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Friday, July 22, 2011

DOL Extends Deadline for Complying with Fee Disclosure Rules

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Investment managers and other retirement plan service providers have been given a few more months to prepare new fee disclosures to plan fiduciaries. New DOL rules (DOL Regs. Sec. 2550.408b-2(c)) try to unmask “hidden fees” by requiring retirement plan service providers and investment vehicles to disclose indirect and direct compensation received from the plan. After receiving requests from the financial services industry for more time to compile fee information, the DOL proposed extending the original effective date of July 16, 2011, to January 1, 2012. Comments on this proposal asked for yet more time to comply, and the DOL was persuaded to extend the effective date to April 1, 2012.

This extension also provides relief to plan fiduciaries, who are dealing with their own new disclosure requirements. For plan years that begin on or after November 1, 2011, fiduciaries of plans that allow participants to direct investments in their own plan accounts must provide in-depth information on investment options and associated fees to plan participants and beneficiaries. The DOL acknowledged that plan fiduciaries would be better able to comply with the new rules after they have received the service provider disclosures. So, a new transition rule (DOL Regs. Sec. 2550.404a-5(j)(3)(i)) allows plans to delay sending the initial set of disclosures until 60 days after the April 1, 2012, effective date for the service provider fee disclosure regulations (or, if later, 60 days after the participant fee disclosure regulations become applicable to the plan). Quarterly statements may be delayed until 45 days after the end of the quarter in which the initial set of disclosures were due.

The DOL provided an example to illustrate how the transition rule applies to a calendar year plan: The participant fee disclosure rule becomes applicable on January 1, 2012. The first set of initial disclosures (i.e., all disclosures required under the rule except for quarterly statements) are due May 31, 2012, which is 60 days after the April 1, 2012, effective date for the service provider disclosure rule. Quarterly statements are due August 14, 2012, which is 45 days after the end of the second quarter.

Given the complexity of the new disclosure requirements, an extension of the effective date has been welcomed. As a plan service provider or fiduciary, does an extra three months provide enough time to compile the necessary information?

--Vanessa Walts, Tax Law Editor (Compensation Planning)
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