EBSA Final Rules

Requirements for Fee Disclosure to Plan Fiduciaries and Participants--Applicability Dates   [7/19/2011]
[PDF]
Federal Register, Volume 76 Issue 138 (Tuesday, July 19, 2011)
[Federal Register Volume 76, Number 138 (Tuesday, July 19, 2011)]
[Rules and Regulations]
[Pages 42539-42542]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18029]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

RIN 1210-AB08


Requirements for Fee Disclosure to Plan Fiduciaries and 
Participants--Applicability Dates

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Final rule; delay of applicability dates.

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SUMMARY: This document delays specified applicability and effective 
dates of the Employee Benefits Security Administration's (EBSA) interim 
final rule concerning fiduciary-level fee disclosure and final rule 
concerning participant-level fee disclosure. These final rules were 
published in the Federal Register on July 16, 2010 and October 20, 
2010, respectively. This document delays and more closely aligns the 
initial compliance dates of the two rules in order to provide regulated 
parties with more time to comply with the new disclosure requirements. 
This document adopts final amendments to the initial compliance dates 
for both rules.

DATES: The amendments made by this document are effective as of July 
15, 2011 and the effective date for the interim final fiduciary-level 
fee disclosure rule published on July 16, 2010 (75 FR 41600) is delayed 
from July 16, 2011 to April 1, 2012.

FOR FURTHER INFORMATION CONTACT: Michael Del Conte, Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration, (202) 693-8500. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

    On July 16, 2010, EBSA published in the Federal Register an interim 
final rule enhancing required disclosure from certain pension plan 
service providers to plan fiduciaries as part of a ``reasonable'' 
contract or arrangement for services under ERISA section 408(b)(2) (75 
FR 41600) (the ``408(b)(2) regulation'' codified at 29 CFR 2550.408b-
2(c)). EBSA subsequently published in the Federal Register, on October 
20, 2010, a final rule concerning the disclosure of plan fee and 
expense information by plan administrators to plan participants and 
beneficiaries (75 FR 64910) (the ``participant-level disclosure 
regulation'' codified at 29 CFR 2550.404a-5). The participant-level 
disclosure regulation also modifies the disclosure requirements in the 
Department's regulation under ERISA section 404(c), at 29 CFR 
2550.404c-1 (the ``404(c) regulation''), in order to avoid duplication 
and to integrate its requirements with those of the new participant-
level disclosure regulation.
    As originally published, the effective date for the interim final 
408(b)(2) regulation was July 16, 2011, as to both new and existing 
contracts or arrangements between covered plans and covered service 
providers. The Department received many requests that this effective 
date be delayed. A significant number of parties argued that more time 
is essential to update systems and procedures for information 
collection and disclosure. Pointing out that the Department had not yet 
published a final rule, parties explained that, if the Department 
modifies the current interim final rule, service providers will need 
additional time to make further changes to their systems and procedures 
for information collection and disclosure. Based on these concerns, the 
Department believed that an extension of the rule's effective date 
would allow time for improved compliance by plans and service 
providers, and thus would be in the interests of participants and

[[Page 42540]]

