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The Final Rule for 408(b)(2) – Fee Disclosures

Yesterday, the Department of Labor (“DOL”) issued the final rule on the disclosures that a covered service provider must furnish to a plan fiduciary in order for a contract or arrangement for services for a covered plan to be “reasonable” as required under ERISA §408(b)(2).  These fee disclosure requirements become effective July 1, 2012 and apply not only to service contracts and arrangements entered into on or after that date but existing contracts and arrangements entered into prior to July 1, 2012.

For those of you who remember in detail the disclosure requirements under the interim rules issued in July, 2010, the DOL has posted an overview of the changes from the interim final rule its website.  For everyone else, the disclosure requirements under the final rule are briefly described below.

Covered Plans

The final rule generally applies to ERISA-covered defined benefit and defined contribution pension plans.  However, simplified employee pension plans, simple retirement accounts, individual retirement accounts, individual retirement annuities and certain Keogh plans and 403(b) annuity contracts and custodial accounts are excluded.

Covered Service Providers

Disclosure is required in the case of a service provider who enters into a contract or arrangement with the covered plan and reasonably expects to receive at least $1,000 in direct or indirect compensation in connection with the provision of services in one or more of the following categories:

  • Services as an ERISA fiduciary or as an investment advisor registered under either the Investment Advisors Act of 1940

UPDATED – DoL Electronic Delivery Guidance: The Good, the Bad, and the Not so Bad

UPDATE – The Department of Labor (“DoL”) has updated its previous guidance on electronic disclosures to clarify that investment-related information, including the required comparative chart, may be provided through a secure, continuous-access website, subject to the other requirements in the guidance, as described in our updated post below.   The ability to use a secure continuous-access website for these purposes was unclear in the prior guidance.

In September, the DoL released interim guidance on electronic delivery of certain participant fee disclosures which was recently updated. Remember that account balance plans (like 401(k) plans) that allow participant direction of investments have to provide new participant-level fee disclosures beginning in April-May of 2012. Some disclosures can be included in quarterly benefit statements, like the amount and description of administrative and individual fees charged to a participant’s or beneficiary’s account. Other disclosures are required before a participant or beneficiary can first direct his or her investments or at other times and these generally cannot be included in quarterly benefit statements (either for legal or practical reasons).

When the DoL issued these final fee disclosure regulations last year, it intentionally did not address how the information would be furnished. However, given that the compliance deadline is forthcoming, the DoL issued Technical Release 2011-03 that addresses how these disclosures can be provided in an electronic form until more permanent guidance can be issued.  Plan sponsors and administrators can choose either to follow this new guidance or use

Are Unpaid Employer Contributions Considered Plan Assets?

Are Unpaid Employer Contributions Considered Plan Assets?

December 8, 2011

Authored by: benefitsbclp

Department of Labor regulations provide that deductions for an employee’s wages are assets of an ERISA fund as soon as these amounts can be segregated from the employer’s general assets. While no similar regulations exist regarding unpaid employer contributions, a recent district court case concluded that case law has developed the following general rule in the context of a multiemployer plan: “unpaid employer contributions are not assets of a fund unless the agreement between the fund and the employer specifically and clearly declares otherwise.” West Virginia Laborers’ Pension Trust Fund v. Owens Pipeline Service LLC, S.D.W.Va., No. 2:10-cv-00131, Nov. 18, 2011 (citing ITPE Pension Fund v. Hall, 334 F.3d 1011, 1013 (11th Cir. 2003)).

In the Owens case, the defendant, the company president and sole shareholder of the corporation, decided to make payments on a piece of equipment instead of making contributions to four multiemployer pension plans. Four pension trust funds sued claiming he was a fiduciary and personally liable for the missed contributions, which the funds argued were plan assets. The pension trust agreement stated that contributions “due and owing” to the fund were considered to be plan assets. While the defendant argued otherwise, the judge found the “due and owing” language mirrored several similar district court decisions in which the unpaid contributions were deemed to be plan assets. The judge held the agreement clearly provided “that once the various contributions were ‘due’ to the funds based upon the number of hours worked by union

New EBSA Consumer Assistance Website

New EBSA Consumer Assistance Website

November 23, 2011

Authored by: benefitsbclp

The Department of Labor’s Employee Benefit Security Administration (EBSA) is making it easier for consumers to submit questions and complaints regarding their health and retirement plans. EBSA has created a new consumer assistance website which allows users to submit inquiries electronically.  If you hablo Espanol, it’s also available in Spanish.

