There is no clear answer to this concern. However, the regulation would suggest that every covered service provider (CSP) receiving indirect compensation must disclose it. Since the “second tier” CSP might have a different description of services, it would certainly make sense for that CSP to disclose. Further, the regulation mandates disclosure that likely implicates the need for every recipient to disclose: identification of the services for which the indirect compensation will be received, identification of the payer of the indirect compensation, and a description of the arrangement between the payer and the covered service provider, an affiliate, or a subcontractor, as applicable, pursuant to which such indirect compensation is paid.
And finally, when in doubt, disclose. It’s the safest route to take.
These rules are somewhat complicated. The short answer is as follows; more detailed examples by communication type can be found in question 3 through 5.
Recognizing that it was not possible to promulgate final regulations with respect to electronic disclosure of participant fee and service information by the effective date described above, the DOL promulgated a stop-gap “policy” on electronic disclosure of the information.
Required disclosures that are included in a pension benefit statement in accordance with ERISA Regulations may be furnished in the same manner that the other information included in the same pension benefit statement is furnished. The DOL provides this example:
If the pension benefit statement information is furnished through a secure continuous access website in accordance with the guidance provided under FAB 2006-03, then the information included as part of the pension benefit statement in accordance with section 2550.404a-5(e)(1) or (e)(2) may also be furnished electronically in the same manner.
Required disclosures that are not included in a pension benefit statement in accordance with ERISA regulations may not be furnished electronically under the guidance provided by FAB 2006-03. However, the plan administrator may use a safe harbor to furnish the disclosures through electronic media. Alternatively, pending further guidance, a plan administrator may furnish such disclosures through electronic media in accordance with a number of conditions:
Voluntary Provision of E-mail Address. Participants and beneficiaries entitled to receive information must voluntarily provide the employer, plan sponsor, or plan administrator (or its designee) with an e-mail address for the purpose of receiving participant disclosures. The e-mail address must be provided voluntarily in response to a request accompanied by an Initial Notice, as described below. If a participant is required to provide an e-mail address electronically in order to access a secure continuous access website housing the required disclosure, the provision of the e-mail address is considered voluntary where an Initial Notice is provided.
Initial Notice. The Initial Notice must be clear and conspicuous, provided contemporaneously and in the same medium as the request for the e-mail address and contain the following information:
Annual Notice. Commencing with the year beginning after the year that the participant or beneficiary voluntarily provided his or her e-mail address and annually thereafter, the plan administrator shall furnish an Annual Notice to each such participant or beneficiary. "Year" means a calendar year, plan year, or any other 12-month period selected by the plan administrator.
The Annual Notice must contain the information set out in the second through fifth bullet points, above. The Annual Notice must be furnished on paper. Alternatively, the plan may furnish the Annual Notice electronically by sending it to the e-mail address on file for the participant or beneficiary if there is evidence that the participant or beneficiary interacted electronically with the plan after the date the Annual Notice for the preceding year was furnished (or in the case of the first Annual Notice, after the date the Initial Notice was furnished.). The Technical Release provides examples of electronic interaction to include, but not be limited to: the participant or beneficiary updating, resubmitting, or confirming his or her e-mail address to the plan; the participant or beneficiary sending an electronic message to the plan; logging onto a secure continuous access website housing plan information; or the receipt and opening of an electronic message sent by the plan to the participant or beneficiary.
Delivery. The plan administrator takes appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system results in actual receipt of transmitted information (e.g., using return receipt or notice of undelivered electronic mail features, conducting periodic reviews or surveys to confirm receipt of transmitted information, etc.).
Confidentiality. The plan administrator takes appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system protects the confidentiality of personal information.
Calculated To Be Understood. Notices furnished to participants and beneficiaries must be written in a manner calculated to be understood by the average plan participant.
