1. ERISA Newsletter
for Retirement Plan
Service Providers
November 2012
Dear Reader: Focused 401(k) advisers and service providers will
benefit from those changes, but only if they are
This is a newsletter for service providers to ERISA- constantly attentive and are willing to embrace
governed retirement plans. The newsletter focuses on new ways of serving plans and new demands on
the legal issues that impact investment advisers, broker- their time and expertise. This newsletter is written
dealers, recordkeepers, third party administrators and to help those advisers and service providers.
bank and trust companies. However, it may also be
interesting reading for plan sponsors and committee Fred Reish
members because of the need—particularly with the Chair, Financial Services ERISA Team
new disclosure rules—to understand the services, (310) 203-4047
status and compensation of their service providers. Fred.Reish@dbr.com
For example, now that “covered” service providers have
made their 408(b)(2) disclosures, plan sponsors must, In This Issue
under both the fiduciary responsibility and prohibited
transaction rules, review and evaluate those disclosures. Page
The failure to do so could result in personal liability for 2 DOL Advances (and Then Retreats) on
plan committee members. However, many plan sponsors Brokerage Windows—What May be Next?
do not have the expertise and industry knowledge that 4 408(b)(2) Disclosures—Now What?
is needed to do that job. As a result, service providers
5 A Ripe Opportunity for Advisers—The Benefits
will need to help their plan sponsor clients do that job.
of a Service Provider Agreement
When viewed from a service provider perspective, 6 The DOL is Paying Attention to that Additional
we know that these changes will impact the 401(k) Compensation—You Should Too
industry. Compensation will be more closely scrutinized. 7 DOL Service Provider Investigations
The value of services—and how to measure that
8 Next Steps for Service Providers to “Open”
value—is being highlighted as an issue. While the Multiple Employer Plans
outcomes are not yet known, it seems clear that
there will be change, change and more change. 10 Around the Firm
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2. Financial Services ERISA | November 2012
they argued it was too close to final implementation to
Now that service providers to ERISA-governed make such a change, that the practical issues of tracking
retirement plans have provided written disclosures the investments could not be readily resolved, that the
about their services, fiduciary status and compensation policy itself was an unreasonable interpretation of
to the “responsible plan fiduciary” for all their existing fiduciary duty, and that DOL lacked the authority to
plan clients, the focus shifts to plan sponsors. make such a change in a mere guidance document.
That’s why Drinker Biddle attorneys recently offered a
complimentary webcast focused directly on the 408(b) While the outcry resulted in DOL retreating from its
(2) issues facing plan sponsors, including:
guidance, its revised and reissued Q&A made it clear
Next steps plan sponsors must take the retreat was temporary, and that DOL still has
Appropriate procedures in cases where disclosures serious concerns about certain usages of brokerage-
were not furnished windows by plans. The revision may have served the
Issues from the policy perspective of the short-term needs of the regulated community (as it
government. resulted in no change to the disclosures due only a few
To hear a recording of the webinar and view the weeks later), but it is not the end of the story. Plans
presentation, visit www.drinkerbiddle.com/Register/ and service providers should take a moment to try
plan-committees. to understand why DOL pursued this policy change
in the first place, and what they might try next.
The Original Brokerage Window Q&A:
DOL Advances DOL’s Q&A 30 in Field Assistance Bulletin (FAB)
(and Then Retreats) 2012-02 came as a surprise to most outside observers,
because the brokerage window issue generally
on Brokerage was viewed as settled. The regulation states that
brokerage windows are not DIAs, and the history
Windows—What of the regulation prior to the FAB suggested that
disclosure obligations regarding brokerage windows
May Be Next? were limited to the window itself—disclosing
transaction fees, explaining how to use the window,
etc.—not to investments made through the window.
Q&A 30 conceded that a brokerage window
By Bradford P. Campbell is not a Designated Investment Alternative,
(202) 230-5159 but offered an analysis that fiduciary duty
Bradford.Campbell@dbr.com requires looking “through” the window:
“If, through a brokerage window or similar
arrangement, non-designated investment alternatives
DOL caused quite a stir this summer when it published available under a plan are selected by significant
guidance addressing the participant disclosure numbers of participants and beneficiaries, an
requirements of the new 404a-5 regulation. In a Q&A affirmative obligation arises on the part of the
controversial enough to result in letters of opposition plan fiduciary to examine these alternatives and
from Congressional Democrats to White House officials determine whether [they] should be treated as
and to unite the trade associations representing plan designated for the purposes of the regulation.”
