DOL Issues Final ERISA Section 408(b)(2) Regulations

On February 2, 2012, the Department of Labor (DOL) issued final regulations under Section 408(b)(2) of the Employee Retirement Income Security Act of 1974 (ERISA) requiring that certain service providers to pension plans disclose information about the service providers' compensation and potential conflicts of interest. These regulations make several changes to the interim final regulations previously issued by the DOL, including delaying the effective date to July 1, 2012.

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On February 2, 2012, the DOL issued long-awaited final regulations under ERISA Section 408(b)(2) requiring that certain service providers to pension plans disclose information about the service providers' compensation and potential conflicts of interest to the responsible fiduciaries of these plans ...show full speedread

On February 2, 2012, the DOL issued long-awaited final regulations under ERISA Section 408(b)(2) requiring that certain service providers to pension plans disclose information about the service providers' compensation and potential conflicts of interest to the responsible fiduciaries of these plans. These regulations make several significant changes to the interim final regulations previously issued by the DOL, including:

  • Excluding certain frozen IRC Section 403(b) plans issued before January 1, 2009 from coverage under the regulations.

  • Enhancing the information relating to "indirect compensation" required to be disclosed.

  • Adding certain investment-related disclosures to facilitate compliance with DOL regulations under ERISA Section 404(a).

  • Extending the effective date to July 1, 2012. This delays the effective date of most participant-level disclosures under ERISA Section 404(a) to August 30, 2012.

Close speedread

On February 2, 2012, the DOL issued final regulations under ERISA Section 408(b)(2) requiring that certain service providers to pension plans disclose information about the service providers' compensation and potential conflicts of interest to the responsible fiduciaries of these plans. These final regulations replace the DOL's interim final regulations that were previously issued in July 2010 (IFRs) and extend the effective date of the regulations from April 1, 2012, to July 1, 2012, to allow additional time for compliance.

The most significant changes made by the final regulations to the IFRs include:

  • Excluding frozen IRC Section 403(b) annuity contracts and custodial accounts that were issued before January 1, 2009, from the types of pension plans covered by the regulations, where the:

    • sponsoring employer ceased making contributions;

    • rights or benefits of individual owners of the contracts or accounts are enforceable against the insurer or custodian without employer involvement; and

    • individual owners are fully vested in the benefits provided under the contract or account.

  • Increasing the information that must be disclosed relating to any indirect compensation received by a covered service provider to include a description of the arrangement made between the payer of the indirect compensation and the service provider.

  • Revising the investment-related information that must be disclosed by providers of fiduciary services to an investment contract, product or entity that holds plan assets and in which the plan has a direct equity investment to provide consistency for parties that are also required to comply with the DOL's participant-level disclosure regulation under ERISA Section 404(a).

  • Permitting providers of recordkeeping or brokerage services required to provide investment-related information to comply with the regulations by providing information from the investment issuer's current disclosure materials, provided the issuer is one of the regulated entities described in the regulations.

  • Including an optional summary guide to assist responsible plan fiduciaries with their review of required disclosures and reserving a place for the future development of provisions by the DOL that would require the covered service provider to furnish this type of summary guide or similar tool.

  • Changing the deadline for disclosures of changes to investment-related information so that providers may disclose all the changes on an annual basis instead of being required to separately disclose each change within 60 days of the date the provider knows of the change.

  • Revising the deadline for providing related reporting and disclosure information to responsible plan fiduciaries to coordinate with the date the plan intends to comply with ERISA's general reporting and disclosure requirements, rather than the prior requirement to provide this information on request.

  • Clarifying that any errors or omissions made by the covered service provider in disclosures of changes to previously disclosed information can be corrected within 30 days of the date the provider knows of the errors or omissions.

  • Requiring any covered service provider that provides recordkeeping services to include a detailed explanation of the recordkeeping services provided to the plan and the cost of those services.

  • Changing one of the conditions for relief under the class prohibited transaction exemption to require responsible plan fiduciaries to terminate the service arrangement if the provider does not comply with the plan's written request for information relating to future services promptly after the 90-day period authorized in the exemption.

As a supplement to the final regulations, the DOL also released a:

Practitioners should carefully review these regulations to determine the appropriate disclosures to be made in advance of the July 1, 2012, effective date. In addition, practitioners should take note that the effective date of the participant-level fee disclosure regulations under ERISA Section 404(a) is generally delayed as a result of this extension until August 30, 2012. For more information, see Practice Notes, Service Provider Disclosure Requirements for Pension Plans (www.practicallaw.com/7-508-2407) and Disclosure Requirements for Participant-Directed Defined Contribution Plans (www.practicallaw.com/7-506-5295).

Both of these Practice Notes will be updated shortly to reflect this guidance.

 
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