This new disclosure just adds to the existing list of fiduciary duties required to maintain compliance in an ever changing legislative environment
The Department of Labor (DOL) released a final rule effective July 1, 2012 requiring plan sponsors to disclose fee and expense arrangements to simplify comparisons between investment options. Plan sponsors must provide disclosures to participants and beneficiaries on or before the date that they can first direct their investments, and then annually for following years. For calendar year plans the initial round of disclosures must be distributed to participants by August 30th. The disclosures must use a chart or other format designed to provide a comparison of all the plan’s investment options.
Some requirement disclosures from the final rule include:
General plan disclosures. This includes an up-to-date list of the plan’s investment options and a description of any arrangements that allow a selection of investments beyond those offered.
Plan fees and expenses. Service providers must disclose fees and expenses for legal, accounting and recordkeeping services, plus any other general plan administrative services that may be charged to or withheld from all accounts.
Performance data. Service providers must disclose one-, five- and 10-year returns for investment options, such as mutual funds that don’t have fixed rates of return. For investments that have a fixed rate of return, service providers must disclose the investment’s annual rate and term.
Benchmark information. For investment options that don’t have a fixed rate of return, service providers must disclose the name and returns of an appropriate broad-based securities index over one-, five-, and 10-year periods. Options with fixed rates of return aren’t subject to this condition.
Fee and expense information. For investment options that don’t have a fixed rate of return, service providers must disclose the total annual operating expenses and any fees or restrictions on a participant’s ability to purchase or withdraw from the investment.
Website access. The disclosure must include a website address that provides access to additional information about the investment options.
Although these new disclosure requirements are important and plan sponsors should be preparing for compliance, this is only one small component of fiduciary compliance. Plan fiduciaries are responsible for acting in the best interest of the participants and should maintain an up-to-date fiduciary file as evidence they are doing so. The fiduciary file should consist of four key sections: Documents, Administration, Participant Communication, and Investments. Some key areas for review in each category are referenced below:
Documents: IRS Determination Letter, Plan Document and all Amendments, Summary Plan Description, Investment Policy Statement, 404(c) Policy Statement and Notice, Form 5500 (7 years), Summary Annual Reports (7 years), Service Provider Contracts, Salary Deferral Agreements, Participant Notices, Plan Loan Documents, Nondiscrimination Test Results, Corporate Tax Returns, Corporate Board Resolutions, RFP Results, Committee Charter, ERISA Fidelity Bond, Fiduciary Liability Insurance Contract.
Administration: Evidence of Employer Contributions (7years), Distribution Documents, Audit Results (IRS/DOL), IRS/DOL correspondence, Executive Committee Annual Plan Review, Participant Complaints, Significant Business Events (Sales, Purchase, etc.).
Participant Communication: Enrollment Materials, Fee and Investment Disclosures, Documentation of all Communication Events (meetings, e-mails, postings, etc.), Material to be provided automatically (safe harbor notices, etc.), Material to be provided upon request.
Investments: Documentation of Investment Activity, Executive Summaries from all Committee Meetings, Current Fund Menu with Performance and Expense Information.
Today’s fiduciary is faced with great and increasing responsibility in a confusing environment where change is the only constant. To help ease this burden, CSH has created a brief checklist for plan sponsors and other fiduciaries which will help identify fiduciary areas of improvement for your plan.
In addition, QPAC can prepare a broad assessment of fiduciary excellence which includes a comprehensive cost and performance benchmarking analysis of your plan. We encourage everyone to complete the QPAC Fiduciary Questionnaire. If any areas of concern are identified, please contact your QPAC representative for an in-depth discussion, or to schedule your fiduciary assessment.