The following News Flash was sent out to remind benefit plans about the final regulation relating to service provider disclosures under Section 408(b)(2) and its July 1 deadline. This regulation applies to all pension plans, including nonprofit organization pension plans. The deadline has passed and plan administrators are encouraged to follow up with service providers who have not complied with the regulation. Contact your attorney to ensure your organization's plan is in compliance.
In February 2012, the U.S. Department of Labor Employee Benefits Security Administration issued the Final Regulation relating to service provider disclosures under Section 408(b)(2) of ERISA.
According to the DOL: "The Employee Retirement Income Security Act (ERISA) requires plan fiduciaries, when selecting and monitoring service providers and plan investments, to act prudently and solely in the interest of the plan's participants and beneficiaries. Responsible plan fiduciaries also must ensure that arrangements with their service providers are 'reasonable' and that only 'reasonable' compensation is paid for services. Fundamental to the ability of fiduciaries to discharge these obligations is obtaining information sufficient to enable them to make informed decisions about an employee benefit plan's services, the costs of such services, and the service providers."
Currently, this regulation applies only to pension plans (including annuity plans and 401(k) plans). The DOL intends to separately publish disclosure requirements for welfare plans in the future.
This final rule establishes, for the first time, specific disclosure obligations for plan service providers to ensure that responsible plan fiduciaries are provided the information they need to make informed decisions when selecting and monitoring service providers for their plans.
The regulation is effective for both existing and new contracts or arrangements between covered plans and covered service providers (CSP) as of July 1, 2012. Service providers not in compliance as of July 1, 2012 will not be considered to have a "reasonable arrangement" with the plan. As a result, fees from such service providers would be subject to prohibited transaction rules of ERISA Section 406 and Internal Revenue Code Section 4975 penalties, and require the auditor to disclose the prohibited transaction in both the Form 5500 and audited financial statements. It is the responsibility of the plan to request required documentation from all of its plan's CSPs in order to comply with the regulation.
The DOL released a Fact Sheet highlighting significant provisions within the regulation. The Fact Sheet is posted on the DOL's website at: http://www.dol.gov/ebsa/newsroom/fs408b2finalreg.html.
Contact your attorney to coordinate the actions required to ensure your plan's compliance with the new regulation and avoid potential prohibited transactions.