For an academic purpose, will you share examples of good and bad 408b-2 disclosures?

[Peter Gulia]

For my LL.M. students in my ERISA Fiduciary Responsibility course, next week’s lesson is about prohibited transactions and exemptions.

 

As a part of that lesson, I explain that the ERISA § 408(b)(2) exemption is grounded on an assumption that an approving fiduciary gets enough information about a service provider’s services and compensation.  With this, I explain that many disclosures that arguably meet what’s required under the 408b-2 rule don’t, practically, furnish information in a way that’s useful to the fiduciary’s decision-maker.

 

I hope to show my students some real-world effects of the 408b-2 rule.  To do so, I’d like to show them a contrast of disclosures:

 

• one that is short, clear, easy to read, and fulfills the purpose of furnishing useful information to an unknowledgeable fiduciary; and

 

• one that is too long, ambiguous, a pain-in-the-neck to read, and difficult to understand.

 

So I hope BenefitsLink mavens will help me by attaching or linking here (or, to avoid putting something on the Internet, e-mailing me) some samples of “best” and “worst” disclosures.

 

(I understand you might redact names and other identifying information to protect nonpublic information, or to avoid offending someone.)

 

I’m looking for disclosures addressed to plans smaller than $50 million, and preferably including small and “micro” plans.

 

Likewise, because the difficult issues often aren’t in a TPA’s disclosures, I’m looking for disclosures of investment brokers, insurance companies, or recordkeepers that get (and keep) “revenue-sharing” or indirect compensation.

 

I don’t want to praise or embarrass anyone, so I’ll further redact and deidentify the illustrations before I show anything.

 

Also, I’ll use the illustrations only for show-and-tell in the classroom, and won’t allow a student to keep anything.

 

[CuseFan]

57 minutes ago, Fiduciary Guidance Counsel said:

one that is short, clear, easy to read, and fulfills the purpose of furnishing useful information to an unknowledgeable fiduciary; and

are you searching for a unicorn here? i hope not, good luck!

[MoJo]

12 minutes ago, CuseFan said:

are you searching for a unicorn here? i hope not, good luck!

Unicorns are far, far more common than "easy to read" fee disclosures....

[CuseFan]

Amen

[Peter Gulia]

CuseFan and Mojo, can you help me with examples of hard-to-read disclosures?

 

[dmwe]

I wish I would've kept one I got for a client who has their Plan at MetLife. Their disclosure was 70+ pages long and included all possible product combinations they offered so you had to know exactly what you had before you could find which parts applied to your Plan. It was so obvious that they wanted to make it as hard as possible for the Plan Sponsor to be able to figure out what they were being charged.

[Belgarath]

Just playing Devil's Advocate - or perhaps they were attempting to have every combination in one disclosure, so that is would not be possible to give the wrong disclosure. Particularly if it is given by their agents/field force, the possibility/liability of incorrect disclosures for a given product or product combination is probably staggering.

[RatherBeGolfing]

47 minutes ago, Belgarath said:

Just playing Devil's Advocate - or perhaps they were attempting to have every combination in one disclosure, so that is would not be possible to give the wrong disclosure. Particularly if it is given by their agents/field force, the possibility/liability of incorrect disclosures for a given product or product combination is probably staggering.

Very possible.  Of course, simply getting all the information into the disclosure might not be enough if it isn't understandable.  I believe MoJo has shared some stories on how in depth the DOL is getting when looking at the disclosures, and looking at whether the participants understand whet the disclosure means rather than just technically correct...  

[Belgarath]

Agreed, but this is a disclosure to the fiduciary, not to participants. I don't know if the DOL utilizes (unofficially) a different standard than they do for participant disclosures, particularly where the fees are not being paid from the plan.

As I re-read this, perhaps not the most lucid of posts. I added in a factor which really isn't germane to the issue, so I'm removing it.

[RatherBeGolfing]

42 minutes ago, Belgarath said:

Agreed, but this is a disclosure to the fiduciary, not to participants. I don't know if the DOL utilizes (unofficially) a different standard than they do for participant disclosures, particularly where the fees are not being paid from the plan.

As I re-read this, perhaps not the most lucid of posts. I added in a factor which really isn't germane to the issue, so I'm removing it.

My bad I meant fiduciary not participant, this is 408b2 after all.

Check MoJo's detailed answer in this thread

He explains it much better than I can recite it from the beach on my day off 

[Peter Gulia]

dmwe, thank you!

Do you remember whether anything at the outset of the 70+ pages told a reader which source document one should look at to discern which service configuration applies?

 

 

[Peter Gulia]

So far, the contender (furnished separately from the bulletin board) for worst is a 111-page document with many references to other documents, which I estimate (based on relevant business experience) as at least hundreds, if not a couple thousand, pages more.

The 408b-2 disclosure is pages 109-111.  Those pages do not specify any element of compensation as a particular amount, or as a percentage of plan, trust, or fund assets managed or advised.  Instead, each paragraph describes other documents in which a reader could find information.  Likewise, the 408b-2 does not state whether any covered service provider is or isn't a fiduciary, but refers to other documents.

So do BenefitsLink readers have other contenders for worst disclosure?