beneficiaries. In February 2011, the Department announced its intention 
to delay the 408(b)(2) regulation's effective date until January 1, 
2012.\1\ The Department did not receive any negative comments on this 
announcement. In order to effectuate its intention, on June 1, 2011, 
the Department published a proposal to formally delay the effective 
date of the 408(b)(2) regulation to January 1, 2012.
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    \1\ See http://www.dol.gov/ebsa/newsroom/2011/ebsa021111.html.
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    As with the 408(b)(2) regulation, the Department received many 
requests that additional time be provided for parties to comply with 
the participant-level disclosure regulation. Parties argued that it 
would be preferable to extend application of the participant-level 
disclosure regulation until after the effective date of the 408(b)(2) 
regulation. Specifically, these parties pointed to the provision in the 
408(b)(2) interim final regulation which requires covered service 
providers to furnish information requested by a responsible plan 
fiduciary or plan administrator in order to comply with ERISA's 
reporting and disclosure requirements,\2\ which would include 
information needed to comply with the participant-level disclosure 
regulation. It would facilitate compliance with the participant-level 
disclosure regulation, they argued, if covered contracts and 
arrangements were first brought into compliance with the 408(b)(2) 
regulation, so that this reporting and disclosure provision is in 
effect, prior to the applicability of the participant-level disclosure 
regulation. The Department agreed that aligning the application of 
these two regulations would assist plan fiduciaries and plan 
administrators in obtaining information required to comply with the 
participant-level disclosure regulation. Further, the Department 
believed that, similar to the 408(b)(2) regulation, a limited extension 
of time to satisfy the initial compliance requirements for the 
participant-level disclosure regulation is in the best interests of 
covered individual account plans and their participants and 
beneficiaries. Delaying the application date would better afford plans 
sufficient time to ensure an efficient and effective implementation of 
the participant-level disclosure regulation.
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    \2\ 29 CFR 2550.408b-2(c)(1)(vi).
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    To accomplish this, the Department, in its June 1, 2011 Federal 
Register notice, proposed to amend the transitional rule in paragraph 
(j)(3)(i) of the participant-level disclosure regulation. The 
transitional rule (as originally published) required individual account 
plans to furnish the initial disclosures required under the regulation 
no later than 60 days after the applicability date. The applicability 
date is the first day of the first plan year beginning on or after 
November 1, 2011. The Department proposed to delay the transition rule 
to provide plans with up to 120 days (rather than 60) after the plan's 
applicability date to furnish the initial disclosures that otherwise 
are required to be furnished on or before the date on which a 
participant or beneficiary can first direct his or her investments. 
Under the proposed transition rule, the initial disclosures would have 
to be provided to all participants and beneficiaries who have the right 
to direct their investments when such disclosures are furnished, not 
just to those individuals who had the right to direct their investments 
on the applicability date. This was to ensure that individuals who 
become plan participants in between the applicability date and the end 
of the proposed 120-day period receive the important information 
required under the regulation.\3\
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    \3\ One commenter requested clarification that the proposed 
transition rule was not intended to apply to newly eligible 
employees on an ongoing basis; the Department confirms that the 
transition rule, as finalized in this notice, applies only to 
employees newly eligible on the applicability date and during the 
transition period, but not after a plan's transition period ends.
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B. Comments Received and the Department's Response

    In response to its proposal, the Department received 11 comment 
letters.\4\ This section summarizes these comments, the Department's 
response, and the final regulatory amendments published in this notice.
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    \4\ These comments are available on the Department's Web site 
at: http://www.dol.gov/ebsa/regs/cmt-1210-AB08a.html.
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1. Applicability Dates; Technical Clarifications

    Commenters generally supported the Department's proposed alignment 
of the two rules' applicability dates and believe that the 408(b)(2) 
regulation should, as proposed, be effective before plans are required 
to comply with the participant-level disclosure regulation. Commenters 
disagreed, however, about the specific timeframes proposed by the 
Department (i.e., that the 408(b)(2) regulation would be effective on 
January 1, 2012 and that the transition rule for the participant-level 
disclosure regulation would be extended from 60 to 120 days following a 
covered individual account plan's applicability date). Some commenters 
endorsed the proposed timeframes. They explained that the Department 
has been working on fee disclosure and related issues for several 
years, and that service and investment providers, as well as plan 
fiduciaries, have had ample time to monitor these developments in fee 
disclosure and prepare for compliance. Further, one commenter stressed 
that application of the rules should not be further delayed because of 
the direct impact of plan fees on participants' and beneficiaries' 
retirement security.
    Other commenters, however, argued that the Department must further 
delay application of the rules to enable timely compliance by service 
providers, plan fiduciaries, and plan administrators. Commenters 
explained that continuing uncertainty exists as to whether the 
Department will make significant changes from the interim final rule 
when it publishes the final 408(b)(2) regulation. Given this 
uncertainty, service providers argued that they will not be able to 
effectively finalize their system modifications or to firmly establish 
the content and format of their disclosures to reflect any such changes 
by January 1, 2012. One commenter also asserted that plan fiduciaries, 
who will be required to review and analyze the 408(b)(2) regulation's 
new disclosures, will not have enough time to satisfy these obligations 
and, if necessary, take action in response to the disclosures received 
from their plan service providers. Commenters provided several 
alternatives for further delaying the effective date of the 408(b)(2) 
regulation, for example, delaying the compliance date for six or twelve 
months following publication of a final rule or until January 1, 2013. 
To address commenters' concerns as to any new requirements in the final 
regulation, commenters suggested that the Department also could provide 
a delayed effective date for such new requirements, or announce a 
transition period during which parties may rely on the interim final 
rule.
    Commenters also presented a variety of concerns as to why 
application of the participant-level disclosure regulation should be 
further delayed. For example, service providers and plan administrators 
continue to request interpretive guidance from the Department as to 
plan administrators' obligations under the participant-level disclosure 
regulation; commenters believe that such obligations are not clear and 
that additional guidance from the Department is necessary before 
parties are required to comply. Commenters also offered a variety of 
technical issues faced by plans and service providers as they prepare 
for compliance, for example potential difficulties in obtaining 
required

