As we have discussed in previous alerts (DOL Service Provider Fee Disclosure Regulations To Go Into Effect in Early 2012; Plan Sponsor Obligations Under New Retirement Plan Fee Disclosure Rules), the Department of Labor (DOL) recently issued new fee disclosure rules for ERISA-covered retirement plans. By now, plan sponsors should have received the required disclosures from their covered service providers (for example, investment managers, trustees, and others). The Service Provider Fee Disclosure Rule required that these disclosures be provided by July 1, 2012.
Plan sponsors now have an immediate legal obligation to review these disclosures and to make two different, but related, determinations:
- First, plan sponsors must review the disclosures to determine if each service provider who was required to provide a disclosure has actually done so. The plan sponsor must also determine if each service provider has disclosed all of the legally required information. We can assist with this process if the sponsor is not familiar with what needs to be disclosed. If a service provider has not provided all of the required information (or has not provided any disclosure whatsoever), the plan sponsor must request the missing information from the service provider in writing. If the service provider fails to send the missing information within 90 days of the plan sponsor’s request, the plan sponsor must then report the service provider to the DOL and ultimately terminate the service provider (with limited exceptions). The DOL has a specific process in place for reporting non-compliant service providers.
- Second, after a plan sponsor has determined that it has received all required disclosures from a service provider, the sponsor must then determine whether each service arrangement is reasonable in light of the compensation information that has been disclosed. This can be done with input from the sponsor’s outside advisors, but a plan fiduciary must make the ultimate determination of whether a service arrangement is reasonable. If the plan sponsor determines that continuing a service arrangement is not reasonable, the plan sponsor must terminate the service provider. Plan sponsors should have a process in place to make these determinations. This process should be under way for most plan sponsors.
If a plan sponsor does not take these steps, a prohibited transaction could arise, which could lead to significant penalties and excise taxes. The good news is that this review process should be fairly straightforward and easy to complete for most plans.