The DOL claims the new website provides easy access to useful information through links for resources/tools, hot topics, and publications. It also provides links to electronic forms where a user may “Ask a Question”, “Submit a Complaint”, or “Report a Problem.” EBSA seems to be serious about wanting to hear from consumers and give them assistance by promising to respond to all inquiries within three business days.

What does this mean for employers? The increased ease in which employees can submit complaints regarding their health and retirement plans to the DOL may lead in increased government scrutiny. Employers should now, more than ever, make it a point to respond to employee inquires quickly and adequately. If an employee is not satisfied with their employer’s response, they now have a quick means to complain to the government. Employers should also be sure to thoroughly document their responses to employee questions and complaints, including the rationale, just in case the DOL comes knocking.

Compliance with ERISA Fee Disclosure Rules Considered Consistent with SEC Mutual Fund Advertising Rules

The Securities and Exchange Commission (“SEC”) issued a “no action letter” on October 26, 2011 indicating that issuing disclosures compliant with the Department of Labor (“DOL”) participant fee disclosure rules will not be considered inconsistent with the SEC Rule 482 advertising requirements that apply to mutual funds.

Participant Fee Disclosure Rule – DOL Regulation Section 2550.404a-5 requires plan administrators of participant-directed individual account plans to disclose, among other things, plan and investment-related information. Initial disclosures are not required until 2012. The performance data required to be disclosed in the regulation must be presented in a chart or other comparative format. Generally, the chart must include the average annual total return of the fund for the one-, five, and ten-calendar year periods ending on the date of the most recently completed calendar year. The DOL regulation also requires certain other disclosures, but, with respect to a money market fund, does not require inclusion of the fund’s most recent yield.

SEC Rule 482 – This SEC rule requires advertisements and other sales materials for certain mutual funds to include, among other disclosures, uniformly calculated performance information. In general, the rule requires performance data to be current as of the most recent calendar quarter ending prior to the publication of the advertisement (or sooner if the advertisement is provided telephonically or through an Internet site). An advertisement for a money market fund must also include a quotation of the fund’s current yield.

Problem – Comments submitted in response to the

Third Circuit Update: 401(k) Plan Includes Reasonable Investment Options, Directed Trustee Not A Fiduciary

The Third Circuit recently issued a decision in Renfro v. Unisys Corporation, affirming dismissal of the claims brought against Unisys defendants in a 401(k) plan “excessive fee case.” The court specifically affirmed dismissal of the breach of fiduciary claims brought by of a putative class of participants in a 401(k) defined contribution plan on account of the fact that the Unisys 401(k) plan’s mix and range of investment options was reasonable. Since the court affirmed dismissal of the complaint, it declined to rule on whether the Unisys defendants were entitled to summary judgment on the ERISA Section 404(c) defense. One clear implication of the decision is that there is nothing wrong with offering “higher priced” retail mutual funds in a 401(k) plan. The Third Circuit also affirmed dismissal of the Fidelity defendants since Fidelity was not a fiduciary with respect to the selection and retention of investment options in Unisys’s 401(k) plan.

The opinion was authored by Judge Scirica and is online available at:

Is Prime + 1% a Reasonable Interest Rate for Qualified Plan Loans?

Is Prime + 1% a Reasonable Interest Rate for Qualified Plan Loans?

September 26, 2011

Authored by: benefitsbclp

In a phone forum held on September 12, 2011, Internal Revenue Service (“IRS”) officials were reported by BNA Pension and Benefits Daily in a September 13, 2011 article by Florence Olsen as indicating that the Prime rate + 1% may not be a reasonable interest rate under the Internal Revenue Code prohibited transaction rules which apply to loans from qualified plans. For corrections and audit purposes, the IRS may be looking to the Prime rate + 2%. In recent years, plan administrators typically set the interest rate for plan loans as the Prime rate + 1% in effect on the first of the month during which the loan is originated (or a similar set date). If a participant can not secure a loan in the open market with an interest rate of Prime + 1%, the IRS official indicated that the Prime rate + 2% may be a more appropriate measurement of a reasonable interest rate.

