4152 / What is the purpose of the Department of Labor ("DOL") Section 404(a)(5) participant disclosure regulations?

With the proliferation of 401(k) and profit sharing plans that permit plan participants to individually direct their retirement plan assets, the DOL has grown exceedingly concerned about plan participants being required to make investment decisions without having access to information concerning the account fees and expenses.

When a plan permits participants to direct their investments, the regulations require that the plan administrator take action to inform the plan participants of the rights and responsibilities afforded to each participant with the ability to direct their investments. These disclosures must be provided prior to the date on which a participant or beneficiary can first direct the investments in their account and on a regular and periodic basis thereafter. Information required includes, but is not limited to, fees and expenses, voting rights, and rights associated with the direction of investments. For calendar year plans, the initial participant disclosures were required to be distributed by August 30, 2012, and at least annually thereafter. In addition, the first quarterly disclosures under these regulations were required to be distributed by November 14, 2012, as well as quarterly thereafter.

In contrast to the 408(b)(2) covered service provider disclosures, a plan that does not comply with the plan participant disclosure requirements does not run the risk of violating the prohibited transaction rules, but may be found to be in breach of its fiduciary duty. Since the plan participant disclosure requirements do not run up against the prohibited transaction rules, the participants will first need to suffer losses before liability for failure to comply accrues.