March 11, 2014
EBSA Proposes Rules for 408(b)(2) 'Guide' for Disclosures Between Service Providers, Fiduciaries
The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) released long-awaited proposed regulations on March 11 generally requiring retirement plan service providers to furnish a separate explanatory “guide” (or similar tool) to plan fiduciaries along with initial standard information disclosures. Annual notice of any changes to the guide would be required, though EBSA is requesting comments on whether the entire guide should be provided to fiduciaries on an annual basis.
Under Section 408(b)(2) of ERISA (and final regulationsissued in February 2012), service providers must make disclosures – including plan fees – to responsible plan fiduciaries in order for contracts or arrangements between the parties to be considered “reasonable.” According to the proposed regulations, which would amend the 408(b)(2) final regulations, “A guide or similar requirement may assist fiduciaries, especially fiduciaries to small and medium-sized plans, in identifying and understanding the potentially complex disclosure documents that are provided to them or if disclosures are located in multiple documents.” The guide would be required unless the disclosures are already in a single document containing all the information and that single document is under a (yet-to-be specified) page limit. The proposal does not include a model, although the preamble indicates that EBSA expects the guides to resemble the previously released model.
In previous comments to EBSA, the Council had suggested allowing service providers to provide a “roadmap” (like a guide) to the location of all of the relevant disclosures in lieu of a more formal summary statement. Although it appears that EBSA followed the Council’s suggested approach in its latest proposal, the proposed regulations request comments on whether a summary disclosure document should be required.
In addition, EBSA indicates that the guide must include not only the identity of the document, but also where the information can be located within the document. The proposal requests comments on two alternative methods of providing the location within the document: (1) identifying the page on which the information can be found, and (2) a “sufficiently specific” locator, such as a section (but only if the plan fiduciary could “quickly and easily find” the information). In a nod to electronic disclosure, the proposal also allows “direct links to the required information on an Internet/webpage” but only if the link is directly to the required information, or a page or other sufficiently specific locator is furnished (and the website must be readily accessible to the fiduciary who must receive clear notification of how to gain access). The proposal would permit a choice of locator but asks for comments on whether the rule should require only one locator, and why. It appears EBSA may have selected the guide instead of a summary in the proposal out of concern that plan fiduciaries might rely on the summary rather than the actual disclosures.
Under the proposed regulations, the service provider must disclose the location of:
(1) the description of services to be provided to the plan;
(2) a statement concerning any services to be provided as a fiduciary and/or as a registered investment advisor;
(3) a description of all direct compensation (which generally means compensation received directly from the plan);
(4) a description of all indirect compensation (which generally means any compensation from any source other than the plan, the service provider or an affiliate, or the plan sponsor);
(5) a description of any compensation that will be paid among related parties;
(6) a description of any compensation that would be paid for termination of the contract or arrangement;
(7) a description of compensation paid for recordkeeping services; and
(8) for platform providers and fiduciaries of plan asset vehicle investments, the fees associated with the product (e.g., sales charges and the expense ratio).
The guide must also identify a person or office that the fiduciary can contact with questions about the disclosures.
EBSA is soliciting comments on the proposed regulations through June 9, with particular attention to:
- the regulatory alternatives discussed in Section 4 of the Regulatory Impact Analysis;
- the structure of the guide, as proposed, and whether its requirements are feasible and cost-effective (commenters are invited to provide specific and itemized cost data);
- comments and suggestions as to alternative tools that would assist plan fiduciaries in reviewing the initial disclosures; and
- as previously mentioned, whether the amendment instead should require that covered service providers furnish a summary of specified “key” disclosures.
EBSA proposes to make the guide requirement effective 12 months after publication of the final rules, although it is not clear whether the guide would be required for all plan service arrangements, or only those that are entered into or renewed after the effective date.
EBSA also announced its intention to conduct approximately 8-10 focus group sessions with approximately 80 to 100 fiduciaries to small pension plans (less than 100 participants). The focus group will explore current practices and the effects of EBSA’s final regulation. According to EBSA, the focus groups may provide information about the need for a guide, summary or similar tool to help fiduciaries navigate and understand the required disclosures. Results of the focus groups will be made available to the public and the DOL may reopen the comment period on the proposed regulations to solicit comments on the results.
For more information, or to provide input for the Council’s comment letter, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.