408(b)(2) Poses Concerns For B/Ds, Small-Plan Advisers

The interim regulation required that covered service providers give the responsible plan fiduciary a description of all indirect compensation. When a broker/dealer provides a brokerage account for a plan, the broker/dealer almost always receives indirect compensation for the investments. In some cases, there may be hundreds of possible compensation arrangements, according to Fred Reish, the chairman of the financial services ERISA team at Drinker Biddle & Reath LLP.

The problem, Reish said, is that broker/dealers cannot possibly know, in advance, the compensation arrangements under which it will be paid.The final regulation, released February 2, 2012 (see "DoL Issues Final Rule on 401(k) Fee Disclosure"), made several clarifications to the fee disclosure requirements including a statement permitting the use of estimates and range of fees.

"The final regulation provides tremendous relief, in my opinion, to broker/dealers," Reish told PLANADVISER, but added that he is concerned covered service providers will still misinterpret the DoL’s guidance about ranges. Broker/dealers may provide a range of fees so broad that it negates the purpose of the DoL’s regulation, Reish said.

"They have to be realistic [with the ranges]," Reish said. "And I’m worried that people are going to forget that part."

Reish also thinks additional guidance from the DoL is needed about how and when change disclosure notices are required. For instance, when the responsible plan fiduciary selects an investment, does the broker/dealer need to give the fiduciary a change of disclosure if it is outside of the initial disclosure range? 

"It’s conceivable someone else has a different interpretation, but that’s mine," Reish said. "People are going to have to, you know, make decisions about that because the guidance from the DoL isn’t specific enough."