The July 1 effective date for the new 408(b)(2) regulation
is fast approaching. While the industry is in the midst of preparing
disclosures of the direct and indirect compensation earned by covered service
providers to covered retirement plans, keep in mind that the new regulation
deals with not only dollars and basis points, but nonmonetary compensation,
The new regulation’s definition of “compensation” means
anything of monetary value, including nonmonetary items, such as gifts, awards
and trips, if the total value of the nonmonetary items received by a covered
service provider exceeds $250 during the term of the covered contract or
Deciphering whether the $250 threshold has been exceeded can
be tricky. In the preamble to the final regulation, the Department of Labor
(DOL) explicitly rejected suggestions that the amount should be measured over a
calendar-year or plan-year basis. Instead, “the term of the contract or
arrangement” was adopted as the measuring-period basis.
Contract or service arrangements with indefinite terms and those
with terms that extend over several years are likely to present special
challenges for service providers seeking to take advantage of the exclusion.
Even if the provider can be confident that any nonmonetary compensation it
receives is less than $250 per plan annually, the longer term of the
arrangement can be an obstacle in proving that the $250 limit will not be
reached over that time.
The preamble also suggests that covered service providers
look to the guidance and methodologies concerning nonmonetary compensation
that have been approved for purposes of the Form 5500 Annual Report, including
the Schedule C guidance available on the DOL website. The Schedule C guidance
addresses nonmonetary compensation.