Information Center

Final 401(k) Fee Disclosure Regulations

01/03/11
Final

On October 20, 2010, the Department of Labor issued final regulations that require private retirement savings plans, such as 401(k)s, to tell employees how much they are being charged in record-keeping, investment management and other fees. The regulations also include rules for disclosing information about the plan’s investment options. These rules apply only to plans where employees are able to choose their own investments.  The rules were effective December 20, 2010 and will apply to participant directed individual account plans no later than August 30, 2012 for required disclosures other than quarterly disclosures.  Quarterly disclosures must comply with the new rules no later than November 14, 2012.

The regulations are divided into two categories:

Disclosure of plan-related information: 

General plan information must be given to the employee on or before the date on which a participant or beneficiary can first direct investments and once a year thereafter. All employees eligible to participate in the plan, whether or not enrolled, must be given the information. General plan information can initially be provided in the Summary Plan Description. Notice of any change to plan-related information must be given at least 30 days, but no more than 90 days, before the effective date of the change.  The information to be disclosed includes the following:

  1. A description of the investment alternatives offered;
  2. An explanation of the kinds of record-keeping, legal, accounting, and other plan administrative expenses that can be charged to an account unless those administrative expense are included with investment management fees;
  3. A description of the method of allocating administrative charges to individual accounts, such as pro rata or per capita;
  4. Directions on how and when the employee can make investment choices;
  5. A summary of any limits or restrictions on investment choices or transfers into and out of an investment.
  6. An explanation of any fees or expenses that may be charged on an individual basis, such as loan fees, processing fees for qualified domestic relations orders, fees for investment advice, sales charges, commissions, redemption fees or transfer fees, if these fees are not reflected in investment-related fees described below.

Individual plan-related fees actually charged must be disclosed in dollars at least quarterly and may be given as part of the individual benefit statement. The individual plan-related fee disclosures include the following:

  1. Total dollar amounts actually charged to the employee’s account during the last three months for administrative services, such as accounting and record-keeping if those “plan-related” fees are not included with “investment-related” fees;
  2. A description of the services to which the charges relate;
  3. Fees applied to an individual’s account in the last three months for special services, such as processing a loan request or a qualified domestic relations order, fees for investment advice, sales charges, commissions, redemption fees or transfer fees;
  4. If applicable, an explanation that in addition to the listed fees and charges, some administrative expenses were paid out of the annual operating expenses of the investment alternatives (e.g., revenue sharing charges, Rule 12b-1 fees, sub-transfer agent fees).

Disclosure of investment related information: 

Basic investment-related information must be automatically disclosed on or before the date on which a participant or beneficiary can first direct investments and annually thereafter. Some supplemental information must be provided upon request, such as copies of prospectuses or financial reports and lists of assets in the portfolio.

The investment information must be presented in a format for easy comparison among alternatives. The Department of Labor designed a model notice for comparison that is part of the final regulations.

Investment information to be automatically disclosed includes the following:

  1. Name and category of investment (e.g. mutual fund, index fund);
  2. Reference to an Internet web site with supplemental information, such as strategies and risks of the investment;
  3. Performance data for each investment alternative after fees have been subtracted and reference to an appropriate market index that can be used as a benchmark;
  4. For investments with a fixed rate of return, the contracted interest rate and the term of the investment, or in cases where the issuer reserves the right to adjust the future rate of return, the current rate of return, the minimum guaranteed rate of return if any, and a statement advising that the issuer may adjust the future rate of return;
  5. Amount and description of each shareholder fee, such as sales fees, surrender charges, exchange fees which are not included in the annual operating expenses of the investment and any restrictions or limits that may apply to the investment;
  6. Total annual operating expenses of the investment expressed as a percent of assets. Operating expenses include investment management fees and may also include administrative and recordkeeping fees if these are not reported separately;
  7. Total annual operating expenses of the investment expressed as dollars per $1000 invested;
  8. A statement that fees and expenses are only one factor to consider when choosing investments;
  9. A statement that the cumulative effect of fees and expenses can substantially reduce the growth of a retirement account and that the Employee Benefit Security Administration’s Web site has examples;
  10. Required information must also be given in a chart or similar format to enable comparisons of investment alternatives. The chart should include a statement that additional information is available on a given Internet web site and that paper copies of the Internet information can be requested free of charge.

If the ownership of any investment shares gives the employee the right to vote at shareholder meetings, participants must receive any information about these rights that has been given to the plan.

Investment information to be provided upon request includes copies of prospectuses, financial statements or reports, list of assets in the portfolio, and a statement of the value of a share for each designated investment and the date of valuation.

General plan information can initially be disclosed in the Summary Plan Description.  It must be provided on or before the date on which a participant can first direct investments and annually thereafter.  Individual fees actually charged to participants must be disclosed in dollars and reported quarterly.  They may be provided as part of the individual benefit statement.

The regulation includes a statement that the plan fiduciaries are responsible for prudently selecting and monitoring any record-keeping, investment management, or other firms that provide services to the plan.  The plan administrator is responsible for compliance with these disclosure rules.

Read the Pension Rights Center’s comments on the proposed regulations.

Read the Pension Rights Center’s comments in response to the Department of Labor’s 2007 Request for Information on the issue of 401(k) fee disclosure to plans and participants.

Read more about 401(k) fees in our Roadmap to Retirement.

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