Photo: Dan Macy
Concerns about the implementation of participant fee disclosure rules did not just rest within the retirement plan community – the Department of Labor (DOL) itself raised red flags about how the rules would interact with a formatting requirement under Securities and Exchange Commission (SEC) rules.
But we recently got word from DOL that the SEC had issued a no-action letter that allayed those fears.
Participant-level fee disclosure regulations for 401(k) and similar plans were finalized by DOL’s Employee Benefit Security Administration (EBSA) Oct. 20, 2010. Those rules require sponsors of plans to disclose information about investment alternatives. This includes fee and performance information, which must be provided to participants and beneficiaries in cases where they have the ability to direct the investment of their individual accounts.
EBSA recently extended the compliance deadline until April 2012 (well, the effective date is Jan. 1, but the compliance date is April 1, 2012). That is because the agencies are still sorting out issues the public raised during the rules’ comment period, chief among them a worry that the rules might create some kind of conflict with the SEC’s Rule 482 under the Securities and Exchange Act of 1933 (’33 Act). That rule sets out meticulous standards for investment companies to follow when disclosing performance information in advertisements and other materials.
The DOL requested the no-action letter last October. By then, the EBSA said it expected “that plans will need to begin making disclosures under this rule by June 2012.” In requesting the no-action letter, the EBSA cited several differences between its own rule’s annual disclosure requirement and those required under Rule 482(g).
To give you an idea of how complicated this rulemaking has become, the conflict between the DOL and SEC rules generally involved the format of a chart!
“Based on our review of the comments,” wrote DOL Deputy Assistant Secretary for Program Operations Alan Lebowitz, “it appears that applying Rule 482 to the disclosures required by the Department’s regulation may greatly complicate compliance with the regulation.”
Evidently, the SEC staff agreed. SEC’s Division of Investment Management Senior Counsel Lily C. Reid wrote Oct. 26, “We agree to treat information provided by a plan administrator” that has to comply with the EBSA’s final rule “as if it were a communication that satisfies the requirements of Rule 482 under the [’33 Act].” Same goes for any person the plan administrator designates to act on its behalf to plan participants or beneficiaries, according to the no-action letter.
“This no-action letter is significant for many reasons, but primarily because it will help 401(k) plans and service providers understand what is expected of them” under ERISA and the ’33 Act, said EBSA Assistant Secretary Phyllis C. Borzi. “This ultimately will reduce the cost of regulatory compliance for these plans, which will benefit America’s workers.”