DOL Proposes Further Disclosures for Target Date Funds

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On November 30, 2010, the Department of Labor (DOL) proposed new regulations requiring plan fiduciaries to provide enhanced disclosures about target date funds to retirement plan participants directing their own investments. The proposal would also amplify the investment information that must be disclosed about a plan’s qualified default investment alternative (QDIA), even if it is not a target date fund. DOL proposes that these amendments would be effective 90 days following publication of the final rule in the Federal Register. Comments on the proposed regulations must be received no later than January 14, 2011.

Background

This new development represents the intersection of two different DOL regulatory initiatives. DOL has for several years been in the process of considering and then requiring enhanced disclosures for participants who direct the investment of their own retirement plan accounts.

-In October 2007, DOL issued a final QDIA regulation, providing relief for fiduciaries of participant-directed individual account plans who invest participant accounts in certain designated investment alternatives in the absence of affirmative investment directions by the participant. Under this rule, which includes target date funds as a type of fund that may be used as a plan’s QDIA, a fiduciary may be relieved from liability under the Employee Retirement Income Security Act (ERISA) § 404(c) for loss or fiduciary breach resulting from the investment of a participant’s account in a QDIA when the participant has an opportunity to but does not direct the investment of his or her account. Relief is available under the final regulation only if the fiduciary provides participants with initial and annual notices disclosing certain information about the plan’s QDIA.

-In October 2010, DOL issued a final participant disclosure regulation, which takes the position that the ERISA § 404(a) fiduciary rules are satisfied only if certain plan- and investment-related disclosures are made to participants in a participant-directed individual account plan. Thus, this final regulation applies to all participant-directed individual account plans, not just a plan intended to qualify for relief under ERISA § 404(c). The regulation provides detailed and expansive guidance on the types of plan- and investment-related information that must be furnished, as well as when and how often such information should be provided. When issuing the participant disclosure regulation, DOL reserved rules on target date fund disclosures for future guidance.

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