Participant Expense Disclosures

The Department of Labor (DOL), starting in 2012, will require 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 likely result is that participants will now receive a very detailed annual statement which includes all the required notices for safe harbors and default investments, along with more detailed quarterly statements.

As a practical matter, the major 401(k) recordkeepers and custodians will incorporate these items in their computer systems that already generate participant statements. Most of the burden of compliance will fall on these entities who 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. 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 will have to work together with other service providers, with one of the service providers accepting overall responsibility for coordinating between them to make sure all the disclosures are met.

The first annual disclosure must be made by May 31, 2012 and the first quarterly by August 14, 2012.