The DOL issued final 408(b)(2) regulations on February 3, 2012. These regulations provide modifications to the interim final regulations issued in 2010 (see ErisaALERT 2010-11). This ErisaALERT will discuss some of the modifications. We will provide a more extensive discussion at some point in the future.
The modifications
Effective date – The effective date has been extended to July 1, 2012.
Observation: Many service providers had already geared up for the April 1, 2012 effective date contained in the interim final regulations; some of the modifications will require covered service providers (CSP) to revisit their efforts. This extension automatically extended the participant disclosures (see ErisaALERT 2010-12) to August 30, 2012 for initial disclosures and until November 14, 2012 for the first quarterly statement with required disclosures.
Covered plans – the definition of covered plans has been modified to exclude 403(b) contracts issued before 2009 where the sponsoring employer no longer makes contributions.
Observation: This modification is in line with Field Assistance Bulletin 2009-02 which excluded certain contracts from Form 5500 reporting.
Descriptive Disclosures:
Indirect compensation – the covered service provider must identify not only the payer of the indirect compensation but also describe the arrangement between the payer and the covered service provider, an affiliate, or a subcontractor.
Observation: the preamble to the regulations states that the DOL determined that the most effective way to achieve disclosure of conflicts of interest is to inform plan fiduciaries of what compensation will be received and from whom and that a plan fiduciary would benefit from the explanation of an arrangement that would result in indirect compensation.
Investment related disclosures – the DOL modified the language of the interim final rule to use language comparable to the participant disclosure regulations, i.e., the CSP must disclose the total annual operating expense of a designated investment alternative calculated in accordance with the participant disclosure rules. In addition the CSP must provide any other information regarding the designated investment alternative that is within the control of the CSP and that is required for the covered plan administrator to comply with the participant disclosures.
Summary or guide to initial disclosures – a sample guide to initial disclosures is provided in the regulations. While not required, the DOL believes that the sample guide may be a useful tool to assist the responsible plan fiduciary.
Observation: the interim final rule requested comments on the format of the disclosure. The commenters disagreed on the feasibility of requiring a summary or guide. Given the lack of specific suggestions on how best to structure such a guide, the DOL decided not to include a requirement at this time but intends to publish a separate proposal for a guide.
Timing of initial disclosures – rather than furnishing changes to certain investment information within 60 days of each change, the CSP must provide any changes to investment information at least annually. The 60 day notice requirement continues to apply for non-investment related changes.
Reporting and disclosure information – the interim final regulations provided the CSP must furnish within 30 days any additional compensation information requested in writing by the plan administrator that was needed to comply with reporting and disclosure requirements e.g., Schedule C . The final regulations require that the requested information be provided reasonably in advance of the date that the plan administrator states it must comply with the reporting and disclosure requirements.
Responsible plan fiduciary exemption – the final rule permits a responsible plan fiduciary to avoid engaging in a prohibited transaction when a CSP fails to disclose the required information. There are a number of conditions which must be satisfied to obtain this relief including requesting in writing that the CSP provide the information, notifying the DOL of the CSP’s failure to provide the information and terminating the contract or arrangement if the requested information relates to future services.
Observation: The preamble to the regulations provides that at a minimum, the RPF should appropriately review the disclosures made by the CSP and at a minimum should be able to compare the information received from the CSP to the requirements of the regulations. It is clear that the DOL expects the RPF to read and understand the disclosures.
What should Plan Sponsors do now?
- Read and understand the final regulations.
- Ensure your applicable committee(s) (retirement, investment, administrative) understand the seriousness of complying with the regulations.
- Develop a process/timetable for reviewing all the information that you will be receiving and document the process.
- You may want to prepare a checklist of the requirements of the regulation and compare the disclosures to the checklist.
- Identify the key players and their roles in the process.
- Engage a specialist’s help if needed.
- Document, document, document.
You may want to check our new blog periodically for quick updates on compliance issues.
Note: all links are active as of the date of issuance of this ErisaALERT.
Disclaimer: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plan. For more information on this ErisaALERT contact us by phone at 610-524-5351 and ask for Mary Andersen or 973-994-7539 and ask for Theresa Borzelli.
