FAQs: Disclosure Regulations for Providers

The rule became effective July 1, 2012.

The final regulation requires disclosure of certain direct and indirect compensation certain “covered service providers” receive.

The regulation applies to plan service providers that expect to receive at least $1,000 annually in compensation in connection with their services and who provide:

• certain fiduciary or registered investment advisory services;
• recordkeeping or brokerage services to a participant-directed individual account plan in connection with the investment options made available under the plan; or
• certain other services provided to the plan, including actuarial, consulting, recordkeeping, brokerage, and custodial services, for which indirect compensation is received.

The final regulation applies to Employee Retirement Income Security Act of 1974-covered pension plans, such as defined contribution and defined benefit plans. Owner-only plans, or plans without common law employees, are not covered under the regulations. SEP IRAs and SIMPLE IRAs are excluded from the regulation. It does not apply to welfare plans, such as health plans.

The final regulation does not apply to a “simplified employee pension” described in section 408(k) of the Code, a “simple retirement account” described in section 408(p) of the Code, an individual retirement account described in section 408(a) of the Code, or an individual retirement annuity described in section 408(b) of the Code.

Information that must be disclosed includes a description of the services to be provided and certain direct and indirect compensation to be received by the service provider, its affiliates, or subcontractors.

Direct compensation is compensation received directly from the plan. Indirect compensation, generally, is compensation received from any source other than the plan, the plan sponsor, the covered service provider, an affiliate, or subcontractor.

Information required to be disclosed by plan service providers must be furnished in writing to the plan fiduciary.

Yes, as of July 1, 2012, all arrangements for services that fall within the scope of the final rule must comply with the interim final rule. Clients must satisfy the rule no later than August 30, 2012.

While the disclosure requirements under the interim final regulation are imposed on the service provider, a fiduciary would be responsible for making sure the service provider gives the required disclosure. The fiduciary would also be responsible for reviewing the disclosure made by the service provider and determining whether the fees to be charged are reasonable.

If you have any further questions, you can contact us at 800-544-5373.