<nobr>Jul 16, 2010</nobr>

DOL Releases Interim Final Rule on Service Provider Disclosures

The Department of Labor on July 16 published in the Federal Register a long-awaited interim final rule under section 408(b)(2) of ERISA requiring that certain service providers to employee pension benefit plans disclose information to assist plan fiduciaries in assessing the reasonableness of contracts or arrangements, including with respect to the service providers' compensation and potential conflicts of interest.

DOL said that these disclosure requirements are established as part of a statutory exemption from ERISA's prohibited transaction provisions.

The interim final rule is effective July 16, 2011. Written comments on the interim final rule must be received by August 30, 2010.

Highlights of the differences between the interim final regulation and the proposed regulations include:

o The final rule does not require a formal written contract or arrangement delineating the disclosure obligations, even though the disclosures must be made in writing. The final rule focuses instead on the substance of the disclosure that must be provided.

o The final rule treats pension and welfare plans separately. Paragraph (c)(1) of the rule provides disclosure requirements applicable to contracts or arrangements with pension plans. EBSA has noted that it reserves paragraph (c)(2) of the rule for future guidance on disclosure with respect to welfare plans.

o The final rule modifies the categories of service providers that must comply with the disclosure requirements, including fiduciaries, investment advisers, and record-keepers or brokers who make investment alternatives available to a plan. It also applies to providers of other specified services that receive either "indirect compensation" (generally from sources other than the plan or plan sponsor) or certain types of payments from affiliates and subcontractors.

The final rule includes in its definition of "covered service providers" fiduciaries to investment vehicles that hold plan assets and in which a covered plan has a direct equity investment. However, EBSA states that the definition makes clear that furnishing non-fiduciary services to such vehicles, or services to vehicles that do not hold plan assets will not cause a person to be a covered service provider.

In addition, the regulation requires fiduciaries to plan asset investment vehicles in which plans make direct equity investments, as well as parties that offer designated investment alternatives to a participant-directed individual account plan as part of a platform, to furnish investment-related compensation information.

o The final rule does not contain specific narrative conflict of interest disclosure provisions (unlike the proposed regulation), but rather relies on full disclosure of the circumstances under which the covered service provider will be receiving compensation from parties other than the plan (or plan sponsor), the identification of such parties, and the compensation that is expected to be received. EBSA states that plan fiduciaries will be in a better position to assess potential conflicts of interest by reviewing these specific parties and the actual or expected compensation to be received from such parties.

o The final rule includes a new provision requiring that certain providers of multiple services disclose separately the cost to the covered plan of record-keeping services.

o The final rule specifically addresses the application of the requirements of the regulation to section 4975 of the Internal Revenue Code.

o The exemptive relief for plan sponsors or other responsible plan fiduciaries, originally proposed as a separate exemption, is now incorporated into the final rule for ease of reference and consideration by interested parties.

Questions or comments on the interim final rule should be addressed to Kathryn Ricard (kricard@eric.org).

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Websites:

Interim Final Rule

DOL Fact Sheet

DOL News Release

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