Short title

This Act may be cited as the

Defined Contribution Plan Fee Transparency Act of 2007

Disclosure to participants

(a)

In general

Chapter 43 of the Internal Revenue Code of 1986 (relating to qualified pension, etc. plans) is amended by adding at the end the following new section:

4980H.

Failure to provide notice to participants of plan fee information

(a)

Imposition of tax

There is hereby imposed a tax on the failure of any plan administrator of an applicable defined contribution plan to meet the requirements of subsection (e) with respect to any participant or beneficiary. (b)

Amount of tax

(1)

In general

The amount of the tax imposed by subsection (a) on any failure with respect to any participant or beneficiary shall be $100 for each day in the noncompliance period. (2)

Noncompliance period

For purposes of paragraph (1), the noncompliance period with respect to a failure is the period beginning on the date the plan administrator failed to provide notice to participants and beneficiaries in accordance with subsection (e) and ending on the date the notice to which the failure relates is provided or the failure is otherwise corrected. (3)

Separate treatment of violations

For purposes of paragraph (1), each violation with respect to any single participant or beneficiary shall be treated as a separate violation. (c)

Limitations on amount of tax

(1)

Annual aggregate limitation

The total amount of tax imposed by this section with respect to any plan administrator for any plan year shall not exceed $500,000. (2)

Tax not to apply to failures corrected within 90 days

No tax shall be imposed by subsection (a) on any failure if— (A)any person subject to liability for the tax under subsection (a) exercised reasonable diligence to meet the requirements of subsection (e), and (B)such person provides the notice described in subsection (e) during the 90-day period beginning on the date such person knew, or exercising reasonable diligence would have known, that such failure existed. (3)

Waiver by secretary

In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary shall waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive or otherwise inequitable relative to the failure involved. (d)

Liability for tax

The following shall be liable for the tax imposed by subsection (a): (1)In the case of a plan other than a multiemployer plan, the employer maintaining the plan. (2)In the case of a multiemployer plan, the plan. (e)

Notice of fees and expenses to participants

(1)

In general

The requirements of this subsection are met if the plan administrator of an applicable defined contribution plan meets the requirements of paragraphs (2), (3), (4), and (5). (2)

Enrollment notice

(A)

In general

A plan administrator meets the requirements of this paragraph if each employee eligible to participate is, before the initial investment of any contribution made on behalf of such employee, given a written explanation of the plan’s fees and expenses, the key characteristics of the plan’s investment alternatives and an explanation of the manner for making elections among investment alternatives. (B)

Written explanation safe harbor

An explanation shall be treated as satisfying the written explanation requirement of subparagraph (A) if such explanation is in writing and provides a description, to the extent applicable, of the following: (i)The investment alternatives available to a participant under the plan and the method for a participant making investment elections. (ii)With respect to each investment alternative— (I)a general description of the alternative’s investment objectives, risk and return characteristics, historic rates of return, and the name of the alternative’s investment manager; (II)whether the alternative is actively or passively managed; and (III)whether the alternative is designed to be a comprehensive, stand-alone investment for retirement that provides varying degrees of long-term appreciation and capital preservation through a mix of equity and fixed income exposures. (iii)Annual asset-based fees for each investment alternative which reduce the investment alternative’s rate of return and, if applicable, a statement that the fees and expenses of one or more investment alternatives pay for services other than investment management. (iv)Annual fees and expenses for administration and recordkeeping which are deducted from (or reduce the income of) participants’ or beneficiaries’ accounts and which are not reflected in clause (iii), including a statement of the method used to allocate fees and expenses described in this clause to participants’ and beneficiaries’ accounts. (v)Fees and expenses in connection with purchases or sales of interests in investment alternatives. (vi)The existence of fees and expenses associated with participant-initiated transactions or services which may be deducted from participants’ or beneficiaries’ accounts other than fees and expenses described in clause (v) and the method that participants and beneficiaries may utilize to obtain additional information regarding such fees and expenses. (vii)Fees and expenses which may be deducted from participants’ or beneficiaries’ accounts and which are not reflected in clauses (iii) through (vi). (viii)A statement explaining that investment alternatives should be selected not only on the basis of the level of fees charged by each alternative but also on the basis of consideration of other key factors, including the alternative’s investment objective, level of risk, historic rates of return and the participant’s personal investment objective. (3)

Annual notice

(A)

In general

A plan administrator meets the requirements of this paragraph if each participant and beneficiary is, within 90 days following the end of each plan year, given a written explanation describing the investment alternatives that the participant or beneficiary had selected as of the last day of the plan year and the key characteristics of such investment alternatives. (B)

