SilverLink - Spring/Summer 2008 - (Page 17)

EMPLOYEE BENEFITS Who’s Paying Whom for What? The DOL Addresses Plan Fiduciary Obligations by Tony Sorrentino, CEBS As if there weren’t enough regulations for plan ﬁduciaries to deal with, on December 13, 2007, the U.S. Department of Labor (DOL) issued proposed regulations that require ﬁduciaries of employee beneﬁt plans to obtain speciﬁc information on fees, compensation and conﬂicts of interest from certain service providers. The proposed regulations pertain to pension plans, group health plans and all other types of welfare plans. In conjunction with the proposed regulations, the DOL also proposed a class exemption that would (under speciﬁc circumstances) relieve plan ﬁduciaries from prohibited transaction liability if a ﬁduciary discovers that a service provider failed to disclose the required information. The regulations rest on a counterintuitive provision of the Employee Retirement Income Security Act (ERISA) that prohibits a ﬁduciary from allowing the conveyance of money, goods or services between a plan and a party in interest unless the transaction qualiﬁes for an exemption. Because the deﬁnition of “party in interest” includes all service providers, the result of this provision is that any provision of services to a plan is a prohibited transaction unless it qualiﬁes for an exemption. Furthermore, both the ﬁduciary and the service provider are responsible for preventing prohibited transactions and both face consequences if the transaction is not exempt. Under the proposed regulations, a ﬁduciary must contractually obligate the service provider to disclose information about fees and potential conﬂicts in order for the transaction to qualify for an exemption. The broad range of service providers affected by the proposed regulations includes providers of banking, consulting, custodial, insurance, investment management or advisory, recordkeeping, brokerage and third-party administration services to plans. It also includes providers who receive indirect compensation in connection with legal, actuarial, accounting or auditing services. Indirect compensation encompasses fees that plan service providers receive from entities other than the plan, plan sponsor or service provider. The proposed regulations do not extend to contracts with entities that provide plan beneﬁts to participants, rather than services to the plan. Compensation and Fees The purpose of the proposed compensation and fee disclosure requirements is to provide plan ﬁduciaries with enough information to determine the soundness of the provider’s fees and compensation. According to U.S. Secretary of Labor Elaine L. Chao, “We are working quickly to implement regulations that foster fair, competitive and transparent prices for services as well as combat excessive or hidden plan fees.”1 The DOL, therefore, proposes that every contract with certain plan service providers requires the provider to describe in writing all services it will provide to the plan and all direct and indirect compensation the provider (or any afﬁliate of the provider) will receive in connection with its services. If a provider cannot state a speciﬁc dollar amount for its services, then it could disclose its compensation and fees by using a formula, a percentage of plan assets or a perparticipant charge. The regulations limit this requirement to “contracts” between a plan and the following service providers: • • • • • • • Fiduciaries of the plan Third-party administrators Entities that provide banking and/or custodial services Consultants Insurers Investment advisors Recordkeepers Proposed Disclosure Regulations The proposals would require that a service provider be obligated to disclose information about that service provider’s fees, compensation and existing or potential conﬂicts of interest to plan ﬁduciaries. Speciﬁcally, under the proposed regulations, a contract between a plan and a service provider is not “reasonable” (and not exempted from being a prohibited transaction under ERISA §408(b)(2)) unless the contract requires the service provider to disclose its direct and indirect compensation and potential conﬂicts of interest related to its services for the plan. 17 SILVERLINK — SPRING / SUMMER 2008

Table of Contents Feed for the Digital Edition of SilverLink - Spring/Summer 2008

SilverLink - Spring/Summer 2008 Contents Risk Management: Mitigate & Educate Disastrous Distractions Accounts Receivable BoomerCare Risk Reduction, What’s Your Function? Time Out! Double Down Employee Benefits: Who’s Paying Whom for What? Time to Reconcile Keep Your Eye on the Pension Prize Show Me the Money Private Client Services: A Generous Strategy Is There Any Good News Left? Special Insurance for Special Times Client Spotlight: Omaha Performing Arts Internal Happenings: SilverStone Group Wellness Activities Group

SilverLink - Spring/Summer 2008

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