Despite a delay in the issuance of the final rule, the Department of Labor (DOL) expects service provider fee disclosure obligations to go into effect April 1. The final rule, which is expected to be very similar to the interim final rule issued in July, 2010, will likely require retirement plan service provider to disclose to plan fiduciaries certain information about the fees they collect from the plan. While certain industry professionals have been requesting a delay in the effective date, the DOL has not yet indicated that such a delay will be forthcoming.
Compliance with the interim final rule’s disclosure requirements will be required for contractual agreements between service providers and retirement plans in order to qualify for an exemption from the prohibited transaction rules under ERISA and the federal tax code. In other words, noncompliance with the interim final rule would mean the service provider is liable for taxes and penalties related to prohibited transactions if it is a party in interest with respect to the plan. Certain plan fiduciaries may also incur liability if a prohibited transaction occurs, but the interim final rule contains a special provision to help diligent plan fiduciaries avoid liability.
The interim final rule generally applies to service providers expected to receive $1,000 or more in compensation for providing any of the following services: (1) service as a fiduciary or a registered investment advisor; (2) certain recordkeeping or brokerage services; or (3) other services for indirect compensation (e.g., accounting, auditing, actuarial, appraisal, banking, consulting, custodial, investment advisory, etc.). Prior to entering into such agreements, or prior to any renewal or extension thereof, the service provider is required to provide plan fiduciaries with a description of:
- the services to be provided;
- all direct and indirect compensation to be received by the service provider and how it will be distributed among its affiliates;
- the manner in which compensation will be received; and
- certain investment disclosures.
In addition, during the term of the agreement and upon request by the plan fiduciary, the service provider must disclose all information about its compensation that is necessary for the plan to comply with its own disclosure obligations (e.g., disclosures required on the annual Form 5500).
Plan fiduciaries should work with their service providers to ensure that everything necessary is in place to ensure compliance with the interim final rule by April 1. In addition, plan fiduciaries should be on the lookout for issuance of the final rule in order to ensure timely compliance with any different requirements that the final rule might contain.
The interim final rule can be found here.