EBSA Proposed Rules

Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans   [7/23/2008]
[PDF]
FR Doc E8-16541
[Federal Register: July 23, 2008 (Volume 73, Number 142)]
[Proposed Rules]               
[Page 43013-43044]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23jy08-24]                         


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Part IV





Department of Labor





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Employee Benefits Security Administration



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29 CFR Part 2550



Fiduciary Requirements for Disclosure in Participant[dash]Directed 
Individual Account Plans; Proposed Rule


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

RIN 1210-AB07

 
Fiduciary Requirements for Disclosure in Participant-Directed 
Individual Account Plans

AGENCY: Employee Benefits Security Administration.

ACTION: Proposed regulation.

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SUMMARY: This document contains a proposed regulation under the 
Employee Retirement Income Security Act of 1974 (ERISA) that, upon 
adoption, would require the disclosure of certain plan and investment-
related information, including fee and expense information, to 
participants and beneficiaries in participant-directed individual 
account plans (e.g., 401(k) plans). This proposal is intended to ensure 
that all participants and beneficiaries in participant-directed 
individual account plans have the information they need to make 
informed decisions about the management of their individual accounts 
and the investment of their retirement savings. This document also 
contains proposed conforming changes to the regulations applicable to 
ERISA section 404(c) plans (29 CFR 2550.404c-1). Upon adoption, these 
proposals will affect plan sponsors, fiduciaries, participants and 
beneficiaries of participant-directed individual account plans, as well 
as providers of services to such plans.

DATES: Written comments on the proposed regulation should be received 
by the Department of Labor on or before September 8, 2008.

ADDRESSES: To facilitate the receipt and processing of comment letters, 
the Employee Benefits Security Administration (EBSA) encourages 
interested persons to submit their comments electronically by e-mail to 
e-ORI@dol.gov (enter into subject line: Participant Fee Disclosure 
Project) or by using the Federal eRulemaking portal at http://
www.regulations.gov. Persons submitting comments electronically are 
encouraged not to submit paper copies. Persons interested in submitting 
paper copies should send or deliver their comments to the Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration, Attn: Participant Fee Disclosure Project, Room N-5655, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. All comments will be available to the public, without charge, 
online at http://www.regulations.gov and http://www.dol.gov/ebsa and at 
the Public Disclosure Room, N-1513, Employee Benefits Security 
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Susan M. Halliday or Kristen L. 
Zarenko, Office of Regulations and Interpretations, Employee Benefits 
Security Administration, (202) 693-8510. This is not a toll-free 
number.

SUPPLEMENTARY INFORMATION: 

A. Background

    According to the Department's most recent data, there are an 
estimated 437,000 participant-directed individual account plans, 
covering an estimated 65 million participants, and holding almost $2.3 
trillion in assets.\1\ With the proliferation of these plans, which 
afford participants and beneficiaries the opportunity to direct the 
investment of all or a portion of the assets held in their individual 
plan accounts, participants and beneficiaries are increasingly 
responsible for making their own retirement savings decisions. This 
increased responsibility has led to a growing concern that participants 
and beneficiaries may not have access to, or if accessible, may not be 
considering information critical to making informed decisions about the 
management of their accounts, particularly information on investment 
choices, including attendant fees and expenses.
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    \1\ 2005 Form 5500 Data, U.S. Department of Labor. The estimated 
437,000 plans include plans that permit participants to direct the 
investment of all or a portion of their individual accounts.
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    Under ERISA, the investment of plan assets is a fiduciary act 
governed by the fiduciary standards in ERISA section 404(a)(1)(A) and 
(B), which require fiduciaries to act prudently and solely in the 
interest of the plan's participants and beneficiaries. Where a plan 
assigns investment responsibilities to the plan's participants and 
beneficiaries, it is the view of the Department that plan fiduciaries 
must take steps to ensure that participants and beneficiaries are made 
aware of their rights and responsibilities with respect to managing 
their individual plan accounts and are provided sufficient information 
regarding the plan, including its fees and expenses, and designated 
investment alternatives, including fees and expenses attendant thereto, 
to make informed decisions about the management of their individual 
accounts. To some extent, such disclosures are already required by 
plans that elect to comply with the requirements of section 404(c) (see 
Sec.  2550.404c-1(b)(2)(i)(B)). However, compliance with section 
404(c)'s disclosure requirements is voluntary and does not extend to 
participants and beneficiaries in all participant-directed individual 
account plans.
    The Department believes that all participants and beneficiaries 
with the right to direct the investment of assets held in their 
individual plan accounts should have access to basic plan and 
investment information. For this reason, the Department is issuing this 
proposed regulation under section 404(a), with conforming amendments to 
the regulations under section 404(c). These proposals would establish 
uniform, basic disclosures for such participants and beneficiaries, 
without regard to whether the plan in which they participate is a 
section 404(c) plan. In addition, the proposal would require 
participants and beneficiaries to be provided investment-related 
information in a form that encourages and facilitates a comparative 
review among investment options.
    To facilitate the development of a proposed regulation, the 
Department published, on April 25, 2007, a Request for Information 
(RFI) in the Federal Register \2\ requesting suggestions, comments and 
views from interested persons on a variety of issues relating to the 
disclosure of plan and investment-related fee and expense and other 
information to participants and beneficiaries in participant-directed 
individual account plans. The Department received and reviewed 106 
comment letters on these important issues. Copies of these letters are 
posted on the Department's Web site at http://www.dol.gov/ebsa/regs/
cmt-feedisclosures.html.
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    \2\ 72 FR 20457 (April 25, 2007).
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    The RFI encouraged persons preparing comments to consider a 2004 
report and recommendations of a working group of the ERISA Advisory 
Council. The Employee Welfare and Pension Benefit Plans' Working Group 
on Fee and Related Disclosures to Participants reviewed the disclosure 
requirements applicable to participant-directed individual account 
plans. The Working Group assessed the adequacy and usefulness of such 
requirements and recommended changes to the requirements to help 
participants more effectively manage their retirement savings.\3\
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    \3\ This report may be accessed at http://www.dol.gov/ebsa/
publications/AC_111704_report.html.

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[[Page 43015]]

    Additionally, the RFI encouraged commenters to consider the 
Government Accountability Office's (GAO) 2006 report and 
recommendations contained in ``Private Pensions: Changes Needed to 
Provide 401(k) Plan Participants and the Department of Labor Better 
Information on Fees.'' \4\ Also relevant to the Department's 
consideration was the work of the Securities and Exchange Commission 
(Commission). The Commission has proposed, among other matters, the use 
of a summary prospectus with additional information provided on an 
Internet Web site. The proposal is intended to improve mutual fund 
disclosure by providing investors with key information in plain English 
in a clear and concise format, while enhancing the means of delivering 
more detailed information to investors.\5\ Following consultation with 
the Commission, the Department's proposal is coordinated with the 
Commission's summary prospectus approach where feasible. As ERISA plan 
investment options include many products not subject to the 
Commission's disclosure requirements, the Department seeks comments 
addressing the application of this proposed regulation to funds and 
investment products not subject to the securities laws.
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    \4\ The GAO report, GAO-07-21, referenced above may be accessed 
at http://www.gao.gov/htext/d0721.html.
    \5\ 72 FR 67790 (November 30, 2007).
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B. Overview of Proposal Sec.  2550.404a-5

1. General

    Paragraph (a) of proposed Sec.  2550.404a-5 sets forth the general 
principle that, where documents and instruments governing an individual 
account plan provide for the allocation of investment responsibilities 
to participants and beneficiaries, plan fiduciaries, consistent with 
ERISA section 404(a)(1)(A) and (B), must take steps to ensure that such 
participants and beneficiaries, on a regular and periodic basis, are 
made aware of their rights and responsibilities with respect to the 
investment of assets held in, or contributed to, their accounts and are 
provided sufficient information regarding the plan, including plan fees 
and expenses, and regarding designated investment alternatives 
available under the plan, including fees and expenses attendant 
thereto, to make informed decisions with regard to the management of 
their individual accounts. As discussed below, the proposal addresses 
the information that must be provided participants and beneficiaries, 
as well as timeframes for providing that information.
    Paragraph (b) of the proposal addresses the disclosure requirements 
that must be met by plan fiduciaries for plan years beginning on or 
after January 1, 2009. Under this paragraph, plan fiduciaries must 
comply with the requirements of paragraph (c), dealing with plan-
related information, and paragraph (d), dealing with investment-related 
information. Paragraph (e) describes the form in which the required 
information may be disclosed, such as via the plan's summary plan 
description, a quarterly benefit statement, or the use of the provided 
model, depending on the specific information. Paragraph (e) merely 
recognizes various acceptable means of disclosure; it does not preclude 
other means for satisfying disclosure duties under the proposed 
regulation. Fiduciaries that meet the requirements of paragraphs (c) 
and (d) will have satisfied the duty to make the regular and periodic 
disclosures described in paragraph (a) of this section.
    The Department believes, as an interpretive matter, that ERISA 
section 404(a)(1)(A) and (B) impose on fiduciaries of all participant-
directed individual account plans a duty to furnish participants and 
beneficiaries information necessary to carry out their account 
management and investment responsibilities in an informed manner. In 
the case of plans that elected to comply with section 404(c) before 
finalization of this proposal, the requirements of section 404(a)(1)(A) 
and (B) typically would have been satisfied by compliance with the 
disclosure requirements set forth at 29 CFR Sec.  2550.404c-
1(b)(2)(i)(B). However, the Department expresses no view with respect 
to plans that did not comply with section 404(c) and the regulations 
thereunder as to the specific information that should have been 
furnished to participants and beneficiaries in any time period before 
this regulation is finalized.

2. Plan-Related Information

    In general, paragraph (c) of the proposal sets forth what is 
characterized as ``plan-related'' information. This information falls 
into three categories--general plan information, administrative expense 
information and individual expense information. Paragraph (c) also 
describes when this information must be provided to participants and 
beneficiaries and requires that it be based on the latest information 
available to the plan.
    First, paragraph (c)(1) of the proposal provides for the disclosure 
of general plan information regarding: How participants and 
beneficiaries may give investment instructions; any specified 
limitations on such instructions, including any restrictions on 
transfer to or from a designated investment alternative; the exercise 
of voting, tender and similar rights appurtenant to an investment in a 
designated investment alternative as well as any restrictions on such 
rights; the specific designated investment alternatives offered under 
the plan; and any designated investment managers to whom participants 
and beneficiaries may give investment directions. Under the proposal, 
this information is required to be furnished to an individual on or 
before the date he or she becomes eligible to be a participant or 
beneficiary under the plan and at least annually thereafter. In 
addition, the proposal requires that participants and beneficiaries be 
furnished a description of any material changes to the required 
information not later than 30 days after the date of adoption of such 
changes. The Department believes that, by referencing the ``date of 
adoption,'' the regulation will increase the likelihood that 
participants and beneficiaries will be provided notification of 
material changes in advance of the changes becoming effective, thereby 
putting them in a better position to consider such changes (e.g., 
changes in designated investment alternatives) in managing their 
accounts. Paragraph (e)(1) of the proposal provides that the 
disclosures required by this paragraph (c)(1) may be made as part of 
the plan's summary plan description, provided that the applicable 
timing requirements are satisfied.
    Second, paragraph (c)(2)(i) sets out the required disclosures for 
administrative expenses. Specifically, it provides that, on or before 
the date of an individual's eligibility to become a participant or 
beneficiary under the plan, and at least annually thereafter, 
participants and beneficiaries must be furnished an explanation of any 
fees and expenses for plan administrative services (e.g., legal, 
accounting, recordkeeping) that, to the extent not included in 
investment-related fees and expenses, may be charged against the 
individual accounts of participants or beneficiaries and the basis on 
which such charges will be allocated to, or affect the balance of, each 
individual account (e.g., pro rata, per capita). This requirement is 
intended to ensure that the plan fiduciary informs all participants and 
beneficiaries about the plan's day-to-day operational expenses that 
will be charged against their accounts. Because of its general nature,

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the information described in paragraph (c)(2)(i) may, pursuant to 
paragraph (e)(1) of the proposal, be disclosed as part of the plan's 
summary plan description, provided that the applicable timing 
requirements are met.
    In addition to the general disclosures concerning plan 
administrative expenses, paragraph (c)(2)(ii) of the proposal requires 
that, at least quarterly, participants and beneficiaries be furnished 
statements of the dollar amounts actually charged during the preceding 
quarter to the participants' or beneficiaries' accounts for 
administrative services, and general descriptions of the services to 
which the charges relate. The statements should be sufficiently 
specific to inform the participants or beneficiaries of the actual 
charge(s) to their accounts and enable them to distinguish the 
administrative services from other charges and services that may be 
assessed against their accounts. An identification of the total 
administrative fees and expenses assessed during the quarter, with, for 
example, an indication that the charges for plan administrative 
expenses include legal, accounting, and recordkeeping costs to the 
plan, would be sufficient. The Department does not believe that it is 
necessary, or particularly useful, for participants to have 
administrative charges broken out and listed on a service-by-service 
basis. Commenters on the Department's RFI argued that an overly 
detailed breakdown of administrative fees may overwhelm participants 
and that meaningful information would not be conveyed by such a 
breakdown. Many commenters explicitly supported the disclosure of 
``aggregate'' or summary fees. The requirement to furnish the 
information described in paragraph (c)(2)(ii) of the proposal may be 
satisfied by including the information as part of a quarterly benefit 
statement furnished pursuant to ERISA section 105(a)(1)(A)(i). See 
paragraph (e)(2) of the proposal.
    Third, paragraph (c)(3) describes the required disclosures for 
individual expenses. This is identical to paragraph (c)(2) except that 
it focuses on the disclosure of information relating to individual 
expenses, i.e., expenses that are assessed on an individual-by-
individual, rather than plan-wide, basis. Such expenses might be 
attendant to a qualified domestic relations order, a participant loan, 
or investment advice services. Paragraph (c)(3)(i) requires the 
disclosure of information concerning what expenses might be assessed 
and paragraph (c)(3)(ii) requires the disclosure of amounts actually 
assessed and identification of the service to which an expense relates. 
Also, like paragraph (c)(2), information described in paragraph 
(c)(3)(i) may be disclosed in the plan's summary plan description and 
the information described in paragraph (c)(3)(ii) may be included in a 
quarterly benefit statement.
    The Department invites comments on the type of information required 
to be disclosed, the timing of the information required to be disclosed 
and the form in which the information may be disclosed.

3. Investment-Related Information

    Paragraph (d) of the proposal sets forth the investment-related 
information required to be furnished or made accessible to participants 
and beneficiaries in participant-directed individual account plans. 
Paragraph (d)(1) sets forth the investment-related information required 
to be automatically furnished to each participant and beneficiary. 
Paragraph (d)(2) addresses the format of the required information. 
Paragraph (d)(3) addresses the furnishing of post-investment 
information. And paragraph (d)(4) sets forth information required to be 
furnished only upon the request of a participant or beneficiary.
    Paragraph (d)(1) provides that, on or before the date of 
eligibility and at least annually thereafter, participants and 
beneficiaries must be furnished certain basic information with respect 
to each designated investment alternative offered under the plan. For 
purposes of the proposal, paragraph (h)(1) defines the term 
``designated investment alternative'' to mean any investment 
alternative designated by the plan into which participants and 
beneficiaries may direct the investment of assets held in, or 
contributed to, their individual accounts. The term ``designated 
investment alternative'' does not include ``brokerage windows,'' 
``self-directed brokerage accounts,'' or similar plan arrangements that 
enable participants and beneficiaries to select investments beyond 
those designated by the plan.
    For purposes of identifying the information essential for 
participants and beneficiaries to consider in evaluating their 
investment choices under the plan, the Department carefully reviewed 
the many comments received in response to the RFI, as well as the 
Commission's proposal for a summary prospectus. The majority of RFI 
commenters believe that, in addition to basic fee and expense 
information, participants and beneficiaries need additional disclosure 
to put fee-related information into context and to educate them about a 
plan's investment alternatives. On the basis of its review, the 
Department concluded that fee and expense information, although 
important, is only one of the factors to be considered in making 
informed investment decisions along with investment performance and 
other information relating to a designated investment alternative. 
Also, the Department is persuaded by RFI commenters that most 
participants and beneficiaries will probably not review large amounts 
of detailed investment information. Information that is too detailed 
may overwhelm participants, and commenters are concerned that the costs 
associated with providing overly detailed information, which ultimately 
will be borne by participants, significantly outweigh any possible 
benefits. However, the Department also is persuaded that the form in 
which information is required to be presented should serve to encourage 
and facilitate its review by participants and beneficiaries. Many 
commenters on the RFI, for example, supported the disclosure of fee 
information in a format that would facilitate comparison across a 
plan's investment alternatives. For this reason, paragraph (d)(2) of 
the proposal, as discussed later, requires the investment-related 
information set forth in paragraph (d)(1) to be presented in a 
comparative format.
    Specifically, paragraph (d)(1) requires the following disclosures 
with respect to each designated investment alternative under the plan:
    Paragraph (d)(1)(i) requires, among other items, the name and 
category (e.g., money market mutual fund, balanced fund, index fund, 
and whether the investment alternative is actively or passively 
managed) of the designated investment alternative and an Internet Web 
site address that is sufficiently specific to lead participants and 
beneficiaries to supplemental information regarding the investment 
alternative, including its principal strategies, risks, performance and 
costs. For example, such information may be contained in a Commission-
required prospectus (or other document) made available at a Web site 
address. The Department believes that ready access to such information 
via the Internet alleviates the need to automatically furnish otherwise 
important, detailed investment-related information directly to every 
participant and beneficiary. This accommodates different levels of 
participant interest in such information. The Department recognizes 
that, while many investment fund providers do maintain Web sites to 
inform interested investors concerning specific investment funds, other 
providers of

