Posts

erisa banner
Print Friendly Version Print Friendly Version

401(k) Plan Comparative Fee Chart

“My client, who has a 401(k) plan, timely distributed the plan’s annual fee disclosure in the comparative chart format. The next month, an expense ratio changed for one of the designated investments under the plan.  Must my client provide a new comparative chart to show the change?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

Highlights of discussion

  • Pursuant to Department of Labor Regulation Section (DOL Reg. §)2550.404a-5 , plan sponsors must initially, and at least annually thereafter, disclose plan information and investment-related fee information to participants of 401(k) plans.
  • The investment-related fee information can be provided in a comparative chart format.
  • Plan sponsors need only provide one comparative chart to participants and beneficiaries per year. If there is a change to a designated investment alternative’s fee and expense information after the plan administrator has furnished the annual disclosure (“comparative chart”) to participants and beneficiaries, the plan sponsor is not required to issue a second disclosure (Field Assistance Bulletin 2012-02R, Q&A 22).
  • However, fee and expense information must be made available on a Web site (Field Assistance Bulletin 2012-02R, Q&As 17 through 19). Information made available on the Web site must be accurate and updated as soon as reasonably possible following a change (Field Assistance Bulletin 2012-02R, Q&A 19). The Web site also should reflect the date on which it was most recently updated.
  • Additionally, under extraordinary circumstances, the duties of prudence and loyalty under ERISA § 404 may require the plan sponsor to inform participants and beneficiaries of important changes to investment- related information before the next comparative chart is required under the regulation (please see 75 FR 64922, footnote 17 of the preamble to the final regulation).
  • Note that a description of changes to plan-related information must be distributed at least 30 days, but not more than 90 days, in advance of the effective date of any change, unless the inability to provide such advance notice is due to events that were unforeseeable or circumstances beyond the control of the plan administrator, in which case notice of such change must be furnished as soon as reasonably practicable (Section (DOL Reg. §)2550.404a-5 ).

Conclusion

  • A plan sponsor need only provide the annual comparative chart that reflects its 401(k) plan’s fee and expense information once per year, regardless of whether the information changes during the year. However, the coordinating Web site must reflect the most up-to-date fee information available.

 

 

© 2017 Retirement Learning Center, LLC

 

TAGS:

Fees

Comparative chart

Disclosure

© Copyright 2017 Retirement Learning Center, all rights reserved
fiduciary
Print Friendly Version Print Friendly Version

Fiduciary Rule Transition

What New Disclosure is Required during the Fiduciary Rule Transition Period?

“Our firm will be following the Best Interest Contract Exemption (BICE) under the new investment advice fiduciary rules.  Our compliance department has provided a written notice of fiduciary status for us to use with our clients during the transition period that runs through December 31, 2017. Is this notice required?  

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

Highlights of Discussion

  • No, the written statement of fiduciary status is no longer required during the transition period. This is a recent change that was included in the regulation that delayed the applicability date of the new fiduciary rules to June 9, 2017 (DOL Reg. 2510.3-21).
  • The DOL changed the BICE and Principal Transaction Exemption transition period requirements, making adherence to the Impartial Conduct Standards1 during the transition period (June 9, 2017 through December 31, 2017) the only condition of compliance (removing the need to provide a written statement of fiduciary status as well as other requirements).
  • However, service providers to qualified plans may still be required to provide an updated service and fee disclosure under ERISA §408(b)(2) to reflect a change in fiduciary status as of June 9, 2017.
  • Pursuant to DOL Reg. § 2550.408b-2(c)(1)(iv), covered service providers to qualified retirement plans (e.g., 401(k) plans) who expect to receive at least $1,000 in direct or indirect compensation must provide plan fiduciaries with service and fee disclosures.  As part of the “408b-2” disclosure, service providers must include a statement of fiduciary status, if applicable [DOL Reg. § 2550.408b-2(c)(1)(iv)(B)].
  • Therefore, if a financial advisor’s status as a fiduciary to the plan changes as of the applicability date (June 9, 2017) of the investment advice fiduciary regulations, then he or she is required to provide an updated disclosure to the plan fiduciary reflecting the change in his or her fiduciary status.
  • The updated 408b-2 disclosure must be provided “as soon as practicable, but not later than 60 days from the date on which the covered service provider is informed of such change”  [DOL Reg. § 2550.408b-2(c)(1)(v)(B)]. Consequently, financial advisors should provide the notice by June 9, 2017 and no later than August 8, 2017.

 

Conclusion

Financial advisors should be aware that they may need to issue updated 408b-2 disclosures during the BICE and Principal Transaction Exemption transition period.

 

 

© 2017 Retirement Learning Center, LLC

 

 

© Copyright 2017 Retirement Learning Center, all rights reserved