ERISA Service Provider Fee Disclosure Deadline Approaching

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The U.S. Department of Labor (DOL) recently published final service provider fee disclosure rules under Section 408b-2 of the Employee Retirement Income Security Act (ERISA).  A retirement plan service provider covered by the regulation must provide a plan with information regarding the fees and other forms of compensation that the service provider will receive for its services to the plan.  The regulation is intended to provide plan fiduciaries with the information needed to evaluate the reasonableness of the service provider fees and possible conflicts of interest.  A plan sponsor has a fiduciary duty to only pay plan expenses which are reasonable but what is reasonable is difficult to determine when service providers do not provide full disclosure.

The DOL also issued a regulation which imposes new requirements for the disclosure of fee and investment information to participants and beneficiaries in retirement plans having participant-directed individual accounts such as the typical 401(k) plan.  Plan fiduciaries must ensure that participants and beneficiaries are aware of their rights and responsibilities with respect to managing their accounts and must provide sufficient information about the plan, including its fees and expenses and investment alternatives, to allow the participants to make informed decisions.  Much of the information provided by the service provider disclosures to the plan sponsor will be part of the disclosure of fee and investment information to participants and beneficiaries.  The effective date for the covered service provider disclosure regulation is July 1, 2012 with an August 30, 2012 deadline for calendar year plans to provide participants with the required information to manage their accounts.

Employers who sponsor retirement plans should be contacting their service providers to confirm that the required information will be delivered to them on a timely basis.  Service providers include fiduciaries, registered investment advisors, record keepers or brokers who make investment alternatives available to the plan and other specified service providers such as accountants, lawyers, actuaries, appraisers, and others who can reasonably expect to receive "indirect compensation."  Indirect compensation is compensation received from any source other than the plan, the plan sponsor, a covered service provider, or an affiliate.  This indirect compensation is one of the things which has made it difficult or impossible for plan sponsors to determine the total compensation a service provider receives and whether that total is reasonable.

The good news is that many service providers are indicating they will coordinate the disclosure to plan sponsors with the required disclosures to the participants and beneficiaries in participant-directed individual account plans.  How well this will actually happen will be known shortly.  In the meantime, employers sponsoring retirement plans should be in contact with their service providers concerning these regulations, the receipt of information regarding compensation and conflicts of interest, and the timely preparation and distribution of required disclosure notices to participants.

The following article was prepared by Mike Virgil. He may be contacted at or 312/840-7015 to answer any questions.

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