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DOL Issues Proposed Regulations and Class Exemption Relating to Benefit Plan Service Provider Disclosures under ERISA

    Client Alerts
  • December 21, 2007

ERISA generally requires a benefit plan fiduciary to have understandable information sufficient to enable the fiduciary to make decisions about the plan’s service providers, services and related costs.  In an effort to assist fiduciaries in meeting this obligation, the Department of Labor (DOL) issued proposed regulations this week, which would impose new additional requirements on what constitutes a “reasonable contract or arrangement” between a plan and a plan service provider and include new disclosure requirements to assist fiduciaries in determining: (a) the reasonableness of compensation (both direct and indirect) paid to plan service providers, and (b) any conflicts of interest that could affect a service provider's performance under a service contract or similar arrangement.  Failures to comply with both the actual information disclosure requirements and contract language requirements (i.e., there must be a written contract that includes language mandating the required disclosures) would potentially result in prohibited transactions, with accompanying potential ERISA remedies against the parties as well as excise taxes or civil penalties on service providers.  However, commensurate with the release of the proposed regulations, the DOL issued a proposed class exemption that would provide relief to a plan fiduciary who enters into a service provider contract that is later found unreasonable because, unbeknownst to the plan fiduciary, the service provider failed to comply with its disclosure requirements under the proposed regulations.


Specifically, the proposed regulations require a service provider to:


  • Disclose information regarding all services to be performed and all compensation that will be received either directly from the plan or indirectly from parties other than the plan or plan sponsor.  The proposed regulations provide a definition of “compensation or fees” along with specific rules for: (a) estimating the compensation to be received, and (b) disclosures by bundled service providers.
  • Disclose information about relationships or interests that could raise conflicts of interests for the service provider, including any participation or interest in the transaction to be entered into by the plan according to the contract, any material relationship with parties that could create conflicts, and any compensation that it can affect without approval by an independent fiduciary.
  • Report any material changes to the plan fiduciary during the term of the contract within 30 days of such changes.
  • Disclose to plan fiduciaries any requested information or compensation related to the contract or arrangement that is necessary to comply with ERISA’s reporting and disclosure requirements.


While these new regulations are proposed at this time and open for comment, plan sponsors should be aware that its service providers may be responding to this regulatory guidance with increased disclosures and new service contracts.  Plan fiduciaries should carefully analyze such disclosures and contracts in carrying out its fiduciary obligations.