October 18, 2012
--- Attorneys with the firm Drinker Biddle & Reath
have asked the Department of Labor (DOL) to consider a voluntary correction
program for service providers failing to meet disclosure requirements under
408(b)(2). ---
In a letter to
DOL Assistant Secretary Phyllis Borzi urging the Employee Benefits Security
Administration (EBSA), attorneys Fred Reish, Bruce Ashton and Bradford Campbell
said their suggested program is intended to provide relief to service providers
who inadvertently fail to make disclosures and/or who make disclosures that are
incomplete. They noted their experience with service providers indicates some
are confused by the regulation and some failed to realize the rule applied to
them.
The attorneys
said their concern is that, if a covered service provider (for example, a
broker-dealer, registered investment adviser or recordkeeper) fails to make the
408(b)(2) disclosures to an ERISA-covered plan or if the disclosure is
incomplete, the service provider has engaged in a prohibited transaction with
the plan. This is true even if the failure is inadvertent. As a consequence,
the service provider is subject to loss of some or all of its compensation, and
possibly to interest and penalties—“a harsh result for an inadvertent
oversight.”
The attorneys
noted that while the regulation has an exemption for plan fiduciaries (if they
follow certain steps), there is no similar exemption for covered service
providers. And, even though there is a procedure for service providers to
correct certain good faith errors, they are concerned that many of the
disclosure mistakes will not be covered by that procedure.
The other
successful correction programs offered by the DOL and Internal Revenue Service
(IRS) have increased compliance by allowing voluntary corrections, the letter
points out. This proposed program would allow the DOL and IRS to focus their
enforcement resources on serious violations, the attorneys concluded.
Rebecca Moore