“I am a fiduciary of an ERISA 403(b) plan and don’t recall having seen a 408(b)(2) fee disclosure from my recordkeeper of late. Aren’t we supposed to receive these annually?”
Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:
The 408(b)(2) disclosures do seem like they should be provided annually, don’t they? But, the way the Department of Labor set up the 408(b)(2) regulation, a “covered service provider,” i.e., a service provider that enters into a contract or arrangement with the covered plan and reasonably expects $1,000 or more in compensation to be received in connection with its services, is only required to provide a “responsible plan fiduciary,” i.e., someone who has the authority to cause the plan to enter into a contract or arrangement with the service provider, with the required disclosures reasonably in advance of the plan entering into or renewing a contract or arrangement. As a result of evergreen and multi-year contracts, it could be years between 408(b)(2) furnishings, unless there is a change in certain specified information that triggers the regulation’s fairly narrow annual updating requirement.
The DOL seemed to recognize this perceived shortcoming of the 408(b)(2) regulation when it published a proposed rule for a 408(b)(2) fee disclosure guide in 2014. This proposed regulation not only required covered service providers to provide the 408(b)(2) disclosures in a specific format, but it also introduced a broader annual updating requirement. However, this proposal was never finalized and likely never will be.
The regulation does require a covered service provider to disclose any changes to the 408(b)(2) disclosures as soon as practicable, but not later than 60 days from the date on which the covered service provider is informed of such change, unless such disclosure is precluded due to extraordinary circumstances beyond the covered service provider’s control, in which case the information must be disclosed as soon as practicable. As a result, the lack of an updated 408(b)(2) disclosure can generally be understood as indicating that the information previously disclosed is still applicable.
Because the failure to provide the 408(b)(2) disclosures is likely to result in a prohibited transaction under Section 408(b) of ERISA, many covered service providers will go beyond what is required under the regulation and provide annual 408(b)(2) disclosures while others are happy to furnish an updated 408(b)(2) disclosure upon the request of a responsible plan fiduciary.
The DOL has been asking plan fiduciaries to provide copies of the plan’s 408(b)(2) disclosures for key service providers as part of their plan investigations. So, if you did not retain your most recent 408(b)(2) disclosures, now may be the time to ask your service providers to refresh and resend those notices, in case the DOL ever comes knocking.
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.
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