EBSA issues final rule on 401(k) fee disclosures for service providers
Posted February 3, 2012
On February 2, the U.S. Department of Labor's Employee Benefits Security Administration (EBSA) issued a final rule that will provide employers sponsoring pension and 401(k) plans with information about the administrative and investment costs associated with providing such plans to their workers. The department also extended the effective date of the rule by three months.
The final rule establishes specific disclosure obligations for plan service providers. Providers are required to provide plans with the information they need to:
- Assess the reasonableness of total compensation, both direct and indirect, received by the service provider, its affiliates, and its subcontractors;
- Identify potential conflicts of interest; and
- Satisfy reporting and disclosure requirements under Title I of the Employee Retirement Income Security Act (ERISA).
EBSA is strongly encouraging service providers to offer plans a “guide,” summary, or similar tool to assist plan fiduciaries in identifying all of the disclosures required under the final rule, particularly when service arrangements and related compensation are complex and information is disclosed in multiple documents. EBSA intends to publish a notice of proposed rulemaking in the near future under which covered service providers may be required to furnish such a guide or similar tool.
The final rule replaces an interim final rule published on July 16, 2010. The interim final rule’s effective date of April 1, 2012, was extended by the final rule to July 1, 2012. For plan administrators, this means that the new effective date also will impact when fee disclosures must first be furnished to plan participants. The transitional rule for the participant-level disclosure regulation was revised in July 2011 so that the first disclosures would follow the effective date of the regulation affecting service providers. This means, for calendar year plans, the initial annual disclosure of “plan-level” and “investment-level” information (including associated fees and expenses) must be furnished no later than August 30, 2012 (60 days after service-provider regulation’s July 1 effective date). The first quarterly statement must then be furnished no later than November 14, 2012, which is 45 days after the end of the third quarter (July through September), during which initial disclosures were first required. This quarterly statement need only reflect the fees and expenses actually deducted from the participant or beneficiary’s account during the July through September quarter to which the statement relates.
The final rule released February 2 applies to ERISA-covered defined benefit and defined contribution pension plans. It does not apply to simplified employee pension plans (SEPs), SIMPLE retirement accounts, IRAs, and certain annuity contracts and custodial accounts described in Internal Revenue Code section 403(b). The final rule also does not apply to employee welfare benefit plans.
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