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DOL Proposes to Align Effective Date For Fiduciary-Level Fee Disclosure Regulation With Applicability Date for Participant-Level Fee Disclosure Regulation, Bloomberg Law Reports®

Wednesday, June 8, 2011

Requirements for Fee Disclosure to Plan Fiduciaries and Participants-Applicability Dates, 76 Fed. Reg. 31544 (June 1, 2011) The Department of Labor issued a notice proposing to extend the effective date of new fee disclosure rules for providers of services to retirement plans under ERISA § 408(b)(2), 29 U.S.C. § 1108(b)(2), from July 16, 2011 to January 1, 2012. The DOL also proposed, with respect to its final regulation on plan fee disclosure to participants and beneficiaries, to extend the transition rule for certain initial fee disclosure information from 60 days to 120 days after the final rule's applicability date.

Fiduciary Level Fee Disclosure Rule

Under Section 406(a) of ERISA, 29 U.S.C. § 1106(a), any service arrangement between an employee benefit plan and a party in interest, even if it was necessary and beneficial to the plan, constitutes a prohibited transaction unless it is covered by a prohibited transaction exemption. ERISA § 408(b)(2) provides relief from ERISA's prohibited transaction rules for service contracts or arrangements between a plan and a service provider if the contract or arrangement is reasonable, the services are necessary for the establishment or operation of the plan, and no more than reasonable compensation is paid for the services. 29 C.F.R. § 2550.408b-2. On July 16, 2010, the DOL issued interim final regulations on the employee benefit plan service provider fee disclosure requirements under ERISA § 408(b)(2). 29 U.S.C. § 1108(b)(2). The interim final regulations require certain service providers to disclose to independent plan fiduciaries of defined benefit and defined contribution pension plans detailed information about their services and the direct and indirect compensation they receive in connection with providing services to the benefit plans. The interim final regulations affect fiduciary service providers, providers of banking, consulting, custodial, insurance, investment advisory or management, recordkeeping, securities brokerage, or third party administration services, and providers that receive indirect compensation for accounting, actuarial, appraisal, auditing, legal or valuation services. The new requirements were to be effective for plan contracts or arrangements for services in existence on or after July 16, 2011. Bloomberg Law Reports, Employee Benefits, DOL Interim Final Regulation Requires Greater Disclosure of Pension Plan Service Provider Fees (July 29, 2010). For information on an earlier proposed rule, see Bloomberg Law Reports, Labor and Employment, Vol. 1, No. 44 (Dec. 17, 2007).

Participant Level Fee Disclosure Rule

On October 20, 2010, the DOL finalized regulations that require periodic disclosures of certain investment-related information, including fees and expenses, to participants and beneficiaries in participant-directed individual account plans under ERISA § 404(a), 29 U.S.C. § 1104(a). The final regulations apply for plan years beginning on or after November 1, 2011. The final regulations included a general rule requiring plans to provide an initial disclosure to participants before they could first direct their investments. A transitional rule (transition rule) provided that a plan was not required to provide the initial disclosure to participants who had a right to direct their investments on the applicability date until January 1, 2012, which is 60 days after the November 2, 2011 applicability date. Bloomberg Law Reports, Employee Benefits, DOL Issues Final Regulations on Fee Disclosure in Participant-Directed Individual Account Plans (Oct. 22, 2010).

Extended Interim Final Regulations Applicability Date

In response to many comments asking the DOL to provide plan providers additional time to update their systems and procedures in order to comply with the new ERISA § 408(b)(2) disclosure requirements, the DOL has proposed to extend the effective date of the interim final regulations from July 16, 2011 to January 1, 2012. The DOL had previously announced its intention to extend the effective date in February 2011. Bloomberg Law Reports, Employee Benefits,ERISA Plan Service Provider Fee Disclosure Deadline Extended to January 2012 (Feb. 16, 2011).

Extension of Transition Rule

Although the final regulations' effective date (December 20, 2010) and the applicability date (plan years beginning on or after November 1, 2011) remain unchanged, the DOL proposed to extend the transition rule where plans would have 120 days (instead of 60) after its applicability date to comply with its fiduciary duty to furnish their initial disclosures of certain plan fee and expense information to participants and beneficiaries. The DOL noted in the preamble that "[d]elayed application will better afford plans sufficient time to ensure an efficient and effective implementation of the participant-level disclosure regulation." Thus, calendar year plans would now have until April 30, 2012 to provide their initial disclosures to participants and beneficiaries.

Request for Comments

Comments on the proposal to extend the applicability dates with respect to the fee disclosure requirements should be submitted to the DOL on or by June 15, 2011.

Legal Topics:

Administration Department of Labor [DOL] Employee Benefits Plan Administration Reporting & Disclosure


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