Department of Labor Archives - EMPLOYEE BENEFITS BLOG

DOL Revises Guidance on Participant Fee Disclosures for Brokerage Window Investments

by McDermott Will & Emery | Aug 8, 2012 | Fiduciary and Investment Issues, Retirement Plans

by Diane M. Morgenthaler, Elizabeth A. Savard and Maggie McTigue

The U.S. Department of Labor (DOL) recently issued new and welcome guidance for fiduciaries of account-based retirement plans by withdrawing its controversial guidance on fee disclosures for brokerage windows, self-directed brokerage accounts and similar arrangements (SDBAs). For now, the DOL has reverted to its prior regulatoqury guidance that fee disclosures with respect to particular investment options that participants select through an SDBA are not required, unless the SDBA option is specifically identified as available under the retirement plan. This new guidance removes the burden of monitoring the number of participants invested in a particular option through the SDBA and of making fee disclosures with respect to certain SDBA options.

Background

As described in our June 12, 2012, newsletter, the DOL issued Field Assistance Bulletin (FAB) 2012-02 on May 7, 2012, to provide additional guidance on the participant fee disclosure requirements for defined contribution plans with participant-directed investments. Historically plan fiduciaries have taken the position that they are not responsible for monitoring the particular investment options participants select though an SDBA. However, in Q&A-30 of FAB 2012-02, the DOL indicated that plan fiduciaries may need to make participant fee disclosures with respect to an investment option that is only available through the SDBA if a significant number of participants elected to invest in that option. This position surprised many plan administrators because it was inconsistent with prevailing interpretations of prior DOL guidance. In addition, the DOL was criticized for issuing their position in an FAB rather than through a rulemaking process that would have given interested parties notice and an opportunity to comment.

New Guidance

In response to requests from benefits industry groups and other interested parties, the DOL issued FAB 2012-02R, which withdraws the prior Q&A-30 and replaces it with a new Q&A-39. Under Q&A-39, an investment option is a designated investment alternative for purposes of the participant fee disclosure rules only if it has been specifically identified as available under the plan. Thus, fee disclosures generally will not be required for investment options that participants select through an SDBA.

Q&A-39 is welcome guidance for fiduciaries of plans with SDBAs, as it removes the burden of monitoring the number of participants invested in a particular option through the SDBA and of making fee disclosures with respect to certain SDBA options. Fiduciaries are still bound by the general ERISA fiduciary duties of prudence and loyalty to participants who use SDBAs, including taking into account the nature and quality of services provided in connection with the SDBA. The DOL also noted that while plans are not required to have a particular number of designated investment alternatives, the failure to designate any investment alternatives (for example, to avoid fee disclosure obligations) would raise questions under the general fiduciary duties of prudence and loyalty.

Participant Fee Disclosure: Top 10 List of Issues to Consider

by McDermott Will & Emery | Jul 17, 2012 | Labor, Retirement Plans

by Nancy S. Gerrie, Natalie M. Nathanson, Todd A. Solomon and Lisa K. Loesel

The new 401(k) participant fee disclosure rules issued by the U.S. Department of Labor require plan administrators with calendar year plans to send disclosures to plan participants by August 30, 2012. The top 10 things to consider in complying with the new rules are described in this publication in Q&A format.

To read the full article, click here.

New DOL Guidance Amplifies Participant Fee Disclosure Rules

by McDermott Will & Emery | Jun 20, 2012 | Retirement Plans

by Elizabeth A. Savard, Karen A. Simonsen and Lisa K. Loesel

For most defined contribution plans, initial annual fee disclosures are due to participants by August 30, 2012. In order to facilitate compliance with the new fee disclosure rules, the U.S. Department of Labor recently issued Field Assistance Bulletin 2012-02, which provides helpful commentary on 38 common disclosure questions, including disclosure of administrative expenses and brokerage window fees.

To read the full article, please visit: https://www.mwe.com/New-DOL-Guidance-Amplifies-Participant-Fee-Disclosure-Rules-06-12-2012/.

The Dodd-Frank Act’s Impact on Pension Plan Investment Options

by McDermott Will & Emery | May 25, 2011 | Fiduciary and Investment Issues, Retirement Plans

by Maureen O’Brien, Karen A. Simonsen and Adrienne Walker Porter

Pension plans use swaps to manage interest rate risks and other risks and to reduce volatility with respect to funding obligations. The Dodd-Frank Act established a comprehensive regulatory framework for swaps. The legislation was enacted to reduce risk, increase transparency and promote market integrity within the financial system, including the comprehensive regulation and required registration of swap dealers and major swap participants.

The Dodd-Frank Act has introduced new challenges in managing risks and liabilities of pension plans by subjecting ERISA plans to new requirements under the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). If pension plans are unable to use swaps, plan costs and funding volatility could rise sharply. This would undermine participants’ retirement security and would force employers to reserve, in the aggregate, billions of additional dollars to address increased funding volatility. In order to meet the rulemaking objectives specified under the Dodd-Frank Act, regulators and Congress have introduced significant changes that may impact how pension plans manage their funded status.

In December of 2010, the CFTC released proposed regulations outlining business conduct standards for swap dealers and major swap participants. The regulations highlighted the issue that swap dealers engaging in typical business activities with respect to “special entities” could be treated as ERISA fiduciaries. (The Dodd-Frank Act provides that a special entity includes an employee benefit plan.) ERISA provides that, generally, any transaction between a fiduciary and the ERISA plan with respect to which it owes fiduciary duties is prohibited. Therefore, in effect, the proposed regulations may preclude swap dealers from entering into swap transactions with employee benefit plans subject to ERISA. Additionally, the Department of Labor’s proposed rule relating to the definition of the term “fiduciary” under ERISA may include advisors that perform plan asset valuations, which is an activity conducted by swap dealers under the CFTC proposed regulations.
On April 12, 2011, the CFTC issued proposed regulations establishing minimum initial and variation margin requirements for non-cleared swaps entered into by CFTC-regulated swap dealers and major swap participants. Under the proposed rules, pension plans would be included in the category of high-risk financial entities, subject to the most stringent requirements. Such high-risk financial entities are required to post collateral and are limited to the type of assets that may be used to post margin. This change could significantly increase the cost of managing pension plans.
On May 4, 2011, the U.S. House of Representatives Agriculture Committee approved H.R. 1573, legislation providing the CFTC and SEC with 18 additional months to finalize many of the rules relating to swaps. The rules defining swaps-related products and participants and the rules relating to reporting recordkeeping, however, are to be finalized by July 15, 2011. The CFTC also recently released a notice reopening the comment period for many of the proposed regulations related to the Dodd-Frank Act.

Plan sponsors should continue to monitor the regulatory and legislative activity surrounding pension plans’ ability to use [...]

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