September 11, 2012
--- Plan sponsors have a fiduciary obligation to avoid prohibited transactions or overpaying for fees – which is where 408(b)(2) fee
disclosure regulation can help. ---
“This arguably is just a way to help [plan sponsors]
accomplish that” from the Department of Labor’s (DOL’s) perspective, David
Kaleda, partner at Alston & Bird LLP, told attendees of the 2012
PLANADVISER National Conference.
Now that the 408(b)(2) deadline has passed, what should plan
sponsors do going forward in order to meet fiduciary obligations, and how can
advisers help them checklist the process? To begin, plan sponsors who did not
receive 408(b)(2) statements from service providers – or did not receive adequate
information on those statements – should send a notification letter to the
provider, said Al Chingren, vice president of value-add sales for American
If the provider fails to send this information to the plan
sponsor, the sponsor must report this to the DOL, Kaleda stressed. Once the
sponsor receives the disclosure, it must be reviewed. “The point is you can’t
ignore the notice,” he said.
Panelists acknowledged that there are many gray areas when
it comes to disclosure, and DOL guidance is still needed, Kaleda said. For
example, plan sponsors must determine if Employee Retirement Income Security
Act (ERISA) reimbursement accounts and marketing allowances are considered
indirect compensation and whether they must therefore be disclosed under 408(b)(2).
When reviewing disclosure statements, plan sponsors must determine
if fees are reasonable, as well as document the entire process, said Vincent
Morris, president of Bukaty Companies. One way to compare costs is through benchmarking
reports, he suggested.
Chingren said he does not expect the DOL to issue
benchmarking guidance, but the important thing is to show a process and how
services match up against expenses is adequate. “This is not a low-cost
decision,” he said. “It’s matching up value of services with the cost of
providing those services.”