404(a)(5) and 408(b)(2) Disclosures

A client has a profit sharing plan with pooled investments. Just one brokerage account and all participants share in earnings / losses of the pool on the plan anniversary date.

We believe 404(a)(5) disclosures do not need to be provided to participants because they cannot direct investments.

We believe it would be the same with 408(b)(2). Participants can pay administration fees from plan assets for participant loans. For example, participants who want loans need to pay us $75 for loan processing. However, we have never gotten close to collecting $1,000 annually from loan fees. However, this last year they paid our annual administration fee from the plan and it was more than $1,000. Would this mean we now need to provide 408(b)(2) disclosures to the plan sponsor this year because of the administration fees paid from the plan? Again, it is not a directed account plan.

Thanks.

A disclosure under ERISA § 408(b)(2) is a service provider’s communication to the fiduciary responsible for deciding whether to engage or continue the service provider. The fiduciary considers the information in the fiduciary’s evaluation of whether the service provider’s compensation is reasonable.

Even if a service provider might not be a covered service provider because it expects compensation less than $1,000, could it be simpler to do the disclosure anyhow?

Don’t you want a “paper trail” showing the fiduciary approved, at least impliedly by nonobjection, your compensation?

Further, consider that the rule’s text might not measure the less-than-$1,000 by a year (a word that nowhere appears in the rule). Rather, it is what the service provider expects “pursuant to the contract or arrangement[.]”

29 C.F.R. § 2550.408b-2(c)(1)(iii) https://www.ecfr.gov/current/title-29/part-2550/section-2550.408b-2#p-2550.408b-2(c)(1)(iii)

If your service agreement, instead of only a one-year term, continues until either party gives notice to end the agreement and you “reasonably expect” your open agreement might continue for a few years, might the compensation “pursuant to the contract” be $1,000?

This is not advice to anyone.