On Friday, February 11, the Department of Labor announced in a news release that it intends to extend the applicability date for service-provider disclosure rules under section 408(b)(2) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Disclosure requirements in the final regulation will apply to contracts or arrangements in existence on or after January 1, 2012, not July 16, 2011, as provided under the current interim final rule.
On July 16, 2010, the Department of Labor published an interim final rule that will require increased disclosure by service providers to the fiduciaries of certain retirement plans that are subject to ERISA. These regulations are commonly referred to as the 408(b)(2) regulations.
Service providers are "parties in interest" to the employee benefit plans that they serve. Without an exemption, it would be a prohibited transaction for a plan fiduciary to arrange for a service provider to deliver services to ERISA-governed employee benefit plans. The most commonly applicable exemption allows plans to pay "reasonable compensation" for "necessary" services. The Department of Labor's interim final rule expands the requirements to qualify for that exemption.
Under the new interim final rule, "covered service providers" will be required to provide extensive disclosures about their services and the compensation they expect to receive in connection with services provided under contracts or arrangements with covered plans. Compliance with the interim final rule was originally scheduled for July 16, 2011. Covered service providers would have needed to give the required disclosures to all covered plans with contracts or arrangements in effect with the service provider on that date.
The Department of Labor requested comments in connection with the interim final rule, including comments on the types of service providers who should be covered by the rule and on whether the required disclosures should be presented in a standard format. The Department received 45 public comments. In order to review the comments, implement them in a final regulation, and give enough time for service providers to comply with the final regulation, the Department of Labor decided to extend the applicability date for the disclosure rules.
This extension is sure to be welcomed by service providers. However, the extension should not detract from compliance efforts, both by employers that sponsor ERISA-governed retirement plans and service providers who serve these plans.