Do the New ERISA 408(b)(2) Requirements Apply to Your Investment Adviser?

June 14, 2012

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The new ERISA 408(b)(2) regulations, which were recently issued by the U.S. Department of Labor (“DOL”), place disclosure requirements on “service providers” to ERISA covered plans.  Specifically, a covered service provider is required to disclose in writing the services to be provided, the service provider’s fiduciary status to the Plan, and a description of all direct and indirect compensation received in connection with services provided to the Plan.  Service providers must provide these disclosure requirement to plan fiduciaries in order for a contract for plan services to be “reasonable” as required by ERISA section 408(b)(2).

So which investment advisers are considered “service providers” and thus required to make the 408(b)(2) disclosures?

Under the 408(b)(2) regulation, a covered service provider is any person who provides services to an ERISA covered plan, if the service provider expects to receive at least $1000 for the services provided.  This $1000 threshold applies over the life of the services to the plan and is not calculated on an annual basis.

Registered investment advisers are considered covered service providers when they provide services directly to retirement plans subject to ERISA.  The key determination to make is who does the investment adviser have an advisory relationship with?  Simply providing advisory services to an individual who is a participant in an ERISA covered retirement plan does not subject an investment adviser to 408(b)(2).  On the other hand, if an investment adviser has an advisory relationship with a retirement plan and has entered into an agreement directly with that plan, then they are likely subject to 408(b)(2).

RIA Compliance Consultants is available to help investment advisers meet their 408(b)(2) disclosure requirements.  Our consultants can help your investment adviser prepare a 408(b)(2) disclosure guide which contains all of the required disclosures.  Additionally, we can review and update the service and fee descriptions in your Form ADV Part 2A Disclosure Brochure to ensure that your retirement plan services are adequately described and meet the 408(b)(2) requirements.

For more information about the services RIA Compliance Consultants can provide to assist you with meeting the 408(b)(2) requirements contact your consultant if you are an existing client or schedule a call with us to further discuss these services.

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