Final Rule to Improve Transparency of Fees and Expenses to Workers in 401(k)-Type Retirement Plans

The Department of Labor’s Employee Benefits Security Administration (EBSA) released a final rule that will help America’s workers manage and invest the money they contribute to their 401(k)-type pension plans. The rule will ensure: that workers in this type of plan are given, or have access to, the information they need to make informed decisions, including information about fees and expenses; the delivery of investment-related information in a format that enables workers to meaningfully compare the investment options under their pension plans; that plan fiduciaries use standard methodologies when calculating and disclosing expense and return information so as to achieve uniformity across the spectrum of investments that exist among and within plans, thus facilitating apples-to-apples comparisons among their plan’s investment options; and a new level of fee and expense transparency.

Plan-Related Information

The first category of information that must be disclosed under the final rule is plan-related information. This general category is further divided into three subcategories as follows:

• General plan information consists of information about the structure and mechanics of the plan, such as an explanation of how to give investment instructions under the plan, a current list of the plan’s investment options, and a description of any brokerage windows or similar arrangement that enables the selection of investments beyond those designated by the plan.

Administrative Expenses Information

• An explanation of any fees and expenses for general plan administrative services that may be charged to or deducted from all individual accounts. Examples include fees and expenses for legal, accounting, and recordkeeping services.

Individual Expenses Information

• An explanation of any fees and expenses that may be charged to or deducted from the individual account of a specific participant or beneficiary based on the actions taken by that person. Examples include fees and expenses for plan loans and for processing qualified domestic relations orders.

The information in these three subcategories must be given to participants on or before the date they can first direct their investments, and then again annually thereafter.

Statements of Actual Charges or Deductions

In addition to the plan-related information that must be furnished up front and annually, participants must receive statements, at least quarterly, showing the dollar amount of the plan-related fees and expenses (whether administrative or individual) actually charged to or deducted from their individual accounts, along with a description of the services for which the charge or deduction was made. These specific disclosures may be included in quarterly benefit statements required under section 105 of ERISA.

Investment-Related Information

The second category of information that must be disclosed under the final rule is investment-related information. This category contains several subcategories of core information about each investment option under the plan, including: