The final regulation’s disclosure requirements apply to any covered service provider with respect to:  (a) a defined benefit or defined contribution pension plan subject to ERISA or a “plan asset” vehicle in which the plan invests; (b) an investment advisor registered under state or federal law; (c) a record keeper or broker who makes investment alternatives available to the plan; and (d) a provider of services to the plan who receive “indirect compensation” for such services (including accounting, auditing, actuarial, banking, consulting, custodial, insurance, investment advisory, legal, recordkeeping, securities brokerage, third party administrators, or valuation services).  The requirements apply to covered service providers who reasonably expect to receive fees of at least $1,000.

The final regulation is similar in form and substance to the proposed regulations and interim regulations previously issued by the DOL, except as follows.  The final regulation:

• Extends the effective date of the service provider disclosure rules from April 1 to July 1, 2012.
• Requires that disclosures of changes in investment related information be provided “at least annually,” rather than within the 60-day period set forth in the proposed regulations.  All changes to information not related to investment information (such as the description of the services to be provided, the amount of compensation to be received, the cost of recordkeeping , etc.) are still required to be disclosed within 60 days from the date on which the service provider is informed of the change. 
• Provides a Sample Guide that can be used voluntarily by service providers to summarize where the required initial disclosures are to be found in multiple documents.
• Allows errors in previously disclosed changes in information to be corrected within 30 days.
• Clarifies that the disclosure rules do not apply to simplified employee plans (SEPs), SIMPLE retirement accounts, IRAs and certain “frozen” annuity contracts and custodial accounts established under Code Section 403(b).  The DOL will separately publish rules relating to fee disclosure for welfare benefit plans.
• Provides that information regarding “indirect compensation” must also include a description of the arrangement between the payer and the service provider.
• Requires additional disclosure of an investment fund’s annual operating expenses expressed as a percentage of total annual operating expenses, as well as other information relating to such investments that is within the control or reasonably available to the service provider and is a required disclosure under the rules for participant-directed investments under ERISA Section 404(c).
• Allows investment-related disclosures relating to designated investment alternatives to be provided by certain service providers in the form of the investment alternative issuer’s own current disclosure materials, or information replicated from such materials, regardless of whether the disclosure materials themselves are regulated, provided that the issuer is regulated, and the service provider acts in good faith, does not know that the materials are incomplete or inaccurate, and provides no representations as to the accuracy and completeness of such materials. This is helpful for service providers who provide recordkeeping or brokerage services that include designated investment alternatives independently selected by the plan fiduciary (e.g., “off-platform” investment alternatives).  See Preamble to Final Regulation Section B(4)(f), p. 5640.
• Expands the definition of “compensation” for disclosure purposes to allow the use of reasonable and good faith estimates to describe compensation if the service provider cannot otherwise describe the compensation or cost required to be disclosed, and clarifies the descriptions that may be made of the compensation or cost, as expressed in dollar amounts, formulae, percentages, per capital charges or other reasonable methods.
• Requires that regardless of when the fiduciary makes a written request for the reporting and disclosure information, the service provider may provide the information “reasonably in advance of the date upon which” the plan fiduciary states that it must comply with the applicable reporting requirement (rather than within 30 days of a request by the plan fiduciary under the proposed rule).

The class exemption is also modified under the final regulation.  Under the exemption, if a service provider fails to disclose required information, the plan fiduciary must request the information in writing from the service provider.  If the service provider fails to comply within 90 days, the plan fiduciary must decide whether or not to terminate the contract or arrangement.  The interim rule has been modified in the final regulation to emphasize that determinations by the plan fiduciary in this regard must be made in accordance with the prudence standards of Section 404 of ERISA.  Thus, if the information relates to future services and is not promptly disclosed within 90 days, the plan fiduciary must terminate the service arrangement “as expeditiously as possible,” consistent with its duty of prudence.  The class exemption puts the onus on plan fiduciaries to determine whether the information is of sufficient scope and quality to satisfy the final regulation. 

Lastly, the final regulation extends the deadline for providing participant disclosures.  For calendar year plans, the initial disclosure of plan and investment related information must be made by August 30, 2012.  The first quarterly statement must be provided to participants by no later than November 14, 2012, and must reflect expenses only during the third quarter. 

Covered service providers and plan fiduciaries should take steps to familiarize themselves with the final regulations to ensure that they do not inadvertently run afoul of ERISA’s prohibited transaction rules.  In addition to the final regulations themselves, the DOL has published a fact sheet regarding the final regulations and a list of changes to the final fee disclosure rule.