sponsors and service providers, DOL wrote that plan
administrators would, under certain circumstances, Taking this concept a step further, DOL then articulated
have to treat participant investments made through a new “enforcement policy”—it would refrain from
brokerage windows or self-directed brokerage accounts requiring every investment to be a to be a DIA if a
as if they were Designated Investment Alternatives plan with a platform of more than 25 undesignated
(DIAs) in order to comply with their fiduciary duty. investment alternatives did two things. First, the plan
Critics attacked the policy change on several grounds: would have to designate at least three investments (that
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3. Financial Services ERISA | November 2012
collectively met the 404(c) requirements for a “broad was motivated by DOL’s concerns that some plans
range” of investments) as DIAs. Second, it would have would adopt a brokerage window-only design in which
to treat as DIAs any investments at least five participants there are no DIAs in order to avoid disclosure.
(or 1% of participants in a plan with more than 500
participants) individually selected on the platform as of a This theory is bolstered by a provision in the
date within 90 days before the annual disclosure deadline. revised Q&A 39 in which DOL wrote:
The few paragraphs of the guidance led to considerable “…in the case of a 401(k) or other individual account
debate. In addition to the arguments about timing (too plan covered under the regulation, a plan fiduciary’s
near the deadline), process (the policy has to be made failure to designate investment alternatives, for example,
in a notice and comment rulemaking to be valid) and to avoid investment disclosures under the regulation, raises
practicality (systems are not set up to track investments questions under [ERISA’s] general statutory fiduciary
this way), some argued that the guidance was not clear duties of prudence and loyalty.” [emphasis added]
because the terminology alternated between “platform”
and “brokerage window,” making it hard to know This provision in the Q&A may serve as the roadmap
whether the enforcement policy applied to one or both. for those future conversations with interested parties.
Even though the Q&A notes that the regulation requires
no designation of a DIA, DOL seems to be saying that
The Revised Brokerage Window Q&A: general fiduciary duty may, “including” when the goal is to
avoid disclosure. Plan sponsors and service providers
Bowing to the regulated community’s concerns (and should take note that DOL used the word “including”…
the bipartisan political pressure brought to bear) DOL and that “including” does not mean “limited to.”
withdrew FAB 2012-02 and Q&A 30, replacing it
with a revised FAB 2012-02R and a new Q&A 39.
What Comes Next and Who
In the revised Q&A 39, DOL began by conceding (1) Is It Likely to Affect?
the regulation states that a brokerage window is not a
DIA, (2) nothing in the regulation requires a plan to Of course, as with any policy question, what DOL
have a particular number of DIAs, and (3) nothing might do next likely depends significantly on the
in the FAB prohibits a plan from using a brokerage outcome of the Presidential election. If there is a
window or similar arrangement. DOL also noted that change in the Administration, it is likely that this
the FAB does not change the requirements of the 404(c) issue is either eliminated or significantly slowed.
regulation, and it does not address the application of
ERISA’s fiduciary requirements to SEPS or SIMPLE Assuming there is a second term for the Obama
IRA plans. Finally, DOL reiterated that the general Administration, DOL is likely to pursue this issue,
fiduciary duties of prudence and loyalty apply to particularly focusing on plans that offer only brokerage
brokerage accounts, “including taking into account the windows. The guidance suggests that DOL may argue
nature and quality of services provided in connection such brokerage window-only plans are per se imprudent
with the platform or the brokerage window...” because they do not give participants sufficient
information to exercise their rights and responsibilities.
On balance, this meant a short-term victory for If so, this issue will likely be controversial again.
critics, as DOL was requiring no changes to current
disclosures. However, DOL also clearly stated its Our attorneys will continue to monitor DOL’s
intention to revisit the fiduciary issues associated with activities in this area, working with our clients to
the use of brokerage windows, intending to “engage help ensure their plans are not caught by surprise.
in discussions with interested parties” that might
lead to regulatory amendments “if appropriate.” Bradford P. Campbell advises financial service providers and plan
sponsors on ERISA Title I issues, including fiduciary conduct and
It is not entirely clear why DOL appears suddenly to prohibited transactions. ERISA’s former “top cop” and primary
have concerns that brokerage windows might create regulator, he served as the U.S. Assistant Secretary of Labor for
special fiduciary issues—prior to the FAB, the issue Employee Benefits, head of the Employee Benefits Security Admin-
did not arise in the nearly three years of notice and istration. Mr. Campbell was listed as one of the 100 Most Influ-
comment rulemaking leading to the final regulation. ential Persons in Defined Contribution by 401kWire in 2011.
