Plan sponsors have long been tasked with ensuring that the fees paid by and services rendered to
their plans are reasonable. It has not, however, always been easy for them to ascertain the details
necessary for them to fulfill their fiduciary responsibilities. In recent months, the Department
of Labor (DoL) has issued regulations that could have a significant impact on the amount and
consistency of information available. PLANSPONSOR recently met with Larry Goldbrum, General
Counsel and Executive Vice President, The SPARK Institute, and John Guido, Division Vice President, ADP Retirement Services, to discuss these trends and the implications for plan sponsors.
PS: Why did the Department of Labor issue these new
Goldbrum: Some plan sponsors have reported that they were
either unable to get the information they needed or that they
just didn’t know what to ask for and, at the same time, vendors
technically did not have an affirmative obligation to disclose
their fees. These were concerns for the DoL.
PS: Will these new rules help?
Guido: Absolutely. I think that the legislation is a good idea.
Providing a consumer—in this case, the plan sponsor or the
participant—a concise way of determining what their fees
are is a great idea. It’s important to remember that the fee
disclosure document covered service providers will give to
plan sponsors is really about helping them assess the value
of their retirement plan: Do they have a program in place
that is best enabling their employees to achieve retirement
readiness at a reasonable cost?
PS: What does §408(b)( 2) have to do with fee disclosure?
Goldbrum: 408(b)( 2) is the section of ERISA that allows retirement plans to hire and pay vendors to provide services. A
plan is allowed to make reasonable arrangements for necessary services if no more than reasonable compensation is
paid. The new rules will require vendors to make specific
disclosures in order for the contract to even be considered
reasonable. That is how the Department of Labor was able
to establish an affirmative obligation for vendors to make
PS: Which service providers in particular are required to
comply with these new rules?
Goldbrum: The rule creates a new term called a “covered
service provider,” which is anyone who provides specified
services to an ERISA-covered plan that expects to be paid
$1,000 or more, either directly or indirectly from the plan. The
definition encompasses a very broad definition of services.
PS: What has ADP been doing to prepare for these new
Guido: ADP historically has been very forthcoming in our
disclosure of fees, as well as the description of services and
revenue-sharing arrangements. We’re tracking closely the
progress of the new regulations to make sure we remain in
compliance and continue to work with our partners, both
third-party administrators and the adviser community, to
see how it would affect the plan sponsor. We’ve also been
in active communication with our plan sponsor clients to
help them prepare. It’s critical that they understand what’s
happening from a legislative perspective and that we’re
making sure that our plan sponsor clients are in the loop
with the new regulations.
PS: What responsibilities will plan sponsors have under
these new rules, and what should they be doing to be
Goldbrum: What John said is very important: Communication, at this point, between plan sponsors and their service
providers is going to be key. One of the things that plan
sponsors need to start doing is decide what they are going
to do with the disclosures they receive. Plan sponsors are
going to have to evaluate the information and determine
that the services that they’re receiving are necessary and
the fees are reasonable. Those aren’t new obligations, but
plan sponsors can expect to receive a lot of information from
their service providers and, for some, part of the information
may be new. The disclosures need to be evaluated through a
deliberate due diligence process so that, ultimately, the plan
sponsors can demonstrate that they have fulfilled their fiduciary obligations. That can include evaluating the materials
and documenting the review process and the decisions that
are made. A plan sponsor should just take the information
and file it away, because that eventually could become a
road map for litigation.
PS: How will the new disclosures differ from what plan
sponsors receive now, either in form or substance?
Goldbrum: One important change is that indirect compensation or “revenue-sharing” must be disclosed. The rule
requires the vendor to describe all indirect compensation it
may receive, describe the services provided for the compensation and identify the payer. For some plans, this may be
new information. However, it’s important to keep in mind
that the DoL did not say that revenue-sharing is impermissible, they just want it fully disclosed.
PS: What about recordkeeping providers?
Goldbrum: If a provider doesn’t charge an explicit fee for