[[Page 42541]]

investment information concerning non-registered plan designated 
investment alternatives and challenges faced by multi-vendor 403(b) 
plans that must obtain and compile data from vendors with different 
recordkeeping systems. Commenters suggested that the transition rule 
should be revised to be 120 or 180 days following the effective date of 
the 408(b)(2) regulation (rather than 120 days following the plan's 
applicability date). Commenters explained that tying the transition 
rule to the effective date of the 408(b)(2) regulation would avoid 
inconsistent treatment for non-calendar year plans under the proposed 
transition rule, which would, for example, result in a November 1 plan 
being unable to take full advantage of the proposed 120-day transition 
rule.
    Based on its careful review of the comments and consideration of 
the arguments presented, the Department is amending the effective date 
of the 408(b)(2) regulation to be April 1, 2012. This is 3 months 
longer than the length of the extension in the proposal. As of 
publication of this notice in the Federal Register, the Department has 
not yet published a final 408(b)(2) regulation. To the extent the final 
regulation includes changes from the interim final rule, the Department 
agrees that covered service providers and plan fiduciaries would 
benefit from additional time to review such changes and make final 
modifications to their systems and disclosures. The Department wants to 
ensure that thorough and accurate disclosures, in compliance with the 
final 408(b)(2) regulation, are furnished to plan fiduciaries to help 
them carefully analyze plan service contracts and arrangements in 
compliance with their fiduciary duties under ERISA. Commenters 
generally requested an extension longer than 3 months. The Department, 
however, is not persuaded that such an extension is necessary under the 
circumstances. The Department intends to publish a final 408(b)(2) 
regulation in the Federal Register before the end of the year, and does 
not expect that the changes to the interim final rule are likely to 
require more additional time for compliance than is provided in this 
document. The Department also believes that a further delay in 
implementing the regulation is not in the best interest of responsible 
plan fiduciaries, plan administrators, and plan participants and 
beneficiaries. In the Department's view, delaying the effective date 
until April 1, 2012 strikes a balance between these competing 
considerations.
    As proposed, and consistent with commenters' views, these final 
amendments will continue to align application of the rules so that the 
408(b)(2) regulation will be effective prior to plans being required to 
furnish disclosures pursuant to the participant-level disclosure 
regulation. However, in response to commenters' concerns, the 
Department has modified the proposed transition rule for the 
participant-level disclosure regulation. First, the Department agrees 
with commenters that the transition rule should be tied to the 
effective date for the final 408(b)(2) regulation. This linkage will 
ensure that the 408(b)(2) regulation becomes effective first, and that 
all plans (regardless of whether they are calendar year plans) will be 
able to take advantage of the transition period following the 408(b)(2) 
regulation's effective date. Second, because the Department delayed the 
effective date of the 408(b)(2) regulation for an additional 3 months, 
and because the beginning of the transition period under the 
participant-level disclosure regulation's transitional rule will be 
correspondingly delayed, the Department is adopting a 60-day transition 
period for the participant level fee disclosure rule. Given the 
additional time (3 months) being provided to plan administrators 
because of the 408(b)(2) regulation's delayed effective date, the 
Department believes that a 60-day transition period following such 
delayed date for the participant level fee disclosure rule is 
