DOL Update: Final Regulation Released for Service Provider Fee Disclosure

David Miller

On February 2, 2012, the Department of Labor (DOL) released the final service provider fee disclosure rule.  Under this new rule, certain service providers of both defined benefit and defined contribution retirement plans need to disclose, in writing to plan fiduciaries, comprehensive information concerning fees.  The purpose is to aid plan fiduciaries in better understanding the services and fees of these service providers while also helping identify potential conflicts of interest.  These disclosures must include the following:

  • All direct compensation (paid from plan assets) and indirect compensation (paid by a source other than plan assets or the plan sponsor) received by the service provider;
  • Any allocation of compensation to subcontractors that are paid as a result of charges made against plan assets or on a transaction basis;
  • If applicable, an investment’s annual operating expenses and any ongoing operating expenses.

Information must  be provided to the plan fiduciaries by July 1, 2012.  If a covered pension plan makes a payment to a service provider who is obligated to make these disclosures but fails to do so, that disbursement will be a prohibited transaction that will be subject to an excise tax.

The disclosures can be made electronically; if the information is posted to a Web site or other electronic medium, plan fiduciaries must be given clear notification of how to access the information when needed.

One other important item of note is the impact this has on the disclosures that 401(k) plans need to provide to individual participants.  These notices are due to participants 60 days after the service provider fee disclosures go into effect.  Since we now know the official effective date is July 1, 2012, the first 401(k) fee disclosures will be due to participants by August 30, 2012.  This is to allow plan sponsors time to process and understand the fee information supplied by the service providers before reporting to the participants.  Your plan should begin preparing for these changes now to ensure compliance by the specified 2012 dates.

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