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Financial Disclosure: 408(b)(2) and 404(a)(5) in a Little Detail

Posted in Plan Administration, Retirement Plans

Although I have commented on the new financial disclosure rules before, I thought it would be good to actually reference the code sections involved to give a little deeper explanation of the compliance rules.  Plus, as we get closer to the compliance deadline, you may see more reference to these sections so it is good to know that they are there.

408(b)(2) requires that most service providers to retirement plans have to provide written disclosure of their services, fiduciary status and total compensation to the plan sponsors on an annual basis.  The deadline for this disclosure to the plan sponsor is July 1, 2012.  They have to include a description of the services provided and a description of the fee arrangement.  The information can be delivered electronically and while there is no specific format required, the information provider must be in a format that is "sufficient to meet the guidelines."  Service providers are continuing to work out the details of what that means.  Plan sponsors are required to terminate any service provider who fails to information relating to future services.  So 408(b)(2) covers the service provider to plan reporting obligation.

404(a)(5) covers the plan to participant reporting requirement.  That information includes general information about the structure and operation of the plan, as well as investment options,  Plan sponsors must also provide an explanation of fees and expenses that are charge or deducted from participant accounts, including loans and other transactional fees.  This statement is due the later of 60 days after the July 1, 2012  disclosure to the plan sponsor, or 60 days after the the first day of the plan year beginning on or after November 1, 2011.  While the final rules have a sample chart to use for disclosures, no specific format is required.  

Since the first step is the 408(b)(2) exchange of information, plan sponsors should consider reaching out to their various services providers now to (1) make sure they will be sending the information and (2) ask for a sample or draft of what their disclosure information will look like to begin preparing from the individual reports under 404(a)(5).  Don’t wait until the last minute.

For assistance or more information, please contact your attorney at Fox Rothschild.