April 9, 2014

Proposed Service Provider Guide

Several years ago, the Department of Labor’s Employee Benefit Security Administration (EBSA) commenced a 3-prong effort to enhance plan sponsor and participant awareness of retirement plan fees.  As part of its initiative, the service provider fee disclosure rules require service providers of qualified retirement plans to provide certain plan information, in writing, to plan fiduciaries; who in turn, provide fee-related information to plan participants. According to EBSA, the intent of providing this plan information is for plan fiduciaries to understand the services they receive, assess the reasonableness of both direct and indirect compensation received by their service providers, and identify any conflicts of interest that may impact the service provider’s performance.

Now the DOL is proposing to require service providers to make available a guide to assist plan sponsors to more fully understand the disclosures that are being provided. At this time, the service provider disclosure can be satisfied in a number of ways and with any number of documents. The guide would be required in instances in which the disclosure is complex.  The proposal would require the service provider to develop a guide that would help the employer/plan sponsor find specific information within the disclosure document by identifying the specific page number, section number, or similar document locator to enable quick and easy access to pertinent information.  Such guide would include:

  • Description of services to be provided;
  • Statement identifying services provided as a fiduciary and/or as a registered investment adviser;
  • Description of all direct and indirect compensation, any compensation paid among related parties, compensation for termination of the contract or arrangement, as well as compensation for recordkeeping services; and
  • Required investment disclosures for fiduciary services and recordkeeping and brokerage services, including annual operating expenses and ongoing expenses, or if applicable, total annual operating expenses.

It is anticipated that the guide would be required if the disclosure exceeds a certain length or if it encompasses multiple documents.  All of these standards are yet to be determined.

Comments on this proposed service provider guide can be submitted to EBSA through June 10, 2014.  At this point, the proposal is only a proposal and does not require plan sponsors to do anything; though, it serves as a good reminder of how important it is to take seriously the fiduciary responsibility to ensure that the plan is paying appropriate fees for services rendered. 

Also as part of its effort to ensure that disclosures are proper, the DOL is expected to consult with several small plan fiduciaries to gather information on whether these plan fiduciaries feel like they are getting the kind of information that most helps them.

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