DOL Issues New Fee Disclosure Rules for Retirement Plans
August 6, 2010
By: Daniel R. Salemi
The Department of Labor has issued interim final rules that require certain types of ERISA retirement plan service providers to disclose specific fee information directly to plans. Covered service providers must comply with the disclosure requirements in these final rules in order for such service providers’ contracts or arrangements with plans (including the fees paid by plans under these arrangements) to be considered "reasonable" as required under ERISA. More specifically, these rules are intended to provide retirement plan fiduciaries with a more complete picture of service provider fee structures so as to enable plan fiduciaries to prudently select and monitor such service providers.
Plan sponsors and responsible plan fiduciaries will therefore need to be familiar with these disclosure requirements. In particular, plan fiduciaries should be prepared to review the required disclosures from service providers to determine whether they meet the requirements of the final rules. And while the final rules do not specifically require it, plan fiduciaries should strongly consider having these disclosure requirements referenced in covered service providers’ written contracts or agreements.
The final rules will become effective July 16, 2011 following a brief comment period.
The disclosure requirements apply to those that provide the following services to ERISA retirement plans, if the service provider reasonably expects to receive $1,000 or more in direct or indirect compensation from the applicable plan:
- Services as a fiduciary or registered investment adviser;
- Certain recordkeeping or brokerage services; and
- Other services for indirect compensation (this would not include other services for which compensation is paid directly by the plan to the provider).
Note that these final rules do not apply to welfare plans.
These service providers must disclose to each applicable plan the following information in writing:
- A description of the services to be provided;
- If applicable, a statement that the provider will be acting as a fiduciary or registered investment adviser with respect to the plan (or with respect to an entity that is deemed to hold plan assets);
- A description of the compensation that the provider expects to receive for the services, including descriptions of any direct or indirect compensation and any compensation that will be paid among related parties; and
- How the service provider will be paid, whether by billing the plan directly or by deducting fees from the plan’s accounts or investments.
Additional disclosures are required for certain types of service providers. For example, providers of multiple services must separately disclose the cost of recordkeeping services. In addition, certain investment vehicles that are deemed to hold plan assets must provide additional disclosures.
The required disclosures must be automatically provided in advance of the date the service provider’s contract or arrangement with the plan is entered into or renewed, and any future changes to the underlying information in the disclosures must generally be communicated within 60 days of the change. Covered service providers must also provide certain additional fee information upon a plan’s request.
The DOL had initially issued proposed rules on this issue in late 2007, and the delay in issuing final rules was caused by a number of factors including the intervening change in Presidential administrations. Legislation regarding ERISA plan fee disclosure has also been proposed and is now working its way through Congress. This legislation, as currently drafted, would supersede these final rules, so we will be watching closely for any developments in this area.
The text of the final rules may be found here.