With the 404(a)(5) fee disclosure deadline approaching fast, I’ve been fielding a lot of questions about what must be disclosed, when it must be disclosed by, and who it must be disclosed to. One of the trickier parts of new Labor Reg. 2550.404a-5 is answering the “who” question.
Labor Reg. 2550.404a-5(b)(1) says:
“In general. The plan administrator of a covered individual account plan must comply with the disclosure requirements set forth in paragraphs (c) and (d) of this section with respect to each participant or beneficiary that, pursuant to the terms of the plan, has the right to direct the investment of assets held in, or contributed to, his or her individual account. Compliance with paragraphs (c) and (d) of this section will satisfy the duty to make the regular and periodic disclosures described in paragraph (a) of this section, provided that the information contained in such disclosures is complete and accurate. A plan administrator will not be liable for the completeness and accuracy of information used to satisfy these disclosure requirements when the plan administrator reasonably and in good faith relies on information received from or provided by a plan service provider or the issuer of a designated investment alternative.”
Normally, it is easy to identify who the participants and beneficiaries are for plan purposes. The plan document contains a definition of each term, and the plan administrator applies that definition when determining who the participants and beneficiaries are for compliance purposes.
For complying with Labor Reg. 2550.404a-5, the Dept. of Labor has thrown a curve at plan administrators. In the preamble to the final regulations, the DOL says:
“Several commenters suggested that the Department clarify, and in some cases modify, the scope of the proposal as to the specific participants and beneficiaries of covered plans to which the rule applies. The proposed rule required disclosures to each participant and beneficiary of the plan that ‘‘pursuant to the terms of the plan, has the right to direct the investment of assets held in, or contributed to his or her individual account.’’ The question presented by the commenters was whether disclosures must be furnished to all eligible employees or only those who actually participate in the plan. Consistent with the definition of ‘‘participant’’ under section 3(7) of ERISA, disclosures must be made to all employees that are eligible to participate under the terms of the plan, without regard to whether the participant has actually become enrolled in the plan.”
A quick check of ERISA section 3(7) reveals that the DOL is correct on this one if you read ERISA section 3(7) very broadly. ERISA section 3(7) says:
“(7) The term “participant” means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.”
For more fee disclosure tips and to make compliance easier, we’ve put together a guide to the Final 404(a)(5) Regulations. It combines Labor Reg. 2550.404a-5 with current guidance in a easy-to-follow format along with a self-study module which Enrolled Retirement Plan Agents can complete for continuing education credit.