[[Page 43017]]

investment funds and products may not. The Department specifically 
invites comments on what, if any, challenges this proposed requirement 
may present for service providers and employers, such as in the case of 
in-house managed funds that might be offered as a designated investment 
alternative under a plan. The Department also is interested in comments 
on whether this proposed requirement raises any issues under the 
Department's rules on the use of electronic media (29 CFR 2520.104b-
1(c)), given that plan fiduciaries may, in some cases, have to provide 
paper copies of the supplemental information listed in this requirement 
(i.e., information that would otherwise be accessible through the 
Internet Web site address) to participants who fail to affirmatively 
consent to receiving such information electronically.
    Paragraph (d)(1)(ii) of the proposal requires the disclosure of 
specified performance data for each of the plan's designated investment 
alternatives. For designated investment alternatives with respect to 
which the return is not fixed, e.g., an equity index fund, the 
fiduciary (or designee) must provide the average annual total return 
(expressed as a percentage) of the investment for the following 
periods, if available: 1-year, 5-year, and 10-year, measured as of the 
end of the applicable calendar year; as well as a statement indicating 
that an investment's past performance is not necessarily an indication 
of how the investment will perform in the future. For this purpose, the 
term ``if available'' is intended merely to reflect that some plan 
investments may not have been in existence for 1, 5, or 10 years. In 
such cases, plans are expected to explain that the data is not 
available for this reason (e.g., ``not applicable'' or ``not 
available''). In the case of designated investment alternatives for 
which the return is fixed for the term of the investment, e.g., a 
guaranteed investment contract, the fiduciary (or designee) must 
provide both the fixed rate of return and the term of the investment. 
For purposes of paragraph (d)(1)(ii), the term ``average annual total 
return'' is defined in section (h)(2) of the proposal by reference to 
standards applicable to open-end management investment companies 
registered under the Investment Company Act of 1940 (the 1940 Act). The 
Department specifically invites comments on what, if any, problems the 
proposed definition presents for investment funds and products that are 
not subject to the 1940 Act and, if problematic, suggestions for 
alternative definitions or approaches.
    As a corollary to the disclosure of performance data, paragraph 
(d)(1)(iii) requires disclosure of performance data for an appropriate 
broad-based benchmark over time periods that are comparable to the 
performance data periods required under paragraph (d)(1)(ii). As 
structured, the proposal provides flexibility in identifying an 
appropriate benchmark. In general, the Department expects that most 
plans will simply identify the performance benchmark already being used 
for the investment option pursuant to the Commission's prospectus 
requirements, if applicable. The Department seeks comments on whether 
and how the proposed requirement may need to be modified to include a 
more narrowly based index that reflects the financial market sector for 
ERISA plan investment options that are not subject to the securities 
laws.
    Paragraph (d)(1)(iv) specifically addresses the disclosure of fees 
and expenses attendant to the purchase, holding and sale of each of the 
plan's designated investment alternatives. For designated investment 
alternatives with respect to which the return is not fixed, the 
fiduciary (or designee) must provide: (A) The amount and a description 
of each shareholder-type fee (i.e., fees charged directly against a 
participant's or beneficiary's investment), such as sales loads, sales 
charges, deferred sales charges, redemption fees, surrender charges, 
exchange fees, account fees, purchase fees, and mortality and expense 
fees; (B) the total annual operating expenses of the investment 
expressed as a percentage (e.g., expense ratio); and (C) a statement 
indicating that fees and expenses are only one of several factors that 
participants and beneficiaries should consider when making investment 
decisions. In the case of designated investment alternatives with 
respect to which the return is fixed for the term of the investment, 
the fiduciary (or designee) must provide the amount and a description 
of any shareholder-type fees that may be applicable to a purchase, 
transfer or withdrawal of the investment in whole or in part. The 
description of each shareholder-type fee must include the amount on 
which the charge is applied, e.g., 4% of amount invested. For purposes 
of paragraph (d)(1)(iv), the term ``total annual operating expenses'' 
is defined in paragraph (h)(3) of the proposal by reference to 
standards applicable to open-end management investment companies 
registered under the 1940 Act. The Department specifically invites 
comments on what, if any, problems the proposed definition presents for 
investment funds and products that are not subject to the 1940 Act and, 
any suggestions for alternative definitions or approaches.
    The Department has differentiated the fee and expense disclosures 
required for designated investment alternatives with returns that vary 
over time from alternatives with fixed returns based on the financial 
nature of each of these investment types. While the disclosure 
requirements for investments with respect to which the return is not 
fixed are more comprehensive, the Department decided that the most 
essential information for participants who choose to invest in fixed 
investment alternatives is the contractual interest rate paid to their 
accounts and the term of the investment during which their monies are 
shielded from market price fluctuations and reinvestment risks. Any 
fees assessed, of course, are factored into determining the contractual 
interest rate and RFI commentary suggested that there would be little 
benefit to participants to disclosing such fees for investments with 
fixed returns.
    Paragraph (d)(1)(v) provides that, for purposes of the requirement 
that participants be provided information on or before the date they 
are eligible to be covered under the plan, plan fiduciaries may provide 
such participants the most recent annual disclosure furnished to 
participants and beneficiaries pursuant to paragraph (d)(1), in 
addition to any material changes to the information described in 
paragraph (c)(1)(i). This provision ensures that new participants 
receive at least the same information that has been furnished to other 
plan participants and beneficiaries with respect to the designated 
investment alternatives under the plan. It also avoids the possible 
burdens and costs of a requirement that fiduciaries update the required 
disclosures for each new plan participant, which could result in a 
daily updating requirement for many plans.
    Paragraph (d)(2) of the proposal requires the fiduciary to furnish 
the information required by paragraph (d)(1) in a chart or similar 
format that will permit straightforward comparison of the plan's 
designated investment alternatives by participants and beneficiaries. 
Many commenters on the RFI supported this requirement and agreed that 
any required disclosure should enable participants and beneficiaries to 
easily compare data across a plan's menu of designated investment 
alternatives. Further, GAO indicated in its 2006 report that plan 
sponsors should be required to disclose fee information on each 401(k) 
investment option in a way that

[[Page 43018]]

facilitates comparison among the options.\6\ The fiduciary's name and 
contact information must also be provided so that participants and 
beneficiaries may request the additional information listed in 
paragraph (d)(4). The chart or similar document also must include a 
statement informing participants and beneficiaries that more current 
information about a designated investment alternative, including 
performance and cost updates, may be available on the Web site for the 
investment alternative.
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    \6\ See supra note 4.
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    In response to commenters on the RFI, the Department has developed 
a model disclosure form that can be used for purposes of satisfying the 
disclosure requirements of paragraph (d)(2) of the proposal. The model 
appears in the Appendix to this regulation. Paragraph (e)(3) of the 
proposal specifically provides that a fiduciary that uses and 
accurately completes the model format set forth in the Appendix will be 
deemed to have satisfied the requirements of paragraph (d)(2) relating 
to the disclosure of the information in paragraph (d)(1) in a 
comparative form.\7\ The Department notes that the proposal would not 
mandate use of the model as the exclusive means for satisfying the 
requirement to provide a chart or similar format that facilitates 
comparison. This proposal provides fiduciaries with the flexibility to 
create a chart or comparative format of their own design, provided the 
required information is displayed in a manner facilitating comparisons.
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    \7\ The Department notes that the model set forth in the 
Appendix includes information and statements that are merely 
illustrative of the type of information that might appear in the 
required disclosure. It is the responsibility of each plan fiduciary 
to assure itself that the information contained in its disclosure 
statement is complete and accurate. However, such fiduciaries shall 
not be liable for their reasonable and good faith reliance on 
information furnished by their service providers with respect to 
those disclosures required by paragraph (d)(1).
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    Paragraph (d)(3) of the proposal requires that when a plan provides 
for the pass-through of voting, tender and similar rights, the 
fiduciary must furnish participants and beneficiaries who have invested 
in a designated investment alternative with these features any 
materials about such rights that have been provided to the plan. This 
requirement is similar to the requirement currently applicable to 
section 404(c) plans. See Sec.  2550.404c-1(b)(2)(i)(B)(1)(ix).
    Paragraph (d)(4) of the proposal requires a fiduciary to furnish 
certain identified information either automatically or upon request by 
participants and beneficiaries, based on the latest information 
available to the plan. This provision is modeled on the requirements 
currently applicable to section 404(c) plans with respect to 
information to be furnished upon request of a participant or 
beneficiary. See Sec.  2550.404c-1(b)(2)(i)(B)(2).

4. Timing of Disclosures

    As discussed above, each of the various disclosures must be made 
within specific timeframes. The plan-related information concerning 
certain administrative procedures and expenses required by 
subparagraphs (c)(1)(i), (c)(2)(i), (c)(3)(i), and the investment-
related information required by subparagraph (d)(1) must be provided to 
each participant or beneficiary ``on or before the date of plan 
eligibility'' and ``at least annually thereafter.'' The proposal 
defines ``at least annually thereafter'' in paragraph (h)(4) to mean at 
least once in any 12-month period, without regard to whether the plan 
operates on a calendar or fiscal year basis.
    The proposal also requires that certain information be provided to 
participants and beneficiaries on a more frequent basis. Specifically, 
the actual dollar amounts charged to an individual's account during the 
preceding quarter for administrative and individual services must be 
disclosed in a statement to participants and beneficiaries ``at least 
quarterly'' pursuant to subparagraphs (c)(2)(ii) and (c)(3)(ii) of the 
proposal. The proposal defines ``at least quarterly'' in paragraph 
(h)(5) to mean at least once in any 3-month period.

5. Other Fiduciary Duties

    Paragraph (f) makes clear that nothing in the regulation would 
relieve a fiduciary of its responsibilities to prudently select and 
monitor service providers to the plan and the investments made 
available under the plan (i.e., designated investment alternatives).\8\
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    \8\ Also, with regard to ERISA's general fiduciary standards, it 
should be noted that there may be extraordinary situations when 
fiduciaries will have a disclosure obligation beyond those addressed 
by this regulation. For example, if a plan fiduciary knew that, due 
to a fraud, information contained in a public financial report would 
mislead investors concerning the value of a designated investment 
alternative, the fiduciary would have an obligation to take 
appropriate steps to protect the plan's participants, such as 
disclosing the information or preventing additional investments in 
that alternative by plan participants until the relevant information 
is made public. See also Varity Corp. v. Howe, 516 U.S. 489 (1996) 
(plan fiduciary has a duty not to misrepresent to participants and 
beneficiaries material information relating to a plan).
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C. Proposed Amendments to Sec.  2550.404c-1

    Also included in this notice are proposed amendments to the 
regulation under section 404(c) of ERISA, 29 CFR Sec.  2550.404c-1. The 
proposed amendments to section 2550.404c-1(b), (c) and (f) would 
integrate the disclosure requirements in the section 404(c) regulation 
with the new proposed section 2550.404a-5 disclosure requirements and 
thereby avoid having different disclosure rules for plans intending to 
comply with the section 404(c) requirements. In brief, the proposed 
amendments to the section 404(c) regulation eliminate references to 
disclosures encompassed in the new Sec.  2550.404a-5 proposal and 
incorporate cross-references to the new proposal, thereby establishing 
a uniform disclosure framework for all participant-directed individual 
account plans. The Department also is taking this opportunity to 
reiterate its long held position that the relief afforded by section 
404(c) and the regulation thereunder does not extend to a fiduciary's 
duty to prudently select and monitor designated investment managers and 
designated investment alternatives under the plan. Accordingly, it is 
the Department's view that a fiduciary breach or an investment loss in 
connection with the plan's selection of a designated investment 
alternative is not afforded relief under section 404(c) because it is 
not the result of a participant's or beneficiary's exercise of 
control.\9\ The Department is proposing to amend paragraph (d)(2) 
(entitled ``Limitation on liability of plan fiduciaries'') of Sec.  
2550.404c-1 to add a new subparagraph (iv) providing that, 
``[P]aragraph (d)(2)(i) does not relieve a fiduciary from the duty to 
prudently select and monitor any designated investment manager or 
designated investment alternative offered under the plan.''
---------------------------------------------------------------------------

    \9\ See 57 FR 46906, 46924, n.27 (preamble to Sec.  2550.404c-1) 
(October 13, 1992).
---------------------------------------------------------------------------

D. Effective Date

    The Department proposes that the regulations and amendments 
contained in this notice be effective for plan years beginning on or 
after January 1, 2009. The Department specifically invites comments on 
the earliest date on which the proposed regulation and amendments can 
or should be effective, addressing any administrative or programming 
costs or other issues that should be considered in establishing an 
effective date.

[[Page 43019]]

E. Regulatory Impact Analysis

    As discussed in the preceding sections, the proposed regulation 
would establish a uniform basic disclosure regime for participant-
directed plans. Many of the disclosures contained in the proposed 
regulation are similar to those required for participant-directed 
individual account plans that currently comply with section 404(c) and 
the Department's regulations issued thereunder. For other participant-
directed plans which choose not to be section 404(c) compliant there is 
some uncertainty as to what information is provided to participants; 
accordingly, the Department is assuming for purposes of this analysis 
that for some of the plans that choose not to be 404(c) compliant the 
proposal's disclosure requirements are new.
    Given the foregoing assumptions, the average incremental costs and 
benefits for participants in plans that provide section 404(c) 
compliant or similar disclosures will be smaller than for those in 
plans that do not provide this information. Participants in section 
404(c) compliant plans or in plans that provide similar information 
will not receive as large an added benefit from the proposal's new 
disclosure requirements because they are already receiving some of the 
information that would be required under the proposed regulation.

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f) of the Executive 
Order, a ``significant regulatory action'' is an action that is likely 
to result in a rule (1) having an effect on the economy of $100 million 
or more in any one year, or adversely and materially affecting a sector 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or State, local or tribal governments or 
communities (also referred to as ``economically significant''); (2) 
creating serious inconsistency or otherwise interfering with an action 
taken or planned by another agency; (3) materially altering the 
budgetary impacts of entitlement grants, user fees, or loan programs or 
the rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. The 
Department has determined that this action is ``significant'' under 
section 3(f)(1) because it is likely to have an effect on the economy 
of more than $100 million in any one year.
    Accordingly, the Department has undertaken, as described below, an 
analysis of the costs and benefits of the proposed regulation in 
satisfaction of the requirements of the Executive Order and OMB 
Circular A-4. The Department believes that the proposed regulation's 
benefits justify its costs. The present value of the benefits over the 
ten year period is expected to be about $6.9 billion. The present value 
of the costs over the same time period is expected to be $759 million. 
Overall, the Department estimates that the proposed regulation will 
generate a net present value (or net present benefit) of almost $6.1 
billion over the time period 2009-2018, as is shown in Table 1.

           Table 1.--Summary of Discounted Benefits and Costs
------------------------------------------------------------------------
                                Benefits ($millions/  Costs ($millions/
             Year                      year)                year)
------------------------------------------------------------------------
 1 2009.......................                914.9                127.3
 2 2010.......................                855.0                 90.7
 3 2011.......................                799.1                 84.7
 4 2012.......................                746.8                 79.2
 5 2013.......................                698.0                 74.0
 6 2014.......................                652.3                 69.2
 7 2015.......................                609.6                 64.7
 8 2016.......................                569.8                 60.4
 9 2017.......................                532.5                 56.5
 10 2018......................                497.6                 52.8
                               -----------------------------------------
    Total with 7% Discounting.               6875.6                759.4
    Net Present Value 7%        ...................                6,116
     Discounting..............
    Net Present Value 3%        ...................                7,158
     Discounting..............
------------------------------------------------------------------------

Need for Regulatory Action
    A growing number of workers are preparing for retirement by 
participating in ERISA governed retirement plans that allow for 
participant direction of investments. How well plan participants are 
prepared for retirement is partly determined by how well they have 
invested their retirement savings. Among the key determinants of the 
return on an investment are fees and expenses. A one percentage point 
difference in fees can result in an 18 percent difference in 
savings.\10\
---------------------------------------------------------------------------

    \10\ The Commission reported that a $10,000 investment with an 
expense ratio of 1.5% invested for 20 years and having an annual 
return of 10% before fees will return roughly $49,725, while a 
similar investment with lower fees of 0.5% will return $60,858--an 
18% difference. Invest Wisely: An Introduction to Mutual Funds, 
http://www.sec.gov/investor/pubs/inwsmf.htm.
---------------------------------------------------------------------------

    In developing this proposed regulation, the Department considered 
why the market alone does not provide transparent fee disclosure to 
participants comparable to that prescribed by this regulation. In 
general, the market delivers products that are deemed valuable by 
consumers. The lack of transparent fee disclosure in this market 
suggests to the Department that individuals may underestimate the 
impact that fees and expenses can have on their account balances, and 
thus undervalue transparent fee disclosure. The Department believes 
that this causes individuals to make uninformed investment decisions 
that result in inferior outcomes to those that would result from making 
investment decisions based on full information. Retirement plan 
characteristics, including disclosure practices, are shaped in 
significant measure by labor market forces. Employers want to attract 
and retain productive employees and minimize cost. If employees 
undervalue disclosure, plans sponsors might under-provide it. Sub-
optimal levels of disclosure translate into inefficiencies in 
participant's choices of investment products and services. Evidence for 
this

[[Page 43020]]

undervaluation includes a wide dispersion of fees paid in 401(k) plans. 
As supported by a report of the Investment Company Institute,\11\ the 
fees that plans pay vary over a wide range. According to their study, 
23% of 401(k) stock mutual fund assets are in funds with an expense 
ratio of less than 50 basis points, while an equal amount of assets are 
in funds with an expense ratio of over 100 basis points. Some of this 
variation could be explained by the varying amount of assets in plans 
and their accompanying economies of scale. In addition, some plans 
might offer more, or more expensive, plan features. The Department 
believes, however, that a significant portion of the variation in plan 
fees is due to market inefficiencies.
---------------------------------------------------------------------------

