Category: 408(b)(2)


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 »


408(b)(2) Violations and Service Provider Correction Program

Posted on October 18, 2012, by Fred Reish in 408(b)(2), Broker-Dealers, Recordkeeper, Registered Investment Advisers, RIA, Service Providers. Comments Off on 408(b)(2) Violations and Service Provider Correction Program

The failure of a covered service provider (for example, a broker-dealer, RIA or recordkeeper) to provide adequate 408(b)(2) disclosures results in a prohibited transaction . . . for both service providers and plan sponsors. While the regulation has an exemption for plan sponsors (if they follow certain steps), there is no similar exemption for covered service providers. 


Disclosures for Individual Brokerage Accounts

Posted on September 24, 2012, by Fred Reish in 404a-5, 408(b)(2), Broker-Dealers, DOL Activity. Comments Off on Disclosures for Individual Brokerage Accounts

In DOL Field Assistance Bulletin (FAB) 2012-02R, the Department of Labor explained the disclosures for individual brokerage accounts in participant-directed plans. I am concerned that many broker-dealers have not focused on these new “requirements.” That is true for several reasons, including:

So much money and energy have been devoted to complying with the plan disclosure requirements, that is, the 408(b)(2) disclosures.
The 404a-5, or participant, disclosure requirements are imposed on plan sponsors, in their fiduciary capacity. Stating this slightly differently, the participant disclosures for brokerage accounts are not imposed on broker-dealers, but instead are placed on the shoulders of the plan sponsors. Since it is not a legal responsibility for broker-dealers, it has not received the same attention as the 408(b)(2) disclosures. However, as a practical matter, plan sponsors will turn to the broker-dealers and insist that they satisfy those disclosure requirements. That seems … Read More »


Asset Allocation Models

Posted on September 4, 2012, by Fred Reish in 404a-5, 408(b)(2), DOL Activity. Comments Off on Asset Allocation Models

Based on the DOL guidance in FAB 2012-02, many advisers have concluded that asset allocation models (AAMs) can be offered to plans without the need to treat them as designated investment alternatives (DIAs) and, therefore, without the need to report the performance history, expense ratios, etc., of the AAMs.

Unfortunately, that is an oversimplification and may inadvertently lead to problems under both the 408(b)(2) and 404a-5 regulations. 


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:

http://www.drinkerbiddle.com/resources/publications/2012/
ERISAServiceProviderDisclosuresWhatPlanSponsorsNeedtoDoNow?Section=Publications

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 … Read More »


Hedge Funds and Prohibited Transactions

Posted on July 12, 2012, by Fred Reish in 408(b)(2), Broker-Dealers. Comments Off on Hedge Funds and Prohibited Transactions

In working with broker-dealers and RIAs, I have come to realize that there is some misunderstanding about the application of ERISA’s provisions to investments in hedge funds.

If ERISA plan fiduciaries are given “individualized” advice based on the “particular needs” of the plan (such as asset allocation or non-correlated investments), then the recommendation of an investment in a hedge fund is like any other recommended investment. That is, it can be a fiduciary act by the broker-dealer or the RIA firm.


408(b)(2) Disclosures and Referrals to Investment Managers

Posted on June 27, 2012, by Fred Reish in 408(b)(2). Comments Off on 408(b)(2) Disclosures and Referrals to Investment Managers

The 408(b)(2) regulation requires a number of disclosures, including two status disclosures. Those are: Whether the service provider is acting as an ERISA fiduciary; and whether the service provider is acting as an RIA.


408(b)(2) Disclosures for Related Parties

Posted on June 20, 2012, by Fred Reish in 408(b)(2), Broker-Dealers, fiduciary, Registered Investment Advisers, RIA, Service Providers. Comments Off on 408(b)(2) Disclosures for Related Parties

One of our concerns about disclosures by broker-dealers (and affiliated RIAs) is that they may not fully appreciate the concept of related parties under the 408(b)(2) regulation.

When a broker-dealer is a covered service provider and contracts with others to provide some of the services, the broker-dealer and those other parties are “related” for purposes of the regulation and its disclosure requirements. In those cases, the compensation of the related party (as opposed to the broker-dealer) must be disclosed if it is (1) transactional or (2) charged against the plan’s investments. In some cases, there may be other required disclosures.




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