In February 2012, the Department of Labor’s Employee Benefits Security Administration (“EBSA”) issued final regulations under ERISA Section 408(b)(2) that require certain benefit plan service providers (“covered service providers”) to furnish plan fiduciaries with information regarding the fees that they receive (the “408(b)(2) Regulation”). The information must be provided so that the fees and the other terms of the service arrangement can be evaluated for reasonableness. The 408(b)(2) Regulation is discussed here. On March 11, EBSA released a long-awaited proposed rule that would amend the 408(b)(2) Regulation to aid employers and other plan fiduciaries in their fee assessment. Under the proposed rule, covered service providers must furnish a separate guide along with the initial disclosures required by the 408(b)(2) Regulation to assist in navigating fee disclosures contained in multiple or lengthy documents.

Background

The “roadmap” proposal to give plan fiduciaries a guide to help navigate and understand the required disclosures is not unexpected. In the Preamble to the 408(b)(2) Regulation, the DOL states its intent to issue a proposed regulation that would require covered service providers to use a guide or similar tool to assist plan fiduciaries’ review of initial disclosures. The 408(b)(2) Regulation includes a sample guide (available here) that may be used on a voluntary basis as a model for such a guide to assist plan fiduciaries. The Preamble to the proposed rule states that this sample is an example of what guides to initial disclosures may look like. The DOL is concerned that plan fiduciaries are having a difficult time navigating lengthy, complicated disclosures that may be full of highly technical language or are spread out among multiple documents. 

Overview of Proposed Rule

Under the proposed amendment to the 408(b)(2) Regulation, a guide must be furnished if the required disclosures are (1) not contained in a single document; or (2) if the document is “lengthy” and exceeds a specified number of pages. A covered service provider that already furnishes the required disclosures in a concise, single document would not be required to provide a separate guide. The term “lengthy” is not defined in the proposed rule. EBSA has reserved for comment the number of pages that will trigger the guide requirement even if the initial disclosures are furnished in a single document. In addition, EBSA has asked commentators to address whether other standards are necessary to prevent formatting or other manipulation of the page number requirement.

The proposed guide would not be a summary of the required disclosures. Instead, it would provide plan fiduciaries with a roadmap to the location of the following information:

  • the description of services to be provided to the plan;  
  • statement concerning services to be provided as either a fiduciary or as a registered investment adviser;  
  • descriptions of all direct and indirect compensation, compensation that will be paid among related parties, compensation for termination of the contract or arrangement, and compensation for recordkeeping services; and  
  • for certain fiduciary and recordkeeping and brokerage services, the description of any compensation, annual operating expenses and ongoing expenses (or, if applicable, total annual operating expenses).

The guide must also identify a person or office that the plan fiduciary may contact with questions regarding required disclosures, or if the fiduciary has difficulty locating any of the information referenced in the guide. 

“Roadmap” to Required Disclosures

The proposed rule states that the guide must specifically identify the document(s) where the required information is located (to the extent disclosure is provided through the use of multiple documents), and must also identify the specific place in the document where the information is located. The proposed rule sets forth two alternative methods of identifying the specific location of information in the document: 

  1. identifying the page number where the required information can be found in the document; or  
  2. providing a “sufficiently specific” locator, such as a section reference.

A similar standard would apply to information disclosed electronically (e.g., a direct link to the required information or other sufficiently specific locator). Although the proposed rule permits a choice of locator, EBSA requested comments on whether the rule should require only one locator (e.g., identifying the specific page number where the information appears), and why.

As mentioned above, the guide would need to be furnished along with the initial disclosures required by the 408(b)(2) Regulation. Under the proposed rule, changes to the information contained in the guide would need to be disclosed to plan fiduciaries at least annually. EBSA requested comments on whether it would be more effective to require disclosure of the entire guide on an annual basis if changes have occurred during the prior year. 

Comment Period

Comments on the proposed guide requirement must be provided to EBSA no later than June 10, 2014. 

Focus Group Testing

EBSA also announced its intention to conduct 8-10 focus group sessions, with approximately 70-100 small plan (less than 100 participants) fiduciaries to explore current practices and the effects of the 408(b)(2) Regulation. According to EBSA, the focus group sessions may provide insight into the need for a guide, summary, or similar tool to help plan fiduciaries navigate and understand the required fee disclosure documents. After the focus group sessions are complete, results will be made available to the public. The DOL may reopen the comment period on the proposed rule to solicit comments on the results of the focus group testing.  

Effective Date

The guide requirement would be effective 12 months after final rules are published. However, EBSA did not explicitly indicate whether the guide requirement will apply to both existing and future plan service contracts or arrangements, or only those that are entered into or renewed after the effective date of the final regulations.