The HR Legal News Blog

408(b)(2) Fee Disclosure Checklist

ERISA plan fiduciaries need to examine and evaluate a plan’s administrative expenses in order to ensure that a plan does not engage in a prohibited transaction by paying unreasonable fees to service providers.

Section 408(b)(2) permits ERISA plans to enter into reasonable arrangements for services necessary to the establishment or operation of the plan if the compensation paid for the services is reasonable.  DOL regulations require “covered service providers” to provide plan fiduciaries with information regarding the nature and cost of the services which they provide. A plan fiduciary who does not receive adequate information from a covered service provider may continue to rely on the protection of Section 408(b)(2) if the fiduciary requests that the service provider furnish the required information and, if the service provider fails to comply, reports the failure to the Department of Labor.

Here is a checklist to help plan fiduciaries to identify whether the initial disclosures received from a plan’s covered service providers comply with the requirements of Section 408(b)(2).  Note that information must be provided not only with respect to services rendered by the covered service provider itself, but also with regard to services provided by its affiliates and subcontractors.  Covered service providers are also required to provide updated information when a contract is renewed  or extended or when certain critical information changes.

Does the disclosure…

  • Describe the services to be provided to the plan? DOL Reg. 2550.408b-2(c)(1)(iv)(A).
  • State (if applicable) that the covered service provider will provide services as an ERISA Section 3(21) fiduciary? DOL Reg. 2550.408b-2(c)(1)(iv)(B).
  • State (if applicable) that the covered service provider will provide services as a registered investment advisor? DOL Reg. 2550.408b-2(c)(1)(iv)(B).
  • Identify any compensation that the covered service provider reasonably expects to receive directly from the plan? DOL Reg. 2550.408b-2(c)(1)(iv)(A).
  • Identify any compensation that the covered service provider reasonably expects to receive from a plan asset vehicle in which the plan has a direct equity investment? DOL Reg. 2550.408b-2(c)(1)(iv)(C)(1).
  • Identify compensation that the covered service provider reasonably expects to receive from any source other than the plan or the plan sponsor (including a description of the services for which the compensation will be received, the name of the payer, and a description of the arrangement between the payer and the covered service provider). DOL Reg. 2550.408b-2(c)(1)(iv)(C)(2).
  • Identify compensation paid among related parties (including a description of the services provided by related parties, the names of the payers and the recipients, whether the compensation is transaction-related, whether the compensation is charged directly against the plan’s investments and any revenue-sharing arrangements). DOL Reg. 2550.408b-2(c)(1)(iv)(C)(3).
  • Identify any compensation for termination of the contract arrangement. DOL Reg. 2550.408b-2(c)(1)(iv)(C)(4).
  • Describe all compensation (direct and indirect) that the covered service provider reasonably expects to receive in connection with recordkeeping services and the method for payment of the compensation.   DOL Reg. 2550.408b-2(c)(1)(iv)(D).
  • If the covered service provider will provide recordkeeping services to an individual account plan or serves as a fiduciary to an investment product that holds any of the plan’s assets, describe the compensation to be charged directly against the amount invested, annual operating expenses for investments for which the rate of return is not fixed, any additional ongoing expenses and any other information which the plan administrator needs in order to provide adequate disclosures to participants. DOL Reg. 2550.408b-2(c)(1)(iv)(D).