New ERISA Rules Impose Participant Fee Disclosure Requirements


On October 14, 2010, the Department of Labor (the “DOL”) released a final regulation setting forth certain fiduciary obligations with respect to fee disclosure for participant-directed individual account plans, such as 401(k) plans. The new rules are the latest piece of a multi-part rulemaking project intended to bring transparency to investment- and service-related fees and costs borne by retirement plans and their participants. The rules will generally apply for plan years beginning on or after November 1, 2011.

Section 404 of the Employee Retirement Income Security Act of 1974 (“ERISA”) requires fiduciaries of plans subject to ERISA to act prudently and solely in the interest of the plan’s participants and beneficiaries. The new rules are premised on the view that fiduciaries of participant-directed individual account plans cannot meet this standard without taking steps to ensure that participants have sufficient information to make informed decisions about managing their accounts.

Plans that have been operated as so-called “Section 404(c) plans” may have already disclosed much of the information required by the new rules. However, the existing disclosure requirements of Section 404(c) are elective so that, if the rules are satisfied, a fiduciary may avoid liability for investment decisions ultimately made by participants. On the other hand, the new general Section 404 rules are mandatory, apply to all participant-directed plans and will impose affirmative disclosure-related fiduciary duties on plan administrators.

Who is affected and what must be disclosed?

The new rules apply to plan administrators of “covered individual account plans.” The final regulation narrows the reach of the proposed regulation, which applied more broadly to all fiduciaries. A “covered individual account plan” is any participant-directed individual account plan, other than simplified employee pensions and simple retirement accounts.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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