Pursuant to the DOL’s disclosure regulations issued under ERISA section 408(b)(2), employers sponsoring ERISA benefit plans should be receiving fee disclosures from the plans’ covered service providers regarding the service provider’s direct and indirect compensation. Service providers must make these disclosures to the appropriate plan fiduciaries on or before July 1, 2012. The purpose of the disclosure is twofold – (i) to assist plan fiduciaries in assessing the reasonableness of the service providers’ compensation, and (ii) to assist plan fiduciaries and administrators of certain self-directed retirement plans in obtaining the information they need to satisfy their new reporting and disclosure obligations to participants.
It is important not to overlook the plan fiduciaries’ obligations upon receipt of the service provider’s fee disclosures. First, plan fiduciaries must evaluate whether the fees disclosed are “reasonable” for the services being provided. Although ERISA has always prohibited fiduciaries from paying more than reasonable fees for plan services, fiduciaries must now formally evaluate those fees and document their review of the compensation arrangements in light of the recent regulatory focus on retirement plan fees, and the new obligations imposed on plan fiduciaries to both report covered service providers who fail to timely satisfy these comprehensive disclosure obligations to the DOL, and terminate the plan’s relationship with a non-compliant service provider.
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