By Fred Reish, Bruce Ashton, Joan Neri and Joshua Waldbeser
Advisors have an opportunity to add significant value by helping plan sponsor clients develop a prudent 408(b)(2) disclosure review process. This process is crucial because a failure to properly evaluate the required disclosures from a “covered service provider” (CSP) causes the responsible plan fiduciary (often the plan sponsor or committee) to become a party to a non-exempt prohibited transaction.
What should this process entail? According to the DOL, the prohibited transaction exemption under 408(b)(2) requires the plan sponsor to “compare the disclosures they receive from a covered service provider to the requirements of the regulation and form a reasonable belief that the required disclosures have been made.”
To assist plan sponsors in developing a review process that satisfies the exemption’s requirements, advisors should consider these steps:
• Educate the plan sponsor — explain what types of providers are CSPs and what the disclosures must contain
• Identify CSPs — develop a checklist addressing the circumstances that give rise to CSP status and assist with identifying each CSP
• Disclosure delivery — determine whether (and when) the disclosures were furnished
• Evaluate — develop a checklist of the regulatory requirements and evaluate each disclosure against those requirements
• Follow up — if the disclosures are incomplete, assist the plan sponsor in making a written request for the missing information; if the information is not furnished within 90 days, assist the plan sponsor in reporting the CSP to DOL (which is required under the exemption) and terminating the CSP’s service arrangement (to avoid a fiduciary breach)
By applying this systematic approach, advisors can add real value to help plan sponsor clients fulfill their fiduciary obligation and avoid a prohibited transaction.
The authors are attorneys with Drinker Biddle & Reath LLP.
CH01/ 26157350.1
5/16/13