Written explanation safe harbor

An explanation shall be treated as satisfying the written explanation requirement of subparagraph (A) if such explanation is in writing and provides a description, to the extent applicable, of the following: (i)The different asset classes that the participant’s or beneficiary’s account is invested in and the percentage of the account allocated to each asset class. (ii)The total fees and expenses described in paragraph (2)(B)(vi) which were deducted from the participant’s or beneficiary’s account. (iii)Fees and expenses for administration and recordkeeping that were deducted from a participant’s or beneficiary’s account (to the extent not disclosed in clause (ii)); (iv)With respect to each investment alternative selected by the participant or beneficiary, the following: (I)The percentage of the participant’s or beneficiary’s account that is invested in such alternative. (II)Whether the investment alternative is actively or passively managed. (III)A general statement of the investment alternative’s risk and return characteristics. (IV)Annual asset-based fees for each investment alternative which reduced the investment alternative’s rate of return. (V)Historic rates of return for the investment alternative over the immediately preceding 1, 5, and 10-year periods. For this purpose, the periods may be calendar or plan years. (VI)Fees and expenses in connection with purchases or sales of interests in investment alternatives which have been or may be deducted from the participant’s or beneficiary’s account. (v)The statement described in paragraph (2)(B)(viii). (vi)A statement regarding how a participant or beneficiary may access the information required to be disclosed under paragraph (2). (4)

Service provider disclosure

The requirements of this paragraph are met if the plan administrator— (A)provides to participants and beneficiaries a copy of any statement received pursuant to section 4980I within 30 days after receipt of a written request for such statement, and (B)posts a copy of such statement on any Intranet or Internet website maintained for the purpose of providing participants and beneficiaries access to plan information. (5)

Notice of investment menu changes

The requirements of this paragraph are met if, in advance of any change in the investment alternatives available under the plan, the plan administrator shall provide the notice described in paragraph (2) to affected participants and beneficiaries with respect to the change in investment alternatives. (6)

Form of fee disclosure

Fees and expenses may be expressed as a dollar amount or as a percentage of assets (or a combination thereof). (7)

Alternative methods of compliance

(A)

In general

The Secretary shall allow any explanation under this section to be provided by using new technologies in the same manner as new technologies are allowed with respect to other explanations and notices required under section 401(a). (B)

Calendar year treated as plan year

The Secretary shall allow a plan administrator to treat the calendar year as the plan year for purposes of paragraph (3). (C)

Regulations

The Secretary shall issue regulations that permit plan administrators— (i)to provide a written notice of the availability of the information described under paragraphs (2), (3), (4), and (5) and to make such information available through new technologies, and (ii)in appropriate circumstances to provide the notice described in paragraph (2) after the initial contribution made on a participant’s behalf in the case of a plan that provides for automatic enrollment. (8)

Reasonable estimates permitted

A plan administrator shall not be treated as failing to satisfy the requirements of paragraphs (2), (3), and (5) solely because the plan administrator uses reasonable estimates of expenses and fees or reasonably allocates fees and expenses among different fee classifications. For purposes of paragraph (3), an estimate shall be considered as reasonable if such estimate is based on fees and expenses as of the last day of the plan year immediately preceding the date the notice is provided or any subsequent date preceding the date the notice is provided. (9)

Combination with other notices

A plan shall not be treated as failing to satisfy the requirements of paragraphs (2), (3), and (5) solely because the information is provided in combination with other plan communications or in more than one plan communication provided contemporaneously. (10)

Model statement

The Secretary shall prescribe model statements that may be used for purposes of satisfying the requirements of paragraphs (2), (3), and (5). (f)

Definitions

(1)

Applicable defined contribution plan

The term applicable defined contribution plan means the portion of any defined contribution plan which— (A)permits a participant or beneficiary to exercise control over assets in his or her account; and (B)is described in clauses (iii) through (vi) of section 402(c)(8)(B). (2)

Plan Administrator

The term plan administrator has the meaning given such term by section 414(g). (g)

Regulatory authority

The Secretary of Treasury shall issue regulations for purposes of this section, including regulations addressing the appropriate classification of fees and expenses and the disclosure of fees and expenses in investment alternatives that do not have explicit fees, including investment alternatives that provide a guaranteed rate of return.

(b)

Clerical amendment

The table of sections for chapter 43 of such Code is amended by adding at the end the following new item:

Sec. 4980H. Failure to provide notice to participants of plan fee information.

(c)

Effective date

The amendments made by this section shall apply to plan years beginning on or after January 1, 2009.

Disclosure between service providers and plans

(a)

In general

Chapter 43 of the Internal Revenue Code of 1986 (relating to qualified pension, etc. plans), as amended by section 2, is amended by adding at the end the following new section:

4980I.