    \11\ Investment Company Institute, ``The Economics of Providing 
401(k) Plans: Services, Fees, and Expenses, 2006,'' http://
www.ici.org/pdf/fm-v16n4.pdf.
---------------------------------------------------------------------------

    Understanding and comparing investment options available in a 
401(k) plan can be complicated and confusing for many participants. The 
magnitude of complexity and confusion may be defined by reference to 
the number of available investment options and the materials utilized 
for communicating investment-related information. For example, in plans 
that offer a large number of investment options, for which the primary 
communication is a full prospectus-like disclosure, understanding and 
comparing investment options may be challenging for the less 
financially savvy or less interested plan participants.\12\ Moreover, 
the process of gathering and comparing information may itself be time 
consuming.
---------------------------------------------------------------------------

    \12\ For example, the ERISA Advisory Council Working group 
reported that ``The Working Group questions the utility of the 
prospectus as a source of investment information. While its delivery 
is required under SEC rules for investment, it lacks any marginal 
utility to a plan participant in terms of making an investment 
decision,'' Report of the Working Group on Prudent Investment 
Process, 2006, http://www.dol.gov/ebsa/publications/AC_1106A_
report.html. The Department also received similar comments in 
response to its Request of Information regarding Fee Disclosures to 
401(k) Plan Participants from service providers and trade 
organizations. These comments can be accessed at http://www.dol.gov/
ebsa/regs/cmt-feedisclosures.html.
---------------------------------------------------------------------------

    The proposed regulation will help a large number of plan 
participants by placing investment-related information in a format that 
facilitates comparison of investment alternatives. This simplified 
format will make it easier and less time consuming for participants to 
find and compare the needed information. As a result, plan participants 
may make better investment decisions and may be better financially 
prepared for retirement.
Benefits
    The proposed regulation's disclosure requirements will provide 
important benefits to society. The provision of investment-related 
information in a comparative format is a new requirement for all 
participant directed individual account plans, including section 404(c) 
compliant plans, and is anticipated to be especially beneficial to plan 
participants. The Department believes that such information will enable 
participants to make better decisions on how to structure their 
investments on a prospective basis. These benefits with respect to the 
provision of investment-related information are quantified in more 
detail below.
(a) Reduction in Fees
    A review of the relevant literature suggests that plan participants 
on average pay fees that are higher than necessary by 11.3 basis points 
per year.\13\ The proposal's required disclosure of fees and expenses 
is expected to result in the payment of lower fees for many 
participants, assuming that participants will more consistently pick 
the lower cost comparable investment alternatives under their 
plans.\14\ Selection of the lower cost comparable investment 
alternatives will, in turn, result in increased plan participant 
account investment returns. In addition, the required disclosure could 
lead to reduced fees \15\ in the investment alternatives market as more 
fee transparency fosters more price competition in the market. 
Furthermore, the fee disclosure requirements may lead plan fiduciaries 
to give additional scrutiny to fees, and consequently to select less 
expensive comparable investment alternatives.
---------------------------------------------------------------------------

    \13\ ``Higher than necessary'' here means that the participant 
could have obtained equal value without incurring the expense. This 
calculation, based on fees paid in 401(k) plans, assumes that 
participants on average pay 11 or more basis points in unnecessary 
fees and expenses, in the form of expense ratios or loads. This 
assumption is conservative in light of evidence on the distribution 
of investor expense levels presented in: Brad M. Barber, Terrance 
Odean and Lu Zheng, ``Out of Sight, Out of Mind, The Effects of 
Expenses on Mutual Fund Flows,'' Journal of Business Vol. 79, No. 6 
p. 2095-2119 (2005); James J. Choi, David I. Laibson, and Brigitte 
C. Madrian, ``Why Does the Law of One Price Fail? An Experiment on 
Index Mutual Funds,'' NBER Working Paper No. W12261 (May 2006); 
Report, Deloitte Financial Advisory Services LLP. ``Fees and Revenue 
Sharing in Defined Contribution Retirement Plans,'' (December 6, 
2007) (on file with the Department); Edwin J. Elton, Martin J. 
Gruber, and Jeffrey A. Busse, ``Are Investors Rational? Choices 
Among Index Funds,'' NYU Working Paper, Social Science Research 
Network Abstract 340482 (June 2002); Sarah Holden and Michael 
Hadley, Investment Company Institute, ``The Economics of Providing 
401(k) Plans: Services, Fees and Expenses 2006,'' 16 Research 
Fundamentals, No. 4. (September 2007). This estimate of excess 
expense does not take into account less visible expenses such as 
mutual funds' internal transaction costs (including explicit 
brokerage commissions and implicit trading costs), which are 
sometimes larger than funds' expense ratios. Deloitte, supra; Jason 
Karceski, Miles Livingston, and Edward O'Neal, ``Portfolio 
Transactions Costs at U.S. Equity Mutual Funds,'' University of 
Florida Working Paper (2004) at http://thefloat.typepad.com/the_
float/files/2004_zag_study_on_mutual_fund_trading_costs.pdf.
    \14\ While increased disclosure to plan participants is expected 
to reduce fees, it is not clear by how much. Some participants may 
not make optimal use of the disclosed information to reduce fees 
when making investment decisions. Also, the proposal's disclosures 
are limited to plan's designated investment alternatives chosen by 
plan fiduciaries rather than by plan participants.
    \15\ In their mutual fund experiment, Choi et al. found that 
presenting the participants with a comparison fee chart, and not 
just a prospectus, reduced the fees paid by 12% to 49% depending on 
the group studied.
    James J. Choi, David I. Laibson, and Brigitte C. Madrian. May 
2006. ``Why Does the Law of One Price Fail? An Experiment on Index 
Mutual Funds.'' NBER Working Paper No. W12261.
---------------------------------------------------------------------------

    Although participants in section 404(c) compliant plans already 
receive much of the information that would be required under the 
proposed regulation, they are expected to receive a substantial 
incremental benefit. Participants in section 404(c) compliant plans, as 
well as many participants in plans that are not choosing to be section 
404(c) compliant, who invest in mutual funds that are designated 
investment alternatives under the plan already receive the fee 
information in the related funds' prospectuses. The proposal's required 
disclosure of a summary of fee and performance information in a 
comparable format may nevertheless be beneficial in assisting plan 
participants to make better investment decisions. Thus, the Department 
assumes that participants in plans that are not providing disclosures 
similar to that required under section 404(c) receive a larger added 
benefit from the proposal's disclosures than plan participants that 
receive section 404(c) compliant or similar disclosures.\16\
---------------------------------------------------------------------------

    \16\ The Department assumes that plan participants that already 
receive the section 404(c) required information will receive a 
benefit from the proposal that is two-thirds of that received by 
participants that do not already receive this information. In 
addition, the Department assumes that at least 80% of participants 
in plans that choose not to be 404(c) compliant, nevertheless, 
receive similar disclosures to participants in section 404(c) 
compliant plans. The Department specifically requests comments on 
the percentage of participants that already receive this information 
and the additional benefits that plan participants will receive due 
to the proposed regulation.
---------------------------------------------------------------------------

    The Department estimates that there will be assets of about $2.6 
trillion in participant-directed individual account

[[Page 43021]]

plans in 2009 \17\ and that about $3.0 billion in higher than necessary 
fees are being paid by plan participants. Assuming the proposal's fee 
disclosures will reduce the amount of higher than necessary fees paid 
on average (a) by 10% (11.3 basis points*10%=1.13 basis points) \18\ 
for participants in section 404(c) compliant plans or plans that 
provide similar information, and (b) by 15% (11.3 basis points*15%=1.70 
basis points) for participants in plans that do not receive section 
404(c) compliant or similar information, the Department believes that 
the proposal's fee disclosures will result in $307 million in fee 
savings for plan participants in 2009 as shown in Table 2.
---------------------------------------------------------------------------

    \17\ The Department estimates, using 2005 Form 5500 data, that 
in 2005 $2.3 trillion in assets were held in participant directed 
accounts. To arrive at a 2009 dollar estimate, this number is then 
adjusted for inflation. This estimate does not include growth due to 
new participants or contributions and it also ignores increases or 
decreases due to the returns on the assets. Overall, the Department 
believes it under estimates the total amount of assets in 2009.
    \18\ Choi et al. (2006) found that providing comparative fee 
information to the treatment groups reduced fees by 12% to 49%. 
While this estimate originated from an experiment using young 
educated subjects, the Department believes that the assumptions made 
here are reasonable as they were selected from the lower range of 
values.

                               Table 2.--Benefits Due to Reduction in Fees (2009)
----------------------------------------------------------------------------------------------------------------
                                                   Total amount
                                                   of assets in    Basis points       Percent      Benefits from
                  Type of plan                      plans  (in    of higher than  correction due   reduction in
                                                    millions of   necessary fees   to disclosure  fees (percent)
                                                   2009 dollars)
                                                             (A)             (B)             (C)     (A * B * C)
----------------------------------------------------------------------------------------------------------------
404(c) Plans and Plans with Similar Information.       2,500,000            0.11              10    $282,754,000
Non-404(c) Plans without Similar Information....         144,000            0.11              15      24,487,000
                                                 ---------------------------------------------------------------
    Total Undiscounted Benefits.................  ..............  ..............  ..............     307,241,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    There is some question as to whether some reductions in fees might 
represent transfers (such as consumer surpluses being recaptured by 
participants from investment managers) rather than efficiency gains. 
The Department believes that fee reductions attributable to this 
proposed regulation will mostly reflect efficiency gains, especially in 
the longer run. Downward pressure on fees will favor more efficient 
means of producing investment and other plan services. It will also 
reflect a diminution of the market for services whose costs exceeds 
their benefits (such as movement from more active to more passive 
investment management in cases where the latter is more efficient). 
However, it is possible that some fraction of reduced fees could 
reflect a transfer.\19\ The Department invites comments on this 
possibility. Since a purpose of the proposed regulation is to help plan 
participants increase their retirement savings, and because the 
expected fee reduction furthers this goal, the Department's motivation 
is the same irrespective of whether fee savings reflect transfers or 
efficiency gains. In the absence of information of what portion of fee 
savings might reflect transfers, for purposes of this assessment all 
such savings is counted as benefits.
---------------------------------------------------------------------------

    \19\ Fees vary due to the number and type of investment 
alternatives selected by the plan fiduciary. Nevertheless, plan 
participants can still influence the amount of fees they pay. 
Participants can choose among, on average almost 19 alternatives 
(Vanguard. ``How America Saves 2006.'') in the plan and select lower 
cost investment options or change their allocation percentages. 
Participants can also ask the plan fiduciaries to offer lower cost 
alternatives.
---------------------------------------------------------------------------

(b) Reduction in Participant Search Time
    The proposed regulation will benefit plan participants by reducing 
the time they spend searching for and compiling fee and expense 
information. Although it is possible that all of these 65 million 
participants in participant directed individual account plans could 
benefit from increased disclosure, only a subset will choose to act on 
the disclosed information. The Department estimates that about at least 
29 percent of plan participants will spend time researching their 
plans' designated investment alternatives fee and expense information 
and are, therefore, likely to benefit from reduced search time and 
corresponding reduced costs. This estimate is based on an EBRI survey 
\20\ which found that 29 percent of the respondents that received 
educational materials from their plans read the materials and made a 
change in their retirement plan investments. This assumption results in 
nearly 19 million plan participants that could benefit from reduced 
search costs. The Department seeks comments on the extent to which this 
proposal may increase the percentage of plan participants who will 
spend time researching their plans.
---------------------------------------------------------------------------

    \20\ Employee Benefit Research Institute Issue Brief 
292, April, 2006.
---------------------------------------------------------------------------

    The same EBRI study found that respondents spent 19 hours per year 
on average planning for retirement. Of these 19 hours, the Department 
assumes that one-and-a-half hours could be saved on average for 
participants that are not receiving information like that required in 
section 404(c) and one hour for participants that are receiving section 
404(c) compliant or similar disclosures based on the proposal's 
increased fee disclosure information. This assumption results in 
approximately 19 million hours being saved by affected plan 
participants as a result of the proposed regulation. The Department 
seeks comments on this assumption.
    In order to convert the time-savings into a dollar estimate, the 
Department estimated how much the average participants would value the 
time saved. Since the search time is assumed to be spent during leisure 
time and in order to adjust for the difference that plan participants 
attribute to leisure time versus work time, an average total wage rate 
for private sector workers participating in a pension plan with 
individual accounts was reduced by 10 percent to derive at an average 
value rate of leisure time.\21\ Using a wage rate of a little less than 
$35 \22\ for private

[[Page 43022]]

sector workers participating in a pension plan with individual accounts 
results in an average value of an hour of leisure time of $31 for 2009. 
Thus, the benefits from reduced search time for plan participants are 
estimated at $608 million for 2009 as shown in Table 3 below.
---------------------------------------------------------------------------

    \21\ Feather and Shaw (1999), using an econometric model, found 
that the opportunity cost of leisure time is 10 percent less than 
observed wages for employed workers. See Feather, P. and Shaw, W.D., 
``Estimating the Cost of Leisure Time for Recreation Demand 
Models,'' Journal of Environmental Economics and Management, Volume 
38, Issue 1, July 1999, Pages 49-65.
    \22\ This wage rate estimate is based on hourly wages from Panel 
7 of the 2001 wave from the Survey of Income Program Participation 
(SIPP) and on wage growth data for private-sector workers that 
participate in a pension plan with individual accounts from the 
Bureau of Labor Statistics (BLS).

                                             Table 3.--Benefits from Reduced Participant Search Time (2009)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Percentage of
                                                                        Number of       participants                     Average hourly
                                                                        (affected)      predicted to      Number of         value of      Total benefits
                            Type of plan                             participants in   make a change     search hours    participants'     from reduced
                                                                       participant-    in allocation       saved by       leisure time     participant
                                                                         directed       to lower fee     participant        (in 2009       search time
                                                                         Accounts       investments                         Dollars)
                                                                                 (A)              (B)              (C)              (D)  (A * B * C * D)
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c) Plans and Plans with Similar Information....................       62,058,000               29              1.0           $31.33     $563,884,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-404(c) Plans without Similar Information.......................        3,211,000               29              1.5           $31.33       43,770,000
                                                                                                                                        ----------------
    Total Undiscounted Benefits....................................  ...............  ...............  ...............  ...............     607,654,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

(c) Summary of Benefits
    The quantified benefits of the proposed regulation consist of 
benefits from the reduction in fees and from the reductions in search 
time for participants seeking information on fees, which will occur 
primarily as a result of the comparative disclosure of investment-
related information, and secondarily due to the disclosure of non-
investment-related fee and expense disclosures. Estimates of these 
total benefits due to prospective fee disclosure are presented in Table 
4 and amount to a total net present value of $6.9 billion over the 10-
year period.

                               Table 4.--Total Discounted Benefits of the Proposal
----------------------------------------------------------------------------------------------------------------
                                                                                Benefits from
                                                              Benefits from        reduced
                           Year                               reduction in       participant     Total benefits
                                                                  fees           search time
                                                                         (A)               (B)           (A + B)
----------------------------------------------------------------------------------------------------------------
2009......................................................      $307,241,000      $607,654,000      $914,895,000
2010......................................................       287,141,000       567,901,000       855,042,000
2011......................................................       268,356,000       530,748,000       799,105,000
2012......................................................       250,800,000       496,027,000       746,827,000
2013......................................................       234,393,000       463,576,000       697,969,000
2014......................................................       219,059,000       433,249,000       652,308,000
2015......................................................       204,728,000       404,905,000       609,633,000
2016......................................................       191,334,000       378,416,000       569,751,000
2017......................................................       178,817,000       353,660,000       532,477,000
2018......................................................       167,119,000       330,523,000       497,642,000
                                                                                               -----------------
    Total with 7% Discounting.............................  ................  ................     6,875,649,000
                                                                                               -----------------
    Total with 3% Discounting.............................  ................  ................     8,038,368,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    In addition to the benefits that will derive from the disclosure of 
investment-related information in a comparative format, which are 
quantified above, participants also will benefit from a retrospective 
disclosure of plan administrative fees actually charged to their 
accounts in the prior quarter. The Department believes that 
participants who are trying to plan for retirement are entitled to a 
comprehensive disclosure that includes not only information about fees 
and expenses that may occur depending on investment options selected, 
but also information on other fees that were actually assessed against 
their accounts in the previous quarter. RFI commentary indicates that 
participant advocates, plan sponsors and service providers, support 
such a disclosure requirement.\23\ Information about actual charges to 
participants' accounts may, among other things, help participants 
understand their current reported account balance, help detect errors 
in prior charges by the plan, help them in relation to their general 
household budgeting and retirement planning, and help insure the 
reasonableness of the charges. The Department seeks comments that would 
help quantify the benefits of the retrospective disclosure.
---------------------------------------------------------------------------

    \23\ These comments can be found under http://www.dol.gov/ebsa/
regs/cmt-feedisclosures.html.
---------------------------------------------------------------------------

Costs
    The regulation may result in increased administrative burdens and 
costs for plans (or plan sponsors).
    (a) Increased Administrative Burden

[[Page 43023]]

Costs Due to Upfront Review and Updating of Plan Documents
    Plans are likely to incur administrative burdens and costs in order 
to comply with the requirements of the regulation. The proposed 
regulation will require each plan to incur an upfront cost to have the 
regulation reviewed by professionals, such as lawyers. This cost will 
be incurred by all participant-directed individual account plans. The 
Department assumes it will require a professional to spend one half 
hour to perform the review.\24\ Using in-house labor rates for a legal 
professional of nearly $113,\25\ the up-front legal review cost is 
estimated at $24.6 million. In addition, the Department estimates that 
each plan will spend one-half hour of clerical time at an (in-house) 
hourly rate of $26 preparing the disclosures. This would result in a 
cost of $5.7 million for 2009. The costs of reviewing and preparing 
plan related information are summarized in Table 5. The Department 
seeks comments on its assumptions regarding hourly rates and number of 
hours in the table below.
---------------------------------------------------------------------------

    \24\ This estimate reflects that plans may employ service 
providers for making disclosures and that these service providers 
are likely to spread fixed and start-up costs across many plan 
clients.
    \25\ EBSA wage estimates are based on the National Occupational 
Employment Survey (May 2006, Bureau of Labor Statistics) and the 
Employment Cost Index (March, 2007, Bureau of Labor Statistics), 
unless otherwise noted.

