Compliance

Connecticut Aims To Strengthen 403(b) Provider Reporting

Service providers to tax-qualified 403(b) plans already have certain federally mandated conflict of interest reporting requirements, but the Connecticut State Legislature may also step up and play a role.

By John Manganaro editors@assetinternational.com | March 07, 2017

A bill introduced in the Connecticut State Legislature would order the State Treasury to establish a new set of regulations “guided by the United States Department of Labor's Final Rule concerning contracts or arrangements under Section 408(b)(2) of the Internal Revenue Code of 1986 published in the Federal Register of February 3, 2012.”

The bill is aimed at implementing a state-based rulemaking process that will require any person who enters into a service contract or agreement with a 403(b) retirement plan and “reasonably expects to receive $1,000 or more in compensation, direct or indirect, in connection with the provision of such services,” to disclose to a fiduciary of the plan “any conflict of interest such person has with such retirement plan.”

This was the main thrust of the 2012 regulation from Department of Labor (DOL), but now it seems the Connecticut Legislature also wants to play a more active role monitoring (and potentially policing) 403(b) service providers working within the state.

As the text of the Connecticut bill lays out, new regulations would apply to any retirement plan created under Section 403(b) of the Internal Revenue Code of 1986, “or any subsequent corresponding internal revenue code of the United States, as amended from time to time, that is not regulated under the Employee Retirement Income Security Act of 1974, as amended from time to time.”

Disclosures “shall include, but need not be limited to, a description of services to be provided to the retirement plan pursuant to such contract or agreement, the compensation such person or an affiliate or subcontractor of such person expects to receive as a result of such services, and any direct or indirect compensation that such person or an affiliate or subcontractor of such person expects to receive in connection with termination of such contract or agreement.”

The bill would also establish that the Connecticut Department of Treasury, in consultation with the Comptroller, “shall adopt regulations, in accordance with the provisions of chapter 54 of the general statutes, to implement and administer the provisions of this section. Such regulations shall be guided by the United States Department of Labor's Final Rule concerning contracts or arrangements under Section 408(b)(2) of the Internal Revenue Code of 1986 published in the Federal Register of February 3, 2012.”