(b)lines Ask the Experts – When Must Fee Disclosures Be Sent?

November 4, 2014 (PLANSPONSOR (b)lines) – “Now that the 5500 and Form-SSA filing has been completed, I am turning my attention to  the Summary Annual Report and the participant fee disclosures.

“However, when I looked at the participant fee disclosure guidance from the Department of Labor (DOL), I was a bit confused as to the deadline. My recordkeeper is telling me that the distribution deadline is 12/31, but I don’t believe that is correct. What is the correct date?”  

Michael A. Webb, vice president, Cammack Retirement Group, answers:

This is an excellent question, and perhaps an example of the old idiom “no good deed goes unpunished!”

In 2013, in response to a concern of many plan sponsors, the DOL issued FAB 2013-02 (see “Plan Sponsors Can Reset Disclosure Date”), which allowed for a delay in the delivery of fee disclosures from the month of August (where little else in the way of participant communication is distributed, due to the lack of deadlines and the fact that it is summertime) to late in the year or even early in the following year (when the disclosure could be combined with several other participant communications that are required to be issued that that time—the Summary Annual Report (SAR) is but one example—thus saving on distribution costs).

However, the phrasing of the language that permitted the delay has created confusion among plan sponsors and recordkeepers alike. The regulation permitted plan sponsors to shift their annual deadline from August 30 to as late as February 25 in the following year. However, the DOL did NOT change the normal requirement that a disclosure be distributed every 12 months, and the guidance permitting the delay is only temporary, applying to the 2013 and 2014 fee disclosures.

Here is how it works in actual practice for the 2014 fee disclosure. If you did NOT take advantage of the delay for the 2013 fee disclosure, you would presumably have distributed your 2013 disclosure within 12 months of delivering your 2012 disclosure. So let’s say that you distributed  your 2012 fee disclosure right at the deadline of August 30, but you were a bit more timely in delivering your 2013, disclosure, doing so on August 20, 2013. Normally, your more timely distribution would have pushed up your 2014 fee disclosure deadline to August 20, 2014, since you are required to distribute the annual fee disclosure notice to participants every 12 months. However, the FAB permits a one-time delay in the distribution deadline for 2014, so you may deliver your 2014 notice to participants anytime from August 20, 2014, to February 25, 2015. However, you should keep in mind that, absent future guidance, your distribution date in 2014 will dictate your distribution deadline for the 2015 fee disclosure. Thus, if you distribute your 2014 fee disclosures to participants on January 7, 2015, you will need to deliver your 2015 disclosures by January 7, 2016.

Confused? But wait, there’s more! Let’s say that you decided to take advantage of the permissible delay in distribution of the 2013 fee disclosure, and you delivered that disclosure on December 1, 2013, in order to combine it with your qualified default investment alternative (QDIA) notice (12/1 deadline) your SAR notice (12/15) deadline and some other disclosures you were making in connection with your 2013 open enrollment for your other benefit plans. Your deadline for distribution of your 2014 fee disclosure notice is December 1, 2014 (and NOT as late as February 25th, 2015) due to the 12-month notice requirement.

Furthermore, let’s say you delivered your 2014 fee disclosure to participants a bit early, on November 27, 2014. The deadline for distribution of your 2015 fee disclosure would then be accelerated to November 27, 2015, due to the 12-month requirement.

Thus, when distributing your annual fee disclosure notice, it is best to select a day that is most efficient from an administrative standpoint (e.g. a date that it can be combined with other required notices in a single distribution) and then make certain to distribute the fee disclosure on the exact same date each year. The reason to adhere to such a procedure is that you are not rewarded for early delivery, which only serves to shift your deadline for the following year to 12-months after the delivery of your current distribution. If you distribute the fee disclosure notice early every year, the result is a constantly shifting deadline.

Thank you for your thought-provoking question!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.