408(b)(2) Disclosure Guides
August 12, 2014
By Brenda DeSaro, CPA
Are you ready to go on a treasure hunt?!? We are not looking for diamonds, gold or rubies. . . No, we are looking for details necessary to fulfill the 408(b)(2) fee disclosures. Are you able to find everything you need to satisfy those 408(b)(2) regulations? Are you having problems complying with the regulations? Do you need a map to find all of the disclosures? Well you are not alone; there may be something in the future to help.
On March 12, 2014 the Department of Labor (“DOL”) proposed a regulation to require a guide (I like to refer to it as a “treasure map”) to assist plan fiduciaries in reviewing 408(b)(2) disclosures.
The DOL has expressed concern that small plan fiduciaries may be having trouble locating the required details needed to assess the following: 1) if the amounts paid to service providers are reasonable and 2) identify any related parties involved. These areas are just a few required in order to comply with their fiduciary obligation. Out of this concern, the March proposal was released.
The proposal suggests a new section to the 408(b)(2) regulations “section 2550.408b-2(c)(1)(iv)(H), Guide to Initial Disclosures.” Here are some of the highlights in the new section:
- The guide may NOT be needed if all of the required items are covered in a single document that does not exceed a certain number of pages. The DOL has not defined what that magic number of pages will be, but is seeking comments of what would be an acceptable amount.
- In the 408(b)(2) regulations, there are covered disclosures that must be communicated to the plan fiduciary. In the DOL fact sheet, they are listed as:
- “The description of services to be provided;
- The statement concerning services to be provided as a fiduciary and/or as a registered adviser;
- The description of: all direct and indirect compensation, any compensation that will be paid among related parties, compensation for termination of the contract or arrangement, as well as compensation for recordkeeping services;
- The required investment disclosures for fiduciary services and recordkeeping and brokerage services, including annual operating expenses and ongoing expenses, or if applicable, total annual operating expenses.”
The treasure map needs to identify where to find all the covered disclosures in the other documents. This guide must list each covered disclosure, which document it is in by title, then page number and section if given. The guide must be a separate document given with the initial required disclosures. Any updates or revisions to the guide must be given at least annually.
Remember: At this time, this is just a proposal and not yet in effect. However, from this proposal, we can see the DOL wants to make it easier for plan sponsors to be able to find the proper disclosure documents.