With 408(b)(2) Disclosures in Hand, What's Next?

Now that July 1, 2012 has passed and assuming the responsible plan fiduciary (“RPF”) has received their 408(b)(2) disclosures, many Plan Sponsors are asking “What’s next?”

Two Options for the RPF

The RPF has two options:

1. Compare the disclosures to the regulations to confirm they are complete, or
2. Retain the services of a professional to conduct the analysis on their behalf

Failure to conduct this analysis may make the RPF personally liable for a prohibited transaction if it is determined the disclosures are incomplete. The analysis is so complex, few RPFs have the knowledge, skill and expertise to prepare this analysis. An RPFs best option is to retain a professional if the RPF cannot conduct a comprehensive analysis.

Preparation for the Analysis

In preparation for the analysis, the RPF must assemble all 408(b)(2) disclosures including all contracts, service agreements and documents referenced in the 408(b)(2) disclosures. It also behooves the RPF to send a letter to each covered service provider (“CSP”) requesting any information they know is missing.

The purpose of the letter is to:

• Establish a documented process to confirm the disclosures are complete
• Request information needed or confirmation of facts from each service provider
• Reduce liability for the RPF
• Obtain a response from the service provider that can be relied upon in good faith

Determining Fee Reasonableness

Once a determination is made that all disclosures from each CSP are complete, a determination must be made whether fees are reasonable for services rendered. This requires a two-step process:

1. Compare fees
2. Document the reasons you believe fees are reasonable

To conduct a proper comparison, the RPF must either be able to benchmark fees and/or engage in a formal request for proposal (“RFP”) process. Benchmarking is certainly the most efficient, unbiased, conflict free and cost effective approach assuming the data is from an independent source.