Legal Alerts

DOL Finalizes Service Provider Fee Regulations


The Department of Labor has released their long-awaited final regulations for service provider fee disclosures under ERISA §408(b). Previously, the DOL had issued “interim” final regulations. The newly released final regulations confirm many positions in the interim final regulations but there are a number of significant changes. The overview below focuses on the changes and clarifications in the preamble, but does not address every exception or every issue.

  • Effective Date. The DOL delayed the effective date of the regulation from April 1, 2012 to July 1, 2012. Therefore, all covered service providers (CSPs) must make the initial disclosures to responsible plan fiduciaries (RPFs) of covered plans no later than that date.
  • Participant disclosure deadlines. Delaying the service provider regulation automatically delays the participant fee disclosure deadlines. The first annual plan, expense, and investment disclosures are now due August 30 (later for plan years beginning in August, September, or October). The first quarterly expense disclosure is due November 14.
  • Investment disclosures. Certain CSPs (“category 1B” fiduciaries of look-through entities and “category 2” platform record-keepers and brokers) must disclose investment information. Previously, those disclosures were limited to fees and expenses. Now, for designated investment alternatives (DIAs), the regulations require the CSP to include all information reasonably available to the CSP or within the control of the CSP if the plan administrator must disclose that information to participants under the participant disclosure rules (i.e., information in the comparative chart of investments). This includes, for example, the name and type of the investment, performance data, benchmarks, and information included on the required web site. Much of this information will be in the prospectus and can be supplied by delivering the prospectus. Expense disclosures of operating expenses of DIAs must be made as percentages (so the plan can pass those percentages on to participants).
  • Change deadlines. CSPs must inform RPFs of any change in the information they provide as soon as practical, generally within 60 days. However, under the final regulations, the CSP needs to disclose changes in investment information only annually.
  • Fiduciary request deadlines. RPFs and plan administrators can request additional information they need to complete participant disclosures or Form 5500. The interim regulations required a response within 30 days. The final regulations require a response “reasonably in advance” of the date the RPF says is the compliance deadline.
  • Prohibited Transaction Exemption. If a CSP fails to comply with the written request of a RPF within 90 days (or promptly thereafter) and the information relates to future services, the RPF is required to terminate the service arrangement “as expeditiously as possible” consistent with its duty of prudence.
  • Indirect compensation. When describing indirect compensation (payments other than from the plan, the employer or the CSP, its affiliates, and its subcontractors), the description must not only include who is paying it, but it must also describe the arrangement between the payer and the CSP (or its affiliates or subcontractors). Payments from a subcontractor to a CSP or an affiliate can be indirect compensation if it does not arise from the CSPs arrangement with the plan. The DOL interprets “indirect compensation” broadly. Broker dealers describing indirect compensation can do so broadly rather than identifying each payer (e.g., revenue sharing arrangement for each investment option).
  • Estimates and ranges. Reasonable, good faith estimates will suffice for compensation disclosure when another method is not readily available, but the CSP must explain the methodology and assumptions used to prepare the estimate. Disclosure of compensation in known ranges (e.g., ranges of basis points) can be reasonable, depending on the circumstances.
  • Roadmap or summary. The final regulations do not require a roadmap or summary disclosure be provided. However, the DOL has provided a model summary disclosure in case a plan would like to use it (and encourages CSPs to provide such a summary). Later in the year, the DOL intends to issue proposed regulations possibly requiring a summary or roadmap.
  • Cure notice. The interim final regulations allow a CSP to cure an error or omission in disclosures. The final regulations expand this cure provision to correction of change notices.
  • 403(b) plans. Certain pre-2009 403(b) accounts are exempt from Form 5500 reporting. The key element to the exemption is that the account was issued before 2009 and the employer did not have an obligation to make contributions to the account after 2008. These accounts are not considered part of a covered plan, and vendors servicing these accounts are not CSPs. Accordingly, no disclosures need to be made with respect to such accounts.

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