Trade Groups Weigh in on EBSA Fee Disclosure Proposal

September 9, 2008 ( - An Employee Retirement Income Security Act (ERISA) fiduciary should not be held liable for incorrect information furnished by someone else unless the person knows it is wrong and does not fix it.

That assertion came from one of several retirement services industry groups which have released their responses to the Department of Labor’s Employee Benefits Security Administration’s (EBSA) proposed disclosure requirement for participant-directed individual account plans (See EBSA Finishes Regulatory Package with Participant Disclosure Proposal ).

“Fiduciaries are increasingly subject to burdensome and expensive litigation involving investment-related disclosures over which they have little or no control,” said Mark J. Ugoretz ERISA Industry Committee’s (ERIC) President, in the group’s DoL submission. “The final regulation should make clear that fiduciaries cannot be held responsible for information that they obtain from a third party and disclose in good faith.”

In addition to pushing for a limit on a fiduciary’s liability, the ERIC comments addressed pushing back the proposed effective date of the regulation, the scope of the disclosure requirements, timing and method of disclosure, disclosure requirements concerning employer stock funds and other single-asset funds, and the content of the required disclosure.

According to an ERIC news release, the organization also used the occasion to lobby EBSA for:

  • A provision that if a fiduciary fails to disclose required information, the fiduciary is liable under ERISA only for investment losses that are caused by his or her breach of duty,
  • A delay in the effective date of the regulation to no earlier than a year after the rule is finalized. “Considering all of these factors, ERIC believes that 12 months is the minimum amount of time plan fiduciaries will need to implement the new disclosure requirements in an orderly way,” said Ugoretz, in the DoL filing. “The regulation should not become effective earlier than 12 months after issuance of the final regulation,”
  • A clarification that a fiduciary should not be required to make the initial disclosure to a participant before the participant enrolls in the plan, and
  • An exception to the investment-related disclosure requirements for employer stock funds that are regulated by the federal securities laws.

“Our members’ goal as plan sponsors is to help ensure participants get information about their 401(k) plan that is timely and that is not overwhelming or confusing,” said Ugoretz, in the news release. “Moreover, the regulations should not impose any liability on the plan sponsor for failing to provide information that is not available to the plan sponsor.”

Meanwhile, the Investment Company Institute (ICI), in its own DoL filing, pushed for DoL sanction of electronic delivery of participant disclosure information required under the proposed rule, pointing out that many employers already use the Internet to enroll employees.

"It is clear that any participant who enrolls via this process has access to the Internet because the participant is online to enroll," ICI said in its DoL filing ." The Department's rules should allow the plan to furnish this participant with the required disclosures online."

ICI also wanted a clarification on the types of fees fiduciaries will have to disclose under the new regulatory scheme. "The Department should not require that plans create individualized dollar-based disclosures for fees that are included in investment-related expenses," the group said in its filing. "This would require systems that are expensive to design and implement and which would produce rough estimates at best."

Finally, the SPARK Institute contended in its DoL filing that regulators should allow some leeway in complying with the new requirements.

The group's other points included:

  • the absence of a mandated one-size fits all disclosure form or format,
  • support for a targeted approach that focuses on providing "clear, concise and meaningful disclosure," including investment option comparisons, without mandating disclosures of "potentially confusing, excessive and costly details,"
  • allowing plan fiduciaries to rely on the most currently available fund information instead of mandating "costly new updates,"
  • permitting disclosure through cost effective electronic media, and
  • excluding brokerage windows from disclosure requirements.

The ERIC submission is available here . The ICI submission is available here . The SPARK Institute submission is available here .