The Department of Labor (DOL) has released its final rule on service provider fee disclosures. These disclosures are required pursuant to Section 408(b)(2) of the Employee Retirement Income Security Act (ERISA), which generally sets forth a statutory exemption to the prohibited transaction rules for reasonable and necessary service provider arrangements. The final rule requires covered service providers to disclose information about their compensation and potential conflicts of interest. The interim final rule was to be effective on April 1, 2012; the final rule extends that deadline to July 1, 2012.

Background

The furnishing of goods, services, or facilities between a plan and a “party in interest” to the plan is generally prohibited under Section 406(a)(1)(C) of ERISA. As a result, a service agreement between a plan and a service provider would constitute a prohibited transaction because any person providing services to the plan is a party in interest. However, Section 408(b)(2) of ERISA exempts arrangements between plans and service providers that otherwise would be prohibited transactions if the contract or arrangement is reasonable, the services are necessary for the establishment or operation of the plan, and no more than reasonable compensation is paid for the services.

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