When must the plan provide the notice requesting the email address?

The plan must provide the notice prior to making e-delivery under this procedure. Note: The deadline for complying with the annual disclosures of the participant fee disclosure regulations is now 60 days after the later of:

In addition, after providing the initial notice, the plan must provide an annual reminder notice. Generally, the plan must provide the annual notice on paper. However, the plan may send it to the email address on file “if there is evidence that such participant . . . interacted electronically with the plan" after receiving the last notice. Our September 16, 2011 technical update describes the content of the annual notice.

If the plan already has the participant’s email address, may it use the email address under the alternative e-delivery method?

Yes, if the plan complies with the special transition procedure. Under the procedure, the plan must provide an initial notice with the information required under the annual notice 30-90 days before the plan provides the annual participant fee disclosures.

Example: For a calendar year plan providing the investment information May 31, 2012, the plan would need to provide the transition rule notice between March 2 and May 1, 2012. The plan would need to provide this notice on paper unless the participant has interacted electronically with the plan in the prior 12 months. Generally, the plan may not use the transition rule for a company-supplied email address unless the participant used that address for plan purposes in the 12 months prior to the date of the notice, such as using that email address as the username to log on to the plan’s web site.

May the plan use the alternative e-delivery method to disclose the plan related information and the administrative and individual expenses?

Yes.

ERISA Workshop. We will discuss the procedures for complying with the participant fee disclosure regulations as well as the service provider fee disclosure regulations in our ERISA Workshop presented in October, November, and December. We will provide attendees with samples of all four notices mentioned as well as sample disclosures for both sets of regulations. Other topics included in the Workshop are Form 8955-SSA, “open" multiple employer plans, duty to collect delinquent participant contributions, QDROs, and takeover cases. For more information and to register, visit our Web site.

Upcoming Web seminar
Electronic Participant Fee Disclosure, Wednesday, October 12, 2:00 p.m. ET
The DOL has just released rules permitting plan administrators to use certain electronic disclosures to satisfy the new participant fee regulations. This seminar will analyze and explain the rules and show you how to take advantage of them. We’ll also discuss how this fits into the overall DOL electronic disclosure regime and we’ll apply those rules to other ERISA notices, such as the summary annual report and summary plan descriptions. If you will be dealing with participant fee disclosures, or advising those who will, you can’t afford to miss this detailed program. For more information and to register, visit our Web site.