Compliance March 15, 2012

Tips for Preparing for 408(b)(2)

March 15, 2012 (PLANSPONSOR.com) - A webcast by The Spark Institute examined details of the Department of Labor’s (DoL) final 408(b)(2) regulation.  
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Fred Reish, ESQ, partner and chair of the Financial Services ERISA Team at Drinker Biddle & Reath LLP, explained that with the final regulations, the DoL included a sample guide that includes details on how to comply with the regulation.

Larry H. Goldbrum, general counsel, The Spark Institute, added there is a significant concern with details provided in the sample document by the DoL. He says some service providers do not think the document  easily clarifies the details of the regulation. Some service providers are therefore creating their own high-level summaries of the regulation.

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404a-5 Disclosures  

Reish explained that the requirement for the 404a-5 disclosure of fees from plan fiduciaries to plan participants will shift the burden onto the service provider to make sure that the plan sponsor has all the information needed to deliver the participant disclosures. He said this was not required before. 

According to the DoL documents, this includes, “information or data about the designated investment alternative that is within the control of, or reasonably available to the covered service provider and that is required for the covered plan administrator to comply with the disclosure obligations described in 29 CFR 2550.404a-5(d)(1).”  The document adds that 404a-5 information “must be disclosed as soon as practicable, but not later than the date the investment alternative is designed by the covered plan.”

Goldbrum said these regulations are going to cause difficulty for recordkeepers. “I think in those situations, recordkeepers are going to have to think about their protocols and their practices,” he said. 

Brokerage Accounts 

Reish said that according to the 408(b)(2) service provider fee disclosure regulation, providers do not have to disclose the expenses of each brokerage account. “The covered service provider must disclose all applicable information concerning the brokerage window that is required by the other provisions of the final rule.”

Reish added that the provided description must contain information that is sufficient to permit a responsible plan fiduciary to evaluate the reasonableness of such compensation in advance of the service arrangement. The description has to be detailed so a fiduciary can evaluate it.

The DoL adds that if the information, such as the identity of the payer and specific descriptions of indirect compensation, are unknown at the time of the disclosures, then the description does not need to identify the specific payer prior to the service arrangement. Instead, the description can provide information that would allow the responsible plan fiduciary to compare the expected compensation with compensation that would be received by competing broker/dealers for similar investment services.

Reish stated that the industry needs to request guidance on when a person picks a specific investment for which the information is no longer general, whether the broker has the right to give specific information. 

He added that most broker/dealers provide brochures with information on their compensation already, including commission structure, forms of compensation, revenue sharing, etc.

Goldbrum added, “Our main focus has been dealing with the indirect compensation. This unknown distinction creates a problem. You are trying to provide the plan fiduciary with enough information. There should be a way to provide enough information to evaluable the arrangement with disclosure of the worst case scenario.”

Part of the concern of making a specific disclosure is that many brokerage firms consider that information proprietary. The revenue sharing or the indirect compensation arrangement is not unique to the retirement plan. That might be information that is tied to the entire firm's fund. They consider that very proprietary. With fee disclosure, this information is going to become regularly accessible to their competitors, which is a concern.

Plan Sponsor Responsibilities 

After the disclosures are made, Reish said plan sponsors will need to “determine if all of the covered service providers have made all of the required disclosures. That is a tough burden. "If they do not get everything from everyone, they need to request the disclosures in writing,” said Reish.

If the information is not provided within 90 days, the plan sponsor will need to terminate the covered service provider. “They can do it in an orderly fashion, but they will still have to [terminate]. They will also need to report the covered service provider to the DoL,” said Reish.

He added that plan sponsors also need to evaluate the disclosure information provided to them from the covered service providers.  

Benefits March 15, 2012

ACA Will Decrease Number Using Employer Health Insurance

March 15, 2012 (PLANSPONSOR.com) – New estimates indicate the health care reform law will result in fewer Americans using employment-based health insurance.
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The Congressional Budget Office (CBO) and Joint Committee on Taxations (JCT) now estimate that, because of the Affordable Care Act (ACA), approximately three million to five million fewer people, on net, will obtain coverage through their employer each year from 2019 through 2022 than would have been the case under the prior law. The projected change in the number of people with employment-based insurance is the net result of several shifts in coverage, according to a CBO report.  

For 2019, CBO and JCT estimate a net decline of five million in the number of people obtaining coverage through their employer, as a result of the following changes: 

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  • About 11 million people who would have had an offer of employment-based coverage under the prior law will not have an offer under the ACA. That estimate represents about 7% of the roughly 161 million people projected to have employment-based coverage under the prior law. The businesses that choose not to offer coverage as a result of the ACA will tend to be smaller employers and employers with predominantly lower-wage workers; those workers and their families are more likely to be eligible for Medicaid, CHIP or subsidies through the health insurance exchanges. 
  • Another three million people who would have had employment-based insurance under the prior law and will still have an offer of such coverage under the ACA will instead choose to obtain coverage from another source. Under the legislation, workers with an offer of employment-based coverage will generally be ineligible for exchange subsidies, but that “firewall” will presumably be enforced imperfectly, and an explicit exception to it will be made for workers whose offer of employment-based coverage is deemed unaffordable. 
  • About nine million people who would not have been covered by an employment-based plan under the prior law will have that coverage under the ACA. That change reflects the combined impact of the insurance mandate, the penalties that will be imposed on employers who do not offer insurance, and the tax credits for certain small employers who provide insurance for their workers—which will lead some employers who would not have offered coverage in the absence of the ACA to offer it and will lead some people who would not have taken up their employer’s offer of insurance to do so. 

The report says the estimates reflect CBO and JCT’s assessment of employers’ and employees’ responses to the set of opportunities and incentives under the ACA. In particular, they reflect the view that workers generally want to obtain health insurance coverage at the lowest possible cost—taking into account both the price charged and any tax effects or government subsidies that apply—adjusted for differences in the scope of coverage, out-of-pocket payments, access to health care providers, and other features of insurance coverage.    

On the basis of both economic theory and empirical evidence, CBO and JCT also think that employers generally construct compensation packages to attract the best available workers at the lowest possible cost. “The fact that many firms currently offer health insurance coverage to their workers despite the high cost of premiums and rapid growth in those premiums for many years shows that many firms continue to find health insurance coverage to be a worthwhile element of their compensation packages,” the report says.  

The report is available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-15-ACA_and_Insurance.pdf. 

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