Your retirement plan just got a new to-do list, courtesy of the Department of Labor (DOL). Here’s a plain-English breakdown.
The DOL’s goal? Get plan sponsors to disclose all fees and expenses to plan participants of 401(k)-type plans. The agency hopes that’ll make the plans easier for employees to understand so they can make more informed decisions about where and how to invest their money.
And while you technically have until the start of 2012 to comply, the number of changes required of employers will keep you busy for the next year.
What you must do
Administrators must provide to each plan participant or beneficiary certain plan-related information and certain investment-related information when employees sign up.
Here’s a rundown:
Required plan-related info
- General plan — A current list of the plan’s investment options and a description of any arrangements that enable participants to select investments outside of those designated by the plan.
- Expenses — An explanation of any accounting and administrative fees charged to or deducted from individual accounts, as well as any fees and expenses that will be charged to or deducted from accounts based on investment decisions.
Note: Participants must also receive statements at least every quarter showing the dollar amount of the plan-related fees and expenses actually charged to or deducted from their accounts, along with a description of the services for which the charge or deduction was made.
Required investment-related info
- Performance data – Info on how each investment option has performed in the past. One-, five-, and 10-year returns must be provided.
- Fees and expenses – The total annual operating expenses must be expressed as both a percentage of assets and as a dollar amount for each $1,000 invested. For example, if an investment fund has an operational expense of 1.7%, the statement must say that the fee amounts to $17 per $1,000 invested. Also, any shareholder fees or restrictions on the participant’s ability to purchase or withdraw from an investment must be explained.
- Website – An address to a website that can provide participants and beneficiaries with more specific information about the investment options available.
- Glossary – A simple, easy-to-understand glossary of investment terms used within the plan. A link to a website that can help participants and beneficiaries understand their investment options will also meet this requirement.
- Chart – Investment-related info must be furnished to participants or beneficiaries in a chart format that will make it easy to compare investment options.
A couple of breaks
The DOL did include two employer-friendly provisions to help companies though the transition:
- A limited transition rule. It says employers will get up to 60 days after the effective date to provide employees with info that’s otherwise due to them on or before the date they can first direct investments.
- Good-faith protection. Even if a company doesn’t comply to the letter of the law, it may not be stuck. The DOL has said companies will be protected if they reasonably believe the info their plan service providers give is correct — meaning employers won’t be on the hook for service providers’ mistakes.
