Securities Law Blog

For the first time, the U.S. Department of Labor (DOL) has established disclosure obligation regulation for advisers and brokers who manage 401(k) plans. The proposed rulemaking began in December 2007 to help plan sponsors and fiduciaries better understand how (and how much) service providers are compensated.

The disclosure obligation is designed to ensure that Employee Retirement Income Security Act (ERISA) plan fiduciaries are provided the information they need to make better decisions when selecting and monitoring service providers for their plans.

The rules define service providers that must comply with the disclosure requirements, as being fiduciaries, investment advisers and record keepers or brokers who make investment alternatives to a plan.

According to the DOL, the regulation will apply to defined contribution and defined pension plans and focuses on the disclosure of the direct and indirect compensation certain service providers receive. Plan service providers that expect to receive at least $1,000 in compensation in connection with their services will be expected to provide a detailed account of the fees they are charging to manage the retirement plans.

Such services will include “certain fiduciary or registered investment advisory services; recordkeeping or brokerage services to a participant-directed individual account plan in connection with the investment options made available under the plan; or certain other services for which indirect compensation is received.”

Information must also be disclosed about plan investments and investment options.

According to the DOL, “the new rules are aimed at assisting plan sponsors in assessing the reasonableness of contracts or arrangements, including the reasonableness of service providers’ compensation and potential conflicts of interest.”

The new rules are scheduled to go into effect in July 2011.