Department of Labor Issues Final Defined Contribution Plan Fee Disclosure Regulations


The U.S. Department of Labor (DOL) Employee Benefits Security Administration has issued long-awaited final regulations governing disclosure of defined contribution plan fees under ERISA Section 408(b)(2). The rule becomes effective on July 1, 2012 (extended from April 1, 2012).

These regulations, which supersede the interim final regulations (IFR) issued in July 2010, would require that service providers give plan fiduciaries written disclosures of certain fee and services information necessary to assist plan fiduciaries in assessing the reasonableness of compensation or fees paid by the plan, as well as the potential for conflicts of interest.

The final regulations closely track the IFR, though it does include modifications in the following areas:
  • Covered plans: Certain annuity contracts and custodial accounts described in Internal Revenue Code section 403(b) are excluded from the types of pension plans that are covered by the final rule.
  • Initial Disclosure Requirements: Under the final rule, the information that must be disclosed by a covered service provider (CSP) to a responsible plan fiduciary (RFP) for "indirect compensation" has been enhanced, including a description of the arrangement between the payer and the service provider pursuant to which the indirect compensation will be paid.
  • Investment-related Disclosures (fiduciary services): The final rule adds to the disclosure requirements for descriptions of annual operating expenses (e.g., expense ratio) of a "designated investment alternative." In addition, the final rule requires disclosure of information in the possession of a fiduciary service provider if the information must be provided to participants under the participant-disclosure rule.
  • Investment-related Disclosures (recordkeeping/brokerage services): The final rule changes the focus of the so-called "pass-through" relief provided in the IFR for disclosures of investment-related information. CSPs may rely on information provided by an investment provider, but must act in good faith, must not know that the materials are incomplete or inaccurate, and must state that it makes no representations as to the completeness or accuracy of such materials.
  • Guide to Initial Disclosures: The final rule reserves a place for the future development of provisions that would require the CSP to separately furnish a guide or similar tool designed to enable the RFP to locate compensation information disclosed through multiple or complex documents. (The preamble to the final regulations states that DOL will soon propose new regulations on this matter.)
  • Timing of Initial Disclosures: The final rule changes the deadline for disclosures of all investment-related information to "at least annually." (The IFR had previously required that such information be disclosed within 60 days.) The deadline for disclosure of changes to other information that has been previously disclosed remains 60 days from the date a CSP is informed of such change.
  • Reporting & Disclosure Information: The deadline for providing this information to a RPF upon request has changed under the final rule. The information must now be provided to the RPF "reasonably in advance of the date upon which" such RPF or covered plan administrator "…states that it must comply with" applicable R&D requirements.
  • Disclosure Errors: The final rule clarifies that disclosure of "changes" to information previously disclosed is covered by the "error disclosure" provision.
  • Definitions: The final rule adds to the definition of "compensation,” clarifying descriptions that may be made of compensation or cost, as expressed by monetary amounts, formulas, percentages, per capita charges, or other reasonable methods.
  • Exemption for RPF: The final rule changes the language of one of the conditions required for relief under the class exemption. The change suggests that prompt decision making is required by a plan fiduciary when disclosure failures have occurred.

Michael E. Pietzsch
Pietzsch, Bonnett & Womack, P.A.