DOL and Service Provider Fee Disclosure


 On May 16, 2005, the SEC issued a Staff Report Concerning Examinations of Select Pension Consultants.

In connection with the SEC report, on June 1, 2005, DOL and the SEC jointly released tips to help ERISA plan fiduciaries in selecting and monitoring fiduciaries.

The staff report and the jointly released tips focused on whether pension consultants were fully disclosing potential conflicts of interest, particularly where investment consultants' recommendations of money managers to clients might be based on financial incentives from the managers instead of the quality of the managers.

DOL has expressed concern about the difficulty that plan fiduciaries have in discerning the actual costs of services provided to 401(k) plans and has promoted on its WEB site a 401(k) Fee Disclosure Form.

DOL has in its regulatory agenda and in several public venues stated it is working on a section 408(b)(2) regulation update project. Section 408(b)(2) is a primary statutory exemption which allows service providers to provide services to ERISA plans and receive compensation for those services. It seems likely that in the revised regulation under 408(b)(2), DOL will require significant additional disclosure regarding direct and indirect compensation.

On July 21, 2006, DOL a proposed new rule for 5500 disclosure which would require plans to report insurance carriers that fail to provide required information on insurance fees and commissions. In addition, there would be expanded disclosure of direct and indirect service provider fees including revenue sharing.

Apparently, DOL is serious about increased fee disclosure by service providers. This raises some interesting questions:

Ultimately, what kind of disclosures for both 5500 reporting purposes and for compliance with 408(b)(2) will be required?

Assuming greater disclosure, will something positive come of it or will it merely add to the regulatory burden faced by ERISA plans and their service providers?