DOL Clarifies Timing Requirement for Annual Investment-Related Disclosures

March 19, 2015

Yesterday, March 18, the U.S. Department of Labor (DOL) announced a modification to the fee and investment-related disclosure requirements for ERISA individual account retirement plans that allow participants to direct the investment of their accounts (as is the case with most 401(k) plans). The change permits information that must be disclosed each year, to be provided to participants up to 14 months after the date on which the prior annual disclosure was provided, instead of within exactly 365 days of the prior notice.

Administrators of ERISA individual account retirement plans that permit participant investment direction (which includes most 401(k) plans) are required to provide fee and other investment-related information to participants. Certain of this information must be provided initially when the participant first can direct investment of his or her plan account, and then “at least annually thereafter.” From the time these disclosure requirements first became effective, there has been confusion among administrators as to how “at least annually thereafter” should be interpreted. Some speculated that providing the disclosure at least once at any time during each calendar or plan year was sufficient, while others concluded that the disclosure had to be provided no later than one year exactly from when the last annual disclosure was provided (i.e., within 365 days of the date of the prior notice).

In 2013 the U.S. Department of Labor (DOL) issued guidance clarifying that the annual disclosure must be provided no more than one year exactly from the date on which the prior annual disclosure was provided. Acknowledging that some administrators in good faith could have applied a different interpretation, the DOL announced that it was reviewing the timing requirement and provided a temporary opportunity to delay issuing the notice for up to 18 months under certain circumstances. See our prior WorkCite.

Yesterday the DOL announced that it is revising the “at least annually thereafter” requirement to mean “at least once in any 14-month period.” As a result, plan administrators will now have a period of 14 months from when the last annual disclosure was provided to issue the current year’s annual disclosure. This change will allow the annual disclosure to be provided later in the plan year, and thus be coordinated with other required communications such as qualified default investment alternative (QDIA) disclosures and safe harbor notices, to the extent applicable. The change also will afford some relief to plan record-keepers who had expressed concerns over the burdens of having to track the specific annual disclosure dates on a plan-by-plan and participant-by-participant basis.

Under the new rule, if the administrator of a self-directed 401(k) plan provided the plan’s annual investment-related disclosure to participants on October 1, 2014, it would have until December 1, 2015, to provide this year’s annual disclosure. This extension of the deadline would allow the administrator to combine the annual investment-related disclosure with other year-end participant communications. In addition, it will prevent the annual deadline from “creeping up” each year, which would have occurred under the prior rule.

The new rule is scheduled to become effective on June 17, 2015, unless the DOL receives significant adverse comment by April 20 and withdraws it. Until the new rule takes effect, the DOL announced that it will treat a plan administrator’s compliance with the 14-month rule as satisfying the timing requirement for annual participant disclosures. The new rule does not affect the requirement to provide certain information as least quarterly, such as actual fees charged to a participant’s plan account over the preceding quarter.

Additional information regarding the fee and investment-related participant disclosure requirements can be found in our prior WorkCite articles of Jan. 12, 2011, and Aug. 8, 2012.

For further information concerning this development, please contact the author, Jeffrey R. Capwell, or any other member of the McGuireWoods employee benefits team.