A Plan Sponsor’s Action Plan
Retirement plan sponsors should be aware of the pending deadline to provide participants of participant direct individual account plans detailed plan expense information. The initial deadline for providing this information is August 30, 2012. In addition, plan sponsors must be prepared to provide quarterly and annual updates to this information as required by the new rules. Failure to comply with the disclosure requirements may constitute a fiduciary breach under ERISA and may provide the basis for participant lawsuits with respect to plan losses.
The following action plan is intended to be used by HR personnel and the plan fiduciaries of a covered individual account plan in developing an action plan to comply with the participant fee disclosure requirements.
1. Identify who is responsible for managing the compliance process
The participant fee disclosure rules identify the ERISA plan “administrator” as the person responsible for ensuring compliance with the rules. In our article Service Provider Fee Disclosures Under ERISA, we outline the process for determining who is the “responsible plan fiduciary” for purposes of monitoring compliance with the service provider disclosure rules. A similar process should be followed to identify who is the plan “administrator” for purposes of the participant fee disclosure rules.
In many cases, the ERISA “administrator” and the “responsible plan fiduciary” will be the same person. However, it is possible, depending on the governance structure of the plan sponsor, that these responsibilities are not vested in the same person. Accordingly, a review of the plan document and fiduciary delegations should identify the appropriate ERISA plan “administrator”.
The task of ensuring compliance with the participant fee disclosure rules is administrative in nature. Accordingly, an HR professional will likely be charged with collecting and distributing the fee disclosure information. However, failure to comply with this rule results in a breach of fiduciary duty. Accordingly, the plan administrator must monitor and ultimately ensure compliance with the rule.
2. Educate plan fiduciaries about the importance of the rule
The participant fee disclosure rule is a new requirement that must be satisfied in order to better protect plan fiduciaries from fiduciary breach claims brought by participants for plan investment losses. Accordingly, this rule should not be viewed as an administrative exercise necessary to satisfy the DOL, but instead should be viewed as a risk management/risk mitigation activity.
ERISA imposes the highest possible fiduciary standard on plan fiduciaries. However, ERISA fiduciaries may take advantage of certain important ERISA protections that mitigate fiduciary exposure by providing adequate investment related information to plan participants. In order to mitigate fiduciary risk with respect to investment selection by plan participants, plan fiduciaries must satisfy the participant fee disclosure requirement.
In this way, the participant fee disclosure rule is both a carrot and a stick created by the DOL to encourage plan fiduciaries to provide information to participants about plan investments and expenses. By providing the information required by the rule, plan fiduciaries are able to retain statutory protection from fiduciary breach claims under ERISA Section 404(c) with respect to participant investment decisions so long as the fiduciaries act reasonably and in good faith in providing the information. However, if the plan’s fiduciaries do not comply with the fee disclosure rule, that failure constitutes a breach of fiduciary duty. Accordingly, noncompliance with the participant fee disclosure rule is not an option, but compliance provides some important protections for fiduciaries.
3. Coordinate collecting/reviewing the participant fee disclosure information
An important aspect of the participant fee disclosure rule is that it does not address contractual issues associated with the task of collecting and providing the information. Most of the information that must be provided to participants pursuant to the participant fee disclosure rule is required to be provided to the plan’s fiduciaries by the plan’s recordkeeper, broker, or platform provider pursuant to the service provider fee disclosure rule.
However, the information provided by these service providers may come from different sources, may be more or less easy to understand and will typically come with only minimal protections with respect to accuracy. Accordingly, plan fiduciaries should reach out to their recordkeepers, brokers and platform providers to confirm who will be providing the information required for disclosure and then evaluate how much work will be required to convert those disclosures into information that may be provided to participants in compliance with the participant fee disclosure rule.
We anticipate that many recordkeepers, brokers, and platform providers will provide the bulk of what is required for disclosure. However, even if a fiduciary finds that the recordkeeper will provide the participant fee disclosure information, fiduciaries must consider the contractual protections they have if the disclosures are inadequate or incomplete. Plan fiduciaries should review their service provider agreements and confirm that the agreements address the disclosure-related services being provided and adequately protect the fiduciary. Additionally, the plan fiduciaries should monitor the information being provided by service providers to ensure compliance with the disclosure rule.
4. Document the participant fee disclosure process in writing
Because the process of satisfying the participant fee disclosure rule will likely rest with HR personnel and service providers, efforts should be made to document the involvement of plan fiduciaries in the process. Accordingly, HR personnel should coordinate with the plan’s fiduciaries by doing the following:
- Provide fiduciary training about the disclosure rules
- Establish a written action plan approved by the plan’s fiduciaries
- Review service agreement protections
- Review fiduciary liability coverage
- Document “ministerial” delegations to HR employees
- Review compliance progress at fiduciary meetings
- Evaluate the subjective impact of the disclosures on participants
- Review the disclosure material with the plan’s fiduciaries
- Document fiduciary approval of the process and information provided to participants
5. Assemble and Provide the participant fee disclosure information
We have provided a detailed list of the specific information that participants must receive pursuant to the participant fee disclosure rule here. But as a general matter, the following information must be provided in accordance with the following timing rules.
- Plan Level Information. This information must be provided by August 30, 2012 and annually thereafter. In addition, new participants must be provided this information before they are able to provide investment instruction.
- Participant Specific Information. This information must be provided by November 14, 2012 and quarterly thereafter.
- Investment Information. This information must be provided by August 30, 2012 and annually thereafter. In addition, new participants must be provided this information before they are able to provide investment instruction. Other investment information must be provided upon request.
For more information or questions about this article or ERISA in general, please contact a member of our employment group or call us at 208.344.6000.