NEW ERISA FIDUCIARY RESPONSIBILITY AND DISCLOSURE REQUIREMENTS
Plan Fiduciaries Should Prepare Now for 2012 Deadlines

The Department of Labor has issued regulations that will require plan sponsors, administrators and investment fiduciaries to act in 2011 to comply with their fiduciary obligations beginning in 2012. Failure to comply may cause a prohibited transaction, breach of fiduciary duty, or loss of ERISA § 404(c) fiduciary protection. The key regulatory developments are:

Service Provider Disclosure

As of January 1, 2012, the new service provider disclosure rules under ERISA §408(b)(2) will require each covered retirement plan service provider to disclose its services and fees to the plan’s "responsible plan fiduciary" in writing. In general, the disclosure must describe the services to be provided, the direct and indirect compensation the service provider may receive and any expenses that may be charged against any designated investment alternatives. Without these disclosures, the service arrangement may be considered a prohibited transaction. Plan fiduciaries are obligated to ensure that the written disclosure requirements are satisfied and must notify the Department of Labor if a service provider fails to comply. We expect the DOL to issue a standard disclosure form this year.

Participant Level Plan Fee and Investment Disclosures

Beginning in 2012, plan administrators of participant-directed, individual account retirement plans will have the fiduciary duty to provide very specific plan investment and fee information to all eligible employees and beneficiaries on or before the date they first can direct investment of their account and at least annually after that date. The plan investment disclosure must be provided in a chart or similar format to facilitate comparison across the menu of investments. It must also include a website address containing supplemental investment information for each option. Each participant must receive a quarterly statement of the dollar amount of fees charged to his or her account.

Proposed Target Date Fund Disclosures

Proposed regulations (expected to be finalized by January 1, 2012) require plan fiduciaries to provide expanded disclosure for target date funds. We expect the DOL to refine some of the target date fund disclosure requirements before finalizing the rules later this year.

Proposed Changes to the Qualified Default Investment Alternative (QDIA) Disclosure Rules

Proposed regulations (expected to be finalized by January 1, 2012) require plan fiduciaries to provide additional information about a plan’s default investment alternative. The new requirements generally conform to the plan fee and investment disclosure rules—including the proposed expanded disclosure requirements for target date funds. Failure to comply with the QDIA disclosure will cause loss of protection from fiduciary liability otherwise available under ERISA §404(c) for a plan’s default investment.

ERISA § 404(c) Protection

ERISA § 404(c) protects fiduciaries from liability for losses attributable to a participant’s investment decisions. Department of Labor regulations now require, as a condition to 404(c) protection, that plan fiduciaries comply with the new plan fee and investment disclosure requirements.

In addition, the regulations now state that § 404(c) will not protect a plan fiduciary who fails to prudently select and monitor the investment alternatives (including the plan’s qualified default investment alternative). Plan fiduciaries should review their current procedures for selecting and monitoring the plan’s investment alternatives.

Next Steps

Plan sponsors, administrators and fiduciaries should consider the following actions for 2011:

Service Provider Disclosure. The "responsible plan fiduciary" should:

• Identify covered service providers
• Determine required disclosure content and timing
• Establish procedures for reviewing disclosures for non-compliance and reporting non-compliance to the DOL

Plan Fee and Investment Disclosure, including Target Date Fund and QDIA Disclosure. The plan administrator and investment fiduciary should:

• Review current disclosures
• Determine additional information that must or should be disclosed, including:
  • A website for each investment alternative
  • Appropriate benchmarks
• Coordinate information disclosure requirements with service providers
• Review electronic disclosure options

Contact Us

If you have questions about the content of this alert, please contact a member of Oppenheimer’s Employee Benefits Group.

This alert is a copyrighted publication produced by Oppenheimer Wolff & Donnelly LLP. The information contained in this alert is of a general nature and is subject to change. Readers should not act without further inquiry and/or consultation with legal counsel.