408(b)(2) and Plan Sponsors

Posted on August 20, 2012, by Fred Reish in 408(b)(2), fiduciary, Plan Sponsors. Comments Off on 408(b)(2) and Plan Sponsors

My law firm recently published a bulletin about the responsibilities of plan sponsors, as the “responsible plan fiduciaries,” for reviewing the 408(b)(2) disclosures of covered service providers. A copy of the bulletin can be found at:


While many plan sponsors and almost all advisers understand that fiduciaries must evaluate the compensation of service providers to ensure that it is reasonable, there are other requirements which are less well understood.

For example, there is a requirement that plan sponsors review the disclosures as soon as reasonable to determine whether they have received disclosures from all of the covered service providers and whether the disclosures are complete (that is, whether they include all of the required information). And, it appears that at least part of the review needs to be done by the end of August.

If a plan did not receive disclosures from all of the covered service providers or received inadequate disclosures, plan fiduciaries must request the missing information—in writing. The failure to do so will cause those fiduciaries to be engaged in a prohibited transaction. Furthermore, if a covered service provider does not respond, there are specific steps that fiduciaries must take. Those steps are outlined in our bulletin.

Fiduciaries are required to evaluate the service and status disclosures, in addition to the compensation disclosures. That involves a number of issues, but for the moment, let me mention two. First, one of the status disclosures is whether a service provider is acting as an ERISA fiduciary. However, if a service provider does not expect to be providing services as a fiduciary, it has the option of saying nothing. So, if the 408(b)(2) disclosures do not include a statement of fiduciary status, that means that the service provider does not believe that it is providing fiduciary services. Secondly, the disclosures must be reviewed to determine whether they identify any conflicts of interest. For example, if a service provider would receive higher compensation under one alternative than another, that is a conflict of interest which the fiduciaries must evaluate.

From a risk management perspective, fiduciaries are advised to document those considerations, and their conclusions, in committee minutes.

Take a look at the bulletin. It covers much more than this short article.


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