trendspotting
It’s Here
DOL issues final rule for
401(k) fee disclosure
IN FEBRUARY, the U.S. Department of
Labor’s (DOL) Employee Benefits Security Administration (EBSA) issued its
final rule for 408(b)( 2) fee disclosure.
The DOL also announced a three-month extension to the rule’s effective date, meaning service providers
must be in compliance by July 1,
2012 for new and existing contracts
or arrangements between Employee
Retirement Income Security Act
(ERISA)-covered plans and service
providers.
“The common-sense rule that we
are finalizing today will shed light on
the true costs of 401(k) accounts and
ultimately reward those working hard
and saving for retirement,” said Secretary of Labor Hilda L. Solis.
The DOL’s rule requires service
providers to furnish information that
enables pension plan fiduciaries to
determine both the reasonableness
of compensation paid to the service
providers and any conflicts of interest
that may impact a service provider’s
performance under a service contract
or arrangement. It requires disclosure
of direct and indirect compensation
that certain service providers receive
in connection with the services they
provide.
The rule applies to those service
providers that 1) expect to receive
$1,000 or more in compensation and
provide certain fiduciary or registered
investment advisory services; 2) make
available plan investment options in
connection with brokerage or recordkeeping services; or 3) otherwise
receive indirect compensation for
providing certain services to a plan.
The DOL also announced that
in the near future it intends to
publish for public comment a separate proposal that requires service
providers—in addition to providing
the required fee and investment
expense information—to furnish a
guide or similar tool to assist plan
fiduciaries with identifying and
locating the potentially complex
information that must be disclosed
and may be located in multiple documents.
The DOL said it provided the three-month extension to allow service
providers sufficient time to prepare
for compliance. Service providers not
in compliance as of July 1, will be in
violation of ERISA’s prohibited transaction rules and will be subject to
penalties under the Internal Revenue
Code (IRC).
The effective date of the final
rule works in conjunction with the
compliance date of the department’s
participant-level disclosure regulation
( 29 CFR § 2550.404a- 5), which requires
plan administrators to give workers
who direct their retirement accounts
in 401(k)-type plans easy-to-under-
stand information to comparison
shop among the available plan invest-
ment options. Due to the extension
of the effective date of the final rule,
announced February 2, plan admin-
istrators for calendar year plans
now must provide the initial annual
disclosure of “plan-level” and “invest-
ment-level” information (including
associated fees and expenses) to
participants no later than August
the first quarterly statement for fees
incurred July through September
must be furnished no later than
November 14.
Plan Advisers Must
Understand Final 408(b)( 2) Rule
“The majority of the changes that
were made were to facilitate administration,” Bradford P. Campbell of Schiff
Hardin LLP, former assistant secretary
of labor for Employee Benefits and
head of ERISA, told PLANADVISER.
“They are generally positive changes.
I also think that the department was
wise to propose in a separate rule the
summary disclosure.”
