(b)lines Ask the Experts – Unknown Vendor Provides Fee Disclosure

July 17, 2012 (PLANSPONSOR (b)lines) – “I read your Ask the Expert column of last week on missing vendor fee disclosure with great interest, since I have the opposite problem; not only did all of the vendors in my ERISA 403(b) plan send me a fee disclosure, a vendor I never heard of sent me a 403(b) plan fee disclosure as well!

“We have never utilized this vendor as far as I am aware. Should I just pretend I never received the disclosure and discard?”    

Michael A. Webb, vice president, Retirement Plan Services, Cammack LaRhette Consulting, answered:  

Believe it or not, this is not the first example the Experts have encountered of a supposed “vendor” or other service provider coming out of the woodwork! The reason for this lies in the nature of the 408(b)(2) service provider fee disclosure requirements; if the vendors do not comply with the disclosure rules, they do not get paid, since the vendor contract(s) must be terminated. Thus, if there is any doubt that the vendor disclosure must be provided, vendors are providing the disclosure, even in cases where it is not required (e.g. the plan in question is not subject to ERISA).    

If you have not heard of the vendor in question, the chances that the vendor provides services for assets that are part of your ERISA 403(b) plan is likely not great. However, before you simply discard the disclosure, you should conduct a little detective work so that you can confirm with absolute certainty that the vendor is not a covered service provider under your plan. Such efforts would include the following actions:   

1)      Check the plan name on the fee disclosure: if it matches the name of your current plan, it may be more likely that it is an inactive vendor whose contract may have been terminated by the plan many years ago, but where plan assets remain for participants who did not transfer such assets to your current provider(s) or otherwise receive a distribution. The vendor will likely not have been required to provide a fee disclosure (many contracts where contributions ceased prior to 1/1/09 are exempt from the disclosure requirement), but the assets may need to be tracked with respect to other provisions of ERISA and the Code.  If the plan name does NOT match, does it match a plan that might have been sponsored by an entity your entity acquired? Or a plan that may have been merged into your current plan? (check the plan document for this information). If so, there may be some responsibility/liability as well.  

2)      If not stated in the disclosure, ask the vendor if there are employer contributions to the plan: if the plan contains only elective deferrals, there is the possibility that it was not subject to ERISA (in which case, the fee disclosure would NOT be required), and, depending on the year when contributions were last made to the contract, it may not even be required to be part of a plan for Code purposes. However, if employer contributions are present, presumably these assets are part of an ERISA plan. (assuming that you are not a non-electing church or governmental entity, since you stated in your question that you already maintain an ERISA plan),  one which  your entity may have sponsored as described above 

3)      Check you plan document: it should list all service providers to your plan, active and inactive. However, it is possible that the list could be incorrect if the entity that drafted the document  was not made aware of the vendor in question. 

4)      Check your plan’s permanent file. Often, a plan’s permanent file, which contains historic plan documentation often dating back decades, can shed a little light on what service providers to the plan existed in the past.  

5)      Check with your ERISA 403(b) counsel and plan consultant, especially if they have had a long-term relationship with you, as they may maintain permanent files on the plan as well.    

Good luck with solving the mystery of the unknown vendor!  


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.