Dean Piccirillo's List: 408 Research

• The final regulation is effective for both existing and new contracts or  arrangements between covered plans and CSPs as of July 1, 2012. The IFR's April  1 effective date was extended to July 1, 2012
• Plan administrators are reminded that the final rule's new July 1 effective date  also will impact when disclosures must first be furnished under EBSA's  participant-level disclosure regulation (29 CFR § 2550.404a-5). 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  408(b)(2) regulation. Consequently, 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
• The first quarterly statement must then be furnished no later than November 14,  2012

1 more annotation...

• A Comparison of Disclosure Requirements - Section  408(b)(2) and Form 5500 Schedule C
  by Michelle L. McCann, CPA, Partner, and Richard Thiermann,  CPA, Partner
  March 19, 2012

   

  On February 3, 2012, the Department of Labor’s (DOL) Employee  Benefits Security Administration (EBSA) issued a Final Rule for Reasonable  Contract or Arrangement Under Section 408(b)(2) to ensure that pension plan  fiduciaries have sufficient information to determine the reasonableness of  compensation and fee arrangements and to evaluate potential conflicts of  interest that may affect the performance of a service provider.  The Final  Rule, effective July 1, 2012, requires covered service providers to provide  comprehensive fee disclosures, describing their services in addition to all of  their compensation and fee arrangements.

     

  Direct compensation includes payments made  directly from the plan for services rendered to the plan or because of a  person's position with the plan.   Indirect  compensation is compensation received from sources other than directly  from the plan or plan sponsor, including payments to persons or entities for  investment management, recordkeeping, participant communication, and other  services to the plan as part of a transaction with the plan.  Indirect  compensation also includes money or "anything else of value" received in  connection with services rendered to the plan or in connection with the service  provider's position with the plan.

   

  On the surface, the new 408(b)(2) requirements appear  to mirror the Schedule C reporting requirements for the DOL’s revised Form 5500,  which was first effective for 2009 plan years.

   

  Notable Similarities

   

  Both 408(b)(2) and Schedule C disclosure requirements:

   
   
  • Were designed to help the plan sponsor/fiduciary fulfill its fiduciary  obligation to ensure that fees are reasonable 
   
  • Identify potential conflicts of interest
   
  • Require disclosure of direct compensation and indirect compensation received  by service providers
   

  Notable Differences

   

  Upon closer inspection, there are major differences between 408(b)(2) and  Schedule C disclosure requirements, including the scope of plans covered, fees  covered by the disclosure, affected service providers, threshold amounts and  consequences of non-compliance, as shown in the following chart.

• The 408(b)(2) burden on fiduciaries 

   

   

  The Department of Labor’s 408(b)(2) regulation requires that service  providers give plan fiduciaries information about their services, fees, and  compensation. Between now and April 1, 2012, service providers will be giving  those written disclosures to you. After the disclosures are made, the focus  switches to the plan fiduciaries, who must evaluate the information. The  preamble to the interim final regulation explains: "ERISA…obligates plan  fiduciaries to obtain and carefully consider information necessary to assess the  services to be provided to the plan, the reasonableness of the fees and expenses  being paid for such services, and potential conflicts of interest that might  affect the quality of the provided services."