Let Their Summary Be Your Guide - U.S. Department of Labor Proposes Fee-Disclosure Guide Requirements Under ERISA

by Dechert LLP

Section 408(b)(2) of the Employee Retirement Income Security Act of 1974 ("ERISA") provides an exemption from the “prohibited transaction” provisions of ERISA for certain compensation arrangements with employee benefit plans. On March 12, 2014, the U.S. Department of Labor (the “DOL”) proposed to amend the final Section 408(b)(2) regulations to require covered service providers who make disclosures through multiple or lengthy documents to furnish a guide to make it easier for plan fiduciaries to make effective use of these disclosures. The proposed rule is part of a broader effort to improve the transparency of the disclosure of fees charged to plans.


Over the past several years, there were a series of coordinated initiatives by the DOL to increase transparency regarding the manner in which services are provided to employee benefit plans. These initiatives included changes to the "Form 5500" reporting rules (intended to assure that plan fiduciaries have the information they need to monitor service providers to plans), changes to the disclosure requirements under Section 404(a) and Section 404(c) of ERISA (under which administrators of participant-directed individual account plans need to disclose certain information about the plan and its investment options to plan participants and beneficiaries) and the final regulations under Section 408(b)(2) of ERISA (which obligate covered service providers to make certain specific disclosures to plan fiduciaries).

ERISA broadly prohibits transactions between a plan and certain related parties to the plan (so-called parties in interest). Section 408(b)(2) of ERISA provides an exemption from these prohibitions for reasonable service contracts or arrangements necessary for the operation of the plan if no more than reasonable compensation is paid. The final Section 408(b)(2) regulations were issued on February 3, 2012, and we have discussed them in a previous DechertOnPoint, DOL Issues Final ERISA 408(b)(2) Regulations and Delays Effective Date. The regulations generally set forth disclosure obligations that covered service providers must satisfy in order for an arrangement to be considered "reasonable" for purposes of the prohibited-transaction exemption of Section 408(b)(2) of ERISA. 

In the preamble to the final Section 408(b)(2) regulations, the DOL indicated that it was considering requiring service providers to provide a guide or similar information to plan fiduciaries to assist them with review of required disclosures by the service providers. The DOL has now proposed requiring such a guide in certain circumstances.

The Proposed Amendment

In the new proposed amendment, the DOL is proposing to require covered service providers who make their disclosures through multiple or lengthy documents to furnish a guide that would specifically identify the location of the applicable information in a way that facilitates the ability of the responsible plan fiduciary to find the information. In those situations in which a guide is required, the covered service provider would be required to direct the plan fiduciary to the place in the disclosure documents where the fiduciary can find (i) the description of services to be provided, (ii) the statement concerning services to be provided as a plan fiduciary or registered investment adviser, (iii) the description of certain required compensation-related information, and (iv) the required investment disclosures for fiduciary services and recordkeeping and brokerage services. The guide would have to identify the location of the applicable information with sufficient specificity, and would have to give contact information for a responsible person or office in the event of difficulty in locating the information. 

The DOL has indicated that it is proposing this guide requirement in an effort to strike an appropriate balance between the need to facilitate a responsible plan fiduciary’s review of information important to a prudent decision-making process, on the one hand, and the costs and burdens attendant to the preparation of a new summary-disclosure document, on the other. The DOL has also stated its belief that the guide requirement will be especially beneficial to fiduciaries of small and medium-sized plans. Our initial impression is that, while there may be room for additional refinement, the proposals seem generally to strike the type of balance that the DOL was seeking.   

The effective date of the new summary-disclosure rules would be 12 months after publication of the final regulation. The DOL has invited comments from the public by June 10, 2014.

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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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