Asset Managers and ERISA Fee Disclosure
Where do you stand?
If the fund you manage holds retirement plan investments you may be subject to Employee Retirement Income Security Act (ERISA) fee disclosure rules. It is important to understand these multi-faceted reporting and disclosure requirements and to take action become compliant. Even if you have only one ERISA plan investor in your fund, these rules may impact you.
Over the last four years the Department of Labor has issued proposed, interim, and final regulations pursuant to the launch of its three-pronged fee disclosure initiative. The purpose of these regulations is to increase the transparency of fees and other compensation that is charged to, or otherwise impacts, plans covered by ERISA. Specifically, the fee disclosure regulations demand compliance in the following areas:
Form 5500, Schedule C reporting and disclosure
- Disclosure by the plan sponsor to regulatory agencies through enhanced reporting of direct and indirect fees paid to plan service providers.
- Annual reporting requirement.
- Effective January 1, 2009
Asset managers may be required to provide specific fee information to assist plan sponsors to meet these reporting obligations.
IRC §408(b)(2) reporting to a plan sponsor
- Disclosure to plan sponsors by a "covered service provider" of direct and indirect compensation.
- Demonstrate "reasonable "contract or arrangement to avoid prohibited transaction consequences.
- Ongoing disclosure obligations.
- Effective July 1, 2012 (initial disclosures)
Asset managers may be required to demonstrate reasonableness of fee arrangements to plan sponsors to satisfy statutory exemption.
IRC §404(a) and IRC §404(c) participant disclosure
- Comparative disclosures by plan sponsors to plan participants in self-directed retirement plans of certain plan investment and fee information.
- Ongoing annual and quarterly disclosure obligations.
- Effective 60 days after 408(b)(2) (August 30, 2012 for calendar year plans)
Asset managers may be asked to provide information related to fund performance, fees and expenses to satisfy participant disclosures.
Take action now
Although Schedule C reporting requirements were effective in 2009, some asset managers have not taken action to assess the impact of these rules and their responsibilities to ERISA plan investors. Further, the new plan sponsor and participant disclosures impose additional requirements effective in July 2012. Asset managers must take action now to understand these rules and determine their ability to track, collect, and report necessary information to plan sponsors prior to the effective dates. Recommended action items include:
- Review and assess requirements of the fee disclosure regulations
- Communicate with sponsors regarding timing and method of delivering fee disclosure information
- Develop a procedure for tracking required information and a "model" disclosure format
- Identify and update contracts/arrangements with ERISA plan investors to comply with new rules
Deloitte can help asset managers navigate these complex fee disclosure rules and develop appropriate methods to provide information to their ERISA plan investors.
For additional information or questions, please contact any of the following individuals in our Global Employer Services practice:
+1 617 437 2694
+1 617 437 3011
+1 617 437 3295