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Tuesday, August 21, 2012

On May 7, 2012 the DOL issued Field Assistance Bulletin 2012-02, consisting of 38 questions and answers intended to clarify some of the issues raised since the issuance on October 20, 2010 of the final participant fee disclosure regulations (as discussed in our prior post here).  Q&A 30 included language that would have required plan administrators to treat a brokerage window or a broad-based platform of funds as a designated investment alternative, subject to the fee disclosure requirements if a “significant number” of participants invested in the same alternative.  This position took plan sponsors and practitioners by surprise because it was not consistent with prior interpretations of the regulations.  In addition, many commentators noted that the DOL should have announced this position, which was viewed as a significant change, in proposed rules with the opportunity for review and comment, rather than in a Field Assistance Bulletin.

On July 30, 2012, the DOL issued Field Assistance Bulletin 2012-02R, which deleted Q&A 30 and replaced it with Q&A 39.  The DOL clarified that a plan is not required to have designated investment alternatives (DIAs); there is no required number of DIAs.  An investment alternative is a DIA only if it is specifically designated as such.  A plan sponsor can designate no DIAs if it chooses.  As a result, fee disclosures are not required for brokerage windows or broad-based platforms unless they are specifically identified as designated investment alternatives.

Although new Q&A 39 provides some relief, the DOL gave plan administrators some cautions.  It reiterated its statement in prior Q&A 30 that a failure to designate investment alternatives, for example to avoid fee disclosures, raises questions about compliance with ERISA’s duties of loyalty and prudence.  The DOL also stated that it intends to discuss these issues with interested parties to determine how to ensure compliance with fiduciary duties in an efficient and cost effective manner and did not rule out the possibility of proposing amendments to the regulations.

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