Covered service providers must describe the services provided and disclose the amount of (1) direct compensation, (2) indirect compensation, (3) compensation paid among related parties, and (4) compensation for termination of the contract or arrangement.  If applicable, the disclosure must include a statement that the covered service provider is a plan fiduciary as defined in ERISA 3(21).

The level of detail in the disclosure will depend on the understanding between the responsible plan fiduciary and the covered service provider.  When indirect compensation is disclosed, the covered service provider must indicate what services are provided in return for the indirect compensation and who is paying the indirect compensation, including a description of the arrangement between the covered service provider and the 3^rd party.

The covered service provider must indicate how compensation will be paid (e.g. a bill sent to the plan, deducted from plan assets, or reflected in a charge against plan investments).

Compensation can be disclosed as a monetary amount or as a formula, percentage of covered plan assets, or a per capita charge for each participant (or some other reasonable method if one of these options doesn’t apply).

The fee disclosure requirement does not create a requirement to have a written agreement or contract with the plan, plan sponsor, or plan fiduciary, although the disclosure must be in writing.  Nothing in the regulations precludes electronic disclosure.

The investment information disclosure (described below) can likely be done by providing a copy of the current disclosure materials of the issuer as long as the issuer is a registered investment company, insurance company, issuer of a publicly traded security, or a financial institution supervised by a state or federal agency and is not an affiliate.

A platform recordkeeper must disclose investment information, listed below, for each designated investment for which recordkeeping services are provided.  This disclosure will include a description of:

1. Compensation charged directly against amounts invested, such as commissions, sales loads, sales charges, deferred sales charges, redemption fees, surrender charges, exchange fees, account fees, and purchase fees that are not included in the annual operating expenses of the investment contract, product, or entity;
2. Annual operating expenses (e.g. expense ratio) if the return is not fixed and any ongoing expenses in addition to annual operating expenses (e.g. wrap fees, mortality and expense fees). 
3. For an investment contract, product, or entity that is a designated investment alternative, the total annual operating expenses expressed as a percentage and calculated in accordance with DOL Reg. 2550.404a-5(h)(5) can be disclosed in lieu of #2 above.
4. For an investment contract, product, or entity that is a designated investment alternative, any other information or data about the designated investment alternative that is within the control of, or reasonably available to, the covered service provider and that is required for the covered plan administrator to comply with the disclosure obligations described in DOL Reg. 2550.404a-5(d)(1).

This article was last updated on May 17, 2012