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Another in a series of discussions of interesting issues regardingdisclosures under new DOL rules

Fred Reish · Partner/Chair, Financial Services ERISA TeamTo: Liz JutilaDate: July 18, 2011

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This is another in a series of discussions of interesting issues regarding disclosures undernew DOL rules.

The 408(b)(2) regulation requires that covered service providers disclose all“compensation.” On the face of it, that seems clear, but in practical application, it is moredifficult. For example, must broker-dealers and others disclose all compensation, includingrevenue sharing? The answer is “yes.” Must all revenue sharing be disclosed? The answeris, “It depends on whether it is compensatory.”

While the regulation provides little guidance on what is “compensatory,” the DOL hasexplained its position in guidance about Schedule C to the 5500 Form:

“If a person providing services to the plan is provided a meal or other entertainment basedon a general business relationship that includes both ERISA and non-ERISA business, is itrequired to be reported on Schedule C?

It depends. The Schedule C instructions state that indirect compensation would not includecompensation that would have been received had the service not been rendered to theplan or the transaction had not taken place with the plan and that cannot be reasonablyallocated to the services(s) performed or transaction(s) with the plan. However, if aperson's eligibility for receipt of a gift (such as meals, travel, or entertainment) is based, inwhole or in part, on the value (e.g., assets under management, contract amounts,premiums) of contracts, policies or transactions (or classes thereof) placed with ERISAplans, the gift would constitute reportable indirect compensation for Schedule C purposes.Where the eligibility for or amount of the gift is based on a book of business, includingERISA plan business, a pro rata share of the value of the gift should be treated as indirectcompensation for the ERISA plans involved.”

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