On 16 July 2010, the US Department of Labour (the DOL) issued an interim final rule (the Rule) requiring the disclosure of compensation paid in connection with the performance of services to an employee pension plan. Compliance with the Rule is a condition to the statutory exemption from the prohibited transaction rules under the Employee Retirement Income Security Act of 1974, as amended (ERISA), for providing services to plans. The Rule will likely require many service providers to pension plans, in particular fiduciaries, to "plan asset" investment funds and recordkeepers, to make significant changes in their disclosure practices. The Rule is effective from 16 July 2011.

Disclosure must be provided by "covered service providers". Covered service providers fall into three broad categories:

Covered service providers must disclose the following:

Disclosure must be written, but need not be in any particular form or in a single document. There is no requirement that plans and service providers enter into formal written contracts setting out disclosure obligations or provide narrative conflict-of-interest disclosure, as contemplated by the proposed Rule.

While investment advisers to funds whose assets are considered plan assets are fiduciaries and thus, covered service providers subject to the Rule, investment advisers of non-plan asset funds generally will not be required to provide the disclosures.

The requirement that fiduciaries disclose indirect compensation and compensation among related parties will likely require investment advisers to provide additional and more detailed disclosure in their offering documents regarding the services that will be provided to the plan asset fund, the cost of those services, the source of the compensation (for example; from the assets of the fund) and the identity of the payer.

Recordkeepers for defined contribution plans are considered covered service providers under the Rule. If the recordkeeper reasonably expects to provide recordkeeping services without direct compensation, or if compensation for recordkeeping services is offset or rebated based on other compensation received by the recordkeeper (or a related party), the recordkeeper must provide the plan fiduciary with a reasonable, good faith estimate of the cost of the recordkeeping services.

Responsible plan fiduciaries must determine whether they have sufficient information regarding the arrangement to determine whether the cost is reasonable. As a result, plan fiduciaries need to identify covered service providers and be prepared to contact them so that they receive required disclosure in a timely manner. Plan fiduciaries will need to analyse the information provided, conduct any necessary follow-up inquiries, and evaluate whether to change service providers.

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