By John Carl
The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk 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 Maryland is representative of a common inquiry related to plan participant fee disclosures pursuant to section 404(a)(5) of the Employee Retirement Income Security Act of 1974 (ERISA) and accompanying regulations. The advisor asked:
“If the information that must be disclosed to participants on an annual basis under the new fee disclosure rules changes mid-year, must the plan sponsor notify the participants of the changes?”
Discussion
Yes. If certain information that must be disclosed to participants annually pursuant to ERISA § 404(a) (5) (i.e., general plan-related information, general plan administrative services and fees and expenses that may be charged against an individual participant’s plan account balance) changes mid-year, the plan sponsor must notify the participants of the changes 30–90 days prior to the effective date of the change [DOL Reg. §2550.404a-5(c)(1)(ii)].
However, an exception may apply in cases where the plan sponsor is unable to provide the 30-to-90-day advance notice as a result of events that were unforeseeable or circumstances beyond the control of the plan sponsor. In those cases, the plan sponsor must furnish the notice of change to participants as soon as reasonably practicable.
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The notice of change requirement does not apply to participants’ quarterly statements.
Conclusion
New participant disclosure requirements applicable to participant-directed defined contribution plans pursuant to ERISA §404(a)(5) and further defined in DOL Reg. §2550.404a-5 require certain plan and investment-related information to be disclosed to participants on an annual basis. These rules also affect the information included on participants’ quarterly statements. When there is a mid-year change to the information that must be disclosed annually to participants, plan sponsors must issue a notice of change.
Financial advisors who are familiar with these disclosure requirements are better positioned to support their plan sponsor clients.
John Carl is the President of the Retirement Learning Center, LLC.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2012 Columbia Management Investment Advisers, LLC. Used with permission.
