DOL Issues Interim Disclosure Regulations for Service Providers

The Department of Labor (DOL) has issued interim regulations for certain service providers to qualified retirement plans that will require additional disclosures to clients (75 Fed. Reg. 41600, July 16). The regulations are under ERISA Section 408(b)(2), which exempts providers from prohibited transaction requirements if they have "reasonable" service arrangements with plans, plan sponsors, and/or parties in interest. The regulations apply to plan fiduciaries, record-keepers, and investment advisors receiving payments from the plan, as well as any other provider (such as an attorney or appraiser) who will receive "indirect" compensation for services to a related party (typically, the company). Indirect compensation includes payment from the plan sponsor. The rules will be more complicated for providers of 401(k) plan services, where fee arrangements are more complicated. For ESOP providers (attorneys, appraisers, record-keepers, and paid fiduciaries, most notably), the regulations will require that there be a specific written agreement outlining the scope of work, direct and indirect compensation, termination compensation, and manner of receipt. Investment entities, brokers, and their fiduciaries that hold plan assets (such as the investments from an ESOP non-stock account) must provide information on fees and expenses related to the investments. Record-keepers must provide additional information, including estimates of the costs of their various services.