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Be Prepared by Jan. 1 for Pension Service Fee Disclosures

May 5, 2011 3 Min Read Employee Benefit Plans
Mark G. Metzler, CPA, CGMA, CEPA
Mark G. Metzler, CPA, CGMA, CEPA Director, Audit & Accounting

Disclosure requirements for 408(b)(2) fees have been the buzz in the employee benefit plan arena since the Department of Labor (DOL) published its interim final regulation in July 2010. The regulations, originally effective July 16, 2011, require certain service providers to employee pension benefit plans to disclose information to assist plan fiduciaries in understanding the reasonableness of the fees charged for plan services and assess potential conflicts of interest that might affect the quality of those services.

Recently, the DOL’s Employee Benefits Security Administration (EBSA) extended the applicability date for the new disclosure rules under section 408(b)(2) of the Employee Retirement Income Security Act (ERISA) to January 1, 2012.

"The department intended to have final rules in place sufficiently in advance of the July 16 applicability date to avoid compliance problems for both plans and their service providers," says Phyllis C. Borzi, Assistant Secretary of EBSA. "Given the need to ensure a careful review of all the valuable input we received on the interim final rule, including suggestions for a summary document to further assist plan fiduciaries in their review of furnished information, we now believe plans and plan service providers would benefit from an extension of the rules applicability date.

“An extension of the applicability date to January 1, 2012 will ensure that we have the time we need to get the final rule right and that plans and their service providers have the time they need to undertake orderly and efficient compliance efforts following publication of the final rule.”

The regulations under ERISA section 408(b)(2) focus on disclosure of the direct and indirect compensation that service providers receive and strengthen the existing prohibited transaction rules under ERISA and the Internal Revenue Code (IRC). The new disclosure obligations are designed to provide plan fiduciaries with the necessary information to make informed decisions when choosing and monitoring covered plan service providers.

The requirements apply to covered plans, including all ERISA-governed defined contribution and benefit pension plans. They do not apply to simplified employees pensions (SEPs), individual retirement accounts (IRAs), SIMPLE IRA plans, SEP IRAs, or welfare benefit plans.

Covered service providers generally fall into three categories: 1) ERISA fiduciary or investment advisor under the Investment Advisers Act of 1940 or any state law; 2) recordkeeping or brokerage service provider to a participant-directed individual account plan or 3) other service providers who are indirectly compensated.

To be prepared for the January 1, 2012, effective date, plan fiduciaries should develop a plan to obtain and review the 408(b)(2) fee disclosure information from their covered service providers. Service providers not in compliance will be subject to the prohibited transaction rules of ERISA and related excise tax under the IRC.

Mark G. Metzler can be reached at Email or 215.441.4600.

Contact the Author

Mark G. Metzler, CPA, CGMA, CEPA

Mark G. Metzler, CPA, CGMA, CEPA

Director, Audit & Accounting

Employee Benefit Plans Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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