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Industry Alerts

U.S. Department of Labor Announces New Rules Governing Employee Benefit Plans

May 14, 2012

Nonprofits and companies that sponsor retirement plans for their workers and other participants should be aware of new rules set by the Department of Labor that will require full disclosure of services and fees associated with retirement plans in effect on or after July 1, 2012. The rules cover defined benefit plans and defined contribution plans including 401(k)s and 403(b)s but not Simplified Employee Pension (SEP) plans, Savings Incentive Match Plan for Employee (SIMPLE), IRA plans or individual retirement annuities.

In an effort to increase transparency and improve understanding on the part of plan sponsors of contracts, services, fees and potential conflicts of interest related to retirement plans, service providers must disclose the full amount of direct and indirect compensation they receive and detail all delivered services (including fiduciary services).

408(b)(2) was first proposed by the Department of Labor’s Employee Benefits Security Administration in July 2010. The original compliance deadline was delayed to allow service providers time to update systems and information-gathering processes to ensure compliance.

The Department of Labor also will require sponsors of self-directed ERISA-covered 401(k) plans to disclose plan and investment-level information including easy-to-understand details about investment options, fees and expenses. Under regulation 404(a)(5), this requirement, which goes into effect on the same date as the 408(b)(2) rule, will be accompanied by a transition rule requiring compliance within 60 days of the July 1, 2012 date. This is intended to allow plan sponsors to generate and review information about retirement plans they receive from their service providers and distribute accurate information to plan participants.

Service providers covered by the new 408(b)(2) rule include registered investment advisors, third party plan administrators, broker-dealers and record keepers among others. Failure to meet the 408(b)(2) fee disclosure requirement constitutes a prohibited transaction.

We urge plan sponsors to act now to ensure they are in compliance. Should any changes or deadline extensions occur after you receive this alert, Gelman, Rosenberg & Freedman will keep you informed.

In the years that I have been working with Robert Albrecht, he has proven to be one of the most productive, reasonable and reliable auditors I have ever worked with. He takes his time analyzing the audit conditions at HQ and mission level before the audit to ensure that the time spent at our facilities is productive and can be 100% dedicated to the important task of finishing a reliable, complete audit in a timely manner

Luis M. Garcia |  Director of Finance
Action Against Hunger (ACF) International