Some observers theorize that the original guidance
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4. Financial Services ERISA | November 2012
408(b)(2) Technically, plan sponsors are not required to know
if all of the disclosures were made by a covered
Disclosures— service provider. Interestingly, though, plan sponsors
are expected to compare the disclosures against
Now What?
the provisions of the regulation and identify any
inadequacies that would be apparent from that
comparison. In that way, the DOL reasons, the plan
sponsor could have formed a “reasonable belief ” that
the disclosures were adequate. But, is it realistic to
By Fred Reish
think that plan sponsors will compare the disclosures
(310) 203-4047 against the regulation . . . or even to believe that plan
Fred.Reish@dbr.com sponsors are aware of the regulation? Obviously, in
many cases that will not be the case. As a result, advisers
will need to help plan sponsors with that job. And,
some advisory firms are doing just that; in fact, we
The first wave of 408(b)(2) disclosures was made to have prepared 408(b)(2) checklists for those firms.
plan sponsors in the months before July 1 of this year.
The “covered” service providers for “covered” ERISA- Once the prohibited transaction responsibility has
governed retirement plans were required to make those been fulfilled, plan sponsors then have an obligation
disclosures to their plan clients. (As Joan Neri explains to evaluate the disclosures. Realistically, most of the
in another article in this newsletter, many advisers evaluation will be of the compensation received by the
have advantageously used their service agreements to service providers. (However, the law actually requires
make those disclosures and to describe their services . that a comparative analysis be done, taking into account
. . and, in effect, to explain their value proposition.) factors such as fiduciary status, quantity and quality of
services, conflicts of interest, and so on.) Nonetheless,
However, this article is not about the requirement that the focus undoubtedly will be on compensation.
service providers make disclosures. Instead, it is about
the responsibility of plan sponsors to review those In order to evaluate compensation, it appears that
disclosures. Unfortunately, many plan sponsors lack the marketplace data will be needed. That could be done
knowledge—both of the rules and industry practices— through requests for proposals, benchmarking services,
to fulfill their fiduciary and prohibited transaction proprietary studies, and so on. Regardless of the method,
responsibilities. As a result, 401(k) advisers will need to plan fiduciaries will need to compare compensation
help plan sponsors fulfill their legal responsibilities to to marketplace data . . . and then make a decision
evaluate the disclosures. Since some advisers work with about whether the compensation of the plan’s service
only a few plans, the odds are that they will not have providers is reasonable. If it is not, plan sponsors will
much more knowledge about the new requirements than need to take steps to reduce the compensation to a
plan sponsors do. As a result, there is an opportunity for reasonable level, which could include terminating the
focused 401(k) advisers to expand their market share. service provider and hiring another one, re-negotiating
the compensation with the service provider, and so on.
The first step for plan sponsors is to review the
disclosures to make sure (i) that all of the covered Plan sponsors need help in fulfilling their prohibited
service providers made disclosures, and (ii) that the transaction and their fiduciary responsibilities. Focused
disclosures were adequate. If it turns out that disclosures 401(k) advisers are ideally situated to provide that help.
were not made, or that they were not adequate, the
regulation requires that plan sponsors send out written NOTE: This article refers to plan sponsors as
requests for the needed information. If the covered having the responsibility to evaluate the 408(b)
service provider refuses to provide the information or (2) disclosures. From a legal perspective, the
fails to provide it within 90 days, the plan sponsor must “responsible plan fiduciary” (RPF) receives, reviews
fire the service provider. If the plan sponsor fails to and evaluates the disclosures. Most often the RPF
send out the letter, or fails to fire the non-compliant will be the plan sponsor or a committee. As a result,
service provider, the plan sponsor will have engaged in a for ease of reading I have used “plan sponsor.”
prohibited transaction and will be in violation of the law.
Financial Services ERISA Team www.drinkerbiddle.com 4

5. Financial Services ERISA | November 2012
Fred Reish is chair of the Financial Services ERISA practice The compensation element of the disclosure has
at Drinker, Biddle & Reath. Fred has been recognized as received the most attention because of the obligation
one of the “Legends” of the retirement industry by both of the responsible plan fiduciary to evaluate the
PLANADVISER magazine and PLANSPONSOR reasonableness of fees under ERISA’s “prudent
magazine. Fred has also received the IRS Commissioner’s man” standard. The other two elements – status
Award and the District Director’s Award; the Eidson and services – have received less attention, yet
Founder’s Award by the American Society of Professionals they present a number of considerations that
& Actuaries (ASPPA); the Institutional Investor and the can be addressed in a service agreement. This
PLANSPONSOR magazine Lifetime Achievement Awards; article addresses some of those considerations.
and the ASPPA/Morningstar 401(k) Leadership Award.
