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CCH® PENSION — 10/28/10

EBSA issues final fee disclosure regs for participant-directed account plans

The Department of Labor's Employee Benefits Security Administration (EBSA) has issued final regulations governing the fiduciary requirements for disclosure of fees and expenses associated with participant-directed individual account retirement plans. The final regulations are effective on December 20, 2010 (60 days after the date of publication in the Federal Register). The regulations become applicable to covered individual account plans for plan years beginning on or after November 1, 2011. For calendar year plans, compliance will be required on January 1, 2012.

"This rule provides uniform disclosure to workers about what they pay for investment options in their retirement plans," said Secretary of Labor Hilda L. Solis. "For the first time, workers will have at their fingertips important and accessible investment-related information to comparison shop among the plan options available to them."

The final regulations provide plan administrators protection from liability for the completeness and accuracy of information provided to participants if the plan administrator reasonably and in good faith relies upon information provided by a service provider.

Plan-related information

The final regulations require plan administrators to provide to each participant or beneficiary certain plan-related information about the structure and mechanics of the plan. This plan-related information must be given to participants on or before the date they can first direct their investments, and then again annually thereafter.

The plan-related information includes an explanation of how to give investment instructions under the plan, a current list of the plan's investment options, and a description of any "brokerage windows" or similar arrangement that enables the selection of investments beyond those designated by the plan. The information must also include an explanation of two types of fees and expenses:

• (1) those for general plan administrative services that may be charged to or deducted from all individual accounts. Examples include fees and expenses for legal, accounting, and recordkeeping services.
• (2) those that may be charged to or deducted from the individual account of a specific participant or beneficiary based on the actions taken by that person. Examples include fees and expenses for plan loans and for processing qualified domestic relations orders.

Quarterly statements of actual charges or deductions

In addition to the plan-related information that must be furnished up front and annually, participants must receive statements, at least quarterly, showing the dollar amount of the plan-related fees and expenses (whether "administrative" or "individual") actually charged to or deducted from their individual accounts, along with a description of the services for which the charge or deduction was made. These specific disclosures may be included in quarterly benefit statements required under ERISA §105.

Standard methodologies must be used when calculating and disclosing expense and return information to achieve uniformity across the spectrum of investments that exist in plans.

Annual investment-related information

Investment-related information must be furnished to participants or beneficiaries on or before the date they can first direct their investments, and then again annually thereafter. Investment-related information about each investment option under the plan includes:

• l Performance Data - Participants must be provided specific information about historical investment performance. One-, five-, and ten-year returns must be provided for investment options, such as mutual funds, that do not have fixed rates of return. For investment options that have a fixed or stated rate of return, the annual rate of return and the term of the investment must be disclosed.
• l Benchmark Information - For investment options that do not have a fixed rate of return, the name and returns of an appropriate broad-based securities market index over one-, five-, and ten-year periods (matching the Performance Data periods) must be provided. Investment options with fixed rates of return are not subject to this requirement.
• l Fee and Expense Information - For investment options that do not a have a fixed rate of return, the total annual operating expenses expressed as both a percentage of assets and as a dollar amount for each $1,000 invested, and any shareholder-type fees or restrictions on the participant's ability to purchase or withdraw from the investment must be provided. For investment options that have a fixed rate of return, any shareholder-type fees or restrictions on the participant's ability to purchase or withdraw from the investment must be provided.

The final regulations specify that investment-related information includes an internet website address that is sufficiently specific to provide participants and beneficiaries access to specific additional information about the investment options for workers who want more information or more current information. In addition, investment-related information should include a general glossary of terms to assist participants and beneficiaries in understanding the plan's investment options, or an internet website address that is sufficiently specific to provide access to such a glossary.

Comparative format requirement

Investment-related information must be furnished in a chart or similar format designed to facilitate a comparison of each investment option available under the plan. The final regulations include, as an appendix, a model comparative chart, which when correctly completed, may be used by the plan administrator to satisfy the requirement that a plan's investment option information be provided in a comparative format.

In addition, after a participant has invested in a particular investment option, he or she must be provided any materials the plan receives regarding voting, tender or similar rights in the option. Upon request, the plan administrator must also furnish prospectuses, financial reports and statements of valuation and of assets held by an investment option.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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