In a very competitive industry, regulations on reasonable compensation are difficult to argue with. What plan participant has opened their statement on their 401(k) plan and understood at first glance who they were paying fees to, what the fees were paid for, and whether the fees were excessive. In a year of unprecedented change imposed by Congress and the IRS creating the need for service providers to redesign, restate, and amend plan documents over the next few years, the commitment to preventing a plan document failure or operational failure has limited the time service providers have available to educate participants.
Now, with the worst possible timing, the Dept. of Labor released their proposed rules on fee disclosures. With the title of Reasonable Contract or Arrangement Under Section 408(b)(2) – Fee Disclosure; Proposed Rule, these proposed rules are worth reading after the beginning of the Year.
ERISA section 406(a)(1)(C) generally prohibits the furnishing of goods, services, or facilities between a plan and a party in interest to the plan. The exception to this rule is ERISA section 408(b)(2), which exempts certain arrangements, including service contracts, between plans and service providers which would otherwise be prohibited by ERISA section 406 as long as the contract or arrangement is reasonable, the services are necessary for the establishment or operation of the plan, and no more than reasonable compensation is paid for the services.
This proposed regulation is directed at amending ERISA section 408(b)(2) to clarify the meaning of “reasonable” contract or arrangement. Since ERISA defines a party in interest to be any person providing services to the plan, this regulation is well worth reading, analyzing how it will affect your business, and emailing a comment or two to EBSA. EBSA is accepting comments on this proposed regulation until February 11, 2008.
In this proposed regulation, the Dept. of Labor is also proposing a change to Schedule C of Form 5500. The stated goal is for Schedule C to help sponsors and fiduciaries determine the reasonableness of the fees they pay to service providers and to assess any potential conflicts of interest by providing information on plan service providers who were compensated in excess of $5,000. Because most sponsors will not see copies of Schedule C for comparable companies in their industry with comparable plan designs and comparable number of participants, it is debatable whether the proposed changed to Schedule C will accomplish this goal. In the land of unintended consequences, this proposed change to Schedule C may make some very interesting information public and available in a way in which it is not currently available.
[tags]Pension Protection Act, ppa, EBSA, DOL, fees, 408(b)(2), Schedule C, Form 5500, ERISA[/tags]