An RIA providing investment advice for a fee is
A Ripe Opportunity
an ERISA fiduciary and under 408(b)(2), both the
RIA status and the ERISA fiduciary status must be
for Advisers—
disclosed. We have found that the existing service
agreements of some RIAs fail to acknowledge
ERISA fiduciary status and as such, are deficient
The Benefits of a under 408(b)(2). If the disclosure is not corrected,
the RIA is engaged in a prohibited transaction.
Service Agreement ERISA imposes a high standard of care on ERISA
fiduciaries - that of the prudent man acting in a like
capacity and familiar with such matters. If the services
By Joan M. Neri performed include both fiduciary services and non-
(973) 549-7393 fiduciary services, then only the fiduciary services
Joan.Neri@dbr.com should be subject to the ERISA standard. This can be
accomplished by separately identifying those services
that are non-ERISA fiduciary services and specifying that
they are subject to a different standard – for instance,
one that uses negligence as the standard of care.
With the July 1 408(b)(2) compliance deadline an event
of the past, many advisers may be overlooking the Let’s take the example of an RIA who provides
merits of a well-drafted service agreement. The 408(b) plan-level investment advice and also provides
(2) disclosure obligations are a continuing responsibility benchmarking services for compensation of service
for both registered investment advisers (RIAs) and providers. Benchmarking services typically are
registered representatives of broker-dealers (B-D not ERISA fiduciary services. The benchmarking
representatives). Current ERISA plan clients must service can be separately identified in the RIA’s
be notified when there is a change to the disclosed service agreement as a non-fiduciary service and
information and new ERISA plan clients must receive expressly made subject to the negligence standard.
the disclosure reasonably in advance of entering into
the arrangement. While 408(b)(2) does not require that Similarly, if a B-D’s registered representative provides
these disclosures be in the form of a service agreement, investment education to participants as a part of its
the advantage of the agreement format is that it enables B-D services, such services typically are not ERISA
the RIA or B-D representative to address a number fiduciary services. In that instance, the B-D service
of issues. Also, this is a timely consideration because agreement could include a client acknowledgement
right now the responsible plan fiduciaries – such as, that the registered representative is not acting as an
the plan sponsors or plan committees – are obligated ERISA fiduciary in offering that service and is not
to evaluate the disclosures to determine whether they subject to ERISA’s prudence standard. By documenting
are complete and constitute reasonable plan service this distinction in the form of an agreement rather
arrangements. The considerations of a new (or updated) than a disclosure, the B-D representative will have
service agreement can be part of that process. the benefit of a contractual protection. While a
contractual provision will not “override” ERISA’s
The 408(b)(2) disclosure rules are comprised of fiduciary provisions, we have seen some FINRA
three elements – compensation, status and services. arbitrators put weight on that provision in determining
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6. Financial Services ERISA | November 2012
whether the “mutual understanding” portion of standards to which they are held. Specifically, I pointed
the fiduciary advice regulation was satisfied. out that fiduciaries – such as registered investment
advisers (RIAs) -- who recommend investments that
These are just a few of the many considerations generate indirect compensation in addition to their
that can be addressed in a service agreement. A fee may trigger a prohibited transaction, by dealing
well-drafted service agreement can be used with the assets of the plan for their own benefit.
by RIAs and B-Ds as a vehicle to both satisfy
the 408(b)(2) disclosure requirements and also As one recent case demonstrates, this is no mere
to provide risk management protections. hypothetical concern. On August 23, 2012, the
Department of Labor issued a press release regarding
Joan Neri is in the firm’s Financial Services ERISA the result of its recent investigation of an RIA firm. The
Team. With more than 24 years of experience, Joan coun- press release stated that as a result of the investigation,
sels clients on all aspects of ERISA compliance including the RIA agreed to pay over $1.265 Million to thirteen
fiduciary responsibility and plan operational issues. A part defined benefit pension plans to whom the RIA had
of Joan’s practice includes representing registered investment provided fiduciary investment advice. According to
advisors in fulfilling their obligations under ERISA. Joan the press release, the RIA invested the plans’ assets in
is a frequent speaker throughout the country on legislative and mutual funds that paid 12b-1 fees to the RIA. These
regulatory developments impacting ERISA fiduciaries. fees were apparently not disclosed to the plan fiduciaries
and did not offset or reduce the advisory fees that the
The DOL is Paying
plans agreed to pay. The $1.265 Million is presumably
based on the amount of 12b-1 fees received by the RIA
during the six-year period covered by the investigation
Attention To – 2004-2010. (Although the press release is silent on
this point, it is reasonable to assume that at least some
That Additional of that $1.265 Million figure is attributable to interest
on the 12b-1 fees that the RIA allegedly received.)
