New DOL ruling clarifies fees to benefit plan sponsors and participants

The much-anticipated ruling by the DOL regarding fee disclosure for service providers reached an “interim final regulation” on July 16, 2010. All service providers will need to comply with the ruling by July 16, 2011, regardless of effective agreement dates. The final requirements varied somewhat from the proposed requirements. Here is a summary of the final regulation:

1. Fee disclosures must be made in writing, although a formal written contract is no longer required.
2. Service providers need to make required disclosures for previous contracts as well as new or renewal agreements.
3. The entire rule applies only to pension plans, not welfare benefit plans. Parts of the rule apply to 401(k) and ERISA 403(b) plans.
 The rule does not apply to IRAs, Simple IRAs or SEP IRAs.
4. The covered service provider must expect to receive $1,000 or more of direct or indirect compensation. Covered services include:
  fiduciary services,  recordkeeping or brokerage services and ‘other’ services where an affiliate or subcontractor receives indirect compensation.
5. Ruling applies to all compensation, direct or indirect.
6. The full disclosure requirement related to compensation will cover and thus eliminate the need for disclosure of conflicts of interest.
7. Providers of multiple services are required to disclose the cost of recordkeeping services separately.
8. The excise tax for engaging in a prohibited transaction applies to covered plans and thus amends the 4975 regulation.
9. As long as the provider acts in good faith with reasonable diligence and corrects any error within 30 days of discovery, there is
 no violation of the ruling.

The clarity of the ruling is welcome news to those of us who have been following the progress since it was proposed in 2007.