                                              Table 5.--Review and Prepare Plan Related Information, (2009)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Hourly labor
                                                                               Legal       Hourly labor      Clerical        cost for
                                                             Number of     professional   cost for legal   professional      clerical
                          Year                             participant-   hours required   professional   hours required   professional     Review cost
                                                          directed plans  to review each     (in 2009       to prepare       (in 2009
                                                                               plan          dollars)     plan documents     dollars)
                                                                     (A)             (B)             (C)             (D)             (E)         (A*B*C)
                                                                                                                                               + (A*D*E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2009....................................................         436,862             0.5            $113             0.5             $26     $30,322,591
                                                                                                                                         ---------------
    Total Undiscounted Costs............................  ..............  ..............  ..............  ..............  ..............      30,322,591
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    Based on the 2005 Form 5500 data, the Department estimates that 
approximately 59,000 new participant-directed individual account plans 
would be required to disclose general plan information each year. The 
Department assumes that writing a new disclosure notice for these plans 
would require, on average, one-half hour of legal professional time and 
one-half hour of clerical time per plan leading to a cost estimate of 
$4 million annually. The Department estimates that about 378,000 
existing plans will require one-quarter hour of legal professional time 
and one-quarter hour of clerical staff time to update plan documents to 
take into account plan changes, such as new investment alternatives, in 
subsequent years. This results in a cost of approximately $13 million 
as summarized in Table 6. The Department seeks comments on the 
assumptions used to develop this figure.

                                        Table 6.--Review and Update Plan Related Information, (Subsequent Years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Hourly labor
                                                                               Legal       Hourly labor      Clerical        cost for
                                                            Number of      professional   cost for legal   professional      clerical
                      Type of plan                         participant-   hours required   professional   hours required   professional     Review cost
                                                          directed plans  to review each     (in 2009       to prepare       (in 2009
                                                                               plan          dollars)     plan documents     dollars)
                                                                     (A)             (B)             (C)             (D)             (E)         (A*B*C)
                                                                                                                                               + (A*D*E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing Plans.........................................          378,000            0.25            $113            0.25             $26     $13,107,000
New Plans..............................................           59,000            0.50             113            0.50              26       4,109,000
                                                                                                                                         ---------------
    Total undiscounted costs...........................  ...............  ..............  ..............  ..............  ..............     17,216,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

Costs Due to Production of Quarterly Dollar Amount Disclosures
    The proposed regulation will require plan administrators to send 
out disclosures about administrative charges--on a plan-wide as well as 
a participant-specific basis--to participants' accounts and engage in 
record keeping. The increase in administrative costs resulting from 
disclosing actual dollar fee and expense disclosure is derived from a 
GAO report that measures the cost of the disclosures of the actual 
dollar amount of mutual fund investment expenses on a participant 
level.\26\ The GAO report estimates the initial cost to generate these 
disclosures in 2001 at $1 per account,\27\ and the annual cost of 
continued compliance at $0.35 per account.\28\ The cost to plans to 
calculate

[[Page 43024]]

administrative fees for purposes of this proposed regulation is 
expected to be less, because most of the expense information to be 
disclosed under the regulation is already tracked. The Department 
assumes it will cost both section 404(c) compliant and non-section 
404(c) compliant plans one-third of the costs of disclosure of 
investment costs by mutual funds to disclose actual dollars charged, 
leading to cost estimates of about $0.41 per plan participant in the 
first year and $0.14 thereafter.\29\ Thus, the cost to produce the 
actual dollar disclosure is estimated at $26.5 million for 2009 as 
shown in Table 7.\30\ The Department invites comments on the cost to 
plans to produce actual dollar disclosures of the required fees, 
including the extent to which the costs differ for plans that are 
already making actual dollar disclosures and plans that are not.
---------------------------------------------------------------------------

    \26\ GAO-03-551T, ``Mutual Funds: Information on Trends in Fees 
and Their Related Disclosure,'' March 12, 2003, p. 14.
    \27\ As a reference, Investment Management Consultants (IMC) has 
indicated that the cost to plan sponsors of producing an Internet 
report to comply with PPA ranges from $0.50 per participant per year 
for the largest plans to $3.00 per participant per year for the 
smallest plans. This cost, representing what IMC charges plan 
sponsors for industry-wide information on fees, is based on their 
data set containing 15,000 plans through September 2007, but does 
not include costs associated with printing reports, such as postage, 
stationary, and envelopes.
    \28\ The GAO report estimates that implementing specific dollar 
disclosures of fees would cost $1.00 per participant in the initial 
year (in 2001 dollars). In subsequent years this would annually cost 
about $0.35 (in 2001 dollars). This cost estimate includes the cost 
to enhance the current data processing systems, modify investor 
communication systems and media, develop new policies and procedures 
and implement employee training and customer support programs. This 
estimate does not include the reportedly significant costs that 
would be borne by third party financial institutions that maintain 
accounts on behalf of individual mutual fund shareholders.
    \29\ The Department used (a) historical CPI data to inflate the 
$1.00 estimate to $1.19 (in 2007 dollars) and the $0.35 estimate to 
$0.42 (in 2007 dollars) and (b) the projected inflation rate from 
the November 2007 President's Economic Forecast for 2008 (2.1 
percent) to inflate the $1.19 value to $1.22 and the $0.42 value to 
$0.43 (in 2009 dollars). The President's Economic Forecast can be 
found at: http://www.whitehouse.gov/cea/econ-outlook20071129.html.
    \30\ The Department did not account for additional paper costs, 
given that no additional pages need be added as long as this 
information is included as part of the quarterly benefit statement.

             Table 7.--Cost of Additional Record Keeping and of Producing Actual Dollar Disclosures
----------------------------------------------------------------------------------------------------------------
                                              Number of
                                             (affected)                        Percent of cost   Cost of record
                                           participants in   Per participant   for calculating   keeping and of
                  Year                      participant-      cost from GAO    administrative   producing actual
                                              directed           report             fees             dollar
                                              accounts                                             disclosures
                                                       (A)               (B)               (C)       (A * B * C)
----------------------------------------------------------------------------------------------------------------
2009....................................        65,269,000             $1.22                33       $26,543,000
Subsequent year.........................        65,269,000              0.43                33        9,355,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

Costs Due to Consolidation of Fee Information

    Additional administrative burdens and costs are likely to arise 
because of the need for plans to consolidate information from more than 
one source to prepare the required comparative chart. The Department 
estimates that it takes a staff person with some financial background 
about one hour per plan to consolidate the information from multiple 
sources for the comparative chart. Using a wage rate of about $60 for 
such an employee, results in estimated costs for the consolidation of 
fee information from multiple sources of approximately $26 million for 
2009 as shown in Table 8.

                               Table 8.--Cost of Consolidation of Fee Information
----------------------------------------------------------------------------------------------------------------
                                                              Average plan
                                                               staff time
                                                            (hours) required                         Cost of
                                              Number of      to  consolidate     Accountant     consolidation of
                  Year                      participant-    fee  information    hourly labor    fee  information
                                           directed plans    from  multiple     cost (in 2009    for comparative
                                                               sources for        dollars)           format
                                                               comparative
                                                                 format
                                                       (A)               (B)               (C)       (A * B * C)
----------------------------------------------------------------------------------------------------------------
2009....................................           437,000                 1               $60       $26,290,000
                                                                                               -----------------
    Total Undiscounted Costs............  ................  ................  ................       26,290,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

Costs of Distribution and Materials Due to the Disclosure of Plan and 
Fee Information

    These disclosures must be sent to plan participants on an annual or 
quarterly basis.\31\ The Department assumes that it takes clerical 
staff two additional minutes to assemble and send out disclosures. The 
Department also assumes that 38% of disclosures will be sent 
electronically and therefore require only a de minimis amount of time 
to prepare. With wage rates of about $26 for clerical personnel, these 
dissemination labor costs are estimated at $35.1 million in 2009, as 
shown in Table 9.
---------------------------------------------------------------------------

    \31\ This section does not include distribution or material 
costs for the disclosures of administrative fees charged to 
participants' accounts as the Department assumes that this 
information can be included as part of the quarterly benefit 
statement.
---------------------------------------------------------------------------

    Following a participant's investment in an investment alternative, 
the plan must provide any materials it receives regarding voting, 
tender or similar rights in the alternative (``pass-through 
materials'') (29 CFR 2550.404a-5(d)(3)). This information is already 
required for 404(c) compliant plans and by the Department's Qualified 
Default Investment Alternative regulation. In addition, a large 
majority of plans voluntarily provide this information to its 
participants. As a result only an estimated number of 699,000 
participants will be receiving this

[[Page 43025]]

information for the first time because of the proposed regulation.
    The Department assumes that clerical staff will prepare and send 
the required materials. It may take the clerical staff on average one 
and one-half minutes to prepare and mail the post-investment materials. 
The Department assumes that this information will be sent annually 
resulting in nearly 699,000 disclosures. The Department expects that 38 
percent of the disclosures will be sent electronically. Table 9 reports 
the cost of $283,000 to prepare and send the required post-investment 
information.

                                   Table 9.--Cost of Distributing Disclosures
----------------------------------------------------------------------------------------------------------------
                                                   Percentage of
                                     Number of      disclosures    Hourly labor                      Materials
       Type of disclosure         disclosures to        not        cost (in 2009     Hours per       costs for
                                      be sent       transmitted      dollars)       disclosure     distribution
                                                    via e-mail                                    of disclosures
                                             (A)             (B)             (C)             (D)    (A * B * C *
                                                                                                              D)
----------------------------------------------------------------------------------------------------------------
       Annual Disclosures             65,269,000              62          $26.07           0.033     $35,166,000
Pass-Though Materials...........         699,000              62           26.07           0.025         283,000
                                                                                                 ---------------
    Total Undiscounted Costs....  ..............  ..............  ..............  ..............     35,448,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    In addition to labor costs associated with the disclosure, plans 
will also bear materials and postage costs. The annual disclosure is 
assumed to include 13 pages for plans that are not already providing 
disclosures similar to section 404(c) disclosures. Plans already 
providing section 404(c) compliant or similar disclosures are assumed 
to already be making annual disclosure of information and are therefore 
assumed to need to add only three pages of additional information to 
what they are already disclosing to participants.\32\ The pass-through 
information is assumed to be ten pages and sent on an annual basis to 
plan participants as described above. Paper and printing costs are 
assumed to be $0.05 a page and mailing costs to be $0.42.\33\ It is 
further assumed that 38 percent of statements will be available 
electronically. In total, this leads to an estimate for materials and 
postage of $8.2 million in 2009 for the annual disclosures as shown in 
Table 10 and $473,000 for the post-investment pass-through information 
as shown in Table 11.
---------------------------------------------------------------------------

    \32\ The proposed regulation would amend the regulation under 
ERISA section 404(c), 29 CFR 2550.404c-1, to make the disclosure 
requirements for section 404(c) compliant plans consistent with 
those that would apply to participant directed individual account 
plans generally. The Department assumes for purposes of the economic 
and paperwork analysis that the disclosure costs of 404(c) compliant 
plans under the amended regulation would be similar to those absent 
the proposed regulation.
    \33\ The postage rate for First-Class Mail is increasing to 
$0.42 as of May 12, 2008 (http://pe.usps.com/2008_RateCase/
RateCharts/R08_Rate_Charts.htm).

                                            Table 10.--Annual Disclosures Materials and Postage Costs (2009)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Number of
                                                           (affected)      Percentage of     Number of                                       Materials
                                                         participants in    disclosures      pages for       Paper and                       costs for
                     Type of plan                         participant-          not           annual       printing cost   Mailing costs   distribution
                                                            directed        transmitted     disclosure       per page                     of disclosures
                                                            accounts        via  e-mail
                                                                     (A)             (B)             (C)             (D)             (E)         (A * B)
                                                                                                                                           * (C * D + E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c) Plans and Plans with Similar Information.......        62,058,000              62               3           $0.05           $0.00      $5,771,000
Non-404(c) Plans without Similar Information..........         3,211,000              62              13            0.05            0.59       2,468,000
                                                                                                                                         ---------------
    Total Undiscounted Costs..........................  ................  ..............  ..............  ..............  ..............      8,240,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.


                           Table 11.--Pass-Through Materials and Postage Costs (2009)
----------------------------------------------------------------------------------------------------------------
                                  Percentage of      Number of                                       Materials
  Number of disclosures to be    disclosures not     pages for       Paper and                       costs for
             sent                transmitted via      annual       printing cost   Mailing costs   distribution
                                     e-mail         disclosure       per page                     of disclosures
                                             (A)             (B)             (C)         (D) (E)         (A * B)
                                                                                                   * (C * D + E)
----------------------------------------------------------------------------------------------------------------
699,000.......................                62              10           $0.05           $0.59        $473,000
                                                                                                 ---------------
    Total Undiscounted Costs..  ................  ..............  ..............  ..............        473,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.


[[Page 43026]]

    In total, the Department estimates that in 2009 participant-
directed plans incur increased administrative costs of approximately 
$127 million.
(b) Discouragement of Some Employers From Sponsoring a Retirement Plan
    Increased administrative burdens may discourage some employers, 
particularly small employers, from sponsoring a retirement plan. For 
small plan sponsors, the administrative burden is felt 
disproportionately because of their limited resources. Small business 
owners who do not have the resources to analyze plan fees or to hire an 
analyst may be discouraged from offering a plan at all.
    Regulatory burden is one among many reasons for small businesses 
not to sponsor a retirement plan. According to the 2000, 2001, and 2002 
Employee Benefit Research Institute (EBRI)'s Small Employer Retirement 
Surveys, about 2.7 percent of small employers cited ``too many 
government regulations'' as the most important reason for not offering 
a retirement plan.\34\ Due to very limited data in this area, the 
Department is not able to quantitatively estimate this impact. The 
Department seeks comments on the extent to which this proposal 
discourages small employers from offering retirement plans.
---------------------------------------------------------------------------

    \34\ The survey defines small employers as those having up to 
100 full-time workers. Other reasons small employers do not offer a 
retirement plan are that workers prefer wages or other benefits, 
that a large portion of employees are seasonal, part-time, or high 
turnover, and that revenue is too low or uncertain. See http://
www.ebri.org/surveys/sers for more detail.
---------------------------------------------------------------------------

(c) Summary of Costs
    The quantified total costs of the proposed regulation include costs 
due to the increased administrative burden. Columns (A) and (B) of 
Table 12 below show the estimated costs of up-front review of the 
regulation and updating of plan documents. Column (C) shows the costs 
of producing quarterly Dollar amounts for administrative fees charged 
to participant accounts. The largest cost of the regulation, though, 
results from the disclosure of the administrative expenses and 
investment-related fees that may be charged to participants' accounts--
the consolidation of fee information costs, and the distribution and 
material costs as can be seen in columns (D), (E), and (F). Table 12 
reports that the total present value of these costs is estimated at 
$759 million over the ten-year period.

                                                      Table 12.--Total Discounted Costs of Proposal
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Production of
                                           Up-front       Update plan    Consolidation     quarterly      Distribution    Staff cost to
                 Year                     review cost      documents        of fee       dollar amount      materials       distribute      Total costs
                                                                          information     disclosures         costs        disclosures
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   (A)             (B)             (C)              (D)             (E)              (F)      (A + B + C
                                                                                                                                            + D + E + F)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2009..................................     $30,323,000               0     $26,290,000      $26,543,000      $8,713,000      $35,448,000    $127,317,000
2010..................................       3,840,000     $12,250,000      24,570,000        8,743,000       8,143,000       33,129,000      90,675,000
2011..................................       3,589,000      11,448,000      22,963,000        8,171,000       7,610,000       30,962,000      84,743,000
2012..................................       3,353,000      10,699,000      21,461,000        7,637,000       7,112,000       28,936,000      79,199,000
2013..................................       3,134,000       9,999,000      20,057,000        7,137,000       6,647,000       27,043,000      74,018,000
2014..................................       2,929,000       9,345,000      18,745,000        6,670,000       6,212,000       25,274,000      69,176,000
2015..................................       2,738,000       8,734,000      17,518,000        6,234,000       5,806,000       23,621,000      64,650,000
2016..................................       2,559,000       8,162,000      16,372,000        5,826,000       5,426,000       22,075,000      60,421,000
2017..................................       2,391,000       7,628,000      15,301,000        5,445,000       5,071,000       20,631,000      56,468,000
2018..................................       2,234,000       7,129,000      14,300,000        5,089,000       4,739,000       19,281,000      52,774,000
                                                                                                                                         ===============
    Total with 7% Discounting...........................................................................................................     759,440,000
                                       -----------------
    Total with 3% Discounting...........................................................................................................    880,339,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

Summary

    As shown in Table 1 above, the Department concludes that the 
estimated benefits ($6.9 billion) of the proposed regulation outweigh 
its estimated costs ($759 million) by almost $6.1 billion over the ten-
year period.