A qualified plan loan is distinctly different than a loan obtained on the open market. Repayments are generally secured through payroll withholding and transmitted by the employer directly to the plan. In addition, the collateral for the loan is secure since it’s the participant’s own account balance in the plan. Therefore, the source of loan repayment and the collateral are likely to be more secure in the context of a qualified plan loan than a loan obtained in the open market. Arguably, these factors weigh in favor of a lower

Ninth Circuit Ruling: Insurer “logical defendant” in lawsuit to recover ERISA plan benefits

September 6, 2011


On June 22, 2011, an en banc panel of the Ninth Circuit Court of Appeals issued its much anticipated decision in Cyr v. Reliance Standard Ins. Co., 642 F.3d 1202 (9th Cir. 2011) (en banc). Considering the issue of whether ERISA section 1132(a)(1)(B) authorizes actions to recover plan benefits against an insurer, the Court overruled prior decisions and held that a claimant may sue an insurer directly for unpaid benefits, even if that insurer is not the plan administrator.

 In that case, Plaintiff Laura A. Cyr (“Cyr”) collected long-term disability benefits based on her compensation. While on long-term disability, Cyr sued her former employer for pay discrimination because of her sex. Cyr and the former employer settled that claim and the former employer retroactively adjusted Cyr’s salary. Cyr then approached the long-term disability insurer, Defendant Reliance Standard Life Insurance Company (“Reliance”) about adjusting her disability payments accordingly. Reliance denied the request and Cyr sued Reliance.

Seventh Circuit Reverses Kraft SJ in 401(k) Fee Case

Seventh Circuit Reverses Kraft SJ in 401(k) Fee Case

September 1, 2011

Authored by: benefitsbclp

Earlier this year, a split Seventh Circuit panel reversed, in part, summary judgment previously granted in favor of Kraft Foods Global, Inc. (“Kraft”) in a class action ERISA breach of fiduciary duty case involving “excessive fees” claims in connection with Kraft’s 401(k) plan. The majority opinion was authored by Judge Adelman, an Eastern District of Wisconsin judge sitting by designation in the Seventh Circuit, and was joined by Judge Rovner.

This entry provides a high-level summary of the issues reversed by the court:

  • The Company Stock Fund Issue:  In 2003, Kraft’s then-parent company, Altria Group, Inc. (formerly Philip Morris), made the decision to move the company stock fund in its 401(k) plan from the unitized stock fund (which generally employs a cash buffer) model to “real time” trading where each participant owned shares of the relevant stock rather than units of a fund that invested in the stock. Kraft plan fiduciaries considered similarly moving away from the unitized stock fund mode; however, at that time, Hewitt (the Kraft plan recordkeeper) did not offer real time trading. The court also noted that the unitized model offered advantages (e.g., faster trades and lower transaction costs by “netting” participant transactions).  Based on the Court’s review of the record, the Kraft plan fiduciaries considered, but never actually made a decision regarding, whether to retain the unitized fund or move to real time trading.  On remand, the Seventh Circuit majority ruled that Kraft must offer evidence that its plan fiduciaries made a decision

Individual PTEs Dodd-Frank Act

Individual PTEs Dodd-Frank Act

August 31, 2011

Authored by: benefitsbclp

Earlier this summer, the DOL issued a “FAQ on Credit Ratings and Individual Prohibited Transaction Exemptions”  concerning how Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) will impact prohibited transaction exemptions (“PTEs”) granted to individual fiduciaries or transactions under Section 408(a) of ERISA.  Section 939A of the Dodd-Frank Act generally requires federal agencies to review and modify existing regulations that refer to, or require reliance on, credit ratings within one year following the enactment of Dodd-Frank (i.e., by July 21, 2011).   Certain individual PTEs refer to or rely upon credit ratings.

In its FAQ, the DOL confirmed its position that individual PTEs do not qualify as “federal regulations”; accordingly, Section 939A of the Dodd-Frank Act does not require review and modification of previously granted exemptions. This means that individual PTEs will remain in force with no modifications despite the Section 939A July deadline.

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