Co-authored Christopher K. Buch.
On February 2, the Employee Benefits Security Administration (EBSA) of the United States Department of Labor (DOL) issued its final rule under the Employee Retirement Income Security Act of 1974, as amended (ERISA) Section 408(b)(2) relating to service provider disclosures.
The final rule establishes specific disclosure obligations for plan services providers to ensure that the responsible plan fiduciaries are provided with the information they need to make decisions when selecting and monitoring the service providers for their plans. The final rule applies to ERISA-covered defined benefit and defined contribution pension plans. It does not apply to individual retirement accounts, simplified employee pension plans, SIMPLE retirement accounts, certain annuity contracts and custodial accounts described in Internal Revenue Code Section 403(b), or employee welfare benefit plans.
Under the final rule, covered service providers (CSPs) who expect at least $1,000 in compensation to be received from services to a covered plan are required to provide responsible fiduciaries of the plan with the information they need to assess the reasonableness of direct and indirect compensation received by the CSP, its affiliates, and/or subcontractors; identify potential conflicts of interest; and satisfy reporting and disclosure requirements under title I of ERISA. Failure to provide such information could cause the plan’s continued retention of the CSP to be a prohibited transaction under ERISA. CSPs include:
- ERISA fiduciary service providers to a covered plan or to a “plan asset” vehicle in which such plan invests;
- Investment advisers (State or Federally registered);
- Record-keepers or brokers who make designated investment alternatives available to a covered plan; and
- Providers of additional services such as consulting, investment advisory, securities brokerage, or valuation services to a covered plan who also receive “indirect compensation.”
The final rule includes a number of changes from the interim final rule, issued in July 2010. Among these changes are:
- Expansion of information that must be disclosed concerning a CSP’s receipt of indirect income;
- Conformance of investment-related disclosures for covered plan’s designated investment alternatives to the requirements of the participant-level disclosure regulations; and
- A separate provision for the disclosure of changes to investment-related information, which must be updated annually.
The final regulation is effective for both new and existing contracts and arrangements between covered plans and CSPs as of July 1, 2012. This is an extension from the previous April 1, 2012 deadline. As a result, the deadline for plans to provide participant-level disclosures was also extended to August 30, 2012 for calendar year plans.
The link to the final regulation can be found here.