Uncertainty

    Although the Department sought to anchor its analysis on empirical 
evidence, there are a number of variables that are subject to 
uncertainty. While the Department is confident that increased fee 
disclosures can induce changes in participant behavior and reductions 
in plan fees, it is uncertain about the exact magnitude of these 
changes. The variables with the most uncertainty in the analysis are:
     The percentage of plan fees that could be saved,
     The percentage of participants that would save search time 
for fee information,
     The amount of search time saved per participant,
     The time required for legal professionals, clerical 
professionals \35\ and accountants to perform their tasks,
---------------------------------------------------------------------------

    \35\ The clerical time to distribute disclosures remains 
unchanged in this sensitivity analysis.
---------------------------------------------------------------------------

     And the cost to obtain the actual dollar amounts of 
participant's plan and administrative expenses.
    To estimate the influence of these variables on the analysis, the 
Department re-estimated the costs and benefits of the proposed 
regulation under different assumptions for these uncertain variables.
    Table 13 presents the effects of changing the variables of 
interest. The first two variables on the list were decreased, while the 
remaining variables were increased. Changing the variables of concern 
by 25 percent still resulted in a net present value of $5.1 billion. 
Changing the variables by 50 percent still resulted in a net present 
value of $3.6 billion. Even after changing the key variables by 75 
percent the net present value of the proposed regulation was $1.5 
billion. The Department, however, does not believe that a change of 75% 
in these variables is a very likely scenario.

[[Page 43027]]



                          Table 13.--Sensitivity of Benefits and Costs to Key Variables
----------------------------------------------------------------------------------------------------------------
                                                           Benefits        Costs ($millions/   Net present value
             Percent change in variables               ($millions/year)          year)         ($millions/year)
----------------------------------------------------------------------------------------------------------------
25..................................................               6,013                 866               5,147
50..................................................               4,579                 973               3,606
75..................................................               2,575               1,080               1,495
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest million.

Regulatory Alternatives

    Executive Order 12866 directs Federal Agencies promulgating 
regulations to evaluate regulatory alternatives. The Department 
considered the following alternatives to the proposed regulation, and 
will also briefly discuss the status quo baseline:
     Extending the existing section 404(c) regulation 
disclosure requirements to all participant-directed individual account 
plans;
     Establishing a general, nonspecific disclosure 
requirement; or
     Requiring more extensive and detailed disclosures.
    These alternatives, and the status quo baseline, are described 
further below:
     Keeping the status quo
    OMB Circular A-4 recommends that ``benefits and costs are defined 
in comparison with a clearly stated alternative. This normally will be 
a 'no action' baseline: what the world will be like if the proposed 
rule is not adopted.'' The Department followed this recommendation, and 
weighed the option of keeping the status quo and relying on the current 
regulatory framework. By definition, as the regulatory baseline, this 
``alternative'' would have zero costs and benefits; however, the 
Department feels it is useful to briefly describe the status quo, and 
the reasons for rejecting it in favor of a regulation, before we 
discuss regulatory alternatives. As stated above, regulations already 
exist specifying the information that must be provided to participants 
of 404(c) compliant plans in order to relieve plan fiduciaries of 
responsibility for participant investment decisions (see Sec.  
2550.404c-1(b)(2)(i)(B)). Many of the proposal's disclosures are 
identical or similar to the required disclosures of section 404(c) and 
the regulations issued thereunder. However, compliance with section 
404(c) is elective and according to 2005 Form 5500 data only about 
275,000 plans covering 49 million participants and beneficiaries make 
this election. About 16 million participants and beneficiaries are 
participating in 49,000 participant-directed individual account plans 
that are choosing not to be section 404(c) compliant and a significant 
number of these individuals may not receive disclosures in compliance 
with section 404(c), and, therefore, may not receive the information 
the Department believes they need to make informed account management 
and investment decisions.\36\ More importantly, the section 404(c) 
disclosure of investment-related information is not required to be in a 
comparative format that encourages and facilitates review by plan 
participants and beneficiaries. Neither does such a requirement exist 
for any other type of participant-directed individual account plan.
---------------------------------------------------------------------------

    \36\ However, the Department recognizes that many plan 
participants in participant-directed individual account plans that 
choose not to comply with all of the section 404(c) requirements are 
receiving similar information to what they would receive if the 
plans had chosen to comply with all requirements of section 404(c).
---------------------------------------------------------------------------

     Extending the existing 404(c) disclosure requirements to 
all participant-directed individual account plans
    The Department considered requiring all participant-directed 
individual account plans to comply with section 404(c) and the 
regulations issued thereunder. This would not have required any 
additional disclosures to participants in existing section 404(c) 
compliant plans, and, therefore, may have required less extensive 
effort by such plans, such as review of the proposed regulation and 
development of materials in order to come into compliance. Participants 
and Beneficiaries, however, would also not have had the benefit of 
receiving critical information in a comparative chart.\37\
---------------------------------------------------------------------------

    \37\ Under the proposal, plans would be required to disclose 
specified identifying information, past performance data, comparable 
benchmark returns, and fee and expense information for each 
investment alternative. Under the existing 404(c) rule, plans only 
have to provide past performance data and operating expense 
information directly or upon request and benchmark returns do not 
have to be provided.
---------------------------------------------------------------------------

    Compared to the status quo, only participants in participant-
directed individual account plans that do not receive similar 
information to the required 404(c) disclosures would experience 
additional benefits by extending the existing 404(c) disclosures. As 
noted above, the Department assumes that only 20% of the participants 
of plans that are presently not choosing to be section 404(c) compliant 
are not receiving similar information. These participants would 
experience benefits from a reduction in fees (5% of 0.113% of their 
assets, as shown in Table 14 below) and from a reduction in their 
search time (0.5 hour for 29% of the affected participants, as shown in 
Table 15 below). This would lead to annual benefits of approximately 
$8.1 million due to the reduction in fees and of about $14.6 million 
for the reduction in participant search time. In total, benefits add up 
to about $22.8 million, a much smaller amount than the expected 
benefits of the proposal.

                Table 14.--Annual Benefits Due to Mandatory 404(c) Compliance, Reduction in Fees
----------------------------------------------------------------------------------------------------------------
                                                   Total amount
                                                   of assets in                       Percent      Benefits from
                                                  affected plans   Basis points   correction due   reduction in
                  Type of plan                     (in millions   of higher than     to 404(c)      fees due to
                                                      of 2009     necessary fees    disclosure        404(c)
                                                     dollars)                                       disclosures
                                                             (A)             (B)             (C)     (A * B * C)
----------------------------------------------------------------------------------------------------------------
Non-404(c) Plans without Similar Information....         144,000           0.11%              5%      $8,162,000
                                                                                                 ---------------

[[Page 43028]]


    Total Undiscounted Benefits.................  ..............  ..............  ..............       8,162,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.


         Table 15.--Annual Benefits Due to Mandatory 404(c) Compliance, Reduced Participant Search Time
----------------------------------------------------------------------------------------------------------------
                                     Number of     Percentage of                      Average
                                    (affected)     participants                    hourly value   Total benefits
                                   participants    predicted to      Number of          of         from reduced
          Type of plan                  in         make a change   search hours    participants'    participant
                                   participant-   in  allocation     saved by      leisure time     search time
                                     directed      to lower  fee    participant      (in 2009      due to 404(c)
                                     accounts       investments                      dollars)       disclosures
                                             (A)             (B)             (C)             (D)    (A * B * C *
                                                                                                              D)
----------------------------------------------------------------------------------------------------------------
Non-404(c) Plans without Similar       3,211,000             29%             0.5          $31.33     $14,590,000
 Information....................
                                                                                                 ---------------
    Total Undiscounted Benefits.  ..............  ..............  ..............  ..............      14,590,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    Additional costs for review, update and preparation of related 
information, as compared to the status quo, would fall on all 
participant-directed individual account plans that are presently not 
choosing to comply with section 404(c).\38\ The Department estimates 
that these costs would amount to about $11.3 million in the first year 
and would fall to $9.0 million in subsequent years, as shown in Table 
16 below.
---------------------------------------------------------------------------

    \38\ In subsequent years, these costs fall on newly created 
404(c) plans and reduced costs for updates are expected for existing 
404(c) plans.

                          Table 16.--Annual Costs Due to Additional Review, Update, and Preparation of Plan Related Information
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Legal                         Clerical      Hourly labor
                                                             Number of     professional    Hourly labor    professional      cost for
                                                             affected          hours      cost for legal  hours required     clerical
                      Type of plan                         participant-     required to    professional     to prepare     professional     Review cost
                                                          directed plans    review each      (in 2009          plan          (in 2009
                                                                               plan          dollars)        documents       dollars)
                                                                     (A)             (B)             (C)             (D)             (E)   (A * B * C) +
                                                                                                                                             (A * D * E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
First Year (2009)
    Existing and New Plans..............................         162,000             0.5            $113             0.5             $26     $11,250,000
                                                                                                                                         ---------------
        Total Undiscounted Costs First Year.............  ..............  ..............  ..............  ..............  ..............      11,250,000
Subsequent Years, Annually
    Existing Plans......................................         140,000            0.25            $113            0.25             $26      $4,863,000
    New Plans...........................................          59,000             0.5             113             0.5              26       4,109,000
                                                                                                                                         ---------------
        Total Undiscounted Costs Subsequent Years.......  ..............  ..............  ..............  ..............  ..............       8,971,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    In addition to costs for review, updating, and preparation of 
information, plans would also incur material and postage costs and 
labor costs for sending out the required disclosures to participants 
that presently are not receiving similar information and would receive 
the disclosures by mail, rather than via electronic means. As shown in 
Table 17 and Table 18 below, the Department estimates postage and 
material costs of about $2.6 million and labor costs of about $2 
million.

[[Page 43029]]



                       Table 17.--Annual Costs for Annual Additional Disclosures Materials and Postage and Pass-Through Materials
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of
                                                            (affected)     Percentage of
                                                           participants     disclosures      Number of       Paper and                       Materials
                      Type of plan                              in              not          pages for     printing cost   Mailing costs     costs for
                                                           participant-     transmitted       annual         per page                      distribution
                                                             directed       via e-mail      disclosure                                    of disclosures
                                                             accounts        (percent)
                                                                     (A)             (B)             (C)             (D)             (E)       (A * B) *
                                                                                                                                             (C * D + E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Disclosures......................................       3,211,000              62              10           $0.05           $0.59      $2,170,000
Pass Through Material...................................         699,000              62              10            0.05            0.59         473,000
                                                                                                                                         ---------------
    Total Undiscounted Costs............................  ..............  ..............  ..............  ..............  ..............       2,643,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.


                         Table 18.--Annual Costs of Additional Distributing Disclosures
----------------------------------------------------------------------------------------------------------------
                                                   Percentage of
                                                    disclosures                                      Materials
                                     Number of          not        Hourly labor      Hours per       costs for
       Type of disclosure         disclosures to    transmitted    cost (in 2009    disclosure     distribution
                                      be sent       via e-mail       dollars)                     of disclosures
                                                     (percent)
                                             (A)             (B)             (C)             (D)    (A * B * C *
                                                                                                              D)
----------------------------------------------------------------------------------------------------------------
Annual Disclosures..............       3,211,000              62             $26           0.033      $1,730,000
Pass-Though Materials...........         699,000              62              26           0.025         283,000
                                                                                                 ---------------
        Total Undiscounted Costs  ..............  ..............  ..............  ..............       2,013,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    Table 19 below shows the annual costs and benefits and Table 20 
below presents the net present benefit. The Department estimates that 
extending the existing 404(c) requirements would have resulted in ten-
year costs of about $105 million and benefits of approximately $171 
million. The ten-year net present value would have been about $66 
million (in 2009 dollars).

 Table 19.--Additional Benefits and Costs of Mandatory 404(c) Compliance
          for all Participant-Directed Individual Account Plans
------------------------------------------------------------------------
                                                             2010-2018
                                            2009 Annual       Annual
------------------------------------------------------------------------
Benefits
    Fee Reduction.......................      $8,162,000      $8,162,000
    Reduction in Participant Search Time      14,590,000      14,590,000
                                         -------------------------------
        Total Benefits..................      22,752,000      22,752,000
Costs
    Review, Update, and Preparation of        11,250,000       8,971,000
     Documents..........................
    Annual Disclosures and Pass-Through        2,643,000       2,643,000
     Information........................
    Distribution........................       2,013,000       2,013,000
                                         -------------------------------
        Total Costs.....................      15,905,000      13,627,000
Net Benefits in 2009....................       6,847,000  ..............
------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and
  therefore may not add up to the totals.


                      Table 20.--Total (Additional) Discounted Benefits of the Alternative
----------------------------------------------------------------------------------------------------------------
                                                                    Additional      Additional
                                                                   benefits from    costs from    Additional net
                              Year                                   extending       extending     benefits, 7%
                                                                    404(c), 7%      404(c), 7%      discounting
                                                                    discounting     discounting
                                                                             (A)             (B)           (A-B)
----------------------------------------------------------------------------------------------------------------
2009............................................................     $22,752,000     $15,905,000      $6,847,000
2010............................................................      21,264,000      12,736,000       8,528,000
2011............................................................      19,873,000      11,902,000       7,970,000
2012............................................................      18,573,000      11,124,000       7,449,000

[[Page 43030]]


2013............................................................      17,358,000      10,396,000       6,962,000
2014............................................................      16,222,000       9,716,000       6,506,000
2015............................................................      15,161,000       9,080,000       6,081,000
2016............................................................      14,169,000       8,486,000       5,683,000
2017............................................................      13,242,000       7,931,000       5,311,000
2018............................................................      12,376,000       7,412,000       4,964,000
                                                                 -----------------------------------------------
    Total with 7% Discounting...................................     170,989,000     104,689,000      66,301,000
    Total with 3% Discounting...................................     199,905,000     122,007,000     77,898,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

     Establishing a general non-specific disclosure requirement
    The Department considered establishing a general, non-specific 
disclosure rule requiring that plan fiduciaries take steps to ensure 
that participants and beneficiaries of participant-directed individual 
account plans are provided sufficient information to make informed 
decisions about the management of their individual accounts without 
further specifying what information would have to be disclosed. This 
alternative would have provided fiduciaries with more flexibility in 
providing disclosures to participants and beneficiaries, but may have 
also created uncertainty as to the scope of the required disclosures. 
It is possible that the costs to fiduciaries, and consequently plans, 
would be lower than the costs under the proposed regulation, but not 
all participants and beneficiaries may have received the critical 
information required under the proposed regulation. This approach also 
may have had the negative effect of having fiduciaries err on the side 
of being conservative and providing more, but not necessarily useful or 
meaningful, information to plan participants, creating a disincentive 
for participants and beneficiaries to review the furnished material.
     Requiring more extensive and detailed disclosures
    The Department considered requiring more extensive and detailed 
prospectus-like disclosure of investment-related information to 
participants and beneficiaries. However, based on a review of RFI 
comments and the Commission's summary prospectus initiative, the 
Department concluded that a user-friendly summary of key information 
would be more beneficial than more extensive and detailed disclosures. 
In this regard, the Department attempted to define the most essential 
information about available investment options that should be 
automatically furnished in a comparative format to participants and 
beneficiaries, and included that information in the proposal. That 
information includes historical and benchmark performance, and fees and 
expenses. In addition, the Department considered including information 
on risk, but believes that risk information is not easily translated 
into a simple uniform comparative format that can be described in a 
regulatory standard. The Department notes that in most cases more 
detailed information, including information on risk is readily 
available to participants and beneficiaries through Internet Web sites, 
should they decide to review such information in assessing the various 
investment options available under their plan. Importantly, under the 
proposed regulation participants and beneficiaries will be advised that 
risks exist, and will be directed and encouraged to review more 
detailed information prior to making decisions concerning the 
investment options most appropriate for them. The Department invites 
comments on any additional information that should be required.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a proposed rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities, section 603 of the RFA requires that the agency 
present an initial regulatory flexibility analysis at the time of the 
publication of the notice of proposed rulemaking describing the impact 
of the rule on small entities and seeking public comment on such 
impact. Small entities include small businesses, organizations, and 
governmental jurisdictions. For purposes of analysis under the RFA, 
EBSA proposes to continue to consider a small entity to be an employee 
benefit plan with fewer than 100 participants. The basis of this 
definition is found in section 104(a)(2) of ERISA, which permits the 
Secretary to prescribe simplified annual reports for pension plans that 
cover fewer than 100 participants.\39\
---------------------------------------------------------------------------

    \39\ Under ERISA section 104(a)(3), the Secretary may also 
provide exemptions or simplified reporting and disclosure 
requirements for welfare benefit plans. Pursuant to the authority of 
ERISA section 104(a)(3), the Department has previously issued at 29 
CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46, and 
2520.104b-10 certain simplified reporting provisions and limited 
exemptions from reporting and disclosure requirements for small 
plans, including unfunded or insured welfare plans, that cover fewer 
than 100 participants and satisfy certain other requirements.
---------------------------------------------------------------------------

    Further, while some large employers may have small plans, in 
general small employers maintain most small plans. Thus, EBSA believes 
that assessing the impact of these proposed rules on small plans is an 
appropriate substitute for evaluating the effect on small entities. The 
definition of small entity considered appropriate for this purpose 
differs, however, from a definition of small business that is based on 
size standards promulgated by the Small Business Administration (SBA) 
(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et 
seq.). EBSA therefore requests comments on the appropriateness of the 
size standard used in evaluating the impact of these proposed rules on 
small entities. EBSA

[[Page 43031]]

has consulted with the SBA Office of Advocacy concerning use of this 
participant count standard for RFA purposes. See 13 CFR 121.902(b)(4).
    The Department prepared an initial RFA of the proposal because, 
although the Department considers it unlikely that the rule will have a 
significant effect on a substantial number of small plans, the 
Department does not have enough information to certify to that effect. 
The following subsections address specific requirements of the RFA.
    (a) Reasons for and Objectives of the Proposal
    A growing number of workers are preparing for retirement by 
participating in participant-directed plans that are governed by ERISA. 
Key determinants of the return on an investment include the fees and 
expenses paid. This proposal is intended to improve the information 
that is available to participants in participant-directed individual 
account plans and thereby enable participants to make good investment 
decisions.
    The reasons for and objectives of this proposed regulation are 
discussed in detail in Section A of this preamble, ``Background,'' and 
in section ``Need for Regulatory Action'' of the Regulatory Impact 
analysis (RIA) above. The legal basis for the proposal is set forth in 
the ``Authority'' section of this preamble, below.
    (b) Estimating Compliance Requirements for Small Entities/Plans
    The Department believes that the effects of this proposed 
regulation will be to increase retirement savings by reducing 
investment fees paid by participants. The Department also believes that 
small plans will benefit from the proposal, because it will clarify 
what information must be disclosed to plan participants.
    While small and large plans will incur administrative costs due to 
the proposed regulation, these costs are reasonable compared to the 
benefits and will probably be borne by the participants who will also 
receive the benefits of the proposed regulation. From industry 
comments, the Department inferred that participants in larger plans 
more often than participants in smaller plans have access to needed 
investment information. The Department believes that participants in 
small plans need as much information about their plan investments as 
participants in larger plans.
    Some expenses, like the legal review of the proposal that plans may 
incur due to the disclosure requirements of the regulation do not 
increase proportionally with plan size. Nonetheless, it is possible 
that small plans incur smaller costs per participant than larger plans. 
In general, small plans offer fewer and less complex plan investment 
options than large plans. Less complex plan investments require less 
extensive disclosures and make disclosures less expensive. Thus, it is 
possible that smaller plans will experience lower per-participant 
disclosure costs than larger plans. The Department invites comments on 
the validity of this hypothesis.
    Assuming that the plan incurs the average costs for all disclosure 
activities that are considered in the RIA section above, the following 
calculation illustrates how large the costs of the disclosures would be 
for a very small plan (one-participant plan). As can be seen in Table 
21, the total cost of compliance for a one-participant plan amounts to 
less than $134 in the first year and less than that amount in the 
subsequent years. The costs in 2009 include a review cost of about $69 
per plan (one-half hour of a legal professional's time plus one-half 
hour of a clerical professional's time), labor costs of $60 for 
consolidating the information for the comparative chart (one hour), 
costs of on average $0.40 per participant for record keeping and 
disclosure of information, additional annual labor cost for 
distribution of $0.90 in section 404(c) compliant plans or plans that 
already provide similar information ($1.50 in plans that do not already 
provide section 404(c) compliant or similar information), and material 
and postage costs of $0.15 in 404(c) compliant plans or plans that 
already provide similar information ($2.30 in plans that do not already 
provide section 404(c) compliant or similar information).