Compensation— The DOL’s investigation in this case was no fluke.
You Should Too It was carried out as part of the Employee Benefit
Security Agency’s Consultant/Adviser Project
(“CAP”). As stated on the EBSA website, CAP:
“…focuses on the receipt of improper or undisclosed
By Joseph C. Faucher
compensation by employee benefit plan consultants
(310) 203-4052 and other investment advisers. EBSA’s investigations
Joe.Faucher@dbr.com will seek to determine whether the receipt of such
compensation, even if it is disclosed, violates ERISA
because the adviser/consultant used its position with
a benefit plan to generate additional fees for itself or
In our last newsletter for retirement plan service its affiliates. When ERISA violations are uncovered,
providers, I addressed whether service providers EBSA will seek corrective active for past violations as
are obligated to offset indirect compensation they well as prospective relief to deter future violations.”
receive in connection with the services they provide
to their plan clients. “Indirect compensation” is Under the auspices of CAP, the EBSA takes action
compensation received from a source other than the not only against financial advisers, but also against
plan or the plan sponsor. Common types of indirect other fiduciaries, including plan sponsors:
compensation in the retirement plan world include
commissions, 12b-1 fees and sub-transfer agent fees. “EBSA may also need to investigate individual
Some service providers may describe the compensation plans to address such potential violations as failure
more generically, for instance, as “marketing to adhere to investment guidelines and improper
allowances,” “revenue sharing” or “subsidies.” selection or monitoring of the consultant or
adviser. The CAP will also seek to identify potential
In that article, I emphasized the difference between criminal violations, such as kickbacks or fraud.”
fiduciary and non-fiduciary service providers, and the
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7. Financial Services ERISA | November 2012
In other words, under CAP, the DOL assesses
not only whether financial advisers received DOL Service
unreasonable compensation, but whether plan
sponsors and other fiduciaries allowed plan Provider
Investigations:
advisers to receive that compensation in potential
violation of their own fiduciary duties.
The monetary and reputational damage to financial
advisers who are caught up in an investigation
Impact Of
under CAP can be significant. First, as shown in
this case, the amount that advisers who are found
The 408(b)(2)
to have received unreasonable or undisclosed
compensation can be substantial, particularly Regulation
if – as is typical -- the investigation spawns a
several year period and the adviser’s practices
were consistent throughout that period.
By Bruce L. Ashton
Second, while an adviser’s fiduciary liability insurance (310) 203-4048
may cover some of the cost of the investigation, it Bruce.Ashton@dbr.com
is unlikely to cover the bulk of the expense. In our
experience, fiduciary liability insurers will pay attorney’s
fees after the DOL issues a “voluntary compliance”
letter to the target of the investigation, which gives the Investigations of service providers to ERISA retirement
service provider an opportunity to informally resolve plans by the U.S. Department of Labor are on the
the matter before the DOL initiates litigation. Those rise. In first half of 2012 alone, we saw close to a
insurers, however, will typically not pay for all of the dozen DOL investigations of broker-dealers and
attorneys fees incurred during the period of time that were involved in handling several for our clients.
the DOL is investigating and before the voluntary This increase is due in part to the DOL’s on-going
compliance letter is issued. More importantly, while these national enforcement initiative, the Consultant/Adviser
policies may pay some portion of the service provider’s Project (“CAP”). But we anticipate an acceleration
attorney fees, they will almost certainly not pay any of service provider investigations arising out of the
part of the compensation that the service provider is disclosure requirements under Section 408(b)(2).
required to refund to the affected retirement plans.
