Fees the Focus of EBSA Regulatory Agenda

January 4, 2011 (PLANSPONSOR.com) – In a live Web chat discussing the pension initiatives appearing in the Department of Labor’s Employee Benefits Security Administration’s (EBSA) Semiannual Regulatory Agenda, Assistant Secretary of Labor Phyllis C. Borzi said the Agency will focus on completing work on its fee transparency initiatives.

According to Borzi, specifically, EBSA will work to finalize the interim final rule relating to reasonable contracts and arrangements under section 408(b)(2) of ERISA by April. The DoL published this interim rule in July and requested public comments on a few discrete issues (see DoL Issues New Rules on Fee Disclosure).   

Borzi said she is sensitive to the need to finalize the rule on the earliest possible date, given the July 16, 2011, effective date. Asked if EBSA would consider a delay in the effective date of 408(b)(2), Borzi said it is sensitive to the needs of the regulated community to have adequate time for implementing any changes that might be required by the final rule.  

As EBSA works to finalize this rule as applicable to pension plans, simultaneously it will move forward with its related welfare plan initiative. The welfare plan initiative involves a consideration of whether, and to what extent, service relationships in the welfare plan context should be subject to similar fee and compensation disclosure requirements.   

In addition, the Agenda includes work on a proposal to amend current regulations to clarify the circumstances under which a person will be considered a “fiduciary” when providing investment advice to employee benefit plans and their participants and beneficiaries of such plans. Borzi said taking into account significant changes in both the financial industry and the expectations of plan officials and participants who receive investment advice, the proposed amendments would change a thirty-five year old rule that EBSA believes may inappropriately limit the types of investment advice relationships that give rise to fiduciary duties.  

EBSA is also continuing with its “lifetime income” initiative. Borzi said the RFI and joint agency public hearing on lifetime income options produced a wealth of information, and the agency is now considering approaches to addressing possible impediments to the offering of lifetime income options by plans and the selection of those options by participants. EBSA is looking at what it can do to encourage education of participants about lifetime income options and what can be done to assist plan fiduciaries when considering the providers of such options.   

Borzi also announced that EBSA is planning to publish a Request for Information (RFI) in the Federal Register to assist the Department in evaluating whether, and possibly how, the current regulatory standards for electronic distribution of required plan disclosures under ERISA should be updated to reflect changes in technology and the workplace. The agency hopes to have it published in the Federal Register within the next six to eight weeks.

Answering attendees’ questions during the Web chat, Borzi said the new target date fund disclosure proposal would amend two existing regulations – the QDIA Regulation and the Participant-Level Disclosure Regulation - and it is not likely that the delivery of a prospectus will, in and of itself, satisfy the requirements of the proposal. However, information from a current prospectus may be used to satisfy at least some of the content requirements of the proposal.   

According to Borzi, the agency has no plans at this juncture to develop a model format for the disclosures.   

The agency does not have any special initiatives targeted at 403(b) plans, but will continue to work with 403(b) plan sponsors in complying with the new annual reporting requirements. Borzi noted that if a Form 5500 is filed late after an extension the civil penalty is calculated from the original due date.  

EBSA hopes to publish the final investment advice regulation, which includes fee leveling and computer models, by May 2011.  

Though the chat was focused on retirement plan initiatives, Borzi fielded questions related to health care regulations, including: “If a health plan is part self-insured part insured does the plan use federal and state external review processes?” Borzi said if the plan is not a grandfathered health plan, to the extent it is insured, the health insurance issuer is responsible for complying with applicable state law. To the extent the plan is self-insured, the federal rules would apply.  

A replay of the Web chat is available at http://www.dol.gov/regulations/chat-ebsa-201012.htm.