ERISA Section 408(b)(2) Fee Disclosures Due 6/30/2012

ERISA Section 408(b)(2) Fee Disclosures
Are Due 6/30/2012

ERISA Section 408(b)(2)

This is a reminder that all covered service providers to ERISA qualified plans (“ERISA Plan”) are required to deliver a fee disclosure to all of their ERISA clients on or before June 30, 2012, pursuant to ERISA Section 408(b)(2) (“ERISA Fee Disclosure”). As the definition of covered service providers includes any entity that expects to receive more than $1,000.00 in compensation from an ERISA Plan, broker-dealers and investment advisers are generally deemed to be covered service providers.  As such, they will be required to provide the ERISA Fee Disclosure to all ERISA clients on or before June 30, 2012.

Please note ERISA generally applies to both defined contribution plans, where employers and employees contribute to an employee’s retirement account, and a defined benefit plan, where an employer guarantees a minimum level of retirement income for an employee.  While the Department of Labor (“DOL”) has stated that three types of IRAs are covered under ERISA, they being the SIMPLE, SEP and rollover, they are exempt from the ERISA Fee Disclosure. Obviously, the remainder of employer-provided, tax-advantaged retirement accounts are generally covered under ERISA and considered qualified. These include 401(k)s, pension plans and many 403(b) plans. Employers have discretion in the operation of 403(b) plans and may choose not to have the plans be ERISA-qualified by limiting their involvement in the plans.

For additional information regarding the ERISA Fee Disclosure, you should review the alert issued by us in November 2011, tilted “Department of Labor Imposes Significant Disclosure Obligations on Broker-Dealers and Investment Advisers” or review the Fact Sheet issued by the DOL in February 2012.

Action Items

With the above in mind, if you have not taken any action as of this time regarding the ERISA Fee Disclosures, you should consider taking the following action:

  • Review your client base to determine if you provide services (either brokerage alone, investment advisory alone, or a combination of brokerage services and investment advisory services).
  • Review your fees and compensation.
  • Prepare the respective ERISA Fee Disclosure reflecting the direct and indirect fees and compensation received from your ERISA clients accounts.
  • Forward the ERISA Fee Disclosure to your ERISA clients..

If you would like more information on this matter, obtaining a template for the ERISA Fee Disclosure or would like our assistance in preparing the ERISA Fee Disclosure, please feel free to contact us by e-mail or phone at 281-367-2454.

This legal update has been provided to you courtesy of The LeGaye Law Firm, P.C., 2002 Timberloch Drive, Suite 200, The Woodlands, Texas 77380. Visit our web site at The information contained herein is not, nor is it intended to be legal advice or establish or further an attorney-client relationship. All facts and matters reflected in this information should be independently verified and should not be taken as a substitute for individualized legal advice. You should consult an attorney for individual advice regarding your own situation. Not Board Certified by Texas Board of Legal Specialization. Michael Schaps is not an attorney.