Special reporting and disclosure rules for individual account plans

(a)

Additional reporting and disclosure rules

Part 1 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 is amended— (1)by redesignating section 111 (29 U.S.C. 1031) as section 112; and (2)by inserting after section 110 (29 U.S.C. 1030) the following new section:

111.

Special reporting and disclosure rules for individual account plans

(a)

Disclosure to employers sponsoring individual account plans regarding services necessary for establishment or operation of plans

(1)

Service disclosure statement

The plan administrator of an individual account plan (or any other plan official with contracting authority under the terms of the plan) and any other person may not enter into a contract for services to the plan (including, for purposes of this section, the offering of any investment option to the plan) unless such plan administrator or other official has received, not less than 10 business days in advance of entering into the contract, a single written statement from such person which— (A)describes such services for the plan that will be provided in connection with the contract, and (B)provides the expected total annual charges for such services for the plan that will be provided in connection with the contract, including a reasonable allocation of such total annual charges among all relevant component charges specified in paragraph (2) (regardless of how the charges are actually assessed).

The description of the services and the charges for the services shall be displayed prominently in the written statement and shall be presented in a format which is understandable to the typical plan administrator.

(2)

Minimum allocation requirements

The allocation required under paragraph (1)(B) in connection with the services provided under each contract shall specify component charges (to the extent such services for the plan are provided under the contract) as follows: (A)charges for administration and recordkeeping, (B)transaction-based charges, (C)charges for investment management, and (D)all such charges not described in subparagraph (A), (B), or (C) as may be specified by the Secretary. (3)

Presentation of charges

The total charges described in paragraph (2)(A) and the total charges described in paragraph (2)(C) shall each be presented in the written statement as an aggregate total dollar amount, and, in addition, each of such total charges may also be presented as a percentage of assets. The charges described in paragraph (2)(B) shall be itemized separately as dollar amounts or as percentages of the applicable base amounts. (4)

Estimations

For purposes of providing the statement required under this subsection in connection with any service, the service provider may provide a reasonable and representative estimate of the charges required to be disclosed under paragraph (1)(B) and shall indicate any such estimate as being such an estimate. Any such estimate shall be based on the previous year’s experience of the plan or, in the case of a new plan, the previous year’s experience of a comparable plan with participants and beneficiaries of similar demographics. (5)

Reliance

To the extent any of the information required to be disclosed by a service provider under this subsection is given to the service provider by an unaffiliated person which is regulated by the Federal Government or a State, the service provider may rely on the completeness and accuracy of such information unless the service provider— (A)knows that the information is inaccurate or incomplete, (B)has reason to know that the information is inaccurate or incomplete, or (C)has notice of facts or information that would prompt a reasonable service provider to inquire into the accuracy or completeness of the information. (6)

Disclosure of financial relationships

(A)

In general

The statement required under paragraph (1) shall include a written disclosure of— (i)any payment provided (or the amount representing the value of any services provided) to the service provider (or any affiliate thereof) pursuant to, or in connection with, the contract described in paragraph (1) and the amount and type of any payment made or credit received for such services (irrespective of whether the service provider (or affiliate thereof) or other person providing such services is affiliated or unaffiliated with the plan, the plan sponsor, the plan administrator, or any other plan official), (ii)any personal, business, or financial relationship with the plan sponsor, the plan, or the service provider (or any affiliate of the service provider) or any totality of such relationships which is material, if such relationship results in the service provider (or any affiliate thereof) deriving any material benefit, and (iii)such other similar arrangements benefitting the service provider (or any affiliate thereof) as may be specified by the Secretary. (B)

Inclusions

(i)

In general

Disclosures described under subparagraph (A)(ii) shall include the extent to which the service provider (or any affiliate thereof) may benefit from the offering of its own proprietary investment products or those of third parties. (ii)

Applicable prohibited transaction exemption

Disclosures under this paragraph may include a description of any applicable prohibited transaction exemption under section 408 related to the services described in the statement required under paragraph (1). (7)

Disclosure of impact of share classes

The statement required under paragraph (1) shall, to the extent applicable, disclose that the share prices of certain mutual fund investments that are available to the plan may be different from the share prices outside of the plan due to the existence of different share classes and provide the basis for these differences. (8)

Disclosure of certain arrangements in connection with free or discounted services or reimbursements by service providers

In any case in which services are provided to the plan, or to the plan sponsor in connection with the plan, by any service provider without explicit charge or for charges set at a discounted rate or subject to rebate, the statement required under paragraph (1) shall specify the manner in which, the extent to which, and the amount by which consideration is otherwise obtained by the service provider (or any affiliate thereof), the plan, or the plan sponsor for such services, directly or indirectly, by means of any charges against the account of the participant or beneficiary. (9)

