REMINDER: Upcoming Obligations On Retirement Plan Sponsors And Administrators Regarding Fee Disclosure

Author:Mr David Glaser, Bernard F. O'Hare, Bruce L. Wolff, Jessica S. Carter, Meridith Bogart Krell and Carrie L. Mitnick
Profession:Patterson Belknap Webb & Tyler LLP
 
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In continuing our series of Client Alerts pertaining to new requirements from the U.S. Department of Labor ("DOL") regarding retirement plan fee disclosures, we now remind you of obligations on most retirement plan sponsors and plan administrators that will become effective as early as July 1, 2012.

As we have previously alerted you, there are two sets of final regulations from the DOL in this area that will soon become effective—(1) so-called "Service Provider Fee Disclosure Regulations," which require certain service providers (e.g., investment advisors, recordkeepers and others1 to most retirement plans that are covered by the Employee Retirement Income Security Act ("ERISA") to disclose their compensation and fees to retirement plan fiduciaries, and (2) so-called "Participant Fee Disclosure Regulations," which require plan administrators of participant-directed investment defined contribution retirement plans that are covered by ERISA (e.g., most 401(k) plans and 403(b) plans) to disclose certain plan and investment-related information, including fee, expense and comparative investment performance information, to participants and beneficiaries. While it may be obvious that the Participant Fee Disclosure Regulations will require affirmative actions by plan administrators, it is important to note that the Service Provider Fee Disclosure Regulations also will require actions by responsible plan fiduciaries—i.e., those who have decision-making authority over the retirement plans.

Fiduciary Duties on Plan Sponsors Imposed by the Service Provider Fee Disclosure Regulations

The Service Provider Fee Disclosure Regulations, which will take effect on July 1, 2012, require covered service providers to disclose certain information to ERISA retirement plan fiduciaries about the services they will provide to the retirement plan and the compensation they will receive, including indirect compensation from sources other than the plan.2 The DOL has said that the purpose of the disclosures is to enable responsible plan fiduciaries to understand the services, assess the reasonableness of the compensation (direct and indirect) received by the service providers, and identify any conflicts of interest that may impact the service provider's performance. Accordingly, responsible plan fiduciaries are obligated to review the disclosures and assess whether fees being charged to the plan are "reasonable." While the DOL has yet to provide meaningful practical guidance on what...

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