On March 12, 2014, the U.S. Department of Labor (the “DOL”) published a proposed amendment (the “Proposed Amendment”) to the final regulation (the “Final Regulation”) under section 408(b)(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Final Regulation requires, among other things, that “covered service providers” to 401(k) and other plans subject to ERISA provide compensation disclosures to plan fiduciaries. If adopted, the Proposed Amendment would require covered service providers to furnish a guide to the initial disclosures required by the Final Regulation if the disclosures are in multiple or lengthy documents.
For a discussion of the Final Regulation, please see our update dated February 27, 2012.
Section 408(b)(2) of ERISA sets forth an exemption from the prohibited transaction rules of ERISA for the payment of compensation to service providers to plans covered by ERISA. The Final Regulation describes the conditions that must be satisfied for the exemption to apply. One of the conditions is that a “covered service provider” must disclose to the appropriate plan fiduciary the following information:
- a description of the services provided;
- a statement whether the covered service provider is providing the services as a plan fiduciary and/or as a registered investment adviser;
- a description of all direct compensation to the service provider;
- a description of all indirect compensation to the service provider;
- a description of any compensation that will be paid among related parties;
- a description of any compensation for termination of the services contract or arrangement;
- if applicable, a disclosure of compensation for recordkeeping services;
- for a service provider who is a fiduciary to certain investment products or is a recordkeeper to a plan that permits participants to direct investment of their accounts, a disclosure related to compensation, annual operating expenses and ongoing expenses and
- a description of the manner in which the compensation in (3) through (7) above will be received.
The Final Regulation permits covered service providers to satisfy the disclosure requirement by using more than one document.
Requirements of the Proposed Amendment
If adopted, the Proposed Amendment would require covered service providers who satisfy the initial disclosure requirements in multiple documents or in a document that is in excess of a specified number of pages to furnish a guide to the disclosures. The DOL has reserved for comment the number of pages that would trigger the requirement to provide a guide even if the disclosures are provided in one document. The guide is intended to help plan fiduciaries quickly and easily find the required disclosures so that they understand what information is being disclosed and where to find it. No separate guide is required if the disclosures are already provided within a single, concise document.
The Proposed Amendment requires that the guide identify the document as well as the page number, or other sufficiently specific locator, of the disclosures. In the Preamble to the Proposed Amendment, the DOL indicates that service providers must do more than merely state that the disclosures are contained within a certain document; service providers must also indicate where in the document the disclosure is located.
The guide must also identify a person or office, and include the contact information for such person or office, that plan fiduciaries can contact if they have difficulty finding information referenced in the guide or have general questions about the disclosures.
When the Final Regulation was issued, the DOL posted on its website a sample guide. The preamble to the Proposed Amendment indicates that the sample guide is an example of what the DOL believes the guide required under the Proposed Amendment may look like in practice.
Method of Delivery
The Preamble to the Proposed Amendment states that service providers may provide the guide to plan fiduciaries through electronic media, including a website. However, service providers must make the guide readily accessible and provide notice of how to access the guide. The electronic media must contain the location of the disclosure or a link to the section or page on which the disclosure is located.
The DOL proposed that the amendment to the Final Regulation become effective 12 months after publication of the final amendment in the Federal Register.
Request for Comments
The DOL has requested that written comments on the Proposed Amendment be submitted by June 10, 2014.