Extension to Compliance Date for 408(b)(2)

Posted on July 25, 2011, by Fred Reish in 408(b)(2), Broker-Dealers, DOL Activity, Service Providers. Comments Off on Extension to Compliance Date for 408(b)(2)

Last week, the Department of Labor (DOL) extended the compliance date for 408(b)(2) to April 1, 2012. While that only gives us another three months (from the current deadline of January 1), it is welcome relief. We have several observations about the extension:

  • Generally speaking, our service provider clients were on course to provide disclosures to their ERISA plans and to modify their intake procedures for new clients. However, they were feeling pressure to complete the work by the January 1 deadline.
  • The pressures primarily related to compensation disclosures. That is, our clients, by and large, have completed the work on the disclosures about services and status. However, the compensation disclosures are complex and often voluminous . . . particularly for broker-dealers and recordkeepers. At this point, the procedures for most of the easier compensation disclosures have been determined. However, work remains to be done on more complex compensation disclosures, for example, brokerage accounts and open architecture compensation disclosures by broker-dealers.
  • It is unlikely that there will be another extension. In its release, the DOL explained that the reason for this extension was that it had not released its final guidance under 408(b)(2) and, as a result, many service providers would need to make additional systems changes once the guidance is published. At this point, that will likely be October or possibly even November, depending on when the amended regulation is sent to the Office of Management and Budget.
  • It appears that the holdup is that the DOL is having difficulty resolving the new “summary and roadmap” disclosure requirements, which we understand is provided for in the amendment. The Department will need to either resolve the methodology for that disclosure or will need to eliminate the provision. We assume it will be the former.

The DOL thinks that the 3 month extension will be adequate because it will not take significant additional effort to incorporate the changes into the work already being done.  This suggests that the changes will either be relatively minor or possibly that some of the changes will make the regulation easier, rather than harder, to implement.

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