Among the new requirements that are, or soon will be, imposed on employer-sponsored group health plans subject to ERISA (?Ç£GHPs?Ç¥) by the Consolidated Appropriations Act of 2021 (the ?Ç£CAA?Ç¥) are compensation disclosure requirements which apply to GHPs and certain of their third-party service providers. Background ERISA contains prohibitions on certain transactions between an employee benefit plan, including a GHP and a party-in-interest, such as a third-party service provider.?á Section 408(b)(2) of ERISA provides an exemption from the prohibited transaction rules for reasonable contracts entered into by a plan and a service provider for necessary plan-related services (?Ç£Contract?Ç¥), provided that no more than reasonable compensation is paid for such services (the ?Ç£Prohibited Transaction Exemption?Ç¥). The relevant fiduciary of the plan under ERISA (the ?Ç£Fiduciary?Ç¥) is responsible for determining whether compensation to be paid under the Contract is reasonable in order to comply with the Prohibited Transaction Exemption. Disclosure Requirement under the… Continue Reading
Many 401(k) plans contain spending accounts funded by revenue-sharing generated by a plan?ÇÖs mutual fund holdings. These accounts, often referred to as ERISA expense accounts, revenue-sharing accounts, or plan expense reimbursement accounts, can cause complications for plans if not administered properly. These revenue-sharing accounts can accumulate quickly, and in large plans, can result in hundreds of thousands of dollars each year. However, plan sponsors often do not know that the accounts are accumulating, and when they find them, may think they have just discovered ?Ç£free money.?Ç¥ But nothing in life is free, and missteps with the use of these funds could result in participant claims. Accordingly, before utilizing these funds, plan sponsors should use care and consider the following questions: Are the funds being held in the trust??áDOL Advisory Opinion 2013-03A (which is available here) noted that revenue sharing payments that were being received by the third party administrator prior… Continue Reading
The DOL recently released a set of FAQs related to its new plan fiduciary definition and related exemptions (the ?Ç£Final Rule?Ç¥). Specifically, the FAQs clarify that service providers who are required to provide ERISA Section 408(b)(2) notices to retirement plan sponsors, which disclose the service provider?ÇÖs fees and services, are not required to update those notices to state the service provider is now a fiduciary until the date when fiduciary status must first be disclosed under the Final Rule?ÇÖs Best Interest Contract and Principal Transaction Exemptions, which is currently January 1, 2018. (Please note that on August 9, 2017, the DOL filed a motion with the court presiding over the ongoing litigation concerning the Final Rule?ÇÖs validity, stating that the DOL intends to further delay the effective date of the Best Interest Contract and Principal Transaction Exemptions for an additional 18 months.) In addition, the FAQs clarify that communications regarding… Continue Reading
The U.S. Department of Labor proposed an amendment to the regulations under ERISA Section 408(b)(2) that would require service providers to provide a guide to employers to assist the employer in understanding the fee disclosures.?á The guide would be required if disclosures are made using multiple or lengthy documents.?á The guide would be required to specifically identify the document, page, or other specific locator, such as section, that would enable the employer to quickly and easily find fee information.?á An announcement of the DOL?ÇÖs proposal can be found here,?áand the text of the proposed amendment can be found here.
Previously, the United States Department of Labor (“DOL”) issued guidance suggesting that a plan fiduciary may not have met its fiduciary obligations if there are no designated investment alternatives under a plan (i.e., it is solely a brokerage window) or if a significant number of participants select an investment through a brokerage window and the fiduciary does not treat such investment as a designated investment alternative. The DOL issued new guidance replacing this previous guidance. In reversing its prior position, the new guidance clarifies that the fee disclosure regulation does not require that a plan have a particular number of designated investment alternatives and the selection through a brokerage window of a particular investment by a significant number of participants does not impose such a requirement. However, the guidance notes a fiduciary?ÇÖs failure to designate investment alternatives to avoid disclosure requirements would raise questions under ERISA?ÇÖs fiduciary duties of prudence… Continue Reading