Special Transition Provision. With respect to e-mail addresses of participants and beneficiaries that are on file with the employer, plan sponsor or plan administrator (or its designee) (the "Transition Group",) the e-mail address requirements described above are deemed to be satisfied if a Transition Group Initial Notice, described below, is furnished as follows:
This Special Transition Provision is not available for an e-mail address established or assigned by the employer, plan sponsor or its or their designee unless there is evidence that the e-mail address was used by the participant or beneficiary for plan purposes during the 12-month period preceding the date the Transition Group Initial Notice is furnished.
DOL Technical Release 2011-03R (Dec. 8, 2011)
In an effort to clarify the electronic disclosure provisions, the DOL issued a Technical Release that does two things: (1) it states that the alternative electronic disclosure method can be used to provide disclosures through a continuous access website, and (2) it clarifies that investment-related information required by the disclosure rules may be furnished “as part of, or along with” pension benefit statements, but those disclosures may not rely on FAB 2006-03. Electronic disclosures of investment-related information will be made in accordance with the interim alternative method or the DOL’s general safe harbor (which requires a participant’s affirmative consent unless a computer or other electronic system is an “integral part” of a participant’s employment duties as described above.) Unfortunately, these clarifications do not extend the FAB 2006-03 provisions to all fee and expense information that is required to be disclosed. It remains important to understand the more restrictive rules for electronic disclosure of participant information.
A so-called brokerage window platform is not considered to be a designated investment alternative. However, in FAB 2012-02, Q&A 30, the DOL indicates that a plan fiduciary may be obligated to make disclosures to participants where a “significant number” of participants select a particular option within the brokerage window. This seems unworkable and there have been comments suggesting that the DOL went too far in reaching this result contrary to the regulations.
See 5 above and FAB 2012-02, Q&As 13 and 29 that require a description of plan-related information, but not investment-related information. There must be a general description of the brokerage account/window. And there must be an explanation to participants of fees and expenses that will be charged to an account to participate in the brokerage account/window including commissions, loads, etc., but not fees charged by the investments such as 12b-1 fees. The participant must be provided with the amount of fees and expenses charged in the prior quarter with a description of the services provided for them, and there must be a statement indicating that the participant might ask the window provider about fees before purchasing any investment.
The bank will most likely be a CSP. Therefore, with respect to its collective trusts, it must provide a description of any compensation that will be charged directly against the plan's investment such as commissions, sales loads, sales charges, deferred sales charges, redemption fees, surrender charges, exchange fees, account fees and purchase fees and that is not included in the annual operating expenses of the investment contract, product or entity; if the fund's return is not fixed, the total annual operating expenses expressed as a percentage and calculated in accordance with DOL's participant disclosure regulation; and any other information or data about the collective trust that is within the control of, or reasonably available to, the bank and that is required for the plan administrator to comply with the participant disclosure regulation including the asset category of each alternative, performance data, benchmarks, and fee and expense information – can be provided through conventional collective trust disclosure materials. The bank is relieved of the obligation to provide these investment disclosures if the plan platform provider (a recordkeeper or broker) to a participant-directed plan through which the collective trust is accessed as a designated investment option independently provides those disclosures.
The rules are flexible: a description of compensation or cost may be expressed as a monetary amount, formula, percentage of the covered plan's assets, or a per capita charge for each participant or beneficiary or, if the compensation or cost cannot reasonably be expressed in such terms, by any other reasonable method.
This information is provided for informational purposes only and should not be interpreted as legal, financial or other form of advice and no legal or business decision should be based on its content.
The desired outcome of the two new DOL fee disclosure rules is to provide both plan sponsors and participants an “apples-to-apples” comparison to assess costs and benefits among a plan’s investment options.
As long-time consultative partners for the financial services industry, Broadridge provides timely, in-demand products and services to meet plan fiduciary fee disclosure requirements.
The White Paper discusses the impact of the Department of Labor’s “three-legged stool” approach on those in the financial services industry impacted by new fee disclosure regulations.
The webinars provide an overview of the rule, how to evaluate the information in the disclosure and how best to be compliant.
Listen to the latest discussions on the Fee Disclosure Regulation.
Listen to the latest discussions on the Fee Disclosure Regulation.