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Regulation and Compliance > Federal Regulation

Labor Posts Plan Disclosure Regs

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The Employee Benefits Security Administration has added a disclosure error correction provision to new retirement plan fee disclosure regulations.

EBSA, an arm of the U.S. Department of Labor, also has added rules that may help independent plan recordkeepers compete for business against companies that bundle recordkeeping services together with other plan services.

EBSA included the provisions in an interim final rule that will affect the disclosures fiduciaries make for 401(k) plans and other retirement plans.

The rule, which is set to appear in the Federal Register Friday, is supposed to ensure that retirement plan service providers give plan sponsors and plan fiduciaries information they can use to determine whether plan service compensation amounts are reasonable and whether providers have conflicts of interest.

The rule implements provisions of the Pension Protection Act of 2006 and modifies the rules governing the disclosure requirements plans must meet to qualify under Section 408(b)(2) of the the Employee Retirement Income Security Act (ERISA) for a statutory exemption from the ERISA prohibited transactions list.

The rule applies to both defined benefit plans and defined contribution plans subject to Title I of ERISA, but it does not apply to individual retirement accounts, simplified employee pensions governed by Section 408(k) of the Internal Revenue Code (IRC), or simple retirement accounts governed by IRC Section 408(p), officials say.

EBSA says it will develop separate disclosure standards for welfare plans but expects those plans to fiduciaries’ to get and consider information about costs of plan services and potential conflicts of interest.

EBSA has been working on the rule for years. Regulations developed while President Bush was in office were supposed to take effect after President Obama became president. The Obama administration postponed implementation several times, then canceled implementation and announced plans to draft its own regulations.

In June, Rep. George Miller, Calif., D-Calif., chairman of the House Education and Labor Committee, tried to add disclosure provisions to H.R. 4213, a bill that included pension funding rule changes.

Miller and other lawmakers, such as Sen. Tom Harkin, D-Iowa, noted that existing Labor Department disclosure rules applied only to retirement plans governed by ERISA, and not to other types of plans.

Lawmakers trying to steer H.R. 4213 through Congress persuaded supporters of the Miller disclosure proposal to leave it out of H.R. 4213 by telling them that EBSA was about to include new disclosure rules in the regulations it was developing.

Miller and Harkin helped shape the regulations released today “by highlighting the negative consequences that undisclosed fees can have for workers’ retirement security,” Labor Secretary Hilda Solis says in a statement.

The interim final rule will service providers to disclose both direct and indirect compensation.

The rule applies to plan service providers that expect to receive $1,000 or more in compensation and that provide specified fiduciary or registered investment advisory services; make available plan investment options in connection with brokerage or recordkeeping services; or otherwise receive indirect compensation for providing certain services to the plan, officials say.


The original regulation did not say what service providers should do if they accidentally left out information or provided incorrect information.

Commenters told EBSA the risk was especially high if multiple service providers were involved, and they asked EBSA to come up with a mechanism for fixing inadvertent mistakes, officials say.

Some comments proposed letting providers correct minor or accidental errors during a “cure period,” requiring only “reasonable” or “good faith” compliance with disclosure obligations, or letting service providers use the Labor Department’s Voluntary Fiduciary Correction

“The department was persuaded by commenters that relief should be provided so that certain inadvertent errors and omissions do not result in a prohibited transaction,” officials say.

The final rule provides that no contract or arrangement “will fail to be reasonable under the regulation solely because the covered service provider, acting in good faith and with reasonable diligence, makes an error or omission in disclosing the information required by the regulation,” officials say.

The service provider must disclose the correct information as soon as practicable, and within 30 days of learning about the error or omission, officials say.


Many insurers and other organizations that bundle plan administration services, investment services and other services together have asked EBSA to limit how much detail they have provide for specific services.

Breaking down charges for individual services will be difficult and expensive, those organizations have argued.

Groups that represent independent providers of recordkeeping services and other services have asked EBSA to require as much detail as possible, to ensure that plan sponsors are making apples-to-apples comparisons.

In the new regulations, EBSA has boosted the recordkeepers.

The original proposed rule would have required providers of bundled services to “disclose information concerning all of the services to be provided in the bundle, regardless of who actually performs the service.”

The bundled provider would have been required to break down the aggregate compensation only when the compensation was separately charged against the plan’s investment, such as management fees and 12b-1 fees, or was set on a transaction basis, such as finder’s fees and brokerage commissions, officials say.

The final interim rule says a “covered service provider generally may disclose the direct compensation received from the plan either as a total for all services (i.e., in the aggregate) or on an itemized, service-by-service basis,” officials say.

But, if recordkeeping services are involved, the plan service provider must “furnish a description of all direct and indirect compensation that the covered service provider, an affiliate, or a subcontractor reasonably expects to receive in connection with such recordkeeping services,” officials say.

If the provider believes recordkeeping services will be bundled in, “without explicit compensation for such recordkeeping services, or when compensation for recordkeeping services is offset or rebated based on other compensation received by the covered service provider, an affiliate, or a subcontractor,” the service provider must “furnish a reasonable and good faith estimate of the cost to the covered plan of such recordkeeping services.”

EBSA added the recordkeeping cost provision because of the Labor Department’s belief that plan fiduciaries need good information about recordkeeping costs and now often have a hard time getting recordkeeping fee figures, officials say.

To accommodate industry variation in how recordkeeping costs are handled, EBSA has included a standard for estimating recordkeeping costs, officials say.


The American Society of Pension Professionals & Actuaries (ASPPA), Arlington Va., a group the represents the independent providers, likes the new regulations, according to ASPPA Executive Director Brian Graff says.

“Complete and consistent fee disclosure, including the specific requirement for the disclosure of fees associated with recordkeeping services, is now the standard for both bundled and unbundled service providers,” Graff says. “By promoting fair competition, these new fee disclosure requirements will help ensure that the fees paid by plan sponsors and participants for retirement plan services are reasonable.”

The retirement services arm of Nationwide Mutual Insurance Company, Columbus, Ohio — a major provider of bundled services — says it supports the new regulations.

“Nationwide is committed to complying with the regulations and also providing feedback to the [Labor Department] should we feel it’s warranted after a comprehensive review,” the company says in a statement.

Nationwide introduced a fee disclosure program in 2008 that appears to comply with the new rules, and that program has been popular with plan sponsors, the company says.


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