Participant Disclosure: A Regulatory Treadmill

A treadmill goes on and on, and it can be a lot of work. Some aspects of benefits regulation may seem like one, and participant and plan sponsor disclosures are among them. And it’s not just fiduciaries, plan sponsors and administrators who are running on it — government regulators are, too. ASPPA General Counsel and Director of Regulatory Affairs Craig P. Hoffman and Joe Canary, director of the Office of Regulations and Interpretations for the Employee Benefit Security Administration, discussed some of the recurring and unresolved matters disclosures at an Oct. 28 session of the ASPPA Annual Conference at National Harbor, Md.

And if regulation is indeed a treadmill, the ERISA Section 408(b)(2) and 404(a) regulatory projects would qualify, as Hoffman indicated when he commented “this has been going on now for seven years.”

Section 408(b)(2)

The ERISA Section 408(b)(2) regulations were released in proposed form on Dec. 14, 2007; they were supposed to be issued in final form 90 days later, but it took more than four years. And they were issued as interim final regulations — the final final regs are yet to come.

The DOL has proposed that the regs become effective one year after they are published in the Federal Register in final form. But when will that be? According to Canary, the DOL is “open to all kinds of suggestions” including:

• when the effective date should be;
• whether plans have enough time to prepare; and
• whether the regs would be effective for all current plans.

Canary says the DOL is reviewing the comments it has received. And for good measure, it has formed focus groups to obtain additional information and comments on the 408(b)(2) regs to explore current practices and the effect the regulations are having.

The Section 408(b)(2) regs may not be in final form yet, but they still need to be followed. They include a provision regarding a voluntary sample guide that covered service providers (CSPs) could use to assist plan fiduciaries in understanding 408(b)(2) disclosures. But the guide is mandatory when 408(b)(2) disclosures are not contained in a single document or that document exceeds a specified length. The DOL has requested comments on whether page count is an appropriate standard. What the DOL is looking for, said Canary, is “good quality info.”

Information the guide has to provide includes data regarding the location of detailed information about the plan, compensation and investments, as well as contact information for the party the plan fiduciary can contact for information about 408(b)(2) disclosures. The guide can be provided via electronic media.

To give compliance with the 408(b)(2) regs even more teeth, some DOL regional offices have established a service provider enforcement project. Hoffman noted that if one is the subject of an investigation, it may not be bad news. “It doesn’t necessarily mean you did anything wrong,” said Hoffman, noting that sometimes it’s because a provider showed up in a web search. However, it also is possible that an investigation may have resulted from a complaint. It’s important to have good counsel just in case, Hoffman added.

Section 404(a)

The proposed regulations under Section 404(a) were released in July 2008; the final regulation was effective for plan years beginning on or after Nov. 1, 2011. But a special transitional rule extended the initial disclosure deadline for many to Aug. 31, 2012. And that was not the end of the matter: two years later, the DOL issued a request for information (RFI) on the use of brokerage windows.

The RFI includes 39 questions and is intended as fact-finding to help the DOL to better understand how plans and participants use brokerage windows. And it’s still accepting comments — plans and participants have till Nov. 19, 2014 to offer their take.

The deadline for disclosures under ERISA Section 404(a)-5 is another treadmill, but the DOL may be turning it off. The regulation says that plan administrators are required to make disclosures under that section “at least annually.” And that, said Hoffman, is a “potential creeping deadline.” ASPPA has sent a comment letter recommending that the term be defined in a way that would include the ability to provide the annual notice anytime within a calendar year, as long as it is given no more than 18 months since the last annual notice.

Canary said that the DOL is “looking into changing the rule to allow more flexibility." And, he added, it is “trying to do this on a more expedited basis.”