New 408(b)(2) Regulations Released

In February of 2009 we sent out to you a notification (see below) regarding the White House’s decision to put on hold on all proposed regulations while the administrations were in transition. As you are aware, one of those regulations was the proposed 408(b)(2) amendments dealing with Fee Disclosure, Conflicts of Interest and Prohibited Transactions. In case you were not yet aware, this past Friday, July 16, 2010 the DOL released an “interim final regulation” under ERISA Section 408(b)(2) which will be effective on July 16, 2011.

After reviewing this new “Interim Final regulation”, in my view, these are some of the more important points.

1.) Written Disclosure instead of formal written contract or arrangement. This means that for all plans, the contracts in place now will not have to be amended or re-written, but rather a written notice should be sufficient.

2.) Clarified what it covers – Covers All Qualified DC/DB Pension Plans.

a. ERISA 403(b), 401(k), DB and Profit Sharing Plans are included.
b. SIMPLE IRAs, SEPs, IRAs, Non-ERISA 403(b), 457(b) and 457(f) are not included.

3.) There are now ‘Out Clauses’.
a. There is now a De minimis exemption for provider’s whose annual compensation is less than $1,000
b. There is also a “good faith” exception for providers who make a disclosure error as long as it acted in good faith and corrects the issue within 30 days of discovery.

4.) Conflict of Interest disclosures have been substantially reduced. The prior rule required explicit identification of all conflicts of interest. Instead, the DOL is relying on the compensation disclosure rules to address the issue. In other words, it is on the Plan Sponsor to identify the conflict based on following the money trail…..

5.) Fiduciary Status Disclosure – the new rule requires that only one reasonably expecting to be serving as a fiduciary or RIA clearly says so. The old rule required you to state in writing if you were or a fiduciary or were a not a fiduciary. This brings up the old issue of functional fiduciaries whose Broker Dealers do not allow them to serve as fiduciaries, thus the conduct of the rep is in conflict with their contract with the plan. Under these new rules, the registered rep must state if they are a fiduciary, and if their contract with the plan states otherwise, is that contract reasonable? This could be interpreted as a Rule 4975 Prohibited Transaction. See this article on The Broker’s Dilemma from 2008, for the full issue at hand.

For a complete interpretation of the new regulation and the practical impact of it, please link to the article by Pete Swisher entitled, ‘What the DOL’s New 408b-2 Rule Means”.

If you are looking for a more concise view of the main differences between what the previously proposed rules were vs. the important changes, please see this Bulletin published by Fred Reish and Bruce Ashton of Reish & Reicher by clicking here.

Unified Trust in HR Magazine

Unified Trust's Founder and Chief Executive, Greg Kasten, is a board certified anesthesiologist. In the mid-1980s, he brought the doctor-patient mindset to the realm of investment management with the purpose of providing high level fiduciary services to individuals and plan participants. He and Unified Trust, were recently featured in an article by HR Magazine, entitled, "A Higher Standard of Care". Click here to view the article.

IRS Is Auditing Retirement Plans Remotely (Sort of)

A quick client service tip, FYI:

On May 17, 2010, IRS sent questionnaires to 1200 plan sponsors. The questions cover the same ground IRS covers in an audit, but not comprehensively. If one of your clients receives one of the questionnaires, be aware of the following:

• This is not an audit, but it can lead to one.

• One risk to the sponsor is that an answer might lead to an audit, and once a plan is under audit it is no longer available for the self-correction or voluntary compliance programs (SCP and VCP, part of EPCRS, the Employee Plans Compliance Resolution System). They could be forced instead into Audit CAP, the penalties for which are much more serious. For this reason, it is best to treat the Questionnaire as an audit even though IRS says it’s not one.

• Clients will want help with these. If a Unified Trust client gets a questionnaire, we will complete it for them except for any information we do not have.

Here’s a link to the IRS overview of the project: http://www.irs.gov/retirement/article/0,,id=223440,00.html

Here also are some of IRS’s FAQ answers:

What is the 401(k) Compliance Check Questionnaire Project?

The 401(k) Compliance Check Questionnaire Project is a compliance check project being administered by the Employee Plans Compliance Unit (EPCU). This project is designed to be a comprehensive look into 401(k) plans to determine potential compliance issues, gain a better understanding of the reasons for noncompliance and determine any potential plan operational issues. This project will also assist us in developing additional education and outreach materials to improve future compliance and help us determine where best to focus our enforcement efforts.

Why was my plan selected?

The 1,200 plans selected to receive this compliance check were selected at random from 401(k) plans that filed a Form 5500 for the 2007 plan year.

Is this an audit?

This is a compliance check, which is neither an audit nor an investigation under IRC section 7605(b) nor an audit under section 530 of the Revenue Act of 1978. This is not a review of an organization’s books and records.

What is a compliance check?

A compliance check is a review by the IRS to determine adherence to certain compliance requirements under the Internal Revenue Code.

Am I required to respond to this compliance check?

Yes, a compliance check is an enforcement action which you must respond to. Failure to respond, or to provide complete information will result in further enforcement actions which may include an examination of your plan.