This latest proposed guidance would amend the previously issued EBSA final fee disclosure regulations, the purpose of which is to assist fiduciaries in prudently selecting and monitoring service providers to their ERISA-governed plans, and to ensure that service arrangements are reasonable. To accomplish this, detailed information on services and accompanying costs must be disclosed by a covered service provider, or CSP. A CSP is any entity that expects to receive at least $1,000 in direct or indirect compensation for services – such as advisory, fiduciary, recordkeeping, etc. – to a plan.
The final regulations permit service providers to use multiple documents, such as a collection of contracts, client agreements, memoranda, etc., to disclose services and fees. The final regulations did not define how such documents were to be organized, or specify that there must be a table of contents, or other guide, to help fiduciaries find the service and fee information. There was, however, a “sample” guide that service providers could elect to use to help fiduciaries find the required information. Perhaps that should have been our clue.
Now enter EBSA’s new proposed amendment to these final regulations. If a single, relatively simple document provides all of the needed service and fee information, all would be well, and no additional documentation would be needed. But, if a CSP provided service and expense information in a lengthy document, or in multiple documents, this new EBSA amendment would require furnishing a separate guide to help the fiduciary find the required information.
When would this separate guide be needed, and how detailed must it be? It is on these questions that the difficulty of complying will turn. If multiple documents are used to satisfy the CSP’s fee disclosures, the guide proposed in this amendment would require identifying each document, and within it, each required item of information. Section or page numbers would be required to narrow down the location of disclosure information within the document or documents.
As one might imagine, this prescription has generated questions. Such as, what is “quick?” What is “easy?” What is “lengthy?” And a big one: “who will decide?” There is legitimate concern that if a guide must have specificity down to the page number, or to the paragraph, it could be extremely costly for a CSP to create custom guides for the many plans it may serve.
Part of our due diligence is to objectively assess the impacts this guidance could have; not just on our compliance practices, our service agreements, or our own bottom line, but also on the costs that will have to be – and many would say should legitimately be – passed on to plans and their participants.
It must be remembered that this guidance is a proposed amendment, but at the same time it does reflect EBSA thinking. It is likely to be modified, or reasonably implemented, only if our legitimate objections – should we have them – are vigorously presented and argued.
Will EBSA’s desired ends justify the means? How simple must we make it for fiduciaries to assess their service provider relationships? As we judge the pluses and minuses of this proposed amendment, what is the proper balance between perfection and its price tag? Good questions; so far without answers.
