'Final Fee Disclosure Rules For Plan Service Providers'


The U.S. Department of Labor (DOL) has finalized its regulation detailing the steps retirement plan fiduciaries and many service providers must take to avoid engaging in nonexempt prohibited transactions after June 30, 2012.


The Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (Code) generally prohibit using plan assets to directly or indirectly pay for services to an employee pension or welfare benefit plan, but section 408(b)(2) of ERISA affords an exemption for any contract or reasonable arrangement for necessary services "if no more than reasonable compensation is paid therefor." The regulation specifies that a service arrangement between a "covered plan" and a "covered service provider" won't be reasonable and cannot qualify for the statutory exemption unless the new fee disclosure requirements are satisfied.

The statute and regulation focus on the use of plan assets to pay for services. They do not apply to fees paid by a plan sponsor unless it is reimbursed by the plan.

Engaging in a nonexempt prohibited transaction can have disastrous consequences for service providers and plan fiduciaries. As a "disqualified person," a service provider is subject to excise taxes and may be required to refund its fees. In addition, a plan fiduciary that allows a violation to occur can be held personally liable for any loss incurred by the plan.

Covered Plans

The regulation covers most retirement plans that are subject to ERISA, including defined benefit plans as well as defined contribution or individual account plans. The exceptions are 403(b) accounts frozen prior to 2009 and individual retirement accounts, including those funded through simplified employee pension and SIMPLE arrangements.

ERISA does not apply to a plan covering the sole owner of a business and his or her spouse, so such a plan cannot be a covered plan. The same is true for governmental plans and some, but not all, church plans and 403(b) programs. Also, the regulation will not apply to an "unfunded" deferred compensation arrangement because the latter is not subject to ERISA's prohibited transaction rules.

Covered Service Providers (CSPs)

The regulation's disclosure obligations will be imposed upon any service provider which has a contract or arrangement with a covered plan and which reasonably expects that at least $1,000 in direct or indirect compensation will be paid to itself, an affiliate or a subcontractor for services in the following...

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