EBSA Puts Out Provider Fee Disclosure Proposal

December 12, 2007 (PLANSPONSOR.com) - Federal regulators on Wednesday issued the second of a three-part disclosure rule package - proposed mandates for detailed disclosures from service providers to plan fiduciaries.

The announcement from the U.S. Department of Labor's Employee Benefits Security Administration (EBSA) said the disclosures mandated in the latest proposal focus on direct and indirect service provider compensation and a provider's potential conflicts of interest.

Bradford P. Campbell, assistant Labor Department secretary for EBSA, explained during a Wednesday conference call with reporters that regulators opted to tie the new fiduciary disclosure requirement to the 408(b)(2) provision regarding prohibited plan transactions with parties in interest and that fiduciaries only pay reasonable plan fees.

He said the new disclosures will be considered when the agency judges whether the fees are reasonable. "We're helping to define what reasonable means so it's clear when that duty is being met," Campbell said during the conference call. "In order for them to carry out their duty under the law, fiduciaries need this information to do their job."

The EBSA proposal includes mandates that:

• The terms of a plan's contract with a provider must require that the provider disclose information regarding all services to be performed and all compensation that will be received either directly from the plan or indirectly from parties other than the plan or plan sponsor. The proposal includes a definition of compensation or fees as well as rules for bundled service providers and for estimating the amount of prospective compensation. Fees can be expressed in dollar terms or through an estimate.
• Service providers must also disclose information about relationships or interests that may raise conflicts of interest for the provider in performing plan services. Specifically, providers must describe any participation or interest of the service provider in transactions to be entered into by the plan pursuant to the contract, any material relationships with other parties that may create conflicts of interest, any compensation the service provider may receive that it can affect without prior approval by an independent fiduciary, and any policies or procedures in place to address potential conflicts of interest.
• There will be ongoing disclosure obligations relating to material change in information already disclosed within 30 days of such change, compensation, or other information related to the contract or arrangements that is requested by the responsible plan fiduciary or plan administrator to comply with ERISA's reporting and disclosure requirements.