sufficient given commenters' concerns. Accordingly, paragraph 
(j)(3)(i)(A) of the participant-level disclosure regulation now 
provides that the initial disclosures required on or before the date on 
which a participant or beneficiary can first direct his or her 
investments must be furnished no later than the later of 60 days after 
the plan's applicability date or 60 days after the effective date of 
the 408(b)(2) regulation.
    Finally, the Department also revised the transitional rule by 
adding a new subsection (j)(3)(i)(B) to provide guidance on when the 
quarterly disclosures required under paragraphs (c)(2)(ii) and 
(c)(3)(ii) of the participant-level disclosure regulation must first be 
furnished. These disclosures must be furnished no later than 45 days 
after the end of the quarter in which the initial disclosures (referred 
to in subsection (j)(3)(i)(A) of the transitional rule) are required to 
be furnished to participants and beneficiaries. The new subsection 
preserves ordinary sequencing of disclosures under the regulation by 
preventing the first quarterly disclosure from being due before the 
first initial disclosure.
    The following example illustrates the new bifurcated transitional 
rule in paragraph (j)(3)(i)(A) and (B). As to calendar year plans, the 
participant-level disclosure regulation becomes applicable on January 
1, 2012. Pursuant to subsection (A) of the final transitional rule, 
such plans must furnish their first set of initial disclosures (all 
disclosures other than disclosures required at least quarterly) no 
later than May 31, 2012, which is 60 days after the April 1, 2012 
effective date of the 408(b)(2) regulation. Further, pursuant to 
subparagraph (B) of the transitional rule, the disclosures required by 
paragraphs (c)(2)(ii) and (c)(3)(ii) of the regulation (e.g., the 
quarterly statement of fees/expenses actually deducted) would have to 
be furnished no later than August 14, 2012, which is the 45th day after 
the end of the second quarter (April-June) in which the initial 
disclosure was required.
    A few commenters requested that the Department clarify when plans 
must comply with the revised 404(c) regulation's disclosures. The final 
amendments to the 404(c) regulation require, in part, that participants 
and beneficiaries be furnished: ``[t]he information required pursuant 
to 29 CFR 2550.404a-5'' (i.e., the participant-level disclosure 
regulation).\5\ In a footnote to the proposal's preamble, the 
Department stated that the amendments to the 404(c) regulation apply 
for plan years beginning on or after November 1, 2011 and that proposal 
would have no effect on the applicability of these amendments. Although 
the transition rule, finalized in this notice, does not itself apply to 
the amended 404(c) regulation, the Department confirms that plan 
administrators do not have to furnish the newly required information 
under the 404(c) regulation before such information must be delivered 
(subject to the final transition rule) under the participant-level 
disclosure regulation. Such information is ``required pursuant to'' the 
participant-level disclosure regulation only at such time(s) as it must 
first be furnished under such regulation.
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    \5\ 29 CFR 2550.404c-1(b)(2)(i)(B)(2).
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    It has been determined that this is not a significant rulemaking 
for purposes of E.O. 12866. In addition, the Department finds that the 
amendments in this document will not significantly affect the 
regulatory flexibility analyses issued in connection with the rules so 
amended. 75 FR 41629 (July 16, 2010); 75 FR 64934 (Oct. 20, 2010).
    Pursuant to 5 U.S.C. 553(d)(3), the Department finds for good cause 
that in order to accomplish the purposes of

[[Page 42542]]

these amendments, they must be effective before the current July 16, 
2011, effective date of the interim final 408(b)(2) regulation (29 CFR 
2550.408b-2(c), RIN 1210-AB08).

