Recent Department of Labor regulations slated to take effect on July 1, 2012, require retirement-plan service providers to disclose any direct and indirect compensation and potential conflicts of interest to employment-plan sponsors.
These newly-required disclosures are required for service providers to qualify for a significant statutory exemption under ERISA Section 408(b)(2) that not only allows providers to avoid the characterization of a contract with a plan sponsor as a prohibited transaction, but also allows sponsors to evade potential breach of fiduciary duty liability.
The disclosure regulations, however, are far from straightforward, and compliance may be based on inaccurate service-provider information. The onerous compliance requirements, coupled with the fact that the burden of determining the “reasonableness” of service providers compensation is borne by the plan sponsor and its investment-management fiduciary, subjects plan fiduciaries to a high standard that could put fiduciaries in difficult situations.
These regulations, and their potential effect on investment management fiduciaries, are described in depth in “New Rules Wreak Havoc for Retirement-Plan Sponsors,” an article written by our colleague Jeff Mamorsky for cfo.com.