Saxon Angle | Published in June 2012

408(b)(2) Disclosures

Nonmonetary compensation may count!

By PLANSPONSOR staff | June 2012
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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, too.

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 arrangement.

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.