SPARK Institute Comments on DOL Fee Disclosure Regulations
SIMSBURY, CT, February 11, 2008 -- The SPARK Institute today submitted a comment letter to the U.S. Department of Labor (DOL) outlining several issues and concerns, and asked for modifications to the agency's recently proposed amendments to the fee disclosure regulations under Section 408(b)(2) of ERISA. "We commend the DOL for attempting to take a measured and flexible approach to address the extremely complex issues relating to fee disclosure in the retirement plan industry," said Larry Goldbrum, General Counsel of The SPARK Institute. "However, there are a number of areas where we have concerns with the amendments and have offered recommendations to modify the DOL's positions in order to help plan sponsors comply with the regulations and enable service providers to better facilitate compliance," he added.
Among the key issues addressed in The SPARK Institute's letter are the disclosure and contract requirements when a plan service provider maintains the records and facilitates investments for a plan sponsor in non-proprietary investment products through bundled or "open architecture" recordkeeping arrangements. "We are concerned that the Proposed Regulations are intended, or may be interpreted, to either: (1) require recordkeepers to make disclosures on behalf of unaffiliated parties and their investment products, or (2) obligate mutual fund companies to enter into contracts directly with every plan that includes their funds as an available investment option," said Goldbrum. "The SPARK Institute believes that recordkeepers should not be obligated to make disclosures about non-proprietary mutual funds on behalf of unaffiliated parties and should not be exposed to potential liability in connection with such disclosures," Goldbrum said.
"The SPARK Institute has recommended that in the case of non-proprietary funds that the final regulations permit a recordkeeper to provide a fund's then-current statutory prospectus to a plan sponsor on behalf of the fund in order to satisfy any disclosure requirements applicable to the fund," said Goldbrum. He said that when a recordkeeper makes an accommodation for a special asset or plan specific asset, that the recordkeeper have no fee disclosure or contract obligations except for disclosing the compensation it or its affiliates receive in connection with the special asset.
Another area of concern outlined in The SPARK Institute's letter relates to the recordkeeper's responsibilities when it is directed by a plan sponsor to make direct payments to a third party such as a broker or Third Party Administrator (TPA) that is not part of the service provider's bundled arrangement. "We are concerned that bundled service providers will have to make disclosures on behalf of unaffiliated parties merely because they are directed by the sponsor to make payments to the third parties," Goldbrum remarked. Goldbrum said that one other key point made in its comment letter was a request to modify the effective date for the proposed regulations to provide for a longer transition and compliance period for existing relationships between plan sponsors and service providers than for new clients. "We recommended that for new client relationships, the regulations should be effective at least six months after the final regulations are published, while for existing customer relationships, the compliance deadline to amend an existing service agreement or sign a new one should be at least 18 months," he said. These changes are necessary because of the extensive time that will be required to revise customer forms for every product offered, prepare amendments for use with existing customers, develop the detailed disclosures that comply with the new regulations, and identify and prepare amendments for every affected plan customer.
About The SPARK Institute
The SPARK Institute is the leading voice in Washington for the retirement services industry. Through the combined expertise of its member companies, The SPARK Institute provides research, education, testimony and comments on pending legislative and regulatory issues to members of Congress and relevant government agency officials. This disciplined process and resulting solutions help shape America's retirement future.
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