                            Table 21.--Costs for One-Participant Plan (Undiscounted)
----------------------------------------------------------------------------------------------------------------
                                                    404(c) plans and plans with      Non-404(c) plans without
                                                        similar information             similar information
                  Type of cost                   ---------------------------------------------------------------
                                                                    Subsequent                      Subsequent
                                                   Initial year        year        Initial year        year
----------------------------------------------------------------------------------------------------------------
Plan Review.....................................          $69.00          $35.00          $69.00          $35.00
Consolidation of Information....................           60.00           60.00           60.00           60.00
Actual Dollar Disclosure........................            0.40            0.15            0.40            0.15
Labor Cost for Distribution.....................            0.90            0.90            1.50            1.50
Material Cost...................................            0.15            0.15            2.30            2.30
                                                 ---------------------------------------------------------------
    Total.......................................          131.00           96.00          134.00          99.00
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    (c) Considered Alternatives
    The Department considered several alternatives that would have 
required broader or narrower disclosures and which in turn would have 
increased or decreased the burden on plans. Exempting small plans from 
the disclosure requirements or limiting the disclosures from small 
plans would have reduced the costs small plans may incur, but would 
have also failed to ensure that participants in small plans receive the 
information that they need to make good investment decisions.
    (d) Duplicative, Overlapping, and Conflicting Rules
    ERISA section 404(c) and the regulations thereunder contain 
disclosure requirements for plan fiduciaries of certain participant-
directed account plans that are to some extent similar to the ones that 
are contained in the proposed regulation. As explained in more detail 
in section ``A. Background'' of this preamble the Department amended 
the regulations under section 404(c) in order to establish a uniform 
set of basic disclosure requirements and to ensure that all 
participants and beneficiaries in participant-directed individual 
account plans have access to the same investment-related information.
    In addition, the Department has consulted the Securities and 
Exchange Commission to avoid duplicative,

[[Page 43032]]

overlapping, or conflicting requirements.
    The Department is unaware of any additional relevant federal rules 
for small plans that duplicate, overlap, or conflict with these 
proposed regulations.
    (e) Comments
    The Department invites interested persons to submit comments 
regarding the impact on small plans of the proposed regulation and on 
the Department's assessment thereof. The Department also requests 
comments on the alternatives considered and its conclusions regarding 
those alternatives; on any additional alternatives it should have 
considered; on what, if any, special problems small plans might 
encounter if the proposal were to be adopted; and what changes, if any, 
could be made to minimize those problems.

Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor conducts a pre-clearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 (PRA 
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that the public 
understands the Department's collection instructions; respondents can 
provide the requested data in the desired format, reporting burden 
(time and financial resources) is minimized, collection instruments are 
clearly understood, and the Department can properly assess the impact 
of collection requirements on respondents.
    Currently, the Department is soliciting comments concerning the 
proposed information collection request (ICR) included in the proposed 
regulation. A copy of the ICR may be obtained by contacting the PRA 
addressee shown below or at http://www.RegInfo.gov.
    The Department has submitted a copy of the proposed regulation to 
OMB in accordance with 44 U.S.C. 3507(d) for review of its information 
collections. The Department and OMB are particularly interested in 
comments that:
     Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503; Attention: Desk Officer for the 
Employee Benefits Security Administration. OMB requests that comments 
be received within 30 days of publication of the Notice of Proposed 
Rulemaking to ensure their consideration. Please note that comments 
submitted to OMB are a matter of public record.
    PRA Addressee: Gerald B. Lindrew, Office of Policy and Research, 
U.S. Department of Labor, Employee Benefits Security Administration, 
200 Constitution Avenue, NW., Room N-5718, Washington, DC 20210. 
Telephone (202) 693-8410; Fax: (202) 219-4745. These are not toll-free 
numbers.
    In connection with publication of this proposed rule, the 
Department has submitted an ICR to OMB for its request of a revised 
information collection under OMB Control number 1210-0090. This is the 
control number for the Department's existing regulation under ERISA 
section 404(c), which would be amended by the proposal.\40\ The public 
is advised that an agency may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless it 
displays a currently valid OMB control number. The Department will 
include a notice announcing OMB's action at the final rule stage.
---------------------------------------------------------------------------

    \40\ See 29 CFR 2550.404c-1. The information collection 
provisions of the NPRM impose new hour and cost burdens on all 
participant directed individual account plans, and the Department 
intends to include the burden imposed by the proposal on 404(c) and 
not-404(c) compliant participant directed individual account plans 
under one control number.
---------------------------------------------------------------------------

    The proposed regulation on Fiduciary Requirements for Disclosure in 
Participant-Directed Individual Account Plans would require the 
disclosure of plan and investment-related fee and expense information 
to participants and beneficiaries in participant-directed individual 
account plans. This ICR pertains to two categories of information that 
is required to be disclosed: ``plan-related'' and ``investment-
related'' information. The information collection provisions of the 
proposal are intended to ensure that fiduciaries provide participants 
and beneficiaries with sufficient information regarding plan fees and 
expenses and designated investment alternatives to make informed 
decisions regarding the management of their individual accounts.
    The estimates of respondents and responses are derived primarily 
from the Form 5500 Series filings for the 2005 plan year, which is the 
most recent reliable data available to the Department. The burden for 
the preparation and distribution of the disclosures is treated as an 
hour burden. Additional cost burden derives from materials and postage 
and costs to track and report required information. It is assumed that 
electronic means of communication will be used in 38 percent of the 
responses pertaining to annual notices and that such communications 
will make use of existing systems that comply with the Department's 
electronic media disclosure guidance (29 CFR 2520.104b-1(c)). 
Accordingly, no cost has been attributed to the electronic distribution 
of the information.
    The Department estimates that approximately 437,000 participant 
directed individual account plans \41\ covering 65,269,000 participants 
would be affected by the proposed regulation. Of these plans, 275,000 
plans, covering 49,212,000 participants and beneficiaries are reported 
to comply with ERISA section 404(c), and the remaining 162,000 plans 
covering 16,057,000 participants and beneficiaries are not. The 
Department's estimates of the number of plans and participants are 
summarized in Table 22 below.
---------------------------------------------------------------------------

    \41\ All numbers stated in this document have been rounded to 
the nearest 1,000. Any apparent discrepancy in the calculations 
described here is due to this rounding.

[[Page 43033]]



               Table 22.--Number of Plans and Participants
------------------------------------------------------------------------
              Type of plan                     Plans       Participants
------------------------------------------------------------------------
404(c)..................................         275,000      49,212,000
Non-404(c)..............................         162,000      16,057,000
                                         -------------------------------
Total...................................         437,000      65,269,000
------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and
  therefore may not add up to the totals.

    Plan-related Information--29 CFR 2550.404a-5(c). The proposal 
requires three subcategories of Plan-related information to be provided 
to participants and beneficiaries. The first sub-category is General 
Plan Information, which provides: how participants and beneficiaries 
may give investment instructions; any specified limitations on such 
instructions, including any restrictions on transfer to or from a 
designated investment alternative; the exercise of voting, tender and 
similar rights appurtenant to an investment in a designated investment 
alternative as well as any restrictions on such rights; the specific 
designated investment alternatives offered under the plan; and any 
designated investment managers to whom participants and beneficiaries 
may give investment directions. (Sec.  2550.404a-5(c)(1)(i)). This 
information must be provided on or before the date a participant 
becomes eligible to participate in the plan, and afterwards at least 
annually. Material changes to this information must be disclosed not 
more than 30 days after adoption. Plans may make these disclosures in 
the summary plan description.
    The second subcategory of Plan-related Information is 
Administrative Expense Information, which refers to an explanation of 
any fees and expenses for plan administrative services (e.g., legal, 
accounting, recordkeeping) that, to the extent not included in 
investment-related fees and expenses, may be charged against the 
individual accounts of participants or beneficiaries and the basis on 
which such charges will be allocated to, or affect the balance of, each 
individual account (e.g., pro rata, per capita). (Sec.  2550.404a-
5(c)(2)). This information must be provided on or before the date a 
participant becomes eligible to participate in the plan, and afterwards 
at least annually. At least quarterly, plans must furnish statements of 
the aggregate dollar amount charged to each participant's account for 
these services. Plans may make the initial and annual disclosures in 
the summary plan description or the quarterly benefit statement, and 
the quarterly information may be included in the plan's quarterly 
benefit statements.
    The third subcategory of Plan-related Information is Individual 
Expense Information, which describes expenses charged to individual 
accounts based on the actions taken by individual participants or 
beneficiaries. This would include charges for processing participant 
loans and qualified domestic relations orders. (Sec.  2550.404a-
5(c)(3)). Information describing these charges must be furnished on or 
before the date a participant's eligibility and annually thereafter. 
Plans must provide quarterly statements identifying and showing the 
dollar amounts of each expense actually charged to an account. Plans 
may make the initial and annual disclosures in the summary plan 
description or the quarterly benefit statement, and the quarterly 
information may be included in the plan's quarterly benefit statements.
First Year
    Annual Disclosure: The Department assumes that in the year of 
implementation, all 437,000 affected plans will conduct a legal review 
to verify their compliance with the proposed regulation and prepare the 
required disclosures. The Department estimates that the review would, 
on average, take one-half hour of a legal professional's time at an 
(in-house) hourly rate \42\ of $113 resulting in a total aggregate 
estimate of approximately 218,000 legal hours at an equivalent cost of 
approximately $24,628,000. In addition, the Department estimates that 
each plan will spend one-half hour of clerical time at an (in-house) 
hourly rate of $26 preparing the disclosures. This would result in an 
hour burden of about 218,000 clerical burden hours with an equivalent 
cost of approximately $5,694,000. These estimates are summarized in 
Table 23 below.
---------------------------------------------------------------------------

    \42\ The hourly wage estimates used in this analysis are 
estimates for 2009 and are based on data from the Bureau of Labor 
Statistics National Occupational Employment Survey (May 2005) and 
the Bureau of Labor Statistics Employment Cost Index (Sept. 2006).

                                          Table 23.--Plan-Related Information, General Information, First Year
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Total
            Type of plan                 Number of     Professional   Clerical hours   professional   Total clerical   Equivalent cost--    Equivalent
                                      affected plans       hours                           hours           hours         professional     cost--clerical
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c)..............................         275,000             0.5             0.5         137,000         137,000       $15,491,000        $3,582,000
Non-404(c)..........................         162,000             0.5             0.5          81,000          81,000        91,370,200         2,112,000
                                     -------------------------------------------------------------------------------------------------------------------
    Total...........................         437,000  ..............  ..............         218,000         218,000        24,628,000         5,694,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    The Department assumes that plans will send 65,269,000 copies of 
the required plan information \43\ to plan participants and 
beneficiaries, which will contain an average of 10 pages. Paper and 
printing costs are expected to be 5 cents per page and mailing costs 
are expected to be 76 cents per mailed disclosure. It is assumed that 
38 percent of the disclosures will be delivered electronically. This 
results in a cost burden of $50,988,000, as shown in Table 24.
---------------------------------------------------------------------------

    \43\ While plans are allowed to provide the disclosure in the 
SPD or quarterly benefit statement, the paperwork analysis assumes 
that plans would provide the required disclosures in a separate 
mailing to reduce costs as they otherwise are not required to send 
the SPD every year.

[[Page 43034]]



                                                Table 24.--Plan-Related Information, Annual, Cost Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Paper and
                      Type of plan                           Number of     Percent sent      Number of     printing cost   Mailing cost     Cost burden
                                                            disclosures       by mail          pages         per page
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c)..................................................      49,212,000             62%              10           $0.05           $0.76     $38,444,000
Non-404(c)..............................................      16,057,000             62%              10            0.05            0.76      12,544,000
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................      65,269,000  ..............  ..............  ..............  ..............      50,988,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    Quarterly Disclosure: Plans will also have to determine the 
administrative and individual fees that will be charged directly 
against participants' accounts on a quarterly basis.\44\ The Department 
estimates a cost burden of approximately $26,543,000 in the first year 
to establish new information systems or accounting practices that will 
collect, track and report the actual dollar amounts charged to the 
individual accounts. This cost is shown in Table 25.\45\
---------------------------------------------------------------------------

    \44\ It is assumed that the inclusion of the actual dollar 
disclosure will add a minimal burden that has not been quantified.
    \45\ The increase in administrative costs resulting from 
disclosing actual dollar fee and expense disclosure is derived from 
a GAO report (GAO-03-551T, ``Mutual Funds: Information on Trends in 
Fees and Their Related Disclosure,'' March 12, 2003, p. 14), which 
measures the cost of the disclosures of the actual dollar amount of 
mutual fund investment expenses on a participant level. The GAO 
report estimates the initial cost to generate these disclosures in 
2001 at $1 per account, and the annual cost of continued compliance 
at $0.35 per account. The cost to plans to calculate administrative 
fees for purposes of the NPRM is expected to be less, because most 
of the expense information to be disclosed under the regulation is 
already tracked. The Department assumes it may cost plans one-third 
less to provide these administrative disclosures than it does for 
mutual funds to disclose investment costs, leading to cost estimates 
in 2009 dollars of about 41 cents per plan participant in the first 
year and 14 cents thereafter.

                          Table 25.--Plan-Related Information, Cost Burden, First Year
----------------------------------------------------------------------------------------------------------------
                                                                                    Fraction of
                                                                        Per          cost for
                  Type of plan                       Number of      participant     calculating     Cost burden
                                                    disclosures    cost from GAO  administrative
                                                                      report           fees
----------------------------------------------------------------------------------------------------------------
404(c)..........................................      49,212,000           $1.22           \1/3\     $20,013,000
Non-404(c)......................................      16,057,000            1.22           \1/3\       6,530,000
                                                 ---------------------------------------------------------------
    Total.......................................      65,269,000  ..............  ..............      26,543,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

Subsequent Years
    Annual Disclosure: Based on the 2005 Form 5500 data the Department 
estimates that approximately 74,000 new participant-directed individual 
account plans would be required to disclose general plan information 
each year.\46\ The Department assumes that on average writing a new 
disclosure notice for these plans would require one-half hour of legal 
professional time and one-half hour of clerical time per plan.
---------------------------------------------------------------------------

    \46\ The 74,000 new plans include newly created participant 
directed account plans as well as some existing participant directed 
account plans that newly elect to be 404(c) compliant in subsequent 
years. Plans that newly elect to be 404(c) compliant in subsequent 
years had to previously comply with the new requirements and 
therefore might need to spend slightly less time on the review of 
the 404(c) requirements than the time indicated in Table 19.
---------------------------------------------------------------------------

    This results in an hour burden of nearly 37,000 hours for legal 
professional work and 37,000 hours of clerical work. The hour burden 
has an equivalent cost of approximately $4,168,000 for legal 
professional time at $113 per hour and $964,000 for clerical time at 
$26 per hour. These estimates are summarized in Table 26 below.