Failure to provide notice of plan fee information to plan Administrators

(a)

Imposition of tax

There is hereby imposed a tax on any service provider that fails to meet the requirements of subsection (d) with respect to any applicable defined contribution plan. (b)

Amount of tax

(1)

In general

The amount of the tax imposed by subsection (a) on any failure with respect to any applicable defined contribution plan shall be $1,000 for each day in the noncompliance period. (2)

Noncompliance period

For purposes of paragraph (1), the noncompliance period with respect to a failure is the period beginning on the date the service provider failed to meet the requirements of subsection (d) and ending on the date such requirements to which the failure relates are met or the failure is otherwise corrected. (3)

Separate treatment of violations

For purposes of paragraph (1), each violation with respect to any applicable defined contribution plan shall be treated as a separate violation. (c)

Limitations on amount of tax

(1)

Aggregate limitation

The total amount of tax imposed by subsection (a) with respect to any service provider for any calendar year shall not exceed $1,000,000. (2)

Tax not to apply to failures corrected within 90 days

No tax shall be imposed by subsection (a) on any failure if— (A)the service provider subject to liability for the tax under subsection (a) exercised reasonable diligence to meet the requirements of subsection (d), and (B)such service provider provides the notice described in subsection (d) during the 90-day period beginning on the date such person knew, or exercising reasonable diligence would have known, that such failure existed. (3)

Waiver by secretary

In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive or otherwise inequitable relative to the failure involved. (d)

Notice of fees and expenses

(1)

In general

The requirements of this subsection are met if the service provider meets the requirements of paragraphs (2), (3), (4), and (5). (2)

Initial disclosure

A service provider meets the requirements of this paragraph if the service provider, prior to entering into (or materially modifying) a contract with a plan for the provision of plan services, provides the plan administrator with the following, in writing: (A)An estimate of— (i)the total fees and expenses expected to be paid by the plan under the contract, including itemization of the following components in the case of a contract that provides for both investment management and administration and recordkeeping; (ii)annual fees and expenses for investment management; and (iii)annual fees and expenses for administration and recordkeeping. (B)A detailed and itemized list of the services to be provided by the service provider under the contract. (C)A statement of whether the service provider reasonably expects to remit fees and expenses expected to be paid by the plan under the contract to one or more third-party service providers or intermediaries and, if so, a statement of the amount expected to be paid to each such third-party and the identity of each such third-party. (D)A statement of whether the service provider expects to receive compensation from a source other than the plan or plan sponsor in connection with the services provided to the plan and, if so, a statement of the amount expected to be received from each such source and the identity of each such source. (3)

Periodic disclosure

A service provider meets the requirements of this paragraph if the service provider, within 90 days following the end of each plan year, provides a written statement of the following: (A)Fees and expenses paid by the plan to the service provider under the arrangement during the plan year, including itemization of the components described in subparagraphs (A) and (C) of paragraph (2). (B)The amount of any compensation received by the service provider during the plan year from each source other than the plan or plan sponsor in connection with the services provided to the plan by the service provider and the identity of each such source. (4)

Form of fee disclosure

Fees and expenses may be expressed as a dollar amount or as a percentage of assets (or a combination thereof). (5)

Reasonable estimates permitted

A service provider shall not be treated as failing to satisfy the requirements of this subsection solely because— (A)the service provider that does not separately price services attributable to the components described in subparagraph (A) of paragraph (2) reasonably allocates fees and expenses among such components; (B)the service provider uses reasonable estimates of expenses, fees and compensation if the service provider discloses the basis for such estimates; or (C)the service provider discloses amounts under subparagraphs (C) and (D) of paragraph (2) only to the extent that such amounts are expected to exceed $5,000. (6)

Alternative method of compliance

A service provider shall not be treated as failing to satisfy the requirements of paragraph (2) if disclosure is made on the basis of calendar years, as the plan administrator specifies. (7)

Regulatory authority

The Secretary shall issue regulations to carry out this subsection, including regulations addressing the appropriate classification of fees and expenses under subparagraph (A) of paragraph (2). (e)

Definitions

For purposes of this section— (1)

Applicable defined contribution plan

The term applicable defined contribution plan means any defined contribution plan described in clauses (iii) through (vi) of section 402(c)(8)(B). (2)

Service provider

The term service provider means any person providing services to a plan under a contract. For this purpose, all corporations that provide services to a plan and are members of a controlled group of corporations within the meaning of section 1563(a) (determined without regard to subsections (a)(4) and (e)(3)(C) thereof) shall be treated as a single service provider.

(b)

Clerical amendment

The table of sections for chapter 43 of such Code, as so amended, is amended by adding at the end the following new item:

Sec. 4980I. Failure to provide notice of plan fee information to plan administrators.

(c)

Effective date

The amendments made by this section shall apply to arrangements entered into (or materially modified) on or after the 90th day after the date of the enactment of this Act.