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December 14, 2007 at 11:20 PM
The Employee Benefits Security Administration wants providers of bundled benefit plan services to give plan fiduciaries specific information about some vendors’ compensation.
EBSA, an arm of the U.S. Labor Department, has included a bundled service provider section in a new batch of proposed regulations dealing with pension plan and health and welfare plan fee disclosures.
The proposed regulations would affect the role of a plan fiduciary under Section 408(b)(2) of the Employee Retirement Income Security Act of 1974 in ensuring that the contracts with any plan service providers the fiduciary hires are “reasonable.”
Current regulations define a reasonable contract as one that a plan can terminate on reasonably short notice, officials write in a preamble to the proposed regulations, which appear today in the Federal Register.
Under the proposed regulations, EBSA would provide more detailed advice about how to determine whether a benefit plan provider contract or arrangement was reasonable.
For an arrangement to be reasonable under the proposed regulations, a provider would have to agree to furnish – and actually furnish – the fee information and conflict-of-interest disclosures required by the proposed regulations.
The proposed regulations would apply to 3 groups of service providers.
One would include all plan fiduciaries, and a second would include “service providers who provide banking, consulting, custodial, insurance, investment advisory (plan or participants), investment management, recordkeeping, securities or other investment brokerage, or third party administration services, regardless of the type of compensation or fees that they receive.”
A third category would include “service providers who receive any indirect compensation in connection with accounting, actuarial, appraisal, auditing, legal or valuation service.”
Providers could make required disclosures in any written form, including in an electronic format, as long as fiduciaries responsible for hiring service providers received the information before they entered into contracts or arrangements, officials write.
Compensation And Conflict Disclosure
Service provider compensation disclosure would have to include many different kinds of compensation, including trips, gifts, research and float income, as well as fees and commissions.
The Labor Department “believes that an investment of plan assets or the purchase of insurance is not, in and of itself, compensation to a service provider for purposes of this regulation,” officials write. “However, persons or entities that provide investment management, recordkeeping, participant communication and other services to the plan as a result of an investment of plan assets will be treated as providing services to the plan.”
Service providers would have to disclose compensation or fees received by their affiliates from third parties, officials note.
The Labor Department does not want to requiring double counting of compensation, but “disclosure of any direct or indirect compensation that otherwise is required under the proposal cannot be avoided merely because such compensation is paid to an employee or agent of the service provider or an affiliate, rather than directly to such service provider or affiliate,” officials write.
Conflict-of-interest disclosures would have to include reports about relationships or interests that the service provider has in connection with past transactions, material relationships with other parties, and any compensation that the provider can receive without prior approval by an independent fiduciary.
A service provider also would have to tell the plan fiduciaries whether it would see itself as a fiduciary or a non-fiduciary.
Providers would have to supply the sorts of compensation information and other information necessary to fill out a benefit plan Form 5500 tax form even if a plan were too small to be subject to Form 5500 filing requirements, officials write.
Bundled Services
