A Guide for the Guide: The DOL Issues Proposed Regulations Relative to Service Provider Fee Disclosures


By Jason Lumpkin

The fiduciary provisions under the Employee Retirement Income Security Act of 1974 (“ERISA”) require retirement plan fiduciaries to “act prudently and solely in the interest of the plan’s participants and beneficiaries” when selecting and monitoring service providers and investment options.  This obligation has become increasingly difficult for plan sponsors to carry out as the arrangements under which selected providers are compensated have become increasing complex.

Accordingly, in 2012, the Department of Labor (the “DOL) issued final regulations under 408(b)(2) of ERISA that require all retirement plan service providers to furnish plan sponsors and fiduciaries with the information they need to make informed decisions relative to the specific function(s) and the associated cost(s) being provided by each of its chosen service providers, including not only direct compensation being paid by the plan, but also any indirect compensation received through sub-contracting arrangements or the internal expenses of the plan’s investments (if any).

While the final regulations required the delivery of specific information to plan fiduciaries, it offered service providers flexibility in the format and number of documents that were used to communicate the information as long as they, collectively, contained all of the necessary disclosures.

Since 2012, the DOL has been reviewing the disclosures that have been delivered to plan fiduciaries and have determined that, in certain situations, additional guidance is necessary in order to assist plan fiduciaries in identifying the information they need to satisfy their obligations under ERISA. 

As such, the DOL issued a proposed rule on March 11, 2014 that would require service providers who make their disclosures via multiple or lengthy documents to furnish a “guide” that is designed to direct plan fiduciaries to specific sections of the disclosure document(s) to quickly and easily find certain information.  For example, the guide would include references to the description of services being provided, all direct and indirect compensation being paid for those services, and investment disclosures, among others.

The DOL is currently requesting public comments regarding this proposed regulation, so there will be more to come in the months ahead.

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