As the Department of Labor points out, in recent years, employee benefit plans have undergone a number of changes to improve efficiency and reduce the cost of administrative services for the plans and their participants. However, these changes are quite complex, making it difficult for plan fiduciaries to understand what service providers are actually paid for the specific services they render. Nonetheless, ERISA § 404(a)(1) provides in pertinent part that:
[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—
(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan.
In order to comply with Section 404(a)(1), fiduciaries must have access to information sufficient to determine the reasonableness of the compensation paid for administrative services. The interim final rule is intended to provide fiduciaries with this key information by requiring certain service providers to disclose both the direct and indirect compensation they receive in connection with the services they provide to the plan. According to Phyllis Borzi, Assistant Secretary for the Employee Benefits Security Administration, the rule should allow plan fiduciaries to make more informed decisions about plan services, including the costs of services and potential conflicts of interest.
In addition to protecting and assisting plan fiduciaries, the Department of Labor believes that “mandatory proactive disclosure will reduce sponsor information costs, discourage harmful conflicts, and enhance service value.”
A complete copy of the final interim rule is available here.