Category: 408(b)(2)


Interesting Angles on the DOL’s Fiduciary Rule #49

Posted on May 31, 2017, by Fred Reish in 408(b)(2), Broker-Dealers, DOL Activity, fiduciary, prohibited transaction, prudent, Registered Investment Advisers, RIA, Service Providers. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #49

The Requirement to Disclose Fiduciary Status

This is my 49th article about interesting observations concerning the Department of Labor’s fiduciary rule and exemptions. These articles also cover the DOL’s FAQs interpreting the regulation and exemptions and related developments in the securities laws.

When the new fiduciary rule applies on June 9, it will convert most non-fiduciary advisers into fiduciaries.

While there is not a disclosure requirement for new fiduciary advisers to IRAs, there is for these newly minted fiduciary advisers to plans. But it’s not part of the new regulation. Instead the requirement is found in the 408(b)(2) regulation which was effective in 2012.

As background, that regulation required that service providers to ERISA-governed retirement plans, including advisers, make written disclosures to plan fiduciaries of their services, compensation and “status.” The status requirement was that service providers disclose if they were fiduciaries under ERISA … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #27

Posted on November 8, 2016, by Fred Reish in 408(b)(2), BICE, DOL Activity, Registered Investment Advisers, RIA. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #27

The Definition of Compensation

This is my twenty-seventh article about interesting observations concerning the fiduciary rule and exemptions.

As the readers of these articles know, one impact of the new fiduciary rule is that compensation paid to Financial Institutions and advisers must be reasonable. Reasonable, in turn, is a function of a transparent and competitive marketplace. However, where the competitive market does not work (for example, where compensation is not transparent), customary compensation may not be reasonable.

But, this article is not about reasonable compensation. Instead, the question is, what is “compensation?”

The Department of Labor partially answered that question in the fiduciary regulation:

“The term ‘fee or other compensation, direct or indirect’ means . . . any explicit fee or compensation for the advice received by the person (or by an affiliate) from any source, and any other fee or compensation received … Read More »


What’s Hot . . . in the First Quarter of 2015?

Posted on April 28, 2015, by Fred Reish in 408(b)(2), DOL Activity, fiduciary, Plan Sponsors, Recordkeeper. Comments Off on What’s Hot . . . in the First Quarter of 2015?

Over the last few months, the most common questions asked by clients . . . and most of my work . . . have been about three issues:

The DOL’s new fiduciary proposal . . . not surprising.
Capturing rollovers from retirement plans. Again, not surprising because of the large amount of money coming out of plans and in light of the attention being given to rollovers by the SEC, FINRA, DOL and GAO.
The use and allocation of revenue sharing in 401(k) plans.

I will be writing about the first two points in the future, so let’s focus on the third one now.

For about 20 years, mutual funds have paid revenue sharing to 401(k) recordkeepers for services provided to the mutual funds. That includes 12b-1 shareholder servicing fees, 12b-1 distribution fees, and subtransfer agency fees. The view was that the money was paid … Read More »


ERISA Issues for Solicitor’s Fees

Posted on December 17, 2014, by Fred Reish in 408(b)(2), DOL Activity, fiduciary, prohibited transaction, Service Providers. Comments Off on ERISA Issues for Solicitor’s Fees

Not much has been written about ERISA considerations for referring investment managers to retirement plans . . . and the receipt of solicitor’s fees for a referral.

However, there are a host of legal issues.

First, the person making the referral is receiving “indirect” compensation (that is, the solicitor’s payment by the investment manager), which makes that person a “covered service provider” or “CSP.” As a CSP, he must make 408(b)(2) disclosures (i.e., services, status and compensation). The failure to make timely disclosures is a prohibited transaction.

Second, the compensation cannot be more than a reasonable amount . . . as measured by the value of the services to the plan. But, what if the CSP doesn’t provide any ongoing services to the plan? Does the “compensation” become unreasonable after five years of payments? Ten years? I am not aware of any guidance … Read More »


DOL Proposed Guide

Posted on July 16, 2014, by Fred Reish in 408(b)(2), DOL Activity, prohibited transaction. Comments Off on DOL Proposed Guide

Several of my colleagues and I have provided comments to the DOL about its proposal to require a 408(b)(2) guide   Most other commentators have or will be addressing the policy issue — is it a good idea to require a guide or not?   We avoided the policy issues.   Instead, our comments focused on making the requirements clear and implementable — if the guide requirement is adopted.

For example, we asked that the DOL clarify the requirement to “furnish” a guide and “disclose” changes to the guide later on.   In raising this question, our concern is that the language in the proposal may not clearly express the DOL’s intent.  Without clarity on the meaning of these terms, a service provider might inadvertently violate the requirement.  Since the regulation is a prohibited transaction exemption, an unambiguous statement of the requirements is essential  for … Read More »


Advisory Opinion 2013-03A

Posted on May 28, 2014, by Fred Reish in 408(b)(2), DOL Activity, fiduciary, prudent, Recordkeeper, Registered Investment Advisers, RIA. Comments Off on Advisory Opinion 2013-03A

In Advisory Opinion 2013-03A, the Department of Labor said: “This letter also does not address any fiduciary issues that may arise from the allocation of revenue sharing among plan expenses or individual participant accounts . . .”

