Participant Expense Disclosures

The Department of Labor (DOL), required, starting in August 30, 2012, that all participants in retirement plans receive information about the plan in an annual statement, and receive a quarterly statement showing actual expenses assessed against their accounts. The idea is to make participants more aware of the internal cost of the funds they invest in, the cost of plan loans, and other administrative costs relating to the plan.

Some of these disclosures will be annual and some will be made with a quarterly statement. The annual disclosures generally relate to plan provisions and possible expenses that could be incurred, such as the fee for taking a loan from the plan. The quarterly disclosures will show the actual expenses incurred by a participant. The annual disclosures will provide detailed information on each fund, including underlying expenses, performance, and comparison to a benchmark. The Department of Labor generally dictates the format for these fund expense and performance disclosures.

The intention of the Department of Labor is for participants to have greater awareness of plan costs, fund expenses and fund performance.

As a practical matter, the major 401(k) recordkeepers and custodians have incorporated these items in their computer systems that already generate participant statements. Most of the burden of compliance will falls on these entities that are best equipped to report this information, which they already maintain. Consequently, third party administration firms like E.R.I.S.A.,Inc. will not have an increased workload and there should be little effect on fees. Most 401(k) providers have relatively user friendly mechanisms to integrate our fee structure into the disclosures they generate. Similarly, employers should not have any materially increased burden. However, certain non-traditional arrangements that include setting up individual brokerage accounts or wealth management accounts for each participant have posed challenges in achieving compliance. 

Recently, the Department of Labor issued guidance that allows for a one time 6 month extension. the purpose is to allow plan sponsors to move to a calendar year for disclosures, or to integrate the disclosures into the annual safe harbor notices. This guidance was issued after we provided most disclosures for 2013, so any timing shift would be for 2014.