4156 / What information relating to administrative expenses must be included in a 404(a)(5) disclosure?

On or before the date on which a participant or beneficiary can first direct their investments, and on an annual basis thereafter, the administrative expenses of the plan that may be charged against a participant or beneficiary’s account must be disclosed to the extent that the charge is not included in the annual operating expense of any designated investment alternative. Recordkeeping, accounting, or legal services are examples of expenses that may need to be disclosed relating to administrative expenses. The plan administrator must also disclose the method in which the amount for services will be deducted from the participants’ account balance, whether it is on a pro-rata, per capita, or a flat dollar basis.

The disclosures must be written in such a manner as to be understood by the average plan participant. If the fees for a service are known at the time of the disclosure, the plan administrator must identify the service provided, the cost of the services, and the allocation method used. In DOL Field Assistance Bulletin 2012-02R, the following examples of fee disclosures were found to be consistent with the DOL’s disclosure requirements:

Example 1: The plan divides total recordkeeping costs equally among all individual accounts so that each participant or beneficiary with a plan account will pay $25.00 per year. One fourth of this amount is subtracted from each individual plan account each quarter.

Example 2: An annual recordkeeping fee of .12 percent of the account balance will be charged to each individual plan account. Each month, an amount equal to .01 percent of the account’s ending balance for the month will be deducted from your individual account.

Example 3: An annual recordkeeping fee of .12 percent of the account balance will be charged to each individual plan account. Each month, an amount equal to .01 percent of the account’s ending balance for the month will be deducted from your individual account. For example, if your ending account balance for a month is $55,000, then $5.50 will be deducted for that month.

If the actual fees or services are not known at the time of disclosure, and the plan administration reasonably expects the fees for services to be incurred and paid out of plan assets, the disclosures must describe the services that it expects to be provided and how the charges will be allocated to each participant’s account. As an example, “if the plan incurs any legal expenses, such expenses will be paid from the plan’s assets and deducted from individual plan accounts on a pro-rata basis” would be an appropriate disclosure for this scenario.

On a quarterly basis, the plan administrator must provide the plan participant or beneficiary with the actual dollar amount of the fees and expenses deducted from the participant’s account for the provision of administrative services for the prior quarter, as well as a description of the services to which the charges relate. If applicable, the plan administrator must also disclose whether some of the plan’s administrative expenses from the preceding quarter were paid from the total annual operating expenses of one or more of the plan’s designated investment alternatives (e.g. revenue sharing arrangements, 12b-1 fees, subtransfer agent fees).

If there are any changes to the disclosed information, the participant or beneficiary must be given notice of the change at least 30 but no more than 90 days before the effective date of the change. However, if circumstances present themselves to prevent disclosing changes to this information within the appropriate time frame, the plan administrator must issue a notice describing the changes as soon as practicable.