In May 2012, the Department of Labor issued a Field Assistance Bulletin that clarified some of the requirements for participant disclosures under the 404a-5 regulation. However, that Field Assistance Bulletin, or FAB, did more than explain. In some cases, it confused and in others, it shocked.
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. Continue reading Hedge Funds and Prohibited Transactions
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.
Continue reading 408(b)(2) Disclosures and Referrals to Investment Managers
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.
Adequacy of Disclosures
As we get closer to the July 1, 2012 deadline for 408(b)(2) disclosures, more issues emerge concerning the adequacy of disclosures. Of particular concern is the requirement that the disclosures include both monetary and non-monetary compensation. For example, where a mutual fund family or insurance company subsidizes broker-dealer or RIA conferences for plan sponsors or advisers, there is at least an issue of whether those subsidies should be disclosed to the plan sponsor clients of those RIAs or broker-dealers. Another example is where a mutual fund complex or insurance company pays for advisers to attend conferences.
408(b)(2) Compliance
As you know, I have done a series of short articles about overlooked and misunderstood issues for 408(b)(2) compliance. This article continues that series.
408(b)(2) Disclosures for Solicitor’s Fees
In my last article, I discussed our concerns about the lack of awareness of discretionary investment managers concerning 408(b)(2) disclosures. This article addresses another one of our concerns . . . 408(b)(2) disclosures by advisers who refer investment managers and receive solicitor’s fees.
ERISA Disclosures for Discretionary Investment Managers
Covered service providers must make their 408(b)(2) disclosures by July 1, 2012—just weeks away. The failure to make those disclosures will cause their agreements with ERISA plans to become prohibited transactions, resulting in re-payments of compensation to the plans, taxes, interest and penalties.
Continue reading ERISA Disclosures for Discretionary Investment Managers
DOL Activity in 2012
At first blush, it seems like 2012 is the year of plan disclosures and participant disclosures. The 408(b)(2) regulation is effective July 1, 2012, and the 404a-5 regulation follows two months later. However, there is more DOL activity than initially meets the eye.
When are AAMs Considered DIAs?
There is an emerging issue under both the participant and plan disclosure rules concerning the information that must be provided for asset allocation models (AAMs).
It appears that some DOL officials are of the opinion that asset allocation models—at least under certain circumstances—are “designated investment alternatives” or DIAs. If AAMs are classified as DIAs, they are subject to disclosure requirements under both the plan and participant disclosure rules. As a practical matter, it may be impractical or even impossible for recordkeepers, broker-dealers and RIAs to provide that information.