New DOL Service Provider Fee Disclosures Effective Date Extended to July 1, 2012
New DOL Service Provider Fee Disclosures Effective Date Extended to July 1, 2012
The U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) issued final regulations under ERISA Section 408(b) (2) requiring covered service providers of pension benefit plans to disclose comprehensive information about their fees and potential conflicts of interest to ERISA-covered plan fiduciaries. The new rules, Reasonable Contract or Arrangement Under Section 408(b)(2) - Fee Disclosure, become effective with respect to both existing and new contracts or arrangements between covered plans and covered service providers as of July 1, 2012. The new rules do not apply to welfare benefit plans.
Covered service providers include the following:
• Persons who provide services as an ERISA fiduciary or under the Investment Advisors Act of 1940;
• Persons who provide certain recordkeeping or brokerage services and make available investment options to be offered by the plan; and
• Persons who receive or may receive indirect compensation for the following services: accounting, auditing, actuarial, appraisal, banking, consulting, custodial, insurance, investment advisory (plan or participants), legal, recordkeeping, brokerage, TPA, or valuation.
Covered service providers not in compliance as of July 1, 2012 will be in violation of ERISA’s prohibited transaction rules and subject to penalties under the Internal Revenue Code.
Direct compensation is compensation received directly from the covered plan. Indirect compensation generally is compensation received from any source other than the plan sponsor, the covered service provider, an affiliate, or subcontractor. Therefore if the plan accounting, audit, recordkeeping or other services are paid directly by the plan, plan sponsor, the covered service provider, an affiliate, or subcontractor, then the disclosure requirements of 408(b)(2) would not apply to the service provider.
View the final 408(b)(2) regulations on EBSA’s website. The final rule reflects a number of technical and other changes in response to comments received on the interim final rule. For a more detailed discussion of these and other changes, see EBSA’s release entitled Changes to Final Fee Disclosure Rule.
EBSA also announced that in the near future it intends to publish for public comment a separate proposal that would require service providers, in addition to providing the required fee and investment expense information, to furnish a guide or similar tool to assist plan fiduciaries in identifying and locating the potentially complex information that must be disclosed and which may be located in multiple documents.
The effective date of the final rule works in conjunction with the compliance date of EBSA’s participant-level disclosure regulation at 29 CFR § 2550.404a-5 which requires plan administrators to provide participants in participant-directed individual account plans information about plan and investment costs. Plan administrators for calendar year plans now must make the initial annual disclosure of “plan-level” and “investment-level” information (including associated fees and expenses) to participants no later than August 30, 2012, and the first quarterly statement (for fees incurred July through September) must be furnished no later than November 14, 2012. View the Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans final regulations on EBSA’s website.