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Final Rule on 401(k) Fee Disclosure

The U.S. Department of Laborís (DOL) Employee Benefits Security Administration published in the Oct. 20, 2010 Federal Register a final rule intended to give participants in 401(k)-type defined contribution retirement plans greater information regarding the fees and expenses associated with their plans. The DOL also issued a fact sheet related
to the new rule.

The new final rule comes on the heels of a separate interim final rule, issued by DOL in July 2010, outlining the requirements that service providers must follow to disclose
fees to plan sponsors (see DOL Issues Interim Final Rule on Disclosing Retirement Plan Fees).

"Current law does not require that all workers be given the information they need to make informed investment decisions or, when information is given, that it is furnished
in a user-friendly format," according to a statement from the DOL. "This rule will ensure that all workers who direct their plan investments have access to the information
they need to make informed decisions regarding the investment of their retirement savings, including fee and expense information. Under the rule, workers will receive this
information in a format that enables them to meaningfully compare the investment options under their plans."

A July 2010 survey report by the Transamerica Center for Retirement Studies shows that most U.S. plan sponsors think their employees are aware of fees, even though
they aren't (only 26 percent of workers are aware of any fees). The survey showed that a majority of workers prefer some type of summary in regards to fee information (55
percent), and workers have a strong preference for electronic delivery of fee information.

"While the new regulations will help workers make more informed decisions about their retirement plans, it is paramount that workers take responsibility and educate themselves
about fees and retirement planning," commented Catherine Collinson, president of the TransAmerica Center.

"Upon our initial review, the final regulations represent a reasoned approach to consistent delivery of required retirement plan fee disclosure," added James Klein, president
of the American Benefits Council, representing employers. "We applaud the agencyís efforts to provide flexibility for plan sponsors and administrators as they comply with the new
disclosure rules, as well as the opportunity to explore options for enhanced electronic disclosure," Klein said.

Required Disclosures

The DOL's final rule requires plan fiduciaries to:
  • Give workers quarterly statements of plan fees and expenses deducted from their accounts.
  • Give workers core information about investments available under their plan including the cost of these investments.
  • Use standard methodologies when calculating and disclosing expense and return information to achieve uniformity across the spectrum of investments that exist in plans.
  • Present the information in a format that makes it easier for workers to comparison shop among the planís investment options.
  • Give workers access to supplemental investment information in addition to the basic information required under the final rule.

Effective Date

The final rule, published in the Federal Register on Oct. 20, 2010, will become applicable to covered individual account plans for plan years beginning on or after Nov. 1, 2011. For calendar year plans, compliance will be required on Jan. 1, 2012.

Model Comparative Charts

The final rule provides that investment fund returns and fee-disclosure information must be furnished in charts designed to compare each investment option available under the plan, and includes model comparative charts, such as the following:

Model Comparative Charts

The final rule provides that investment fund returns and fee-disclosure information must be furnished in charts designed to compare each investment option available under the plan, and includes model comparative charts, such as the following:

Fees and Expenses
Name / Type of Option Total Annual Operating Expenses
As a % Per $1000
Shareholder-Type Fees
Equity Funds
Index Fund/ S&P 500 0.18%     $1.80 $20 annual service charge subtracted from investments held in this option if valued at less than $10,000.
Fund/ Large Cap 2.45%     $24.50 2.25% deferred sales charge subtracted from amounts withdrawn within 12 months of purchase.
Fund/ International Stock 0.79%     $7.90 5.75% sales charge subtracted from amounts invested.
Fund/ Mid Cap ETF 0.20%     $2.00 4.25% sales charge subtracted from amounts withdrawn.
Bond Funds
Fund/ Bond Index 0.50%     $5.00 N/A
Other
Fund/ Guaranteed Insurance Contracts (GICs) 0.46%     $4.60 10% charge subtracted from amounts withdrawn within 18 months of initial investment.
Fund/ Stable Value 0.65%     $6.50 Amounts withdrawn may not be transferred to a competing option for 90 days after withdrawal.
Fund/ 2020 Target-Date 1.50%     $15.00 Excessive trading restricts additional purchases (other than contributions and loan repayments) for 85 days.
Fixed Return Investments
LIBOR Plus/ Fixed-Type Investment Account N/A 5% contingent deferred sales charge subtracted from amounts withdrawn; charge reduced by 1% on 12-month anniversary of each investment.
Financial Service Co. / Fixed Account Investment N/A 90 days of interest subtracted from amounts withdrawn before maturity.

The rule provides plan administrators protection from liability for the completeness and accuracy of information provided to participants if the plan administrator reasonably and in good faith relies on information provided by a service provider.


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