Model statement

The Secretary shall prescribe a model statement that may be used for purposes of satisfying the requirements of this subsection. (10)

Updating

Each contract described in paragraph (1) shall require that the service provider must provide to the plan administrator an updated written statement described in paragraph (1) describing any material change in the information included in the statement provided pursuant to paragraph (1) as soon as is reasonable after the occurrence of the change is known. The contract shall provide that such an updated written statement, or, in the case of a plan year in which no material change in the information included in the statement provided pursuant to paragraph (1) has occurred, a written statement setting forth such fact, must be provided not less often than annually. (11)

Limitations

(A)

Dollar limitation

(i)

In general

The requirements of this subsection shall apply with respect to any contract for services provided during any plan year only if the total charged for such services under such contract (regardless of whether, in connection with such services under such contract, such charges are received by the service provider (or any affiliate thereof) directly or are received by the service provider (or any affiliate thereof) indirectly from other affiliated or unaffiliated parties) equals or exceeds $5,000. (ii)

Cost of living adjustment

(I)

In general

In the case of any plan year beginning during a calendar year beginning after 2010, the dollar amount in clause (i) shall be increased by an amount equal to such dollar amount, multiplied by the percentage (if any) by which the average of the Consumer Price Index for all urban consumers (United States city average) for the 12-month period ending with September of the preceding calendar year exceeds such average for the 12-month period ending with September 2009. (II)

Rounding

If any dollar amount after being increased under subclause (I) is not a multiple of $500, such dollar amount shall be rounded to the next lower multiple of $500. (iii)

Adjustments by the Secretary

The Secretary may by regulation adjust the dollar amount specified in this subparagraph to a lesser amount for small plans and to a greater amount for other plans and provide for appropriate annual adjustments in such adjusted amounts at the same rate as would apply under clause (ii). (B)

General applicability of requirements with respect to services

Nothing in this subsection shall be construed to require any service provider to provide any service with respect to any particular plan sponsor. (12)

Coordination with fiduciary rules

Nothing in this subsection affects the obligations of plan sponsors and fiduciaries under part 4 of this subtitle. (b)

Disclosures to participants and beneficiaries

(1)

Advance notice of available investment options

The plan administrator of an individual account plan which permits a participant or beneficiary to exercise control over the assets in the account of the participant or beneficiary shall provide to the participant or beneficiary with respect to each plan year notice of the investment options available for election under the plan at least 10 business days prior to— (A)the earliest date provided for under the plan for the participant’s initial investment of any contribution made on behalf of such participant, and (B)the effective date of any material change in investment options.

In the case of a plan that provides for immediate eligibility or that contains an automatic contribution arrangement (as defined in subparagraphs (A) and (B) of section 514(e)(2)), the notice required under subparagraph (A) may be provided within any reasonable period prior to such initial investment. With respect to the notice required under this paragraph, the Secretary shall prescribe regulations creating exceptions to the 10-day notice requirement in circumstances similar to those described in section 101(i)(2)(C), and such notice may be combined with any similar notice that may be required under section 404(c)(5) or under this section.

(2)

Information included in notice

The notice required under paragraph (1) shall— (A)include a prominent statement, in language presented in a manner which is easily understandable by the typical participant, indicating which components of the charges (both direct and indirect) for each investment option are payable by the participant or beneficiary and how such components are to be paid, (B)set forth, with respect to each available investment option— (i)the name of the option, (ii)the investment objectives and principal investment strategies of the option, (iii)the risk level associated with the option, (iv)whether the option is diversified among various classes of assets so as to minimize the risk of large losses or should be combined with other options so as to obtain such diversification, (v)whether the investment option is actively managed or passively managed in relation to an index and the difference between active management and passive management, (vi)where, and the manner in which, additional plan-specific, option-specific, and generally available investment information regarding the option may be obtained, and (vii)a statement explaining that investment options should not be evaluated solely on the basis of the charges for each option but should also be based on careful consideration of other key factors, including the risk level of the option, the investment objectives of the option, the principal investment strategies of the option, and historical returns derived by the option, and (C)include a plan fee comparison chart, relating to the charges described in paragraph (3) in connection with all investment options available under the plan, as provided in paragraph (3). (3)

Plan fee comparison chart

(A)

In general

(i)

In general

The notice provided under this subsection shall include a plan fee comparison chart consisting of a comparison of actual service and investment charges (including, for purposes of this clause, charges for the offering of an investment option) that will or could be assessed against the account of the participant or beneficiary with respect to the plan year. The plan fee comparison chart shall be presented in a manner which is easily understood by the typical participant and include such information as the Secretary determines necessary to permit participants and beneficiaries to assess the services for which charges will or could be assessed against the account. (ii)

