DOL Proposed Regulation Sent to OMB


The Office of Management and Budget (OMB) has posted that it received a proposed regulation from the Department of Labor. Unfortunately, it is not the much-anticipated proposed regulation on fiduciary advice. Instead, it is a regulation that addresses the development of a “Guide or Similar Requirement for Section 408(b)(2) Disclosures.”

Even though this is not the fiduciary advice regulation, it could have a material impact on the retirement plan community. We don’t know what the proposed regulation will say—and we won’t know for about three months (when the OMB approves and releases the proposed regulation). However, the DOL has previously given us an idea about their thinking.

When the DOL issued the final 408(b)(2) regulation on February 3, 2012, it included a Sample Guide to Initial Disclosures. The Sample Guide was not mandated, but instead was offered as an aide. The DOL explained, in the preamble to the final regulation: “Although the Department is not adopting such a requirement [for a guide] at this time, the Sample Guide published today may be useful, on a voluntary basis, to covered service providers as a format to assist responsible plan fiduciaries with the required disclosures.”

We have heard that, based on the DOL’s review of 408(b)(2) disclosures, the Department has concluded that plan fiduciaries may, in some cases, have difficulty understanding the required disclosures because of the lengthy, technical and/or multiple disclosure documents that are being distributed. As a result, we believe that the proposed regulation may require a guide (or table of contents) for the 408(b)(2) disclosures.

The Sample Guide provided for the disclosure of information at a detailed level. For example, the Guide had references to page and section numbers in specific documents. For example, under indirect compensation, the Guide provided a number of categories, including one entitled “Compensation ABC will receive from other parties that are not related to ABC (‘indirect compensation’).” The Guide then referred to “Master Service Agreement §3.3, p. 4, and Stable Value Offering Agmt §3.1, p. 4.”

If the DOL’s proposed regulation is similar to the Guide—which it may be, and if, for example, a broker-dealer makes disclosures by delivery of prospectuses, that would require references to each of the mutual fund prospectuses, together with the section and page numbers where the description of 12b-1 fees and other compensation appear. Based on our experience, most covered service providers are not providing disclosures that are that detailed or specific.

In other words, this could be a big change, which could result in additional administrative work and expense.


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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