                              Table 26.--Plan-Related Information, General Information, New Plans, Annual, Subsequent Years
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Total
          Type of new plans            Number of new   Professional   Clerical hours   professional   Total clerical   Equivalent cost--    Equivalent
                                           plans           hours                           hours           hours         professional     cost--clerical
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c)..............................          46,000             0.5             0.5          23,000          23,000        $2,621,000          $606,000
Non-404(c)..........................          27,000             0.5             0.5          14,000          14,000         1,546,000         3,578,000
                                     -------------------------------------------------------------------------------------------------------------------
    Total...........................          74,000  ..............  ..............          37,000          37,000         4,168,000           964,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    The Department also estimates that 363,000 existing plans will 
require one-quarter hour of legal professional time and one-quarter 
hour of clerical staff time to update plan documents to take into 
account plan changes, such as new investment alternatives, in 
subsequent years. This results in an hour burden of approximately 
91,000 hours for professional time and 91,000 hours for clerical time 
with an equivalent cost of approximately $10,230,000 for professional 
time and $2,365,000 for clerical time as summarized in Table 27 below.

[[Page 43035]]



                           Table 27.--Plan-Related Information, General Information, Existing Plans, Annual, Subsequent Years
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Number of                                         Total
           Existing plans                 revised      Professional   Clerical hours   professional   Total clerical   Equivalent cost--    Equivalent
                                        disclosures        hours                           hours           hours         professional     cost--clerical
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c)..............................         228,000            0.25            0.25          57,000          57,000        $6,435,000        $1,488,000
Non-404(c)..........................         135,000            0.25            0.25          34,000          34,000         3,795,000           878,000
                                     -------------------------------------------------------------------------------------------------------------------
    Total...........................         363,000  ..............  ..............          91,000          91,000        10,230,000         2,365,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    As with the first year, the Department assumes that plans will send 
65,269,000 copies of the required plan information to plan participants 
and beneficiaries in all subsequent years, resulting in a cost burden 
of $50,988,000.
    Quarterly Disclosures: In subsequent years, plans will also have to 
determine the administrative and individual fees that will be charged 
directly against participants' accounts on a quarterly basis. The 
Department estimates a cost burden of approximately $9,355,000 in the 
subsequent years to maintain the information systems or accounting 
practices that will collect, track and report the actual dollar amounts 
charged to the individual accounts. This cost is shown in Table 28.

                   Table 28.--Plan-Related Information, Cost Burden, Annual, Subsequent Years
----------------------------------------------------------------------------------------------------------------
                                                                                    Fraction of
                                                                        Per          cost for
                  Type of plan                       Number of      participant     calculating     Cost burden
                                                    disclosures    cost from GAO  administrative
                                                                      report           fees
----------------------------------------------------------------------------------------------------------------
404(c)..........................................      49,212,000           $0.43           \1/3\      $7,054,000
Non-404(c)......................................      16,057,000            0.43           \1/3\       2,302,000
                                                 ---------------------------------------------------------------
    Total.......................................      65,269,000  ..............  ..............       9,355,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    Investment-related Information--29 CFR 2550.404a-5(d). The proposal 
requires three sub-categories of Investment-related Information to be 
disclosed, which relates to the plans designated investment 
alternatives.

Sub-Category 1: Information to be Provided Automatically

    The first subcategory is information to be provided automatically. 
(Sec.  2550.404a-5(d)(1)). For each designated investment alternative, 
the plan, based on the latest information available, must disclose 
specified identifying information, past performance data, comparable 
benchmark returns, and fee and expense information. This information 
must be furnished on or before the date of a participant's eligibility 
and annually thereafter. This information must be furnished in a chart 
or similar format designed to help participants compare the plan's 
investment alternatives. (Sec.  2550.404a-5(d)(2)). To facilitate 
compliance, the proposal includes a model disclosure form that may be 
used by plan fiduciaries.
    Preparation: The Department assumes that the preparation of a 
comparative chart containing specified identifying information, past 
performance data, comparable benchmark returns, and fee and expense 
information will require one hour of accountant or financial 
professional time at an hourly rate of $60, which would result in an 
hour burden of approximately 437,000 hours at an equivalent cost of 
about $26,290,000. These estimates are summarized in Table 29 below.

           Table 29.--Investment-Related Information, Information Provided Automatically, Preparation
----------------------------------------------------------------------------------------------------------------
                                                                                   Total
                Type of plan                     Number of     Professional    professional    Equivalent cost--
                                                   plans           hours           hours         professional
----------------------------------------------------------------------------------------------------------------
 Non-404(c).................................         275,000               1         275,000       $16,537,000
 Non-404(c).................................         162,000               1         162,000         9,754,000
                                             -------------------------------------------------------------------
     Total..................................         437,000  ..............         437,000        26,290,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    Distribution: The comparative chart needs to be sent to all 
participants (65.3 million). Given that 38 percent (24.8 million) of 
all disclosures are made electronically, only 62 percent will be sent 
by mail (40.5 million). The Department assumes that clerical staff 
could spend, on average, two minutes per disclosure to copy and mail 
this information. This burden is shown in Table 30.

[[Page 43036]]



                           Table 30.--Investment-Related Information, Information Provided Automatically, Annual, Distribution
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Total number   Disclosures by
                      Type of plan                              of             mail          Number of    Clerical hours  Total clerical    Equivalent
                                                           participants      (percent)      disclosures   per disclosure       hours      cost--clerical
--------------------------------------------------------------------------------------------------------------------------------------------------------
 404(c).................................................      49,212,000              62      30,511,000           0.033       1,017,000     $26,514,000
 Non-404(c).............................................      16,057,000              62       9,955,000           0.033         332,000       8,651,000
                                                         -----------------------------------------------------------------------------------------------
     Total..............................................      65,269,000  ..............      40,467,000  ..............       1,349,000      35,166,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    It is assumed this disclosure will be three pages. As this 
information is required to be sent on an annual basis, the Department 
assumes it will be sent with the plan-related information required 
pursuant to Sec.  2550.404a-5(c). Mailing costs are already accounted 
for in the calculation of the cost burden for delivery of the plan-
related information. Table 31 shows the resulting annual cost burden of 
$6,070,000.

           Table 31.--Investment-Related Information, Information Provided Automatically, Cost Burden
----------------------------------------------------------------------------------------------------------------
                                                                                     Paper and
          Type of plan               Number of     Percent sent      Number of     printing cost    Cost burden
                                    disclosures       by mail          pages         per page
----------------------------------------------------------------------------------------------------------------
 404(c).........................      49,212,000              62               3           $0.05      $4,577,000
 Non-404(c).....................      16,057,000              62               3            0.05       1,493,000
                                 -------------------------------------------------------------------------------
     Total......................      65,269,000  ..............  ..............  ..............       6,070,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

Sub-Category 2: Post-Investment Information

    The second sub-category is post-investment information. The 
proposal requires that when a plan provides for the pass-through of 
voting, tender and similar rights, the fiduciary must furnish 
participants and beneficiaries who have invested in a designated 
investment alternative with these features any materials about such 
rights that have been provided to the plan. See Sec.  2550.404a-
5(d)(3). This requirement is similar to the requirement currently 
applicable to section 404(c) plans (``pass-through materials'').
    Distribution: The Department assumes that clerical staff will 
prepare and send the required materials. It may take the clerical staff 
on average one and one-half minutes to prepare and mail the post-
investment materials. It is further assumed that this disclosure will 
be sent to about 15,153,000 plan participants in plans that have assets 
invested in employer securities. This number was reduced to reflect 
that some participants already receive this information pursuant to the 
Department's Qualified Default Investment Alternative regulation 
(QDIA)\47\ and the burden is counted under OMB Control Number 1210-
0132. The Department expects 38 percent of the disclosures will be sent 
electronically resulting in no burden. This results in an hour burden 
of approximately 235,000 hours of clerical staff time, with an 
equivalent cost of $6,123,000. Table 32 reports the estimates of the 
burden.
---------------------------------------------------------------------------

    \47\ 29 CFR 2550.404c-5 (Oct. 24, 2007).

              Table 32.--Investment-Related Information, Post-Investment Information, Distribution
----------------------------------------------------------------------------------------------------------------
                                                     Number of                    Total clerical    Equivalent
                  Type of plan                      disclosures   Clerical hours       hours      cost--clerical
----------------------------------------------------------------------------------------------------------------
 404(c).........................................      11,656,000           0.025         181,000      $4,710,000
 Non-404(c).....................................       3,497,000           0.025          54,000       1,413,000
                                                 ---------------------------------------------------------------
    Total.......................................      15,153,000  ..............         235,000       6,123,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    The required post-investment information is assumed to be, on 
average, ten pages long, with mailing costs of $0.59 per disclosure. As 
Table 33 shows, this results in an annual cost burden of $10,240,000.

                                   Table 33.--Investment-Related Information, Post-Investment Information, Cost Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Paper and
                      Type of plan                           Number of     Percent sent      Number of     printing cost   Mailing cost     Cost burden
                                                            disclosures       by mail          pages         per page
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c)..................................................      11,656,000              62              10           $0.05           $0.59      $7,877,000
Non-404(c)..............................................       3,497,000              62              10            0.05            0.59       2,363,000
                                                         -----------------------------------------------------------------------------------------------

[[Page 43037]]


    Total...............................................      15,153,000  ..............  ..............  ..............  ..............     10,240,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

Sub-Category 3: Information To Be Provided Upon Request

    The third subcategory is information to be provided upon request. 
(Sec.  2550.404a-5(d)(4)). Participants may request the plan to provide 
prospectuses, financial reports, as well as statements of valuation and 
of assets held by an investment alternative.
    Preparation: Plans must be prepared to provide the required 
information on request. The Department expects all plans to receive, on 
average, one request per year for the information. The Department 
estimates that plans will need to devote, on average, one clerical 
staff hour to comply with this requirement. Paperwork burden for this 
requirement is divided between Sec.  2550.404c-5 (Fiduciary relief for 
investments in qualified default investment alternatives), which was 
accounted for previously under OMB Control Number 1210-0132 (QDIA 
regulation), and Sec.  2550.404c-1 (ERISA section 404(c) plans), which 
is reflected in Table 34 below.

             Table 34.--Investment-Related Information, Information on Request, Annual, Preparation
----------------------------------------------------------------------------------------------------------------
                                                     Number of                    Total clerical    Equivalent
                  Type of plan                      disclosures   Clerical hours       hours      cost--clerical
----------------------------------------------------------------------------------------------------------------
404(c)..........................................         275,000               1         275,000      $7,164,000
Non-404(c)......................................               0               1               0               0
                                                 ---------------------------------------------------------------
    Total.......................................         275,000  ..............         275,000      7,164,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    Distribution: The Department estimates that in total, plans will 
respond to approximately 275,000 requests for information annually. It 
is assumed that 38 percent of the disclosures will be delivered 
electronically. For the remaining 62 percent of disclosures (170,000 
requests annually), the Department has assumed that these disclosures 
will be sent by mail and estimates that reproduction and distribution 
of these disclosures will take 2 minutes of clerical time per request. 
Plans will therefore have an additional annual hour burden of 5,700 
hours (170,000 requests notices x 0.033 hours). The equivalent cost of 
these hours is $148,000. Table 35 contains the estimates of the burden.

             Table 35.--Investment-Related Information, Information on Request, Annual, Distribution
----------------------------------------------------------------------------------------------------------------
                                                     Number of
                  Type of plan                    disclosures by  Clerical hours  Total clerical    Equivalent
                                                       mail                            hours      cost--clerical
----------------------------------------------------------------------------------------------------------------
404(c)..........................................         170,000           0.033           6,000        $148,000
Non-404(c)......................................  ..............  ..............  ..............  ..............
                                                 ---------------------------------------------------------------
    Total.......................................         170,000  ..............           6,000        148,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    As some of these disclosures are accounted for under the QDIA 
regulation, the cost burden for the remainder is estimated at 
approximately $271,000 based on an average page length of 20 pages and 
mailing costs of $0.59 as shown in Table 36, below.

                                 Table 36.--Investment-Related Information, Information on Request, Annual, Cost Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Paper and
                      Type of plan                           Number of     Percent sent      Number of     printing cost   Mailing cost     Cost burden
                                                            disclosures       by mail          pages         per page
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c)..................................................         275,000              62              20           $0.05           $0.59        $271,000
Non-404(c)..............................................               0              62              20            0.05            0.59               0
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................         275,000  ..............  ..............  ..............  ..............        271,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.


[[Page 43038]]

Summary

    The Department has estimated the hour burden in the first year to 
be 2,732,000 hours with an equivalent cost of $105,065,000, as shown in 
Table 37. The hour burden in the subsequent years is estimated to be 
2,551,000 hours with an equivalent cost of $92,470,000, as shown in 
Table 38.

                                                          Table 37.--Hour Burden for First Year
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               Total
                    Type of plan                       Professional    Clerical hour    Total hours    Equivalent cost--    Equivalent      equivalent
                                                        hour burden       burden                         professional     cost--clerical       cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c)..............................................         412,000       1,610,000       2,022,000       $32,028,000       $41,970,000     $73,998,000
Non-404(c)..........................................         243,000         467,000         710,000        18,891,000        12,177,000      31,068,000
                                                     ---------------------------------------------------------------------------------------------------
    Total...........................................         655,000       2,077,000       2,732,000        50,918,000        54,147,000    105,065,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.


                                                     Table 38.--Hour Burden for Years Two and Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               Total
                    Type of plan                       Professional    Clerical hour    Total hours    Equivalent cost--    Equivalent      equivalent
                                                        hour burden       burden                         professional     cost--clerical       cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
404(c)..............................................         355,000       1,553,000       1,908,000       $25,593,000       $40,482,000     $66,075,000
Non-404(c)..........................................         209,000         433,000         643,000        15,095,000        11,299,000      26,395,000
                                                     ---------------------------------------------------------------------------------------------------
    Total...........................................         565,000       1,986,000       2,551,000        40,688,000        51,781,000     92,470,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    The Department has estimated the cost burden in the first year to 
be $94,112,000; and $76,925,000 in the subsequent years. These 
estimates are shown in Table 39.

                      Table 39.--Total Cost Burden
------------------------------------------------------------------------
                                           First year--     Subsequent
              Type of plan                  total cost     years--total
                                              burden        cost burden
------------------------------------------------------------------------
404(c ).................................     $71,182,000     $58,223,000
Non-404(c)..............................      22,930,000      18,702,000
                                         -------------------------------
    Total...............................      94,112,000     76,925,000
------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and
  therefore may not add up to the totals.

    Type of Review: Revised collection.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Fiduciary Requirements for Disclosure in Participant-
Directed Individual Account Plans
    OMB Number: 1210-0090.
    Affected Public: Business or other for-profit; not-for-profit 
institutions.
    Respondents: 437,000
    Responses: 407,042,000
    Frequency of Response: Annually; quarterly.
    Estimated Annual Burden Hours: 2,732,000 hours in the first year; 
2,551,000 hours in each subsequent year.
    Estimated Annual Burden Cost: $94,112,000 in the first year; 
$76,925,000 in each subsequent year.

Congressional Review Act Statement

    This notice of proposed rulemaking is subject to the Congressional 
Review Act provisions of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (5 U.S.C. 801 et seq.) and, if finalized, will be 
transmitted to the Congress and the Comptroller General for review.

Unfunded Mandates Reform Act Statement

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, the notice of proposed 
rulemaking does not include any federal mandate that will result in 
expenditures by state, local, or tribal governments in the aggregate of 
more than $100 million, adjusted for inflation, or increase 
expenditures by the private sector of more than $100 million, adjusted 
for inflation.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires the adherence to specific 
criteria by Federal agencies in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. The proposed regulations would not have 
federalism implications because they have no substantial direct effect 
on the States, on the relationship between the national government and 
the States, or on the distribution of power and responsibilities among 
the various levels of government. Section 514 of ERISA provides, with 
certain exceptions specifically enumerated that are not pertinent here, 
that the provisions of Titles I and IV of ERISA supersede State laws 
that relate to any employee benefit plan covered by ERISA. The 
requirements implemented in the

[[Page 43039]]

proposed regulations do not alter the fundamental provisions of the 
statute with respect to employee benefit plans, and as such would have 
no implications for the States or the relationship or distribution of 
power between the national government and the States.

List of Subjects in 29 CFR Part 2550

    Employee benefit plans, Fiduciaries, Investments, Pensions, 
Disclosure, Reporting and recordkeeping requirements, and Securities.
    For the reasons set forth in the preamble, the Department proposes 
to amend Subchapter F, Part 2550 of Title 29 of the Code of Federal 
Regulations as follows:

Subchapter F--Fiduciary Responsibility Under the Employee Retirement 
Income Security Act of 1974

PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY

    1. The authority citation for part 2550 continues to read as 
follows:

    Authority: 29 U.S.C. 1135; sec. 657, Pub. L. 107-16, 115 
Stat.38; and Secretary of Labor's Order No. 1-2003, 68 FR 5374 (Feb. 
3, 2003). Sec. 2550.401b-1 also issued under sec. 102, 
Reorganization Plan No. 4 of 1978, 43 FR 47713 (Oct. 17, 1978), 3 
CFR, 1978 Comp. 332, effective Dec. 31, 1978, 44 FR 1065 (Jan. 3, 
1978), 3 CFR, 1978 Comp. 332. Sec. 2550.401c-1 also issued under 29 
U.S.C. 1101. Sections 2550.404c-1 and 2550.404c-5 also issued under 
29 U.S.C. 1104. Sec. 2550.407c-3 also issued under 29 U.S.C. 1107. 
Sec. 2550.408b-1 also issued under 29 U.S.C. 1108(b)(1) and sec. 
102, Reorganization Plan No. 4 of 1978, 3 CFR, 1978 Comp. p. 332, 
effective Dec. 31, 1978, 44 FR 1065 (Jan. 3, 1978), and 3 CFR, 1978 
Comp. 332. Sec. 2550.412-1 also issued under 29 U.S.C. 1112.

    2. Add Sec.  2550.404a-5 to read as follows:


Sec.  2550.404a-5  Fiduciary requirements for disclosure in 
participant-directed individual account plans.