Form

For purposes of this paragraph, the potential service charges shall be provided in the form of a dollar amount and may also be provided, in addition, as a percentage of assets. The form of the potential service charges shall be presented in a manner which is easily understandable by the typical participant, including examples that demonstrate how the charges will be assessed against the account of the participant or beneficiary. (B)

Categorization of charges

The plan fee comparison chart shall provide information in relation to 4 categories of charges that will or could be assessed against the account of the participant or beneficiary, as follows: (i)

Asset-based charges specific to investment

Charges that vary depending on the investment options selected by the participant or beneficiary, including expense ratios and investment-specific asset-based charges. The information relating to such charges shall include a statement noting any charges for 1 or more investment options which pay for services other than investment management. (ii)

Asset-based charges not specific to investment

Charges that are assessed as a percentage of the total assets in the account of the participant or beneficiary, regardless of the investment option selected. (iii)

Administrative and transaction-based charges

Administration and transaction-based charges, including fees charged to participants to cover plan administration, compliance, and recordkeeping costs, plan loan origination fees, possible redemption fees, and possible surrender charges, that are not assessed as a percentage of the total assets in the account and are either automatically deducted each year or result from certain transactions engaged in by the participant or beneficiary. (iv)

Other charges

Any other charges which may be deducted from participants' or beneficiaries' accounts and which are not described in clauses (i), (ii), and (iii). (C)

Description of purpose for charges

The notice shall indicate the extent to which each charge is for investment management, transactions, plan administration and recordkeeping, or other identified services. (D)

Fees and historical returns

In connection with each investment option listed in the plan fee comparison chart, the chart shall include the amounts of the fees assessed in connection with such option and a history of the returns derived net of fees and expenses. Any such history shall be for the previous year, 5 years, and 10 years (or since inception if later). (4)

Model notice

The Secretary shall prescribe a model notice that may be used for purposes of satisfying the requirements of this subsection, including a model plan fee comparison chart. (5)

Estimations

For purposes of providing the notice required under this subsection, the plan administrator may provide a reasonable and representative estimate for any charges or percentages disclosed under paragraph (2) or (3) and shall indicate any such estimate as being such an estimate. Any such estimate shall be based on the previous year’s experience or, in the case of a new plan, the previous year’s experience of a comparable plan with participants and beneficiaries of similar demographics. (c)

Electronic media

Any disclosure required under this section may be provided through an electronic medium under rules prescribed by the Secretary. Such rules shall be similar to those applicable under the Internal Revenue Code of 1986 with respect to notices to participants in pension plans. The Secretary shall have the authority to modify such rules as appropriate to take into account new developments, including new forms of electronic media. The rules prescribed by the Secretary pursuant to this subsection shall provide for a method for the typical participant or beneficiary to obtain without undue burden any such disclosure in writing on paper in lieu of receipt through an electronic medium. (d)

Regulations regarding certain products

The Secretary shall prescribe regulations identifying (and establishing separate rules, if necessary, to identify) any investment options that provide a guaranteed rate of return and that do not identify specific fees. (e)

Definitions

For purposes of this section— (1)

Charge

The term charge means, in connection with any service provided to a plan or any financial product provided to the plan in which plan assets are to be invested, any fee, credit, or other compensation charged or paid for such service or product, including money and any other thing of monetary value to be received by the provider of the service or product, or its affiliate, in connection with the service or product. (2)

Service

The term service means, in connection with a plan, a service provided directly or indirectly to, or with respect to, the plan or a service provided directly or indirectly in connection with a financial product in which plan assets are to be invested. (3)

Contract

The term contract means, in connection with any 2 or more parties, any contract or arrangement entered into between or among such parties, and any extension or renewal thereof. (4)

Service provider

The terms service provider and provider mean, in connection with a service, a person directly or indirectly providing such service. (5)

Regulations

The Secretary shall provide by regulation definitions of other terms used in this section.

(b)

Quarterly benefit statements

Section 105 of such Act (29 U.S.C. 1025) is amended— (1)in subsection (a)(2)— (A)by redesignating subparagraph (C) as subparagraph (H); (B)in subparagraph (B)(ii)— (i)in subclause (II), by striking diversified, and and inserting diversified,; (ii)in subclause (III), by striking the period and inserting , and; and (iii)by adding after subclause (III) the following new subclause:

(IV)with respect to the portion of a participant’s account for which the participant has the right to direct the investment of assets, the information described in subparagraph (C).

