Finally, the Department of Labor has issued the final service provider fee disclosure regulation, otherwise known as the 408(b)(2) regulation. In addition to removing the “Interim” tag on the regulations, a few changes were made to the disclosure rules and the effective date for compliance was moved back to July 1, 2012. The following are some of the newest changes to what have been referred to as the “reasonable contract” regulations:
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Certain 403(b)s excluded from the requirements. Must have been issued to employees prior to 1/1/2009, the employer ceased making contributions, individual employees can enforce contracts without employer’s involvement, and individuals are fully vested.
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Reporting of indirect compensation. The service provider must describe any arrangement between the payer and the service provider so that the fiduciary can understand why the payer is compensating the service provider.
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Investment-related disclosures. Service providers may comply with requirements regarding the investment-related disclosures by providing current disclosure materials of the investment issuer (like a mutual fund’s prospectus) as long as the institution issuing the disclosure materials is regulated (previously the materials themselves, not the institution, had to be regulated).
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Fiduciary action upon service provider failure to disclose. If the service provider fails to provide disclosures within 90 days of the fiduciaries’ written request the fiduciary must determine whether or not to terminate the contract consistent with its duty of prudence. If the information relates to future services and is not promptly disclosed after the 90 days, the fiduciary must terminate the arrangement “as expeditiously as possible.”
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Effective dates delayed. The new effective date for the service provider disclosures to plan fiduciaries is now July 1, 2012. Because the new participant-level disclosure regulations’ effective date is predicated upon the 408(b)(2) effective date, the initial disclosure is now pushed back to the end of August and the first quarterly statements that must comply with the new participant disclosure rules will have to be delivered by November 14 (for calendar year plans).
401(k) Advisors will continue to keep you apprised of developments as they occur. In the meantime email us at help@401kadvisors.com if you have questions or require assistance.
