Required Fee Disclosures to Plan Sponsors - 408(b)(2) Interim Final Regulations

DOL issued interim final regulations on ERISA section 408(b)(2) during 2010 relating to the required fee disclosures to retirement plan sponsors. These regulations are another step towards making plan service contracts and fee arrangements more transparent to those charged with governance of benefit plans so that they can appropriately discharge their duties as plan fiduciaries.

By way of background, in recent years there have been many changes to the types of services provided to plans, and also in the ways service providers are compensated. Although this may have resulted in some efficiencies and potential fee reductions, it has also become increasingly more complicated for retirement plan sponsors and fiduciaries to understand exactly what services they are paying for and the cost of these services.

Under Section 408(b)(2), certain plan service providers will be required to provide disclosures of their fee structure and any potential conflicts of interest before entering into a covered service agreement and before the performance of these services, if they want to be granted statutory exemption from ERISA’s prohibited transaction provisions.

These new DOL regulations give much needed guidance so that plan sponsors and fiduciaries will be able to obtain accurate and complete information on service provider compensation and revenue sharing agreements.

These changes are challenging for plan sponsors and fiduciaries. Under ERISA section 404(a)(1), plan sponsors are required to act prudently and with the singular purpose of acting in the best interest of the plan participants and beneficiaries in order to provide them plan benefits and defray, as much as possible, the costs that these participants must absorb.

Plans covered under these regulations include ERISA-covered pension/profit sharing plans and 403(b) plans, but welfare plans are excluded. The disclosures are required regardless of the size of the plan and include any direct or indirect expenses that are expected to exceed $1,000.

These interim final regulations were open to the public for comment into February 2011. As a result, on February 11, 2011, the DOL announced that they have delayed the implementation of the regulations from the original effective date of July 16, 2011 to January 1, 2012 to allow for time to review the recommendations received through the public comments.