; and

(C)by inserting after subparagraph (B) the following new subparagraphs:

(C)

Periodic account information for participants and beneficiaries

For purposes of subparagraph (B)(ii)(IV), the information described in this subparagraph consists of the following, indicating the portion of each amount described in clauses (i) though (vii) attributable to each investment option elected in connection with the participant’s account: (i)the starting balance of the participant’s account, (ii)contributions made during the quarter, itemizing separately totals for employer and totals for employee contributions, (iii)investment earnings or losses on the account balance during the quarter (if any), (iv)actual or estimated charges (within the meaning of section 111(e)(1)) which reduce the account during the quarter, expressed in dollars or, if estimated, such estimated dollar charges as derived from an expense ratio (which may be expressed as a specific date estimate based on the previous year’s expense ratio), (v)any other charges to the participant or beneficiary in connection with the participant’s account, (vi)the ending balance of the account, (vii)the participant’s asset allocation to each investment option, including the net return, expressed as an amount and as a percentage, and (viii)how to obtain the most recently updated version of the plan fee comparison chart prepared for purposes of section 111(b)(3). (D)

Other information

The plan administrator may include in the quarterly pension benefit statement information relating to the historical return and risk of each investment option and the estimated amount that the participant needs to contribute each month or year so as to retire at retirement age (as defined in section 216(l) of the Social Security Act). (E)

Estimations

For purposes of making the disclosure of actual charges or percentages as required under this paragraph, the plan administrator may provide a reasonable and representative estimate of such charges or percentages and shall indicate any such estimate as being such an estimate. Any such estimate shall be based on the previous year’s experience. (F)

Model Statement

The Secretary shall prescribe a model pension benefit statement that may be used for purposes of satisfying the requirements of this subparagraph and subparagraph (B)(ii). (G)

Annual compliance for small plans and with respect to certain information

In the case of a plan providing for investment as described in paragraph (1)(A)(i)— (i)if the plan has 100 or fewer participants and beneficiaries, the plan may provide the pension benefit statement under paragraph (1) on an annual rather than a quarterly basis, and (ii)the plan may comply with the requirements of subparagraph (B)(ii)(IV) on an annual rather than a quarterly basis.

; and

(2)by adding at the end the following new subsections:

(d)

Assistance to small employers

The Secretary shall make available to employers with 100 or fewer employees— (1)educational and compliance materials designed to assist such employers in selecting and monitoring service providers for individual account plans which permit a participant or beneficiary to exercise control over the assets in the account of the participant or beneficiary, investment options under such plans, and charges relating to such options, and (2)services designed to assist such employers in finding and understanding affordable investment options for such plans and in comparing the investment performance of, and charges for, such options on an ongoing basis against appropriate benchmarks or other appropriate measures. (e)

Assistance to plan sponsors and plan participants and beneficiaries

The Secretary shall provide assistance to plan sponsors of individual account plans and participants and beneficiaries under such plans with any questions or problems regarding compliance with the requirements of this section. (f)

Electronic media

(c)

Enforcement

Section 502(c)(7) of such Act (29 U.S.C. 1132(c)(7)) is amended— (1)by inserting (A) after (7); and (2)by adding at the end the following new subparagraph:

(B)(i)In the case of any violation of section 111(a) by a service provider (as defined in section 111(e)(4)) with respect to one or more participants and beneficiaries, the service provider shall be assessed by the Secretary a civil penalty of up to $1,000 a day with respect to each such participant or beneficiary from the date of the initial violation until the date on which such violation is corrected, subject to a total maximum penalty of 10 percent of the amount involved. (ii)Any plan administrator or other person who is a service provider with respect to the plan who fails or refuses to provide a statement to participants and beneficiaries in accordance with section 105(a)(2)(B)(ii) or 111(b) shall be assessed by the Secretary a civil penalty of up to $100 a day from the date of the failure or refusal to the date on which such statement or notice is so provided. (iii)For purposes of this subparagraph, each violation with respect to any single participant, beneficiary, or plan administrator shall be treated as a separate violation. The Secretary may compromise, modify, or remit any civil penalty imposed on any person under this subparagraph if the Secretary determines— (I)that the person acted reasonably and in good faith or that severe financial hardship would otherwise occur to the plan sponsor, and (II)that such compromise, modification, or remission is in the interests of participants and beneficiaries.

(d)

Conforming amendment

The table of contents in section 1 of such Act, as amended by section 2, is amended by striking the item relating to section 111 and inserting the following new items:

Sec. 111. Special reporting and disclosure rules for individual account plans.

Sec. 112. Repeal and effective date.

(e)

Effective date

The amendments made by this section shall apply to contracts for services entered into in plan years beginning after one year after the date of the enactment of this Act.