In effect, the DOL was saying that it has not issued any guidance—and is not prepared to issue guidance—concerning the allocation of revenue sharing. That is a reminder that there isn’t any explicit guidance on how to allocate revenue sharing. As a result, fiduciaries need to engage in a prudent process to make that decision.

In most cases, revenue sharing is used to pay the cost of recordkeeping. In effect, it is arguable that, when the recordkeeper keeps the money, it is a pro rata allocation among the participants’ accounts. That is because the most common way of allocating expenses (for example, recordkeeping or RIA … Read More »


408(b)(2) Guide and More

Posted on April 17, 2014, by Fred Reish in 408(b)(2), DOL Activity, fiduciary, Service Providers. Comments Off on 408(b)(2) Guide and More

The DOL recently issued a proposal to require a 408(b)(2) “guide.” The guide has also been referred to as a roadmap. But I think of it as an index to the disclosures.

This is the DOL’s response to their review of provider disclosures and problems the DOL has seen. The DOL has at least two more significant concerns.

The proposal is that plan sponsors be given a stand-alone guide or index to provide directions to where each of the 408(b)(2) disclosures is found in the disclosure documents. It will only apply where covered service providers use multiple or lengthy documents. As a result, it will primarily impact recordkeepers and broker-dealers (as opposed to other covered service providers, such as RIAs and TPAs).

There is time to comment on the proposal. Hopefully, the comments will enable the DOL to find the “fine line” between … Read More »


Responsible Plan Fiduciaries and Disclosure Issues

Posted on September 4, 2013, by Fred Reish in 408(b)(2), Broker-Dealers, fiduciary, Plan Sponsors, Recordkeeper, Registered Investment Advisers, RIA, Service Providers. Comments Off on Responsible Plan Fiduciaries and Disclosure Issues

The 408(b)(2) regulation requires that its service, status and compensation disclosures be made to “responsible plan fiduciaries” or “RPFs.” In the rush to make the 408(b)(2) disclosures, most recordkeepers, broker-dealers and RIAs sent their disclosure documents to their primary contact at the plan sponsor. In at least some of those cases, the primary contact was not the RPF. As a result, we added language to our clients’ disclosures to the effect that, if the recipient was not the RPF, the written disclosure should immediately be forwarded to the RPF.

The regulation defines RPF as “a fiduciary with authority to cause the covered plan to enter into, or extend or renew, the contract or arrangement.” In other words, it is the person or committee who has the power to hire and fire the particular service provider, e.g., the broker-dealer, recordkeeper or RIA.

Because … Read More »


DOL Proposed Regulation Sent to OMB

Posted on July 24, 2013, by Fred Reish in 408(b)(2), DOL Activity, fiduciary. Comments Off on DOL Proposed Regulation Sent to OMB

The Office of Management and Budget (OMB) has posted that it received a proposed regulation from the Department of Labor. Unfortunately, it is not the much-anticipated proposed regulation on fiduciary advice. Instead, it is a regulation that addresses the development of a “Guide or Similar Requirement for Section 408(b)(2) Disclosures.”

Even though this is not the fiduciary advice regulation, it could have a material impact on the retirement plan community. We don’t know what the proposed regulation will say—and we won’t know for about three months (when the OMB approves and releases the proposed regulation). However, the DOL has previously given us an idea about their thinking.

When the DOL issued the final 408(b)(2) regulation on February 3, 2012, it included a Sample Guide to Initial Disclosures. The Sample Guide was not mandated, but instead was offered as an aide. The DOL … Read More »


Anticipated DOL Guidance

Posted on February 20, 2013, by Fred Reish in 408(b)(2), DOL Activity, fiduciary, Plan Sponsors, Service Providers. Comments Off on Anticipated DOL Guidance

The Department of Labor recently issued its agenda for regulatory guidance. Several of the projects will impact retirement plans and particularly 401(k) plans. This email focuses on a DOL project to amend the 408(b)(2) regulation to possibly require that cover service providers furnish a “guide” or similar tool, along with the disclosures. In its description of the project, the DOL states: “A guide or similar requirement may assist fiduciaries, especially fiduciaries to small and medium-sized plans, in identifying and understanding the potentially complex disclosure documents that are provided to them or if the disclosures are located in multiple documents.”

As background, the final 408(b)(2) regulation contain a sample guide. Covered service providers may want to review that part of the regulatory package in order to understand the DOL’s approach. Briefly described, though, that guide would require that, for each mandated disclosure, … Read More »




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