Regulatory Changes to Pension Plans – Upcoming Deadlines

In an effort to clarify the general ambiguity that looms over pension plans and fees paid by retirement plan participants, the Department of Labor (DOL) updated two regulations under the Employee Retirement Income Security Act (ERISA). The updates to “plan level” disclosure rules (Section 408(b)(2) rules) and “participant level” fee disclosure rules (Section 404(a)(5) rules), published in February, have fast-approaching compliance deadlines. In these new regulations, the DOL requires that all retirement plan service providers release details about their services, expenses and fees to plan sponsors and participants by July 1, 2012 or 60 days after the first day of the first plan year beginning on or after August 30, 2012, respectively.

The DOL’s intent is to increase information exchange, improve disclosure about fees, enable plan sponsors (employers) to maintain equitable fees and help plan participants (employees) make informed decisions about investing in their retirement. The following outlines how service providers can appropriately comply with the updated regulations.

Section 408(b)(2) Changes – July 1, 2012 Compliance Deadline
The changes under “plan level” disclosure rules, Section 408(b)(2), allow service providers to receive compensation for their services without engaging in a prohibited transaction. Service providers are defined as those providers who enter into a contract with a covered plan and expect to receive $1,000 or more in compensation in exchange for providing certain services to the plan, including fiduciary investment advisers, record keeper and brokerage service providers or certain recipients of indirect compensation. The changes to section 408(b)(2) are intended to assess the reasonableness of a service provider’s received compensation and any conflict of interest that may affect their ability to perform such services. Under the updated regulation, service providers must furnish the following details by July 1, 2012:

• Services provided by the plan
• Whether the services provided are fiduciary services or covered services
• What compensation is being received and how it is being received
• Additional disclosures regarding detailed investment services

In addition, the plan service provider must be able to furnish any other information pertaining to their compensation received in connection with the contract within 30 days of the information request from a plan participant or administrator. These requirements intend to make it easier for plan participants to assess the reasonableness of a service provider’s costs in comparison with their delivery of services and performance.

For more information about the 408(b)(2) regulations, visit the DOL’s website at http://www.dol.gov/ebsa/newsroom/fs408b2finalreg.html.

Section 404(a)(5) Changes – August 30, 2012 Compliance Deadline
The changes under “participant level” fee disclosure rules, Section 404(a)(5), require that all plan participants, in self-directed individual accounts, receive investment-related information, particularly information pertaining to fees and expenses. The intent of such changes is meant to help plan participants better manage their retirement savings. In effect, the plan sponsor is legally responsible for sharing the following information about fees and expenses with plan participants (Note: if there is not a designated plan sponsor, the employer assumes such role):

• Services provided by the plan
• Features of the plan that affect the investment of the plan accounts
• Expenses and fees that are/could be charged to the plan or deducted from the plan accounts of all participants with such accounts
• Expenses and fees that are/could be charged against the participant’s individual account (rather than a plan-wide basis)

The added transparency is beneficial, but even employers who have addressed all the fiduciary implications will still need to be prepared to answer any questions by employees as a result of the new fee information they will receive.

If you have any questions about compliance with the updated regulations, please contact me at (805) 963-7811 or dmcgrew@bpw.com.