The DOL traditionally investigates individual
Finally, because the service provider’s clients may employee benefit plans. The investigations sometimes
be swept into the investigation, the reputational point to alleged improprieties by a service provider,
damage to the service provider can be as bad, or which then leads to an investigation of all plan-
worse, than the cost to resolve the matter. related activities by that service provider. CAP was
established as a standalone project out of a concern
In addition to handling an active litigation practice, Joe Faucher reg- that many pension consultants were fiduciaries
ularly consults with third party administrators, registered investment but ignored or were not aware of their obligations
advisers and insurance carriers on ERISA and employee benefit and were receiving improper compensation.
matters and fiduciary liability insurance and ERISA bond issues.
The 408(b)(2) regulation clearly ties into this concern,
at least indirectly. Under the regulation, service
providers are required to disclose their services, fiduciary
status, and compensation, both direct and indirect.
Failure to do so results in a prohibited transaction,
which subjects the service provider to penalties and
possible disgorgement of compensation. While the
purpose of the disclosures is to enable plan fiduciaries
to determine whether the service arrangement
and compensation are reasonable, the disclosures
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8. Financial Services ERISA | November 2012
themselves – or the lack of disclosures – can provide Within the last several weeks, we submitted a
a roadmap for investigative activity by the DOL. proposal to the DOL for a voluntary correction
program for inadvertent violations of the 408(b)
The compliance date of the 408(b)(2) regulation was (2) disclosure rules. If adopted, this would protect
July 1 of this year. Typically, DOL investigations are service providers from adverse prohibited transaction
keyed off the filing of the Form 5500, and start about consequences and potentially from an investigation. A
a year later. Following this pattern, in the usual course copy of our proposal can be obtained at [insert url].
of things, investigations that focus on the 408(b) Regardless of whether such a program is adopted,
(2) disclosures would start in 2014. But these are not service providers are well-advised to perform a
typical times. The DOL has already begun asking for self-audit to determine if there are areas of non-
the 408(b)(2) disclosures in plan investigations, even compliance and take steps to correct them now.
though the year under investigation may be 2009 or
2010, long before the disclosures were required. The Bruce Ashton is in the firm’s Financial Services ERISA
regional offices are also engaged in training of their and Retirement Income Teams. Bruce’s practice focuses on all
investigators on the disclosure rules. Though we aspects of employee benefits issues, especially representing plan
have not heard of any service provider investigations service providers (including RIAs, independent record-keepers,
arising out of the review of 408(b)(2) disclosures, third party administrators, broker-dealers and insurance
we expect they will not be long in coming. companies) in fulfilling their obligations under ERISA and
in assisting service providers and plan sponsors in addressing
What should service providers anticipate? In a typical the retirement income needs of participants. He is a well-
CAP investigation, the DOL asks for (among other known speaker and author on employee benefits topics.
things) a listing of the service provider’s benefit
Next Steps for
plan clients, copies of service agreements, and
documents related to the provision of investment
Service Providers
advice, who gave the advice, and the compensation
received. When 408(b)(2) is thrown into the mix, we
expect the DOL will ask for copies of the disclosures
on a plan-by-plan (rather than generic) basis and
potentially the backup documentation that supports
to “Open” Multiple
the statements regarding their status and indirect
compensation. Service providers unable to provide this Employer Plans
information will face prohibited transaction penalties
and potentially a more in depth inquiry into fiduciary
status and potential breaches of fiduciary duty. By Joshua J. Waldbeser
(312) 569-1317
To prepare for this rise in investigation activity, service Joshua.Waldbeser@dbr.com
providers will need to make sure they understand the
requirements of the 408(b)(2) disclosure rule and
how they apply – or do not apply – to the service
provider. They need to be able to document whether
they have provided complete, accurate, plan specific On May 25, 2012, the Department of Labor (“DOL”)
disclosures and should be able to document all sources issued Advisory Opinion 2012-04A (the “Advisory
of compensation. And service providers should not Opinion”), which held that “open” multiple employer
be surprised if they receive an inquiry from the DOL plans (“Open MEPs”)1 do not constitute single plans
asking for any or all of these materials. The DOL for purposes of ERISA. Adapting to the DOL’s
may take request documents as a first step – rather position will require Open MEP service providers to
than starting a full-blown investigation -- to sort out make a few changes for these ERISA requirements.
the clearly compliant from the questionable or non- Open MEPs will continue to be treated as MEPs
compliant providers. Service providers who receive 1 Open MEPs refer to MEPs that are available to any
such an inquiry should respond promptly and fully employer who wishes to participate, regardless of whether the
employers have any pre-existing relationship, such as common
in consultation with an experienced consultant. membership in a trade group or similar organization that
sponsors the plan.
