Since the annual participant fee and investment disclosure requirements first effective in 2012 401(k) plan sponsors have had to live with a rule that if literally applied imposes heavy administrative burdens. So applied, plan sponsors must deliver current year disclosures within “exactly” 365 days of the prior year's disclosure.
The rule can produce notice creep.
For example, an initial disclosure delivered to a participant on June 23, 2013 requires under the rule that the next year’s disclosure to be delivered on June 23, 2014 or earlier. If the plan sponsor delivers the disclosure earlier, for example, on May 30, 2014, the 2015 disclosure would have to be provided no later than May 30, 2015. And so it goes.
In 2013 DOL acknowledged that plan sponsors could have applied a good faith interpretations of the rule different from the “exact date” interpretation described above, and it announced that it was reviewing the rule. At the time of this announcement, it also provided plan sponsors with a temporary opportunity to delay issuing the disclosures for up to 18 months in certain situations.
DOL guidance fixes the problem
Last week the Labor Department (“DOL”) fixed the problem by allowing in direct final and proposed rules the plan sponsor to provide the information at least once in any 14-month period. This means plan sponsors now will have a period of 14 months from when the last annual disclosures were provided to provide the current year disclosure. Referring to the example above, disclosures made on June 23, 2014 can be made as late as August 23, 2015 without advancing the next annual disclosure date.
Coordination of disclosure with other required notices is now possible.
In addition to fixing the notice creep problem, plan sponsors may now be able to better coordinate this disclosure with other required disclosures such as qualified default alternative (“QDIA”) and safe harbor notices, and they will not be compelled to track specific disclosure dates participant-by-participant.
Effective Date and Current Reliance
The new rule becomes effective on June 17, 2015, although DOL is allowing plan sponsors to rely on it now. For a deep dive into the disclosure timing requirements, see the Direct Final Rule and Proposed Rule.