Perhaps after reading too many voluminous, jargon-filled fee disclosure agreements, the Department of Labor became fed up and decided to take action. Last week, the DOL issued a proposed rule that would amend its final service provider fee disclosure regulation under ERISA Section 408(b)(2).
The proposed rule will require covered service providers to pension plans (including 401(k) plans) to provide a guide to assist plan fiduciaries in reviewing disclosures required by the final rule where such disclosures are contained in "multiple or lengthy documents." The proposed rule will not require covered service providers to provide this new guide if they already furnish the required initial disclosures to plan fiduciaries in a "concise, single document." The guide will have to identify the specific page number, section or specific location of documents containing important information about the service provider's relationship to the plan, including information about compensation, fees and the services provided.
The DOL is currently soliciting comments on the proposed rule, including comments on the issue of "how many pages" and "what length of document" will trigger the requirement to provide a guide, as well as whether a page number locator requirement is an appropriate standard.
In a press release about the proposed rule, Assistant Secretary of Labor for the DOL/EBSA, Phyllis Borzi, stated, "[m]uch like a roadmap, a guide can help employers locate fee information, which will help them better understand what they are being charged by financial services providers."
While this is a positive development for employers who have been trying to get a better handle on their plan's fees, some have argued that it doesn't do enough to simplify the maze of complicated financial jargon that employers must sift through, and that an easier solution to the problem would be to limit the entire disclosure document to a few pages.
Some background on the DOL's fee disclosure rule: The DOL promulgated the final rule in early 2012. It requires disclosure of compensation and fees from service providers to plan fiduciaries of pension plans in order for the provider's contract with the plan to be considered "reasonable" under ERISA Section 408(b)(2), and therefore, not a prohibited transaction. The final rule became effective for covered plans on July 1, 2012.
While the final rule (at the time that it was published) did not require covered service providers to make the required initial disclosures in any specific format, the DOL made available a sample guide as an appendix to the final rule, and reserved paragraph (c)(1)(iv)(H) of the final rule in order to publish, in a separate proposal, a guide or similar requirement to help plan fiduciaries review the required disclosures.
Originally published in Employee Benefit News.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
