What Is a 404a-5 Plan? Fee Disclosure Requirements
Understand 404a-5. Explore the mandated disclosures for fees and investment information in retirement plans, ensuring participant transparency.
A 404a-5 plan refers to specific disclosure requirements for certain retirement plans. This regulation aims to provide transparency regarding plan fees and investment performance, helping participants make informed decisions about their retirement savings.
Understanding the 404a-5 Requirement
The 404a-5 requirement is a regulation under the Employee Retirement Income Act (ERISA), 29 CFR 2550.404a-5. It ensures transparency for participants in individual account plans, empowering them with information to make sound decisions about their retirement investments.
This requirement applies primarily to participant-directed individual account plans, including common retirement vehicles such as 401(k)s, 403(b)s, and 457(b) plans. “Participant-directed” means the individual account holder can select from a range of investment options provided by the plan.
The plan administrator is typically responsible for providing these disclosures, often the employer sponsoring the retirement plan. While the employer bears ultimate responsibility, they can rely on information from service providers like recordkeepers or third-party administrators to fulfill these requirements.
Content of Required Disclosures
Plan administrators must provide participants with comprehensive information to ensure full transparency regarding their retirement accounts. This information is categorized to cover various aspects of the plan and its investments.
General plan information includes fundamental details about the retirement plan. This encompasses instructions on how participants can obtain plan documents, such as the Summary Plan Description. It also explains the procedures for exercising investment directions.
Details about plan fiduciaries, individuals or entities with control over the plan’s management or assets, are also provided. Participants learn about any brokerage windows or self-directed brokerage accounts that allow them to choose investments beyond those designated by the plan.
Administrative expenses cover the costs associated with running the overall retirement plan. These fees typically fund services such as recordkeeping, legal compliance, accounting, and trustee services. These costs may be allocated across all participant accounts or paid directly by the employer.
Individual expenses are fees charged directly against a participant’s account for specific actions. Examples include fees for processing loans, distributions, withdrawals, account transfers, or specific transaction costs.
Investment-related information provides granular detail on each investment option available. For each designated investment alternative, participants receive historical performance data, often presented for 1-, 5-, and 10-year periods, or since inception if shorter.
Detailed fee and expense ratios for each investment option are also disclosed. This includes the total annual operating expenses (expense ratio) and any shareholder-type fees, such as redemption or exchange fees, that might be charged directly to the investment.
Benchmark comparisons are provided to help participants assess the performance of each investment option against a relevant market index. The disclosures also include website addresses for additional investment information and an explanation of investment terminology and concepts.
Delivery and Accessibility of Disclosures
The delivery of 404a-5 disclosures follows a structured timeline. Initial disclosures must be provided when an employee first becomes eligible to participate in the plan. Subsequently, annual disclosures are required.
In addition to annual statements, participants typically receive quarterly statements. These include details on investment performance, account balances, transaction activity, and the dollar amount of plan-related fees charged to the individual’s account.
Acceptable methods for delivering these disclosures include traditional mail or electronic delivery. For electronic delivery, such as via email or secure website access, specific requirements often apply, which may include obtaining participant consent.
Accessibility is a key aspect of the disclosure requirements, ensuring participants can easily review the provided information. Many plan administrators make these documents readily available through participant-facing websites, where individuals can download or view their disclosures at any time.