When are participant change notices required under ERISA 404a-5?

What’s the ERISA 404a-5 regulation?

Sponsors of participant-directed defined contribution (DC) plans must disclose to all of a plan’s “eligible employees” certain information about the plan and its investment options. The rules for these disclosures are in a U.S. Department of Labor (DOL) regulation under Section 2550.404a-5, which is why they’re often referred to as the 404a-5 regulation or 404a-5 disclosures. For the purposes of this article, “eligible employees” are participants and beneficiaries who have a right to direct the investment of their retirement plan account.

The ERISA 404a-5 regulation outlines the timing and frequency with which the plan sponsor must provide eligible employees with notices:

• Before eligible employees can direct their investments
• At least annually
• Within 30 to 90 days of a change to certain plan- or investment-related information—unless circumstances beyond the control of the plan administrator prevent the timing of such notice, in which case it should be provided as soon as reasonably practicable

The regulation states that the change notice is only required to address the plan-related information that’s changed—it doesn’t need to include a full update of the plan’s 404a-5 disclosures. All notices, including change notices, must be made available to eligible employees either in writing by mail or electronically—including use of the DOL’s new safe harbor for eDelivery of certain ERISA-required disclosures.

It can be confusing for plan sponsors to know when a change notification is required. We have some guidelines to follow to help you determine the need for a change notice—but it’s also critical to check with a trusted ERISA counsel, plan consultant, or other plan professional for help.

Participant notices required upon changes to plan-related information

The following plan-related events would trigger the need for disclosure by the plan administrator. 

General plan-related information

Changes to the plan’s general plan-related information require a notice, including the following events:

• A designated investment alternative (DIA) (commonly referred to as “fund”) is added to or removed from the plan’s investment lineup.
• A fund in the plan merges with another fund and its name is changed to the acquiring fund. Conversely, if a fund in the plan merges with or acquires another fund and does not undergo a name change, a change notice is not required, as there’s no change to the investment lineup or identification of the fund.
• There’s a change to voting rights for a fund in the investment lineup, and the voting rights are passed along to participants with the fund in their retirement account.
• There’s a change in any designated investment manager (DIM) under the plan, including the hiring of a DIM. Note: Not all plans have a DIM.
• Investment restrictions are changed, such as the short-term trading policy or direct transfer rules. 
• There’s a change to how and when participants can give investment instructions.
• There’s an addition of or change to a brokerage account option under the plan.

Administrative expenses (charged at the plan level)

If the plan pays expenses by charging participant accounts in any manner, any new fee or change to the charge or allocation requires a change notice. Examples include the addition of fees relating to or changes to:

• The recordkeeping fee
• The plan administration fees paid to the plan’s third-party administrator (TPA) 
• The fees/commissions paid to the plan’s financial professional 
• The fees for investment advice, legal, accounting, or trustee services
• The personal brokerage account option or its provider
• The fees paid for DIM services
• The fees paid for other administrative services
• The method or formula for allocating expenses across participant accounts, including the introduction or elimination of such a practice 

Individual expenses 

When a plan adds, discontinues, or changes individual expenses that are deducted directly from participant accounts, a notice is generally required. This includes, but is not limited to, fees for: 

• Loans
• Qualified domestic relations orders (QDROs)

These changes don’t require a participant notice

Participants do not need to be notified when the plan’s financial professional or TPA changes, unless there’s a resulting change in the fees charged to participant accounts.

Changes to investment-related information that don’t rise to the plan level aren’t required to trigger a change notice, such as:

• Changes to a fund’s performance data 
• Changes to a fund’s benchmarking information 
• Changes to a fund’s investment fees and expenses
• Changes to a fund’s type or category (e.g., money market fund, balanced fund, large-cap stock fund, employer stock fund, or employer securities), unless such information is included under the “plan-related information” section of the 404a-5 annual disclosure 

These investment-related changes, however, should be updated on the plan’s website as soon as administratively practicable, as well as be included in the next 404a-5 annual disclosure. 

Know your ERISA duties

As a plan sponsor, you’re required to provide a change notice to reflect changes to plan-related information, including administrative expenses and individual expenses, as described in this article. Generally, other changes (mainly, changes to investment-related information) just need to be captured on the plan’s website as soon as administratively practicable and updated in the annual 404a-5 disclosure. 

Due to the nuances of the different plan events that trigger a change notice and to avoid a breach of fiduciary duty, it’s wise to confer with your ERISA counsel, plan consultant, or other retirement plan professional to ensure you’re meeting your 404a-5 change notice and overall disclosure obligations.