Legislative and Regulatory

DOL to Withdraw and Re-propose Rule on Definition of Fiduciary (Sept 23, 2011)

DOL to withdraw and re-propose rule on Definition of Fiduciary (Sept 23, 2011)

On Tuesday, September 13, 2011, the Department of Labor (DOL) issued Technical Release 2011-03 providing interim guidance on the use of electronic medium to meet the participant fee disclosure requirement that will go into effect in 2012.

I. Background: In 2010, the DOL issued final regulations on what fee disclosure information must be provided to plan participants, beneficiaries and any employee eligible to participate in a plan allowing participants to direct their own investments. These new rules become effective beginning on May 31, 2012 for calendar year plans. The rules break the required disclosures into four broad categories:

  1. General plan information (e.g., how to change investments or contribution rates). Must be provided annually.
  2. Explanation of participant specific fees (e.g., loan origination fee, QDRO processing fee). Must be provided annually. In addition, participant must receive quarterly statement showing any fees charged to their account.
  3. Explanation of general fees charged to participant accounts (e.g., plan-wide recordkeeping fees). Must be provided annually. In addition, participant must receive quarterly statement showing any fees charged to their account.
  4. A chart comparing plan investments with related performance and fee information. Must be provided annually.
The DOL reserved a section of the final regulation for guidance on electronic disclosure. The September 13 Technical Release is in response to plan sponsor and provider requests that interim guidance on electronic disclosure be provided.

II. Interim Guidance: Under previous guidance in FAB 2006-03, the DOL allowed providing participant statements via a continuously available Web site. This method may be used to satisfy the quarterly requirements under I.2 and I.3 above. Note that this applies only to the disclosure of fees actually charged to the accounts and not the annual explanation of those fees.
 
While the Technical Release does not allow satisfying the disclosure requirement by posting the annual notices to a Web site, it does provide circumstances where the disclosure requirement may be met through the use of e-mail. Requirements include:
  1. The participant must voluntarily submit their e-mail address. If the provision of an e-mail address is a condition of employment or participation in the plan, such e-mail address will not be treated as being provided voluntarily. If a participant is required to provide an e-mail address electronically in order to access a secure Web site, the provision of such e-mail address is considered voluntary as long as the notice discussed in section 2 below is posted on the Web site.
  2. Participants must receive an initial notice and annual notice that states:
    a. Providing an e-mail address is voluntary (required for initial notice only);
    b. A brief description of the fee disclosure information being provided electronically and how it may be accessed;
    c. Their right to request hardcopy free of charge;
    d. Their right to opt out of electronic delivery at any time; and
    e. How they can update their e-mail address.


    The initial notice is delivered at the same time and in the medium as the request for the e-mail address.
  3. Generally the annual notice in section II.2 above must be on paper unless there is some evidence that the participant has "interacted electronically" with the plan. Evidence would include, but is not limited to:
    a. Participant or beneficiary updating, resubmitting or confirming his or her e-mail address to the plan; 
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    b. The participant or beneficiary sending an electronic message to the plan;
    c. Logging onto the plan Web site; or 
    d. Receiving and opening of an electronic message sent by the plan to the participant or beneficiary.
  4. Generally the annual notice in section II.2 above must be on paper unless there is some evidence that the participant has "interacted electronically" with the plan. Evidence would include, but is not limited to:
    a. Personal e-mail addresses. These e-mail addresses may be considered voluntarily submitted if the Transitional Notice requirements are met, as outlined in the Technical Release.
    b. Work e-mail addresses. The participant must have electronically interacted with the plan in the preceding 12 months to be able to consider the e-mail address voluntarily submitted by the participant. Evidence of interaction is the same as section 3 above, except that simply logging onto the plan website is not listed as evidence of interaction unless using their e-mail address as a user name is required to access the site (similar to the requirement in section 1 above).
    c. In both situations, a Transitional Notice consistent with section II.2 above must be initially provided. The participant must have electronically interacted with the plan in the preceding 12 months to provide the transitional notice electronically. Evidence of this interaction is the same as in section II.3 above.

Comments: While the guidance does not go as far as many in the industry might have hoped, it does provide some relief and a process for reducing a portion of the administrative expenses associated with complying with the new participant fee disclosure regulations.

Download a draft of the annual fee disclosure for your information.

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for investment, accounting, legal or tax advice.

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