More On Legal & Compliancefrom The Advisor's Professional Library
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- Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
The Department of Labor’s Employee Benefits Security Administration (EBSA) issued on Monday guidance to help plan administrators and service providers comply with the requirements of new rules 408(b)2 and 404(a), which are designed to improve the transparency of fees and investment expenses in retirement plans.
The guidance—Field Assistance Bulletin No. 2012-02—includes a set of frequently asked questions and answers.
Phyllis Borzi, assistant secretary of Labor for EBSA, said in a statement that the guidance “will help both plan administrators and covered service providers comply with their obligations under the department’s new fee-transparency rules, so that workers who make their own investment decisions in retirement plans will have the information they need to make informed investment choices.”
She said EBSA was also working on a second set of frequently asked questions and answers focused more narrowly on the new rules for disclosure by covered service providers.
DOL published its final rule on its participant-level disclosure rule, 404(a), on October 20, 2010. The final rule requires the disclosure of information regarding the fees and expenses associated with participants’ plans, as well as ensures that workers receive core investment information in a format that enables them to meaningfully compare their plan’s investment options.
408(b)2, which was published on Feb. 3 and becomes effective in July, requires, in part, that certain covered service providers furnish specified information to plan administrators so that they in turn can comply with their disclosure obligations to participants.
A sample of questions and answers covered in the bulletin are as follows:
Q-1: A plan has both participant-directed and trustee-directed investments. Participants have the right to make investment decisions with respect to the portion of their accounts attributable to employee contributions. The plan's trustee directs the investment of the remainder of their accounts (e.g., employer contributions). Is this plan covered by the regulation?
A-1: Yes, this plan is a "covered individual account plan" under paragraph (b)(2) of the regulation. This means the plan administrator must comply with the plan-related disclosures in paragraph (c) and the investment-related disclosures in paragraph (d). However, the plan administrator is not required to provide the investment-related information required under paragraph (d) of the regulation for the trustee-directed investments. Rather, the plan administrator's obligation under paragraph (d) is limited to the plan's designated investment alternatives.
A-2: Yes. Pursuant to section 401 of ERISA, the regulation covers 403(b) plans established or maintained by tax-exempt organizations. See 75 FR 64921. However, consistent with Department's Field Assistance Bulletins 2010-01 and 2009-02, and 29 CFR § 2550.408b-2(c)(1)(ii), the Department will not take enforcement action against any plan administrator who reasonably determines it would be impracticable, or impossible, to obtain the information necessary to meet the disclosure requirements under paragraph (d) of the regulation with respect to any designated investment alternative that is an annuity contract or custodial account described in section 403(b) of the Internal Revenue Code if:
- the contract or account was issued to a current or former employee before January 1, 2009;
- the employer ceased to have any obligation to make contributions (including employee salary reduction contributions), and in fact ceased making contributions to the contract or account for periods before January 1, 2009;
- all of the rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual owner of the contract or account without any involvement by the employer; and
- the individual owner is fully vested in the contract or account.
In general, a plan's election of the transitional relief provided in the Field Assistance Bulletins as well as the applicability of the exemption in § 2550.408(c)(1)(ii) are evidence of the impracticability of obtaining the information required under paragraph (d) of the regulation. The regulation does not apply to tax-sheltered annuities that are not ERISA-covered plans. See 29 CFR § 2510.3-2(f).