ERISA-DOL Proposes Amendment To 408(b)(2) Regulations, To Provide Rules To Help A Fiduciary Review Lengthy And Detailed Information Received From Service Providers

On March 12, 2014, the U.S. Department of Labor (the “DOL”) proposed an amendment to its regulations under ERISA section 408(b)(2), which will provide rules to help plan fiduciaries review lengthy and detailed disclosures provided by the plan’s service providers. The DOL has also issued a Fact Sheet, which discusses the proposed amendment. Here is what the Fact Sheet says:

In General. Regulations under ERISA section 408(b)(2) require covered pension plan service providers to furnish detailed disclosures to plan fiduciaries before entering into, extending or renewing contracts or arrangements for services. The DOL is proposing to amend these regulations to require covered service providers to furnish a guide along with the required disclosures, if the disclosures are contained in multiple or lengthy documents.

Background. ERISA’s fiduciary provisions require plan fiduciaries, when selecting and monitoring service providers and plan investments, to act prudently and solely in the interest of the plan’s participants and beneficiaries. Responsible plan fiduciaries also must ensure that arrangements with their service providers are “reasonable” and that only “reasonable” compensation is paid for services. Fundamental to the ability of fiduciaries to discharge these obligations is obtaining information sufficient to enable them to make informed decisions about an employee benefit plan’s services, the costs of such services, and the service providers.

In 2012, the DOL published final regulations under ERISA section 408(b)(2) requiring specific disclosures from plan service providers to ensure that responsible plan fiduciaries are provided the information they need to meet their fiduciary obligations when selecting and monitoring service providers for their plans. These regulations allow covered service providers the flexibility to satisfy their disclosure obligations using different documents from various sources as long as the documents, collectively, contain the required disclosures.

Overview of Proposed Amendment to 408(b)(2) Regulations. The DOL now proposes to require covered service providers who make their disclosures through multiple or lengthy documents to furnish a guide to such documents. The guide must specifically identify the document, page, or, if applicable, other sufficiently specific locator, such as section, that enables the responsible plan fiduciary to quickly and easily find the specified information, as applicable to the contract or arrangement. The proposed provision requires a specific locator, including the identity of the document and where the information is located within the document.

If a guide is required, the covered service provider must direct the fiduciary to the place in the disclosure documents where the fiduciary can find:
• The description of services to be provided;
• The statement concerning services to be provided as a fiduciary and/or as a registered investment adviser;
• The description of: all direct and indirect compensation, any compensation that will be paid among related parties, compensation for termination of the contract or arrangement, as well as compensation for recordkeeping services;
• The required investment disclosures for fiduciary services and recordkeeping and brokerage services, including annual operating expenses and ongoing expenses, or if applicable, total annual operating expenses.

The guide will assist responsible plan fiduciaries by ensuring that the location of all information required to be disclosed is evident and easy to find.

Effective Date And Comments. The DOL proposes that the amendment to the final rule become effective 12 months after publication of a final amendment in the Federal Register. Public comment on the proposed amendment is invited.

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