Trapped between a Schedule C requirement and final 408(b)(2) regs?

[ERISAatty]

Hello all,

My (until now) clear understanding of the final service provider disclosure regs (issued July 16, 2010) has been that welfare plans are *exempt* from reporting indirect compensation.

At the same time, a service-provider client has received a demand from a welfare fund for indirect compensation information to report on Schedule C. Letter states that the Plan is required to report to DOL any provider that fails to respond. The welfare plan has more than 100 participants, and holds assets in a Trust, so is required to File Schedule C.

The DOL has affirmed that if a welfare plan is required to file Schedule C, then indirect compensation must be reported. See Supplemental DOL FAQs About The 2009 Form 5500 Schedule C, Q/A-23, available at http://www.dol.gov/ebsa/faqs/faq-sch-C-supplement.html

So... that leaves us... where?

There is a requirement that those welfare plans required to file Schedule C must report indirect compensation.

Simultaneously, providers to welfare plans are exempt from the requirement to disclose indirect compensation (which has not even been defined for purposes of welfare plans, and will be the subject of future rulemaking).

My instinct is to respond in writing the plan (actually the plan's financial auditor) that made the request to say that we fully support compliance with the DOL's requirements but that under currently law our service-provider client is not required to report anything.

Does this seem right? Need a reality check.

Thanks!!!

[BG5150]

The new regs don't overlap with Schedule c, do they? The new regs are just about the disclosures that must be given from time to time to the sponsor or participants.

I would say you have to put it on the C, but not have to put it int he disclosure statements.

[Guest Dell]

The 408(b)(2) disclosures are completely separate from the 5500 Schedule C reporting issue. Schedule C requires disclosure of direct and indirect compensation paid to service providers (> $5,000) , not just covered service providers, and it isn't new. If a service provider doesn't provide this information, the Schedule C discloses this fact.

On the other hand, if a covered service provider fails to make required disclosures under 408(b)(2) to a pension plan, the fiduciary of the plan has to terminate the contract.

The Sch C requests will usually ask about the amount of compensation during a plan year, although formulas are allowed. The 408(b)(2) disclosure is geared more to describing exactly what compensation may be earned under the contract, and how they are earned.

Either way, you are not doing anyone any benefit to say they don't have to respond to the request. If they don't respond, plan fiduciaries will likely fire them in frustration under the Sch C issue, or be required to fire them under 408(b)(2) if a pension plan.

[jpod]

You are correct that compliance with the new 408(b)(2) regulation is not necessary to avoid PTs with respect to welfare plans (at least not yet; note that the section for welfare plans is marked "Reserved"). Therefore, your failure to respond does not compel the employer to fire you or trigger a PT.

Schedule C reporting is the plan administrator's obligation. If you don't give the plan administrator what it has requested, there is no mechanism for DOL to take any enforcement action against you. However, the plan administrator is required to drop a dime on you and inform the DOL via the Schedule C that you didn't respond. At some point thereafter the DOL will send you a letter asking you why you didn't respond (I have seen those letters). If you say "because we didn't feel like it," you will be safe from penalties etc., but do expect to be examined.