408(b)(2) Fee Disclosure Requirements: Is There Still Too Much Bling?
The 408(b)(2) regulation that went into effect July 1, 2012 requires certain service providers to make written disclosure of their services and fee arrangements to a responsible plan fiduciary. If the disclosures are not made, the fees paid in relation to the agreement are prohibited; therefore the plan has entered into a prohibited transaction under ERISA, and an excise tax will be due.
Most Plan Sponsors received the disclosures from the appropriate Covered Service Providers (“CSPs”) by the deadline of July 1, 2012 and had the required written contracts in place.
Now it’s late April 2013 and many question if the new transparency helped. In addition, are all the requirements of 408(b)(2) being met? Are Plan Sponsors assuring the disclosures are adequate, or is there still too much bling?
I believe that anytime the Plan Sponsor can get clearer and better information about fees it is a good thing. I just hope they really understand the information and understand just receiving the disclosures is not the end of compliance, it is the beginning.
Going forward, Plan Sponsors need to address this requirement anytime a new qualified agreement is proposed for the plan from a CSP. The hope is, as time passes these service agreements are clearer – free of bling. The Plan Sponsor will be able to identify any conflicts of interest, determine the adequacy of the disclosures, and more easily determine if the fees are reasonable. These agreements are now being read, questioned and ultimately understood better than in the past. This should lead to better decisions by plan management regarding which CSP to retain which will benefit plan participants. This new requirement could lead to a more even playing field where comparing fees is much easier to do.