Financial Services ERISA Team www.drinkerbiddle.com 8

9. Financial Services ERISA | November 2012
(i.e., single plans) under the Internal Revenue Code purposes, the vendor can continue to act as the Plan
(“Code”). No changes to Open MEPs are required Administrator and Named Fiduciary. Thus, it is
under the Code because the Advisory Opinion possible that no adjustments will be required (or they
does not affect plan qualification requirements. may be very minor), but this should be confirmed.
In short, Open MEPs will be treated as a group of single If the services or compensation of a “covered service
employer plans only for ERISA purposes. Accordingly, provider” under ERISA Section 408(b)(2) change
Open MEPs will still look and feel very much like MEPs. because the Open MEP is treated as multiple plans under
This article summarizes those few ERISA changes that ERISA, such changes must be disclosed. This must
will apply and how they affect Open MEP providers. occur as soon as practicable, and in no case later than
60 days after the provider learns of the change, unless
Annual Reporting. First, each participating employer’s precluded by extraordinary events outside of its control.
portion of the Open MEP will have to file its own
annual Form 5500, since it will be treated as a separate Similarly, participant-directed (e.g., 401(k))
“plan” for ERISA purposes. This is an additional cost. Open MEPs may continue to use standardized
Also, any such “plan” that has 100 or more participants forms for providing participant disclosures, but
will need to have its own annual accountant’s audit and some minor changes may be necessary.
file its own Schedule C. Many participating employers
will have less than 100 covered employees, so audits Funding Vehicles. No changes to an Open MEP’s
and Schedules C will not be required for them. funding vehicle are required. Even though the Open
MEP will be treated as multiple plans for ERISA
Providers should take these competing factors into purposes, ERISA permits the use of group trusts and
account in determining the effect on costs for their other collective funding arrangements that are DFEs.
employer-clients. Economies of scale may be achieved Likewise, an Open MEP can continue to be a single
by utilizing a group trust that is treated as a direct plan under the Code, which requires that all plan assets
filing entity (a “DFE”) for reporting purposes. must be available to satisfy all benefit liabilities.
The DOL has not issued guidance regarding whether Alternatively, an Open MEP vendor could elect to
the individual ERISA “plans” need to file retroactive use segregated trusts for each employer. In this case,
Forms 5500 for previous years. If this were required, use the Open MEP would cease to be a single qualified
of the DOL’s Delinquent Filer Voluntary Compliance plan. Converting an Open MEP to multiple qualified
Program (“DFVCP”) would provide an avenue to do plans may increase costs due to lost economies of
so. The hope is that the DOL will not require this. scale, a factor that should be taken into account.
ERISA Bonding. For the same reason noted above, Joshua has been in the Employee Benefits and Executive
fiduciaries and other providers who handle Open MEP Compensation Practice Group at Drinker Biddle & Reath’s
assets will need to recalculate the required coverage Chicago office since 2008. Prior to this he worked for the
amounts of their ERISA bonds. The amount of U.S. Department of Labor, Employee Benefits Security
the bond will still be 10% of the assets handled, Administration. Joshua’s practice focuses on working with plan
but determined on an employer-by-employer basis sponsors and service providers with respect to Title I of ERISA
(subject to the $500,000 limit). This affects investment and the IRS qualification requirements for retirement plans.
managers, discretionary investment advisers and
broker-dealers, custodians, administrators with control
over funds, and trustees. A single bond—if appropriately
structured—can still be used for an Open MEP, since
DOL guidance permits this for multiple ERISA plans.
Contracts and ERISA Disclosures. Service
providers to Open MEPs should review their contracts
to determine if any changes or fee adjustments are
needed to reflect the DOL’s position. Open MEPs will
still be single plans under the Code, and for ERISA
Financial Services ERISA Team www.drinkerbiddle.com 9

10. Financial Services ERISA | November 2012
Employee Benefits & Executive Compensation Around the Firm
In July 2012 Heather Abrigo, Summer Conley and Joe Faucher spoke at the Western Benefits Conference. Heather Abrigo was
the ASPPA co-chair for the Conference, and will serve again next year as co-chair. She will also serve as a member of the Western
Benefits Conference steering and program committees. Summer Conley moderated a workshop at the July Western Benefits
Conference titled, “Have You Done Your 408(b)(2) Disclosures? Is Anyone Reading Them?” Joe Faucher presented one of the
Conference’s highly anticipated and popular sessions “ERISA Litigation Update.”
