Defined contribution plan service providers will be required to provide more and clearer information on direct and indirect fees being charged to plan sponsors under final federal disclosure regulations announced Thursday.
According to a statement from the Labor Department’s Employee Benefits Security Administration, the new regulations, which take effect July 1, would:
- require providers to describe all services “and all direct and indirect compensation” to be received by the provider, its affiliates or subcontractors;
- define “direct compensation” as compensation “received directly from the covered plan,” and define “indirect compensation” as “generally … compensation received from any source other than the plan sponsor, the (provider), an affiliate or subcontractor.”
- require that written fee information from a service provider be given to “a responsible fiduciary” for a covered DC plan, though not a formal written contract “delineating the disclosure obligations;”
- require providers to identify the sources for indirect compensation, the services they cover, and details of terms “between the payer and (provider) pursuant to which indirect compensation is paid;” and
- disclose whether providers are offering record-keeping services and at what cost, even when no explicit charge is identified as part of the service package or contract.
The final rule stopped short of mandating that providers immediately deliver a summary statement of fees to the sponsors.
The DOL, in a fact sheet describing the final regulations, said it “strongly encourages” providers to offer a “guide, summary or similar tool” to assist sponsors in identifying all of the disclosures required.” The DOL has issued a sample guide for providers “that can be used on a voluntary basis,” the DOL said.
The Labor Department also said it intends to publish a proposed rule “in the near future under which covered service providers may be required to furnish a guide or similar tool to assist responsible plan fiduciaries’ review of initial disclosures.”
The department extended the deadline to July 1 for complying with its final fee-disclosure regulations under Section 408(b)(2) of ERISA. Previously, the deadline had been April 1 for what the DOL had called “interim final” regulations, which differed slightly from the rules issued Thursday.
The issuance of the final provider-sponsor rules also affected the timing for previously enacted regulations under Section 404(a) of ERISA covering fee disclosure from sponsors to participants. The old deadline had been May 31; now it is Aug. 30.
“We applaud the DOL’s efforts to improve levels of transparency which should result in better outcomes for plan participants,” said Ross Bremen, a partner at investment consultant NEPC, said in an e-mail response to questions. “NEPC’s annual plan and fee survey has already shown plan fees declining in anticipation of this final regulation.”