In light of plan sponsors’ need to disclose fees to plan participants by August 30, 2012, I want to be clear regarding your expectations of fee disclosures from service providers to plan fiduciaries. Here are a few points to keep in mind:
Covered service providers who expect to receive $1,000 or more in compensation for direct or indirect services to an ERISA-covered plan must disclose:
– A description of services to be provided
– Compensation anticipated per service
– Payment terms
– Possible conflicts of interest
Direct compensation services include registered investment advisor services, brokerage or recordkeeping. Indirect compensation is that which comes from all sources required to do the job related to direct compensation. Examples of indirect compensation are insurance, legal services, third party administration, accounting, auditing and administration. ERISA-covered plans include defined benefit and defined contribution pension plans, 403(b) annuity contracts and custodial accounts. An exception is 403(b) plans issued prior to 1/1/2009 that are fully vested and no additional contributions have been made.
Receiving and processing information
The plan fiduciary who is responsible for entering into or renewing contracts for services is the recipient of the disclosures. This person (such as the plan sponsor, trustee, custodian or officer) must follow up to be sure that all disclosures are received, and may be asked by the covered service provider to detail information regarding indirect compensation.
Deadline – July 1, 2012
Plan fiduciaries should be receiving disclosures right now, or following up on those that are outstanding. While it is the responsibility of the service provider to disclose the information to plan fiduciaries, the plan may be in considered unreasonable with ERISA in the absence of the fee disclosure.