New DOL Regulations Impose Significant Obligations on Retirement Plan Fiduciaries

New DOL Regulations Impose Significant Obligations on Retirement Plan Fiduciaries

By Randall W. Cook

The U.S. Department of Labor recently issued final regulations that impose new and significant legal obligations on fiduciaries to retirement plans that are subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). Both of these regulations become effective in 2012.

Under the first set of regulations, fiduciaries who are responsible for selecting service providers for retirement plans (i.e., investment managers, record keepers, custodians, and certain vendors who receive indirect compensation) must consider a series of new information disclosures provided by the prospective service providers before making a selection. Those disclosures include information regarding the nature of the services to be provided, the extent to which the service provider is acting as a fiduciary, and the amount and type of compensation the service provider will receive. If a fiduciary fails to consider the new information disclosures, he or she will have engaged in a prohibited transaction under ERISA.

Under the second set of regulations, fiduciaries of individual account retirement plans, such as 401(k), 403(b), and 457(b) plans, that allow participants to direct the investment of their accounts have a new affirmative duty to disclose certain information to the plan participants. The information that must now be disclosed includes general plan information (e.g., direction as to how to provide investment instructions), information about plan expenses charged to participant accounts, and detailed information about plan investment alternatives. The new regulations require detailed disclosure on an annual basis and, in the case of plan expense information, on a quarterly basis. A fiduciary’s failure to satisfy the new disclosure obligation could result in a breach of fiduciary duty under ERISA.

As a result of the new regulations, it is recommended that employers who sponsor retirement plans take the following actions to remain in compliance:

  • Provide training to plan fiduciaries, including investment committee members, regarding their new fiduciary obligations.
  • Contact plan service providers and vendors about the information that must be provided to plan participants.
  • Update recordkeeping and communication systems to satisfy the annual and quarterly plan participant disclosure requirements.
  • Review and evaluate information disclosures provided by service providers and vendors, specifically with respect to fees charged against participant accounts, to ascertain whether fees charged are reasonable.

If you would like assistance in bringing your retirement plan into compliance with these new DOL regulations, please contact a member of the firm’s Employee Benefit Practice Group.