In a letter to DOL Assistant Secretary Phyllis Borzi urging the Employee Benefits Security Administration (EBSA), attorneys Fred Reish, Bruce Ashton and Bradford Campbell said their suggested program is intended to provide relief to service providers who inadvertently fail to make disclosures and/or who make disclosures that are incomplete. They noted their experience with service providers indicates some are confused by the regulation and some failed to realize the rule applied to them.
The attorneys said their concern is that, if a covered service provider (for example, a broker-dealer, registered investment adviser or recordkeeper) fails to make the 408(b)(2) disclosures to an ERISA-covered plan or if the disclosure is incomplete, the service provider has engaged in a prohibited transaction with the plan. This is true even if the failure is inadvertent. As a consequence, the service provider is subject to loss of some or all of its compensation, and possibly to interest and penalties—“a harsh result for an inadvertent oversight.”
The attorneys noted that while the regulation has an exemption for plan fiduciaries (if they follow certain steps), there is no similar exemption for covered service providers. And, even though there is a procedure for service providers to correct certain good faith errors, they are concerned that many of the disclosure mistakes will not be covered by that procedure.
The other successful correction programs offered by the DOL and Internal Revenue Service (IRS) have increased compliance by allowing voluntary corrections, the letter points out. This proposed program would allow the DOL and IRS to focus their enforcement resources on serious violations, the attorneys concluded.