Case of the Week: Fee Disclosure Comparative Chart

John Carl

The ERISA consultants at the Learning Center Resource Desk, which is available through Columbia Threadneedle Investments, regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Massachusetts is representative of a common inquiry involving 401(k) plans and fee disclosure.

“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?”

Highlights of Discussion

Pursuant to Department of Labor 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 (FAB) 2012-02R, Q&A 22).

However, fee and expense information must be made available on a website (FAB 2012-02R, Q&As 17-19). Information made available on the website must be accurate and updated as soon as reasonably possible following a change (FAB 2012-02R, Q&A 19). The website 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 (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 (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 website must reflect the most up-to-date fee information available.
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“Case of the Week” is the winner of an APEX Award for Publication Excellence for 2017.

The Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC (RLC), a third-party industry consultant that is not affiliated with Columbia Threadneedle. Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Columbia Threadneedle does not provide tax or legal advice. Consumers consult with their tax advisor or attorney regarding their specific situation.

Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Columbia Threadneedle.

Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies.

©2017, Columbia Management Investment Advisers, LLC. Used with permission.

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