On February 2, the Employee Benefits Security Administration (EBSA), the organization within the Department of Labor (DOL) charged with administering and enforcing much of the Employee Retirement Income Security Act of 1974 (ERISA), issued its final rule under ERISA Section 408(b)(2) relating to service provider disclosures.

The final rule establishes specific disclosure obligations for plan service providers to ensure that 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 retirement plans. It does not apply to individual retirement accounts, simplified employee pension plans, SIMPLE retirement accounts, certain frozen annuity contracts and custodial accounts described in Section 403(b) of the federal tax code, or employee welfare benefit plans.

Under the final rule, covered service providers (CSPs) who expect to receive at least $1,000 in compensation for providing services to a covered plan are required to give fiduciaries of the plan information they need to (1) assess the reasonableness of direct and indirect compensation received by the CSP, its affiliates, and/or subcontractors; (2) identify potential conflicts of interest; and (3) satisfy reporting and disclosure requirements under 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 the following:

  • Service providers who act as ERISA fiduciaries to a covered plan or to a “plan asset” vehicle in which such a plan invests.
  • Investment advisers (state or federally registered).
  • Recordkeepers or brokers who make designated investment alternatives available to a covered plan.
  • 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 the following:

  • Expansion of information that must be disclosed concerning a CSP’s receipt of indirect compensation.
  • Conformance of investment-related disclosures for a covered plan’s designated investment alternatives to the requirements of the participant fee disclosure regulations.
  • 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 fee disclosures to plan participants is extended to August 30, 2012, for calendar year plans.