Service Provider Disclosure to Plan Fiduciaries
EBSA plans to enhance retirement security by ensuring that plan fiduciaries have comprehensive information about the cost of plan services and investments when they hire plan service providers, ultimately supporting the Secretary's good jobs for everyone policy.
Key Action: Final Regulation
The Department's EBSA plans to publish a final regulation in May 2010 that will define the specific information that must be disclosed by service providers when they enter into plan service arrangements about the compensation they will receive and possible conflicts of interest that may affect their provision of services.
Key Concern and Issues to be Addressed
This rulemaking is necessary to clarify and improve the information that service providers furnish to plan sponsors when they are hired, enhancing the ability of plan sponsors to make prudent, informed decisions in compliance with ERISA's fiduciary requirements and promote the retirement security of their plans' participants. The rule creates an incentive for service providers to be forthcoming by imposing excise tax penalties on those who fail to disclose the required information.
Recent changes in the way services and investments are provided to benefit plans have made it more difficult for plan fiduciaries to understand how service providers are compensated and whether possible conflicts of interest may affect their performance.
Under ERISA, plan fiduciaries are obligated to act prudently when selecting service providers and investment options for their plan. They also must ensure that no more than reasonable compensation is paid for plan services, taking into account all of the compensation, including revenue sharing from third parties, that will be received by service providers.
This rule, when adopted, will require that service providers disclose specific information about the compensation they will receive, both directly from the plan and indirectly from third parties, and potential conflicts of interest in order to satisfy ERISA's "408(b)(2)" statutory exemption for the provision of services to a plan. The rule also includes an ongoing requirement that service providers disclose information to assist the plan's administrator in complying with ERISA's reporting and disclosure requirements. Service providers who do not comply with the rule will be subject to excise tax penalties for failing to meet this statutory exemption.
The Department published a proposal on December 13, 2007, and received over 100 comment letters. Comments on the proposal are available at www.dol.gov/ebsa/regs/commentsmain.html.