What Disclosures Are Required Under the New ERISA 408(b)(2) Regulation?

May 31, 2012

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Under the new ERISA 408(b)(2) regulation a covered service provider is required to disclose in writing to the responsible plan fiduciary of an ERISA covered plan the services to be provided, its fiduciary status to the plan, and what compensation the service provider is to receive in connection with services provided.  The deadline for covered service providers to make these disclosures is July 1, 2012.

A covered service provider must provide the ERISA covered plan with a clear and understandable description of the services provided to the plan.  It is recommended that the disclosure identify which services are fiduciary and which are non-fiduciary.  Investment advisors who are covered service providers also must disclose their status as a fiduciary under ERISA section 3(21) and, if applicable, under section 3(38) as an “investment manager”.  Additionally, investment advisors who are covered service providers are required to disclose their investment advisor registration status, meaning the investment advisor is required to indicate whether the investment advisor is registered under the Investment Adviser’s Act of 1940 or under state law.

Regarding compensation, covered service providers must provide a description of all direct and indirect compensation received in connection with services provided to the ERISA covered plan.  This includes compensation received by an affiliate or subcontractor and any termination compensation that would be received.  Direct compensation is compensation received directly from the plan.  Indirect compensation is compensation received from any source other than the plan or plan sponsor.  Service providers must disclose how they will receive the compensation and, if the service provider will receive any indirect compensation, the service provider must disclose the relationship with the party providing the indirect compensation.  Additionally, in order to avoid a prohibited transaction, indirect compensation must be offset by the direct compensation received.

The July 1st deadline is fast approaching and RIA Compliance Consultants can help you meet the ERISA 408(b)(2) disclosure requirements.  Our consultants can help your investment advisor create a 408(b)(2) disclosure guide and review and update the service and fee descriptions in your Form ADV Part 2A Disclosure Brochure to ensure that your retirement plan services disclosure language meets the 408(b)(2) requirements.  To schedule a time with one of our consultants, click here.

Posted by Bryan Hill
Labels: 408(b)(2), ERISA