New Fee Disclosure Rules for Service Providers to Pension Plans: New Regulations Issued by the Department of Labor Impose Detailed Fee Disclosure Rules on Service Providers to Pension Plans

Sullivan & Cromwell LLP - July 30, 2010

The Department of Labor recently issued interim final regulations (the “Interim Final Regulations”) imposing detailed fee disclosure requirements on certain service providers to pension plans, 401(k) plans and other similar arrangements. For the reasons discussed below, these regulations will be broadly applicable to service providers in the pension services industry and to the plan administrators and fiduciaries who hire them.

The Interim Final Regulations replace and modify in many respects regulations proposed by the Department of Labor on December 13, 2007. As a general matter, the Interim Final Regulations:

  • Require “covered service providers” to provide the plan fiduciary of a “covered plan” a written description of the services provided and a written description of compensation received directly from the plan and compensation received from other parties, including compensation paid to affiliates of the service provider;
  • Define “covered plan” to include primarily private domestic pension plans, 401(k) plans and other similar arrangements, but specifically do not apply to IRAs;
  • Specifically do not apply to health, medical, disability, vacation plans, or other similar plans and arrangements, which are reserved for future regulatory guidance; and
  • Define covered service providers generally as (1) service providers who are fiduciaries directly to the plan or to a vehicle or arrangement treated as holding assets of a plan under ERISA and the regulations thereunder, (2) certain service providers who provide investment platforms to participant directed individual account plans (such as 401(k) plans), and (3) service providers who receive indirect compensation or compensation from affiliates.

The Department of Labor has invited public comment on the new regulations prior to August 30, 2010. If unchanged, however, the new regulations become effective July 16, 2011 in their current form. Service providers with respect to contracts or arrangements entered into before July 16, 2011 must comply with the new disclosure requirements as of that date.