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Learning to Live With 404a-5 Participant Fee Disclosures

Feeling a bit like you've got 404a-5 participant fee disclosure overload? You're not alone. But as noted by Legacy Retirement Solutions, the controversial (and paper-heavy) rules are indeed on the books, and you'll have to learn to deal with them. It need not consume your entire life, however.

The ERISA Plan Administrator (as opposed to the third-party retirement plan administrator) is ultimately responsible for ensuring that each participant and beneficiary receives the participant fee disclosure notifications to which he or she is entitled. As a result, ERISA Plan Administrators need to be certain that they understand and apply the Participant Fee Disclosure rules properly, as a failure to do so is a breach of fiduciary duty in relation to which he or she could be individually liable.

To recap, here's eight of the basics which need to be disclosed:

1. The circumstances under which participants and beneficiaries may give investment instructions;
2. Any specific limitations on such investment instructions under the terms of the plan, including any restrictions on transfer to or from a plan investment alternative selected by a plan fiduciary (“designated investment alternative”);
3. A description of plan provisions relating to the exercise of voting, tender and similar rights appurtenant to an investment in a designated investment alternative as well as any restrictions on such rights;
4. The identification of any designated investment alternatives offered under the plan;
5. The identification of any fiduciary investment advisor with the authority to manage, acquire or dispose of plan assets (“designated investment manager”);
6. A description of any "brokerage windows," "self-directed brokerage accounts” or similar plan arrangements that enable participants and beneficiaries to select investments beyond designated investment alternatives;
7. A description of any fees or expenses for general plan administrative services (e.g., legal, accounting, recordkeeping) which may be charged against the individual accounts of participants and beneficiaries and which are not reflected in the total annual operating expenses of any designated investment alternative, as well as the basis on which such charges will be allocated (e.g., pro-rata, per capita) to, or affect the balance of, each individual account; or
8. An explanation of any fees and expenses that may be charged against the individual account of a participant or beneficiary on an individual, rather than on a plan-wide, basis (e.g., fees attendant to processing plan loans or qualified domestic relations orders, fees for investment advice, fees for brokerage windows, commissions, front or back-end loads or sales charges, redemption fees, transfer fees and similar expenses, and optional rider charges in annuity contracts) and which are not reflected in the total annual operating expenses of any designated investment alternative.

A change to the fund line-up would involve a change to the designated investment alternatives offered under the plan. Therefore, it absolutely would require a 30-day advance notice to participants. If there's a change in recordkeepers, that will also require a 30-day notice.

In addition, the DOL is already routinely requesting copies of fee disclosure notices in the context of its retirement plan enforcement efforts. If you aren’t certain how to comply with the fee disclosure rules, seek professional assistance and be sure you get it right.


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