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By Dan Schulte, J.D.
MDA Legal Counsel
From the October 2011 issue of the Journal

Question: I set up a 401(k) plan for myself and my employees years ago. I recently received a newsletter from my investment adviser that talked about extensive new disclosure requirements that I need to comply with beginning next year. Can you explain these new requirements?

Answer: The U.S. Department of Labor has issued regulations imposing new disclosure requirements that administrators (usually the employer) of certain retirement plans must comply with beginning May 31, 2012.  The plans subject to the new disclosure requirements are 401(k) and other retirement savings plans where the plan participants control investment of the funds in their accounts. The plan administrator is the person/entity responsible for complying with the new disclosure requirements. The plan administrator is identified in the plan document and is typically the employer who is also the sponsor of the plan.

This column will generally describe the new disclosure requirements. They are broken down into two categories.

The first category deals with general information regarding the plan that would apply to all participants. The new regulations require that on an annual basis participants be provided with the following:

  • general plan information regarding self-direction of investments, any limits on self direction, voting rights, if any, a list of alternative investments, the identity of the investment manager, if any, etc;
  • an explanation/itemization of the expenses and fees for administration of the plan and how any such expenses and fees are charged to each participant’s account (e.g., trustee and administrative fees) along with a quarterly report of fees actually charged to participants;
  •  an explanation of any expenses and fees that are or may be charged to specific participant accounts (e.g., loan fees, fees charged to administer a Qualified Domestic Relations Order, particularized investment fees or commissions, transfer fees, etc.).

The second category concerns disclosures of investment information. This part of the new regulations requires annual disclosures of the following:

  •  the name and description of each investment alternative;
  • performance numbers for one-, five- and 10-year periods;
  • comparison to investment indexes over one-, five- and 10-year periods;
  • the description of any investment fees, commission or sale charges, redemption fees, and other expenses applicable to each investment alternative;
  • the plan’s operating expenses expressed both as a percentage of the total amount invested by the participants and per $1,000 of investment in the plan;
  • the website addresses for each investment alternative;
  • contact information for obtaining paper copies of literature regarding each investment alternative;
  • a description of how the plan handles investment material including voting and proxies;
  • a description of how each participant may obtain a prospectus and other financial information (e.g., a list of the 10 largest assets) of each investment alternative.

To assist in compliance the Department of Labor has issued a model statement that could be used as a starting point in developing the required disclosures to plan participants. This model statement can be found at

The regulations provide that a failure to comply with the new disclosure requirements would be considered a breach of fiduciary duty by the plan administrator. This means the plan administrator could be held liable for fines and penalties.

You will likely continue to receive information from your investment adviser and others regarding these new regulations. The cost of administering your 401(k) plan may also increase as a result of complying with these new requirements. You should not ignore the information you have received from you investment adviser. Instead, you should begin now to determine how best to comply with these new disclosure requirements.

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