Final Fee Disclosure Rules for Service Providers to Pension Plans: Department of Labor Regulations Modify Fee Disclosure Rules for Service Providers to Pension Plans

Sullivan & Cromwell LLP - February 17, 2012
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The Department of Labor recently issued final fee disclosure regulations for service providers to pension plans, 401(k) plans and other similar arrangements (the “Final Regulations”). The Final Regulations in large part adopt the interim final regulations issued by the Department of Labor (the “DOL”) on July 16, 2010 (the “Interim Final Regulations”), with the modifications and expansions summarized below. The Final Regulations extend the effective date of the Interim Final Regulations from April 1, 2012 to July 1, 2012 in order to allow service providers time to comply with the new rules.

As discussed in more detail in our Memorandum to Clients dated July 30, 2010 (the “S&C July 2010 Memo”), the Interim Final Regulations required Covered Service Providers to Covered Plans (each as defined below) to provide specifically enumerated fee-related disclosures to the Covered Plan in order to avoid a prohibited transaction under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the corresponding provisions of the Internal Revenue Code (the “Code”). The Interim Final Regulations also provided a class exemption for plan fiduciaries (the “Responsible Plan Fiduciary”) who rely on the disclosures provided by Covered Service Providers.

While largely adopting the Interim Final Regulations and the related class exemption, the Final Regulations:

  • Exclude from the definition of Covered Plan certain grandfathered tax-exempt annuities and accounts of employees of tax-exempt organizations;
  • Expand the Covered Service Provider’s disclosure obligations, including changes designed to assist the Responsible Plan Fiduciary to comply with its own reporting and disclosure obligations with respect to participant directed individual account plans;
  • Provide greater flexibility with respect to the timing for making required disclosures with respect to plan investments and correcting of errors; and
  • Require the Responsible Plan Fiduciary to terminate its contract or arrangement with a Covered Service Provider if the Covered Service Provider fails to provide the required disclosures promptly after a 90-day period following notice from the Responsible Plan Fiduciary.

In addition, the DOL intends to publish a “guide or similar tool” designed to enable the Responsible Plan Fiduciary to locate compensation information disclosed through multiple or complex documents, which the DOL intends to publish “soon”. In the meantime, the DOL encourages Covered Service Providers to use the sample disclosure guide included with the Final Regulations.