DOL Final Rule Extends Deadlines for Service Provider and Participant-Level Fee Disclosures

New deadline for service provider ERISA section 408(b)(2) fee disclosures is July 1, 2012; deadline for participant-level fee disclosures to begin is Aug. 30, 2012

By Stephen Miller, CEBS Feb 3, 2012

updated 2/7/2012

The U.S. Department of Labor's (DOL) Employee Benefits Security Administration (EBSA) published its long-awaited final rule, "Reasonable Contract or Arrangement Under Section 408(b)(2) – Fee Disclosure," in the Federal Register on Feb, 3, 2012. The final rule is intended to provide employers that sponsor retirement plans with information about the administrative and investment costs associated with providing such plans to their workers. It includes a three-month extension in the effective date for service provider fee disclosures to plan sponsors, pushing the deadline to July 1, 2012, for new and existing contracts or arrangements between service providers and plans covered under the Employee Retirement Income Security Act (ERISA).

Another set of required fee disclosures, from plan sponsors to 401(k) plan participants (participant-level fee disclosures), is set to take effect 60 days after the service provider fee disclosure deadline. As a result, the deadline for plan sponsors to begin issuing these disclosures to participants has been pushed back to Aug. 30, 2012.

The three-month extension of the effective date for service provider fee disclosures is intended to allow service providers more 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 subject to penalties under the Internal Revenue Code.

A fact sheet on this regulation is available on EBSA's website, here. Additional information about how the final rule on service provider fee disclosure differs from the previously published interim final rule can be seen here. Plan sponsors and service providers with questions about the final rule can contact EBSA's Office of Regulations and Interpretations at (202) 693-8500.

Participant Fee Disclosures

As noted, the new effective date of the service provider fee disclosure final rule works in conjunction with the compliance date of the DOL's participant-level disclosure regulation, which requires plan administrators to give workers who direct their retirement accounts in 401(k)-type plans easy-to-understand information in order to comparison-shop among the plan investment options available to them. The participant-level disclosure rule provides that investment fund returns and fee-disclosure information must be furnished in charts designed to compare each investment option available under the plan, and includes model comparative charts.

Due to the extension of the effective date of the service providers' fee disclosure final rule, plan administrators for calendar-year plans now must make the initial annual disclosure of "plan-level" and "investment-level" information (including associated fees and expenses) to participants no later than Aug. 30, 2012, and the first quarterly statement (for fees incurred July through September) must be furnished no later than Nov. 14, 2012.

New Requirements for Service Providers

The DOL's new final rule requires service providers to furnish information that will enable 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 disclosures of direct and indirect compensation certain service providers receive in connection with the services they provide.

The rule applies to those service providers that expect to receive $1,000 or more in compensation and provide certain fiduciary or registered investment advisory services, make available plan investment options in connection with brokerage or record-keeping services, or otherwise receive indirect compensation for providing certain services to a plan.

The DOL announced that in the near future it intended to publish for public comment a separate proposal that would require service providers, in addition to providing the required fee and investment expense information, to furnish a guide or similar tool to assist plan fiduciaries in identifying and locating the potentially complex information that must be disclosed and which may be located in multiple documents.

Changes from Interim Rule

Investment expenses.Among the changes between the new final rule on service provider disclosures and an interim final rule published on July 16, 2010, the final rule adds to the disclosure requirements for descriptions of annual operating expenses (expense ratios) of a "designated investment alternative." The final rule requires disclosure of total annual operating expenses for designated investments, expressed as a percentage, calculated in accordance with the DOL's new requirements for disclosures that must be made to participants in participant-directed individual account plans.

Other investment information.In addition, the final rule requires disclosure of any other information relating to designated investments that is within the control of, or reasonably available to, the covered service provider, if the information is considered investment-related information that must be provided automatically under the participant-level fee disclosure regulation. These changes are designed to facilitate disclosure of information under both the 408(b)(2) service provider and the participant-level regulations.

Indirect compensation / revenue sharing.Under the final rule, more information must be disclosed by a covered service provider to a responsible plan fiduciary regarding "indirect compensation" such as revenue-sharing payments—the behind-the-scenes transfer of revenue from a participant-held investment fund to the plan recordkeeper/administrator as an incentive to include the fund on the plan's investment menu. The enhanced disclosure requirements include a description of the indirect compensation arrangement made between the payer and the service provider. This is intended to help plan fiduciaries analyze why the payer is compensating the service provider in connection with the service provider's contract or arrangement with the plan.

Disclosing Errors

The final rule clarifies that disclosure of "changes" to information previously disclosed is covered by the "error disclosure" provision. Thus, errors or omissions in disclosures of "changes" to previously disclosed information can be corrected as well within 30 days after the covered service provider knows of the error or omission.

More to Come?

"The final regulations 'strongly encourage' service providers to offer plan fiduciaries a 'guide' or summary of their disclosures," commented Gregory L. Ash, a partner at law firm Spencer Fane in Overland Park, Kansas, and chair of the firm's ERISA litigation group. "The DOL included a sample guide as an appendix to the final rule. Debate about whether to require such a summary disclosure is rumored to have delayed the release of the final rules. For now, the summary is voluntary, but the DOL strongly hinted that it may make the summary mandatory in future regulations," Ash noted.

Prepare for Participants' Queries

"The fee disclosure regulations for participants are dense and contain an overwhelming amount of information," observed Alison Kellner, an analyst in the retirement and actuarial services division of Massachusetts-based Cammack LaRhette Consulting. "It seems likely that there will be plenty of participant confusion, leading to questions for the plan sponsor. As the industry drives towards the implementation of these new regulations, plan sponsors may wish to speak with their advisors both to better understand the disclosure information for responding to participant questions, and to confirm that they are on track to fulfill their fiduciary responsibilities."

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Join the Discussion
Will new disclosures for benefit plan participants enlighten...or go unread? Comment on SHRM Connect

Related SHRM Articles:

EBSA Grants Flexibility for Annual 401(k) Fee Disclosure, SHRM Online Benefits, March 2015

DOL Offers More Guidance on Electronic Fee Disclosure, SHRM Online Benefits Discipline, January 2012

Plan Sponsors Lack Knowledge of Revenue-Sharing Fees, SHRM Online Benefits Discipline, January 2012

Sample Glossary of Investment-Related Terms for Disclosures to Retirement Plan Participants, SHRM Online Benefits Discipline, December 2011

What 'Fee Disclosure' Really Means for Plan Sponsors, SHRM Online Benefits Discipline, November 2011

Related ResourceExternal:

The ROI of a 408(b)(2) Audit, Roland Criss Fiduciary Services, February 2012

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Retirement Plans Resource Page

Sign up for SHRM’s free Compensation & Benefits e-newsletter


Job Finder

Find an HR Job Near You
Post a Job


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect