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Plan sponsors should ensure that their service providers adhere to new fee disclosure requirements
The U.S. Department of Labor (DOL) issued
interim final regulations outlining the requirements that service providers must follow to disclose fees to plan fiduciaries. The rules were issued on July 15, 2010, and take effect on July 16, 2011. [Update: A separate
final rule issued by the DOL on Oct. 14, 2010, addressed required disclosure of fees by plan sponsors to plan participants.]
Plan sponsor fiduciaries are required by law to ensure that retirement plan fees are reasonable and that any conflicts of interest that might exist with a service provider are addressed. The DOL’s intent is to provide a framework by which providers can disclose information fully so fiduciaries will be provided with all they need.
Which Plans Have to Comply with These Rules?
A “covered plan” is defined as an ERISA employee pension benefit plan or a pension plan. This covers all types of qualified retirement plans, including 401(k), ERISA 403(b), profit sharing, money purchase pension, defined benefit pension, employee stock ownership and stock bonus plans.
The following types of plans are not covered plans: government plans, non-ERISA 403(b) plans, church plans, workers' comp, unemployment compensation or disability insurance plans, nonresident alien plans, unfunded excess benefit plans, simplified employee pension (SEP) plans, SIMPLE retirement accounts and individual retirement accounts or annuities (IRAs).
Which Service Providers Must Provide the Required Information?
A “covered service provider” is a provider that enters into a contract or arrangement with the retirement plan and expects to receive $1,000 or more in direct or indirect compensation for services to the plan, regardless of whether the services are performed by the covered service provider, an affiliate or a subcontractor.
The following are covered service providers:
What Information Must Be Provided?
Covered service providers must provide written disclosure. However, the rules do not require a formal written contract or arrangement. The following information must be included:
When Must the Information Be Provided?
What Happens If a Service Provider Doesn’t Comply?
What Should Plan Sponsor Fiduciaries Do Next?
For existing contracts or arrangements, written disclosures that meet these requirements must be provided by July 16, 2011.
Service providers have the challenge of evaluating and determining whether they are covered service providers and whether their current contract/arrangements meet these new requirements.
Changes to written disclosures more than likely will be required, and this will be no small feat for service providers.
As the deadline approaches, fiduciaries will want to request the information from covered service providers.
What Should Service Providers Do Next?
In preparation of the rules effective in 2011, service providers should:
CPC,QPA, QKAis vice president and senior consultant for compliance services at
TRI-AD, an employee benefits administration firm based in Southern California with over 1,000 clients nationwide. She has many years of experience designing, administering and consulting for defined benefit pension plans and defined contribution plans including 401(k), profit sharing, money purchase, target benefit pension, stock bonus and employee stock ownership plans.
© 2010 TRI-AD. All rights reserved. Reposted with permission.
This article was originally published in the September 2010 issue of TRI-AD NewsLink.
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