Fee Disclosure for Plan Fiduciaries
On February 3, DOL/EBSA published a final rule that will provide employers who sponsor pension and 401(k) plans with information about the administrative and investment costs associated with providing such plans.
This rule requires service providers to furnish information to enable fiduciaries to determine both the reasonableness of compensation paid to the service providers and any conflicts of interest that may impact a service provider’s performance under a service contract or arrangement. It requires disclosures of direct and indirect compensation certain service providers receive in connection with the services they provide.
The rule applies to those service providers that expect to receive $1,000 or more in compensation and:
- provide certain fiduciary or registered investment advisory services,
- make available plan investment options in connection with brokerage or recordkeeping services, or
- otherwise receive indirect compensation for providing certain services to the plan.
DOL/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.
DOL/EBSA also announced a 3-month extension in the effective date of this rule, meaning that service providers must be in compliance by July 1, 2012, for new and existing contracts or arrangements between ERISA-covered plans and service providers.
The 3-month extension of the effective date was provided to allow service providers sufficient time to prepare for compliance. Service providers not in compliance as of July 1 will be in violation of ERISA’s prohibited transaction rules and subject to penalties under the Internal Revenue Code. The final rule includes a class exemption from the prohibited transaction provisions of ERISA for plan fiduciaries that enter into service contracts without knowing that the covered service provider has failed to comply with its disclosure obligations. The class exemption requires that fiduciaries notify the Department of the disclosure failure. Fiduciaries can file the notice online.
The effective date of this final rule works in conjunction with the compliance date of DOL/EBSA’s participant-level disclosure regulation, which requires plan administrators to give workers who direct their retirement accounts in 401(k)-type plans easy-to-understand information in order to compare the plan investment options available to them. Plan administrators for calendar year plans now must make the initial annual disclosure of plan and investment 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.
See the fact sheet for additional information on this final rule. Plan sponsors and service providers with questions about the final rule can contact DOL/EBSA’s Office of Regulations and Interpretations at 202-693-8500.
Interim E-Disclosure Policy under Participant Fee Disclosure Regulation
On December 8, 2011, DOL/EBSA issued Technical Release 2011-03R, which revises DOL/EBSA’s interim policy regarding the use of electronic media to satisfy the disclosure requirements under DOL/EBSA’s participant-level disclosure regulation.
On September 13, 2011, DOL/EBSA issued Technical Release 2011-03. The interim policy states that DOL/EBSA will not take enforcement action based solely on a plan administrator’s use of electronic media to make the required disclosures under the participant fee disclosure regulation if the administrator complies with the conditions in the technical release.
DOL/EBSA received a number of inquiries regarding whether Technical Release 2011-03 is intended to apply to continuous access websites and whether, and under what circumstances, it allows investment-related information required under paragraph (d) of the participant fee disclosure regulation (i.e., the comparative chart) to be furnished as part of a pension benefit statement.
Technical Release 2011-03R revises and restates the earlier technical release. The revised technical release is identical to the earlier guidance except as necessary to clarify that:
- continuous access websites are permissible if the administrator complies with the conditions in the technical release; and
- investment-related information under paragraph (d) of the participant-level fee disclosure regulation may be furnished as part of, or along with, a pension benefit statement, either electronically under the conditions of the technical release or in paper form.
CFTC Final Business Conduct Standard Rules and ERISA
On January 17, 2012, DOL/EBSA sent a letter to the Commodity Futures Trading Commission following its review of this rule as part of the agencies ongoing coordination and DOL/EBSA’s regulatory and enforcement role with respect to the rules governing ERISA fiduciaries.