4151 / What disclosures are required of a 401(k) plan’s third party recordkeeper under the DOL 408(b)(2) regulations?

A recordkeeper is required to provide disclosures if it receives indirect compensation or if the plan has a designated investment alternative. Most recordkeepers that work with mutual fund investments receive indirect compensation from the funds in the form of sub-transfer agency fees and other revenue sharing or indirect compensation, as well as direct compensation in the form of fees for participant transactions such as loan maintenance or distributions.

If a covered service provider is offering recordkeeping services for free or expects the services to be provided without explicit compensation, the recordkeeper is required to provide the responsible plan fiduciary with a good faith estimate as to the cost of the recordkeeping services that will be provided. The estimate for recordkeeping services must take into account the rates that a covered service provider would normally charge to a plan to perform the recordkeeping or the prevailing market rates charged for similar recordkeeping services for a similar plan with a similar number of covered participants and beneficiaries.

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Planning Point: Practically, this disclosure requirement will most affect bundled providers that sell their recordkeeping services as free to be made up with higher investment costs in other places.

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