Explaining the 408(b)(2) fee disclosures for plan sponsors
ERISA requires that your CSPs disclose service and fee information to you and that they notify you of any changes to that information. CSPs must notify you of changes as soon as practicable, but no later than 60 days after they’re informed of the change.
In order to pay for the operation of the plan with plan assets and avoid a prohibited transaction, the fees must be reasonable under ERISA Section 408(b)(2). Use this guide to make sure your CSPs have provided you with all the information and disclosures required under ERISA Section 408(b)(2).
|Description of services||
|Statement of fiduciary status (if applicable)||
|Description of compensation||
|Description of recordkeeping disclosures||
|Description of investments and disclosures||
CSPs that offer designated investment alternatives (DIAs) to a plan (through a platform) in connection with recordkeeping or brokerage services must also provide a description of:
How to handle incomplete 408(b)(2) fee disclosures
If you discover that you’ve received incomplete disclosures from a CSP, you can obtain exemptive relief and avoid a prohibited transaction by doing the following:
- Send the CSP a written request for the missing information. The CSP has 90 days to respond.
- If the CSP fails to comply with your request, then notify the DOL within 30 days of the earlier of:
- the CSP’s failure to comply with the written request for information, or
- 90 days after the written request is sent.
Note: Generally, the DOL notice must be filed no later than 120 days after the request is made to the CSP, unless the CSP notifies you of its failure to comply with your request prior to the 120-day deadline. If that’s the case, then the DOL notice must be filed within 30 days of the CSP’s notice of failure to comply.
- If the requested information isn’t provided within 90 days of the date of request, you must decide whether to terminate or continue the contract, consistent with your duty of prudence.
- If the information requested relates to future services and isn’t disclosed promptly after the 90-day period, then terminate the contract as expeditiously as possible, consistent with your duty of prudence.
- Regardless of the situation, consider consulting legal counsel for guidance on how to prudently proceed.
You can find more information about how to handle incomplete 408(b)(2) disclosures on the DOL website.
More tips for monitoring your service providers
- Have a clear understanding of which services you need for your plan.
- Review the CSP’s credentials, such as education, license, work experience, customer references, satisfaction surveys, reputation, liability insurance, and any other factors.
- Make sure you understand the terms of any contract or arrangement you enter into, including the types of services offered and not offered.
- Understand all related fees and how to compare them to relevant benchmarks.
- Periodically review the CSP’s performance, service level and support, reasonableness of fees, types of services offered compared with those needed, and other details.
- Document your selection process and the reason for your hiring decision.
- Document your monitoring process and findings.
As with all your fiduciary duties, documentation is critical, as it may be helpful in answering any future questions about your decisions and compliance with your fiduciary duties.
Track your 408(b)(2) disclosures for compliance
The intention behind 408(b)(2) is to provide the plan fiduciary with a description of the services provided by the plan’s CSP and fees charged for those services. As such, it imposes disclosure requirements for your CSPs and for you as a fiduciary. Make sure you’ve received all the 408(b)(2) disclosures you’re due from each of your CSPs, and document their receipt, any actions you take to track down incomplete/missing disclosures, and any related filings with the DOL. Similar to other fiduciary duties, your duties under 408(b)(2) are procedural. Following and documenting a prudent process relating to 408(b)(2) disclosures can help you manage and comply with your 408(b)(2) fiduciary duties.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date but may be subject to change. John Hancock does not provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.