2. Electronic Delivery

    Several commenters requested further guidance from the Department 
as to the standards for electronic delivery that will apply to 
disclosures furnished to participants and beneficiaries under the 
participant-level disclosure regulation. Commenters argued that 
whether, and the extent to which, these disclosures may be furnished 
electronically will significantly impact service providers' systems 
design and compliance efforts. Although the Department separately is 
pursuing a regulatory initiative to explore electronic delivery in the 
context of participant and beneficiary disclosures,\6\ commenters do 
not believe that the Department will complete its broad review of this 
issue and publish final guidance as to the standards that will apply 
before plans will have to comply with the participant-level disclosure 
regulation. In the meantime, these commenters suggested that the 
Department extend to the participant-level disclosure regulation the 
guidance on the manner of delivery that was provided for pension 
benefit statements in Field Assistance Bulletin (FAB) 2006-03.\7\
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    \6\ See 76 FR 19285 (April 7, 2011).
    \7\ See Field Assistance Bulletin No. 2006-03 (Dec. 20, 2006).
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    The Department is carefully analyzing these comments as part of its 
broader review of public comments in response to its recent request for 
information concerning ERISA electronic delivery standards 
generally.\8\ These issues, however, are beyond the scope of this 
rulemaking which is limited to delaying the compliance dates for the 
408(b)(2) and participant-level disclosure regulations. Consistent with 
its statement in the preamble to the final participant-level disclosure 
regulation, the Department intends to provide guidance on this issue 
for purposes of the participant-level disclosure regulation in advance 
of the regulation's compliance date, so as to ensure appropriate notice 
for plans.
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    \8\ 76 FR 19285.
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List of Subjects in 29 CFR Part 2550

    Employee benefit plans, Exemptions, Fiduciaries, Investments, 
Pensions, Prohibited transactions, Real estate, Securities, Surety 
bonds, Trusts and Trustees.

    For the reasons set forth in the preamble, the Department of Labor 
delays the effective date for the interim rule published on July 16, 
2010 (75 FR 41600) from July 16, 2011 to April 1, 2012 and further 
amends 29 CFR part 2550 as follows:

PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY

0
1. The authority citation for part 2550 continues to read as follows:

    Authority:  29 U.S.C. 1135, sec. 102, Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1. and Secretary of Labor's Order No. 6-2009, 
74 FR 21524 (May 7, 2009). Sec. 2550.401c-1 also issued under 29 
U.S.C. 1101. Sec. 2550.404a-2 also issued under sec. 657, Pub. L. 
107-16, 115 Stat. 38. Sections 2550.404c-1 and 2550.404c-5 also 
issued under 29 U.S.C. 1104. Sec. 2550.408b-1 also issued under 29 
U.S.C. 1108(b)(1). Sec. 2550.408b-19 also issued under sec. 611, 
Pub. L. 109-280, 120 Stat. 780, 972. Sec. 2550.412-1 also issued 
under 29 U.S.C. 1112.

0
2. Section 2550.404a-5 is amended by revising paragraph (j)(3)(i) to 
read as follows:


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

* * * * *
    (j) * * *
    (3) * * *
    (i) (A) Notwithstanding paragraphs (b), (c) and (d) of this 
section, the initial disclosures required on or before the date on 
which a participant or beneficiary can first direct his or her 
investments must be furnished no later than the later of 60 days after 
such applicability date or 60 days after the effective date of 29 CFR 
2550.408b-2(c).
    (B) Notwithstanding paragraphs (b) and (c) of this section, the 
initial disclosures required under paragraphs (c)(2)(ii) and (c)(3)(ii) 
of this section must be furnished no later than 45 days after the end 
of the quarter in which the disclosure referred to in paragraph 
(j)(3)(i)(A) of this section was required to be furnished to 
participants and beneficiaries.
* * * * *


Sec.  2550.408b-2  [Amended]

0
3. Section 2550.408b-2 is amended, in paragraph (c)(1)(xii), by 
removing the date ``July 16, 2011'' and adding in its place ``April 1, 
2012''.

    Signed at Washington, DC, this 12th day of July 2011.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 2011-18029 Filed 7-15-11; 8:45 am]
BILLING CODE 4510-29-P