July 1, 2012 has come and gone and ERISA retirement plans should have received fee disclosures from their covered service providers. Now plan fiduciaries have to do something with all that information. Where do you start?
- Do you know who your covered service providers (CSP) are? Service providers who expect to receive at least $1,000 in compensation for services to a covered plan are covered:
- ERISA fiduciary service providers to a covered plan or to a “plan asset” vehicle in which such plan invests;
- Investment advisers registered under Federal or State law;
- Record-keepers or brokers who make designated investment alternatives available to the covered plan (e.g., a “platform provider”);
- Providers of one or more of the following services to the covered plan who also receive “indirect compensation” in connection with such services:
- Accounting, auditing, actuarial, banking, consulting, custodial, insurance, investment advisory, legal, recordkeeping, securities brokerage, third party administration, or valuation services.
- Did you receive appropriate fee information from each CSP? See the final regulations 29 CFR 2550.408(b)(2).
- Read (and understand) the disclosures;
- Determine if there are any conflicts of interest (and resolve them);
- Determine if the fees are reasonable for the services provided (and if not, negotiate a reduction of fees or seek to replace the CSP).
If you discover that one (or more) of your CSPs has not provided disclosures that comply with the regulations, it is the plan fiduciary’s responsibility to request the required disclosure from the CSP in writing. Within 90 days of such request the CSP must either provide the missing information or explain why it is not required.
Keep track of that 90 day deadline! If the CSP does not respond appropriately within 90 days, the plan fiduciary MUST:
- notify the DOL of the failure within 30 days; and
- immediately take steps to replace the CSP.
It is the DOL’s position that a contract or arrangement with a CSP is unreasonable if the required fee disclosure is not made. Accordingly, the DOL maintains that a plan fiduciary breaches its duty of prudence under ERISA if the plan fails to terminate such contracts or arrangements as expeditiously as possible consistent with prudence. Failing to discontinue such an arrangement could result in a prohibited transaction, leaving the plan fiduciaries personally liable for the resulting financial penalties and excise taxes.
Of course, this is just the tip of the iceberg. By the end of August, you need to disclose plan level fees to your participants, and you should be prepared to answer questions about the fee structure of your plans. If you need assistance, please contact one of our Employee Benefits lawyers.