401(k) Disclosures: How to Handle Employee Questions

Preparing Staff to Handle Questions/Concerns

Preparing staff to handle participant questions and concerns is of paramount importance because ineffective answers can lead to mistrust, morale issues, and compliance scrutiny. It may even lead to legal challenges under ERISA.

To avoid these problems, prepare supervisors and HR staff. Invite your investment advisor or a representative of the recordkeeper to participate in the meeting. (They may already have developed some communications you can use.)

FAQs: Answering Participant Questions

Q: Why did the DOL issue participant fee disclosure regulations?
A: The DOL was directed to issue these regulations by the Pension Protection Act of 2007 (PPA). The regulations were created to ensure that participants have enough information to make informed decisions about the investment of their plan balances.

Q: Is investment of plan assets a fiduciary act governed by the fiduciary standards of ERISA?
A:Yes. ERISA requires that plan fiduciaries act prudently and solely in the interest of the plan’s participants. When a plan gives participants the ability to direct their own investments, the plan fiduciaries must ensure that participants are provided with enough information about plan investments, including fees and expenses, to make informed decisions about the investment of their plan balances.

Q: When do the fee disclosure regulations apply?
A: The new rules are effective on July, 1, 2012. When participants receive the information depends on the plan year.

Q: In short, what are the disclosure requirements of the new regulations?
A: The regulations require the plan sponsor to disclose to participants

• a general description of plan operations;
• an initial, annual, and quarterly statement of plan administrative expenses; and
• an initial and annual performance and expense statement.

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Q: Must the plan sponsor provide the annual disclosure statement to employees who are eligible but not enrolled in the plan?
A: Yes. The DOL believes the annual statements will serve as a reminder that the individuals have the option to participate in the plan.

Q: Can beneficiaries receive the disclosures under the regulations?
A: The plan sponsor must make the disclosures to beneficiaries who have the right to direct the investment of a participant’s account. That right could arise through the participant’s death or through operation of a QDRO.

Q: How will your plan sponsor provide you the quarterly disclosure of fees and expenses?
A: There is no one method for delivering the quarterly fee and expenses disclosure mentioned in the regulations. The plan sponsor can include the fees and expenses as part of a participant’s quarterly statement or send it separately.

Q: How will the plan administrator provide the annual fee and expense disclosures?
A: There is no one method for delivering the annual disclosures mentioned in the regulations. The plan sponsor can include the disclosures as part of a participant’s quarterly statement, attach to the summary annual report (SAR), or as part of the summary plan description (SPD).
(The plan sponsor would have to send an SPD annually to comply.)

Q: Can the disclosures be delivered by electronic media?
A:Yes.

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