    (a) General. The investment of plan assets is a fiduciary act 
governed by the fiduciary standards of section 404(a)(1)(A) and (B) of 
the Employee Retirement Income Security Act of 1974, as amended 
(ERISA), 29 U.S.C. 1001 et seq. (all section references herein are 
references to ERISA unless otherwise indicated). Pursuant to section 
404(a)(1)(A) and (B), fiduciaries must discharge their duties with 
respect to the plan prudently and solely in the interest of 
participants and beneficiaries. Where the documents and instruments 
governing an individual account plan, as defined in section (3)(34), 
provide for the allocation of investment responsibilities to 
participants or beneficiaries, fiduciaries, consistent with section 
404(a)(1)(A) and (B), must take steps to ensure that such participants 
and beneficiaries, on a regular and periodic basis, are made aware of 
their rights and responsibilities with respect to the investment of 
assets held in, or contributed to, their accounts and are provided 
sufficient information regarding the plan, including fees and expenses, 
and regarding designated investment alternatives, including fees and 
expenses attendant thereto, to make informed decisions with regard to 
the management of their individual accounts.
    (b) Satisfaction of duty to disclose. For plan years beginning on 
or after January 1, 2009, the fiduciary (or fiduciaries) of an 
individual account plan must comply with the disclosure requirements 
set forth in paragraphs (c) and (d) of this section with respect to 
each participant or beneficiary that, pursuant to the terms of the 
plan, has the right to direct the investment of assets held in, or 
contributed to, his or her individual account. Compliance with 
paragraphs (c) and (d) of this section will satisfy the duty to make 
the regular and periodic disclosures described in paragraph (a) of this 
section.
    (c) Disclosure of plan-related information. A fiduciary (or a 
person or persons designated by the fiduciary to act on its behalf) 
shall provide to each participant or beneficiary the plan-related 
information described in paragraphs (c)(1) through (3) of this section, 
based on the latest information available to the plan.
    (1) General.
    (i) On or before the date of plan eligibility and at least annually 
thereafter:
    (A) An explanation of the circumstances under which participants 
and beneficiaries may give investment instructions;
    (B) An explanation of any specified limitations on such 
instructions under the terms of the plan, including any restrictions on 
transfer to or from a designated investment alternative;
    (C) A description of or reference to plan provisions relating to 
the exercise of voting, tender and similar rights appurtenant to an 
investment in a designated investment alternative as well as any 
restrictions on such rights;
    (D) An identification of any designated investment alternatives 
offered under the plan; and
    (E) An identification of any designated investment managers; and
    (ii) Not later than 30 days after the date of adoption of any 
material change to the information described in paragraph (c)(1)(i) of 
this section, each participant and beneficiary shall be furnished a 
description of such change.
    (2) Administrative expenses.
    (i) On or before the date of plan eligibility and at least annually 
thereafter, an explanation of any fees and expenses for plan 
administrative services (e.g., legal, accounting, recordkeeping) that, 
to the extent not otherwise included in investment-related fees and 
expenses, may be charged to the plan and the basis on which such 
charges will be allocated (e.g., pro rata, per capita) to, or affect 
the balance of, each individual account, and
    (ii) At least quarterly, a statement that includes:
    (A) The dollar amount actually charged during the preceding quarter 
to the participant's or beneficiary's account for administrative 
services, and
    (B) A description of the services provided to the participant or 
beneficiary for such amount (e.g., recordkeeping).
    (3) Individual expenses.
    (i) On or before the date of plan eligibility and at least annually 
thereafter, an explanation of any fees and expenses that may be charged 
against the individual account of a participant or beneficiary for 
services provided on an individual, rather than plan, basis (e.g., fees 
attendant to processing plan loans or qualified domestic relations 
orders, fees for investment advice or similar services charged on an 
individual basis), and
    (ii) At least quarterly, a statement that includes:
    (A) The dollar amount actually charged during the preceding quarter 
to the participant's or beneficiary's account for individual services, 
and
    (B) A description of the services provided to the participant or 
beneficiary for such amount (e.g., fees attendant to processing plan 
loans).
    (d) Disclosure of investment-related information. A fiduciary (or a 
person or persons designated by the fiduciary to act on its behalf), 
based on the latest information available to the plan, shall:
    (1) Information to be provided automatically. Provide to each 
participant or beneficiary, on or before the date of plan eligibility 
and at least annually thereafter, the following information with 
respect to each designated investment alternative offered under the 
plan--
    (i) Identifying information. Such information shall include:
    (A) The name of the designated investment alternative;
    (B) An Internet Web site address that is sufficiently specific to 
lead

[[Page 43040]]

participants and beneficiaries to supplemental information regarding 
the designated investment alternative, including the name of the 
investment's issuer or provider, the investment's principal strategies 
and attendant risks, the assets comprising the investment's portfolio, 
the investment's portfolio turnover, the investment's performance and 
related fees and expenses;
    (C) The type or category of the investment (e.g., money market 
fund, balanced (stocks and bonds) fund, large-cap fund); and,
    (D) The type of management utilized by the investment (e.g., 
actively managed, passively managed);
    (ii) Performance data. For designated investment alternatives with 
respect to which the return is not fixed, the average annual total 
return (percentage) of the investment for the following periods, if 
available: 1-year, 5-year, and 10-year, measured as of the end of the 
applicable calendar year; as well as a statement indicating that an 
investment's past performance is not necessarily an indication of how 
the investment will perform in the future. In the case of designated 
investment alternatives with respect to which the return is fixed for 
the term of the investment, both the fixed rate of return and the term 
of the investment;
    (iii) Benchmarks. For designated investment alternatives with 
respect to which the return is not fixed, the name and returns of an 
appropriate broad-based securities market index over the 1-year, 5-
year, and 10-year periods comparable to the performance data periods 
provided under paragraph (d)(1)(ii) of this section, and which is not 
administered by an affiliate of the investment provider, its investment 
adviser, or a principal underwriter, unless the index is widely 
recognized and used;
    (iv) Fee and expense information. For designated investment 
alternatives with respect to which the return is not fixed:
    (A) The amount and a description of each shareholder-type fee 
(i.e., fees charged directly against a participant's or beneficiary's 
investment), such as sales loads, sales charges, deferred sales 
charges, redemption fees, surrender charges, exchange fees, account 
fees, purchase fees, and mortality and expense fees;
    (B) The total annual operating expenses of the investment expressed 
as a percentage (e.g., expense ratio); and
    (C) A statement indicating that fees and expenses are only one of 
several factors that participants and beneficiaries should consider 
when making investment decisions. In the case of designated investment 
alternatives with respect to which the return is fixed for the term of 
the investment, the amount and a description of any shareholder-type 
fees that may be applicable to a purchase, transfer or withdrawal of 
the investment in whole or in part;
    (v) Disclosure on or before date of plan eligibility. The 
requirement in paragraph (d)(1) of this section to provide information 
to a participant on or before the date of plan eligibility may be 
satisfied by furnishing to the participant the most recent annual 
disclosure furnished to participants and beneficiaries pursuant to 
paragraph (d)(1) of this section and any material changes to the 
information furnished to participants and beneficiaries pursuant to 
paragraph (c)(1)(ii) of this section.
    (2) Comparative format. Furnish the information described in 
paragraph (d)(1) of this section in a chart or similar format that is 
designed to facilitate a comparison of such information for each 
designated investment alternative available under the plan; as well as:
    (i) a statement indicating the name, address, and telephone number 
of the fiduciary (or a person or persons designated by the fiduciary to 
act on its behalf) to contact for the provision of the information 
required by paragraph (d)(4) of this section, and
    (ii) A statement that more current investment-related information 
(e.g., fee and expense and performance information) may be available at 
the listed Internet Web site addresses (see paragraph (d)(1)(i)(B) of 
this section). Nothing herein, however, shall preclude a fiduciary from 
including additional information that the fiduciary determines 
appropriate for such comparisons, provided such information is not 
inaccurate or misleading;
    (3) Information to be provided subsequent to investment. Provide to 
each investing participant or beneficiary, subsequent to an investment 
in a designated investment alternative, any materials provided to the 
plan relating to the exercise of voting, tender and similar rights 
appurtenant to the investment, to the extent that such rights are 
passed through to such participant or beneficiary under the terms of 
the plan;
    (4) Information to be provided upon request. Provide to each 
participant or beneficiary, either at the times specified in paragraph 
(d)(1), or upon request, the following information relating to 
designated investment alternatives--
    (i) Copies of prospectuses (or any short-form or summary 
prospectus, the form of which has been approved by the Securities and 
Exchange Commission) for the disclosure of information to investors by 
entities registered under either the Securities Act of 1933 or the 
Investment Company Act of 1940, or similar documents relating to 
designated investment alternatives that are provided by entities that 
are not registered under either of these Acts.
    (ii) Copies of any financial statements or reports, such as 
statements of additional information and shareholder reports, and of 
any other similar materials relating to the plan's designated 
investment alternatives, to the extent such materials are provided to 
the plan;
    (iii) A statement of the value of a share or unit of each 
designated investment alternative as well as the date of the valuation; 
and
    (iv) A list of the assets comprising the portfolio of each 
designated investment alternative which constitute plan assets within 
the meaning of 29 CFR 2510.3-101 and the value of each such asset (or 
the proportion of the investment which it comprises);
    (e) Form of disclosure. (1) The information required to be 
disclosed pursuant to paragraphs (c)(1), (c)(2)(i), and (c)(3)(i) of 
this section may be provided as part of the plan's summary plan 
description furnished pursuant to ERISA section 102 or as part of a 
pension benefit statement furnished pursuant to ERISA section 
105(a)(1)(A)(i), if such summary plan description or pension benefit 
statement is furnished at a frequency that comports with paragraph 
(c)(1) of this section.
    (2) The information required to be disclosed pursuant to paragraphs 
(c)(2)(ii) and (c)(3)(ii) of this section may be included as part of a 
pension benefit statement furnished pursuant to ERISA section 
105(a)(1)(A)(i).
    (3) A fiduciary that uses and accurately completes the model format 
set forth in the Appendix will be deemed to have satisfied the 
requirements of paragraph (d)(2) of this section.
    (4) Except with respect to the dollar amounts required to be 
included under paragraphs (c)(2)(ii)(A) and (c)(3)(ii)(A) of this 
section, fees and expenses may be expressed in terms of a monetary 
amount, formula, percentage of assets, or per capita charge.
    (5) The information required to be prepared by the fiduciary for 
disclosure under this section shall be written in a manner calculated 
to be understood by the average plan participant.
    (f) Selection and monitoring. Nothing herein is intended to relieve 
a fiduciary from its duty to prudently select and monitor providers of 
services to the plan

[[Page 43041]]

or designated investment alternatives offered under the plan.
    (g) Manner of furnishing. Disclosures under this section shall be 
furnished in any manner consistent with the requirements of 29 CFR 
2520.104b-1 of this chapter, including paragraph (c) of that section 
relating to the use of electronic media.
    (h) Definitions. For purposes of this section, the term--
    (1) Designated investment alternative means any investment 
alternative designated by the plan into which participants and 
beneficiaries may direct the investment of assets held in, or 
contributed to, their individual accounts. The term ``designated 
investment alternative'' shall not include ``brokerage windows,'' 
``self-directed brokerage accounts,'' or similar plan arrangements that 
enable participants and beneficiaries to select investments beyond 
those designated by the plan.
    (2) Average annual total return means the average annual profit or 
loss realized by a designated investment alternative at the end of a 
specified period, calculated in the same manner as average annual total 
return is calculated under Item 21 of Securities and Exchange 
Commission Form N-1A with respect to an open-end management investment 
company registered under the Investment Company Act of 1940.
    (3) Total annual operating expenses means annual operating expenses 
of the designated investment alternative (e.g., investment management 
fees, distribution, service, and administrative expenses) that reduce 
the rate of return to participants and beneficiaries, expressed as a 
percentage, calculated in the same manner as total annual operating 
expenses is calculated under Instruction 3 to Item 3 of Securities and 
Exchange Commission Form N-1A with respect to an open-end management 
investment company registered under the Investment Company Act of 1940.
    (4) At least annually thereafter means at least once in any 12-
month period, without regard to whether the plan operates on a calendar 
or fiscal year basis.
    (5) At least quarterly means at least once in any 3-month period, 
without regard to whether the plan operates on a calendar or fiscal 
year basis.

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[[Page 43043]]


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BILLING CODE 4510-29-C
    3. In Sec.  2550.404c-1 revise (b)(2)(i)(B), (c)(1)(ii), and 
(f)(1), and add (d)(2)(iv) to read as follows:


Sec.  2550.404c-1  ERISA section 404(c) plans.

* * * * *
    (b) * * *
    (2) * * *
    (i) * * *
    (B) The participant or beneficiary is provided or has the 
opportunity to obtain sufficient information to make informed 
investment decisions with regard to investment alternatives available 
under the plan, and incidents of ownership appurtenant to such 
investments. For purposes of this subparagraph, a participant or 
beneficiary will be considered to have sufficient information if the 
participant or beneficiary is provided by an identified plan fiduciary 
(or a person or persons designated by the plan fiduciary to act on his 
behalf):
    (1) An explanation that the plan is intended to constitute a plan 
described in section 404(c) of the Employee Retirement Income Security 
Act, and 29

[[Page 43044]]

CFR 2550.404c-1, and that the fiduciaries of the plan may be relieved 
of liability for any losses which are the direct and necessary result 
of investment instructions given by such participant or beneficiary;
    (2) Identification of any designated investment managers;
    (3) The information required pursuant to 29 CFR 2550.404a-5; and
    (4) In the case of plans which offer an investment alternative 
which is designed to permit a participant or beneficiary to directly or 
indirectly acquire or sell any employer security (employer security 
alternative), a description of the procedures established to provide 
for the confidentiality of information relating to the purchase, 
holding and sale of employer securities, and the exercise of voting, 
tender and similar rights, by participants and beneficiaries, and the 
name, address and phone number of the plan fiduciary responsible for 
monitoring compliance with the procedures (see paragraphs 
(d)(2)(ii)(E)(4)(vii), (viii) and (ix) of this section).
* * * * *
    (c) * * *
    (1) * * *
    (ii) For purposes of sections 404(c)(1) and 404(c)(2) of the Act 
and paragraphs (a) and (d) of this section, a participant or 
beneficiary will be deemed to have exercised control with respect to 
voting, tender or similar rights appurtenant to the participant's or 
beneficiary's ownership interest in an investment alternative, provided 
that the participant's or beneficiary's investment in the investment 
alternative was itself the result of an exercise of control; the 
participant or beneficiary was provided a reasonable opportunity to 
give instruction with respect to such incidents of ownership, including 
the provision of the information described in 29 CFR 2550.404a-5(d)(3); 
and the participant or beneficiary has not failed to exercise control 
by reason of the circumstances described in paragraph (c)(2) of this 
section with respect to such incidents of ownership.
* * * * *
    (d) * * *
    (2) * * *
    (iv) Paragraph (d)(2)(i) of this section does not serve to relieve 
a fiduciary from its duty to prudently select and monitor any 
designated investment manager or designated investment alternative 
offered under the plan.
* * * * *
    (f) * * *
    (1) A plan is an individual account plan described in section 3(34) 
of the Act. The plan states that a plan participant or beneficiary may 
direct the plan administrator to invest any portion of his individual 
account in a particular diversified equity fund managed by an entity 
which is not affiliated with the plan sponsor, or any other asset 
administratively feasible for the plan to hold. However, the plan 
provides that the plan administrator will not implement certain listed 
instructions for which plan fiduciaries would not be relieved of 
liability under section 404(c) (see paragraph (d)(2)(ii) of this 
section). Plan participants and beneficiaries are permitted to give 
investment instructions during the first week of each month with 
respect to the equity fund and at any time with respect to other 
investments. The plan provides for the pass-through of voting, tender 
and similar rights incidental to the holding in the account of a 
participant or beneficiary of an ownership interest in the equity fund 
or any other investment alternative available under the plan. The plan 
administrator of Plan A provides each participant and beneficiary with 
the information described in paragraph (b)(2)(i)(B) of this section 
upon their entry into the plan (including the information that must be 
provided on or before plan eligibility pursuant to 29 CFR 2550.404a-5), 
and provides updated information in the event of any material change in 
the information provided. Subsequent to any investment by a participant 
or beneficiary, the plan administrator forwards to the investing 
participant or beneficiary any materials provided to the plan relating 
to the exercise of voting, tender or similar rights attendant to 
ownership of an interest in such investment (see paragraph 
(b)(2)(i)(B)(3) of this section and 29 CFR 2550.404a-5(d)(3)). Upon 
request, the plan administrator provides each participant or 
beneficiary with copies of any prospectuses (or similar documents 
relating to designated investment alternatives that are provided by 
entities that are not registered under the Securities Act of 1933 or 
the Investment Company Act of 1940), financial statements and reports, 
and any other materials relating to the designated investment 
alternatives available under the plan in accordance with 29 CFR 
2550.404a-5(d)(4)(i) and (ii). Also upon request, the plan 
administrator provides each participant and beneficiary with other 
information required by 29 CFR 2550.404a-5(d)(4) with respect to the 
equity fund, which is a designated investment alternative, including 
information concerning the latest available value of the participant's 
or beneficiary's interest in the equity fund. Plan A meets the 
requirements of paragraph (b)(2)(i)(B) of this section regarding the 
provision of investment information.

    Note: The regulation imposes no additional obligation on the 
administrator to furnish or make available materials relating to the 
companies in which the equity fund invests (e.g., prospectuses, 
proxies, etc.).

* * * * *

    Signed at Washington, DC, this 15th day of July 2008.
Bradford P. Campbell,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. E8-16541 Filed 7-22-08; 8:45 am]

BILLING CODE 4510-29-P