ERISA Rule 408b-2 Disclosure Deadline Looms

The prohibited transaction provisions of ERISA limit arrangements and payments to service providers to ERISA-covered retirement plans, including investment advisers, which may involve conflicts of interest with respect to the use of plan assets.  An exemption from the prohibited transaction limitation is available, however, for the use of ERISA plan assets to pay reasonable compensation for services. In order to provide plan sponsors with the ability to effectively determine what constitutes reasonable compensation, the Department of Labor (“DOL”) issued proposed regulations in December, 2007 that require service providers to provide specific disclosures to plan sponsors. After an interim final release in July 2010, final regulations were issued on February 2, 2012 establishing July 1, 2012 as the deadline for initial, required disclosures by plan service providers.

The disclosures required by investment advisers, which will allow plan sponsors to make better informed decisions about the services they–as fiduciaries–purchase with plan assets, include:

  • A description of the services to be provided to the plan by the adviser pursuant to the agreement;
  • A statement that the adviser will provide services to the plan as a fiduciary under ERISA and that the adviser is registered under the Investment Advisers Act;
  • A description of all direct and indirect (including soft dollar) compensation, either in the aggregate or by service, that the adviser reasonably expects to receive in connection with the services; and
  • A description of any compensation that the adviser reasonably expects to receive in connection with termination of the contract, and how any prepaid amounts will be calculated and refunded upon such termination; and
  • A description of the manner which the compensation will be received, such as whether the plan will be billed or the compensation will be deducted directly from the plan’s accounts or investments.

The Rule does not require that the disclosures be made in any particular format and also specifically allows advisers to provide the disclosures through existing documents, such as the advisory agreement with the Plan and the adviser’s disclosure brochure, Form ADV Part 2A. The DOL has stated, however, that it will propose requiring service providers to provide plan sponsors with a guide, or roadmap, that identifies where the required disclosures can be found, and the final rule included a sample guide as an attachment.

Of note, the DOL’s corresponding regulations requiring plan sponsors to provide participants in self-directed ERISA-covered retirement plans with specific disclosures relating to investment information and fees must be provided by August 30, 2012. This gives plan sponsors 60 days from the receipt of the required service provider disclosures to pass on required information to plan participants.

For assistance with the implementation of the required disclosures or any other compliance concern please contact Sarah Weber at or (619)298-2880.


1 Comment

Filed under Investment Advisers

One response to “ERISA Rule 408b-2 Disclosure Deadline Looms

  1. Pingback: ERISA Rule 404a-5 Disclosure Deadline on the Horizon | Jacko Law Group, PC

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s