Fee Disclosure Failure Notice
The Federal law governing private-sector retirement plans, the Employee Retirement Income Security Act (ERISA), requires fiduciaries (those responsible for managing retirement plans) to ensure that the services provided to their plan are necessary and that contracts or arrangements for services, and the cost of those services, is reasonable.
The Department of Labor's Employee Benefits Security Administration (EBSA) recently published a final rule governing the service provider disclosures that are required for a service contract or arrangement to be reasonable. The rule, which will take effect on July 1, 2012, requires covered service providers to disclose certain information to fiduciaries about the services they will provide to the plan and the compensation they will receive, including indirect compensation from sources other than the plan. This information is needed in order for the fiduciary to understand the services, assess the reasonableness of the compensation (direct and indirect) received by the service providers, and identify any conflicts of interest that may impact the service provider's performance.
If a service provider fails to provide the required information, the contract or arrangement between the plan and the service provider is prohibited by ERISA, and the plan fiduciary will have engaged in a prohibited transaction. However, the final rule exempts from this prohibition plan fiduciaries who did not know that the service provider had failed to disclose some of the required information. To qualify for the exemption, the plan fiduciary must, among other things, request the missing information from the service provider in writing and, if that fails, the fiduciary must notify EBSA within a certain timeframe. Plan fiduciaries will be able to submit the notice to EBSA online through this web page.
The online filing system for the notice to EBSA is currently under development and will be available before the date needed to comply with the exemption. Additional information about submitting the notice online will also appear on this web page.
For additional information about the service provider disclosure rule and class exemption, see the fact sheet at www.dol.gov/ebsa/newsroom/fs408b2finalreg.html. The full text of the rule and class exemption can be found at webapps.dol.gov/FederalRegister/HtmlDisplay.aspx?DocId=25781&AgencyId=8&DocumentType=2. The model fee disclosure failure notice is available at http://www.dol.gov/ebsa/DelinquentServiceProviderDisclosureNotice.doc [Printer Friendly Version]
