New DOL regulations effective 2012
By Kevin A. O'Neil, ChFC, AIF
Piedmont Indepenent Fiduciaries
ERISA 408(b)(2) requires plan sponsors to disclose compensation and services from each of their retirement plan providers. Over the years, the DOL has found so many plan sponsors in breach of this particular regulation that they decided to mandate a regular filing to the government (and your employees) beginning January 1, 2012.
As the sponsor of your company’s retirement plan, ERISA deems certain employees (business owners and usually the CEO, CFO, HR, etc.) as fiduciaries of the plan and holds them accountable to approximately 120 federal regulations. Failure to meet each of these places them in breach of fiduciary duty and exposes them personally and the company to both financial and legal risk.
One of these regulations, ERISA 408(b)(2), requires plan sponsors to disclose compensation and services from each of their retirement plan providers (administrator, record keeper, custodian, investment managers, consultant, corporate trustee). Over the years, the Department of Labor has found so many plan sponsors in breach of this particular regulation that they decided to mandate a regular filing to the government (and your employees) beginning January 1, 2012.
New DOL regulations effective 2012
Final rules for fee disclosure under ERISA 408(b)(2);
Effective January 1, 2012, plan sponsors/fiduciaries will be required to evaluate service contracts and arrangements between a plan and its service providers in light of a final regulation promulgated by the Department of Labor; Section 408(b)(2) of the Employee Retirement Income Security Act of 1974. It requires that contracts and arrangements with service providers must be reasonable. In order for a contract or arrangement to be considered reasonable, it must meet the following requirements:
1. Disclosures must be in writing.
While a formal written contract is not required, it is strongly suggested and the disclosures described below must be made in writing reasonably in advance of entering into an arrangement.
2. Advance disclosure to fiduciary.
All service providers that expect to receive $1,000+ in compensation are required to provide advance disclosures to the fiduciary with the authority to cause the plan to enter into, extend or renew the contract. The disclosures should include:
a. All services to be provided
b. All compensation, direct or indirect, to be received by the service provider and its affiliates and other interests.
With respect to indirect compensation, the payer of the compensation and the services provided in exchange for that compensation must be disclosed.
c. Manor of receipt.
The service provider must disclose the manner of receipt of compensation; i.e., whether the plan will be billed or the compensation will be deducted from the plan’s accounts or investments.
d. Unbundling of multiple services.
A service provider that provides multiple services must separately disclose the cost of the individual items.
e. Fiduciary status.
The service provider must disclose whether it or an affiliate will provide any services to the plan as a fiduciary as defined under either ERISA or the Investment Advisers Act of 1940.
f. Compensation for termination of contract or arrangement.
The service provider must disclose any compensation, direct or indirect, that it, an affiliate, or a subcontractor reasonably expects to receive in connection with termination of service. In addition, the disclosure must include a description of how any prepaid amount will be calculated and refunded upon termination of services.
The disclosure must state that the service provider will (i) disclose any change to the information already disclosed within 60 days from the date the service provider becomes aware of the change; and (ii) provide upon request any information necessary to enable the client to file the Form 5500.
1. Review and analyze the documentation.
2. Review credentials and references of service providers.
3. Benchmark all services and compensation.
4. Request proposals.
5. Analyze conflicts of interest.
6. Select service providers based on scope and quality of service and cost.
7. Monitor service providers.
8. Codify all policies and procedures.
Pension Resource Institute, LLC, Jason C. Roberts, Esq., AIFA®
CPI Qualified Plan Consultants, Inc.
For assistance in interpreting and meeting these requirements please message the author.