On October 24, 2011, the DOL issued a final rule permitting investment advisers to provide investment advice to participants and beneficiaries in self-directed individual account plans.  The final rule implements an exemption to ERISA’s prohibited transactions rules added by the Pension Protection Act of 2006.  Without this exemption, investment advisers could not provide investment advice to participants and beneficiaries in these types of plans without running afoul of ERISA’s prohibited transactions rules.  The final rule, which is effective for transactions occurring on or after December 27, 2011, allows investment advisers to receive compensation from the investment products that they recommend, provided either: (1) the investment advice they provide is based on a computer model certified as unbiased and as applying generally accepted investment theories; or (2) the adviser is compensated on a “level-fee” basis (i.e., fees do not vary based on investments selected by the participant).  According to the DOL, the final rule will make fiduciary investment advice more accessible for the millions of Americans that participate in self-directed individual account plans.

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BK Benefits Update Newsletter-Fall 2012-FINAL

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In one of the first 401(k) fee class action cases to be decided on the merits, the U.S. District Court for the Western District of Missouri recently ruled in Tussey v. ABB, Inc., that 401(k) plan fiduciaries breached their ERISA fiduciary duties by failing to monitor recordkeeping costs and revenue-sharing payments, selecting more expensive share classes when less expensive options were available, replacing an investment fund in violation of the plan’s Investment Policy Statement, and paying an amount to the recordkeeper in excess of the value of its services in order to subsidize the cost of other services provided by the recordkeeper to the company.  In considering the claims that ABB breached its fiduciary duty to monitor by not calculating the dollar amount of the recordkeeping fees paid to the recordkeeper (Fidelity) through revenue sharing agreements, and not considering how the plans could use their size to reduce recordkeeping costs even though the Investment Policy Statement specifically required them to do so, the court noted that the plan fiduciaries were not able to prudently analyze the arrangement.  Although issued by a lower court, this decision underscores the importance of plan fiduciaries fully understanding the fee arrangements entered into with service providers.  To this end, a thorough analysis of the service provider fee disclosures that are required to be provided to plan administrators under Section 408(b)(2) of the Internal Revenue Code by July 1, 2012, will be of utmost importance. 

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On April 2, 2012, the Department of Labor (“DOL”) issued Field Assistance Bulletin No. 2012-01, which provides guidance on the use of Apprenticeship and Training Plan assets for program graduation ceremonies and marketing.  Under the guidance, the DOL will not consider a plan’s payment of expenses associated with a “modest graduation ceremony” attended by graduating apprentices, family, plan officials, and other persons connected with the program, including “light refreshments,” and “token awards/gifts” for non-apprentices an impermissible use of plan assets provided: (a) the amount of the expense is modest in relation to the plan’s assets; (b) the expenses are approved in accordance with internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets; and (c) the expenses are costs for the ceremony.  Similarly, the DOL will consider outreach expenses for “marketing or promotion of the apprenticeship program” a permissible use of plan assets so long as the expenses are consistent with the fiduciaries’ obligation to be prudent and economical in the use of the plan assets.  For example, the purchase of t-shirts bearing the program’s logo (purchased at a reasonable price from a non-party in interest) would be considered an acceptable plan expense, while the purchase of tickets to sporting events for apprentices, trustees, or plan officials would not.

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On May 7, 2012, the DOL issued Field Assistance Bulletin 2012-02 (“FAB 2012-02”), to assist plan administrators and service providers in complying with the requirements of the DOL’s final participant-level fee disclosure regulation.  The guidance contains several notable clarifications, including: (1) confirmation that if a plan provides investment and plan-related information in a single document, designated investment alternatives need only be listed once; (2) an explanation that if all of a plan’s administrative expenses are paid from revenue sharing received by the plan from one or more of the plan’s designated investment alternatives that participants’ quarterly statements must nevertheless include a statement that “some of the plan’s administrative expenses for the preceding quarter were paid from the annual operating expenses of one or more of the plan’s designated investment alternatives;” and (3) affirmation that the plan administrator is under no obligation to provide the comparative chart of investment information and expenses more often than annually even if there is a change to the information contained therein.  The guidance also confirms that because plan administrators and service providers may have already furnished or prepared the initial disclosures before the date of publication of FAB 2012-02, the DOL will only take into account whether covered service providers and plan administrators have acted in good faith based on a reasonable interpretation of the regulations for purposes of determining whether initial disclosures comply with the requirements of the final rule.

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On October 26, 2011, the Office of Labor-Management Standards (“OLMS”) issued final regulations concerning reports made by labor organization officers and employees (“Form LM-30”).  The regulations, which are effective November 25, 2011, return to the Department’s historical position of not requiring officials to report on payments that they receive from trusts, or as a general rule, from unions.  The return to the historical interpretation for Form LM-30 reports means that employee benefit plans no longer need to file LMRDA reports for expenses reimbursed to union trustees, except with respect to payments that would create an actual or potential conflict of interest between the union official’s financial interest and the interests of the labor organization.  

Although this regulatory development is welcome news for union officials that serve as trustees for multiemployer plans, the 2011 regulations retained one detail of which trustees and plans should be aware. “While payments from a trust are not reportable by a union official on the revised Form LM-30, payments from and interests in any business that deals with the trust are reportable.” Consequently, trustees should still be cautious about reporting obligations related to gifts from investment managers, accountants, or other businesses that provide services to the plans.

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On April 12, 2012, the Internal Revenue Service (“IRS”) released a proposed rule implementing the comparative effectiveness research fee, which was enacted under the PPACA to fund the Patient-Centered Outcomes Research Institute (“Institute”).  The Institute will conduct research to evaluate and compare health outcomes, and the clinical effectiveness of various medications, treatments, and medical services.  The annual fee applies to plan or policy years on or after October 1, 2012 and before October 1, 2019.  The fee will be payable by the insurer for an insured plan and the plan sponsor in the case of a self-insured plan, and will be based on the number of covered individuals during the applicable period.  The fee is $1 per covered life for the 2012 plan or policy year and $2 per covered life for the 2013 plan or policy year.  The fee will be increased for each applicable year thereafter based on the percentage increase in the projected per capita amount of the National Health Expenditures data released annually by the Department of Health and Human Services.

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