Fred Reish and Brad Campbell kicked off a new audiocast series called Inside the Beltway on August 16, 2012. The program
was presented in a “radio show” format, with hosts Fred and Brad discussing current observations and trends on legislative and
regulatory events which affect the day-to-day management of retirement plans. The hosts addressed questions asked by program
listeners. The next broadcast will be presented on November 15, 2012 which will focus on the impact of the Presidential election
on enforcement and regulations, and potential changes that service providers and plan sponsors can anticipate. To listen to the
inaugural audiocast from August use this link: http://www.drinkerbiddle.com/beltway
Joan Neri co-presented a webcast with National Association of Plan Advisors (NAPA) on October 16,
2012. The presentation, titled “404a-5 Revisited: Opportunities for Advisors,” highlighted the gaps
On October 16, 2012, Fred Reish, that exist in the execution and fulfilment of the recent participant level fee disclosure notices. Joan
Brad Campbell and Bruce Ashton co-hosted another webcast on October 24, 2012, titled “408(b)(2) Disclosures - A Plan Sponsor Call to
sent a letter to DOL Assistant Secretary Action” which highlighted what steps Plan Sponsors and other responsible plan fiduciaries need to
Phyllis Borzi urging the Employee take now in order to avoid a fiduciary breach and possibly, a prohibited transaction.
Benefits Security Administration to The Autumn 2012 issue of Journal of Pension Benefits features two articles written by members of
create a remedial program for covered Drinker Biddle’s ERISA Financial Services team: “’Open’ Multiple Employer Plans After Advisory Opinion
service providers under the 408(b)(2) 2012-04A: An Assessment” was co-authored by Fred Reish, Bruce Ashton and Josh Waldbeser,
regulation. The proposed program and “ERISA Compliance Issues for Plan Providers: The DOL Consultant/Adviser Project” was written by
would soften the blow for broker- Fred Reish, Bruce Ashton, Brad Campbell, Josh Waldbeser and Summer Conley.
dealers and other retirement plan
providers who may have made mistakes Howard Levine and Rob Jensen authored an article for the Fall 2012 issue of Plan Consultant titled,
when spelling out their fees and “ERISA Fiduciary Duty and Other Legal Considerations in Cash Balance Plan Conversions.”
services to plan sponsors.Advisor One,
Investment News, Plan Adviser, RIABiz,
Heather Abrigo wrote an article for the Women in Pensions Network’s Fall 2012 Newsletter. Heather’s
Plan Sponsor, Fiduciary News and
article, titled, “Why I Do What I Do,” focused on the trials and tribulations of co-chairing the Western
Benefits Pro all ran subsequent articles
Benefits Conference, a role she has undertaken annually since 2010. Heather will co-chair the
related to this important proposal.
conference again next year.
See www.drinkerbiddle.com/news/ Joan Neri authored an article for the National Association of Plan Advisors’ (NAPA) July 2012
headlines/2012/408b2-Correction- newsletter. The article was titled, “DOL Issues Guidance on Participant Disclosure of Asset Allocation
Program for a brief fact analysis and Models.”
to view a copy of the letter sent to
Assistant Secretary Borzi. Fred Reish, Bruce Ashton and Gary Ammon co-authored an article for The Hedge Fund Law Report.
In the article, the three authors analyze the final rule under ERISA §408(b)(2) as it applies to hedge
fund managers.
Brad Campbell was quoted in the November 2012 issue of Kiplinger’s Personal Finance on the subject of new 401(k) fee-disclosure
regulations. Brad, in his former role as head of EBSA, proposed the original disclosure regulations.
Brad Campbell was quoted in August 2012 by Reuters on the issue of a $1.27 million fine imposed by the Department of Labor
on USI Advisors, a Glastonbury, Connecticut-based fiduciary investment adviser.
On October 11, 2012, Fred Reish, Brad Campbell and Bruce Ashton held a complimentary webcast on “What Plan Committees
Must Do With 408(b)(2),” The recorded session may be accessed here: http://www.drinkerbiddle.com/register/plan-committees
Fred Reish spoke at the Center for Due Diligence conference on October 22, 2012 on “Actionable Steps to Impose the Plan Level
Funding Gap,” and again on October 23, 2012 on “Benchmarking Advisor Fees From A Legal Perspective.” Bruce Ashton spoke
at the same conference on “Evaluating & Vetting Advisors: A Mock Plan Committee Meeting” on October 22, 2012, and on “The
Prudent Allocation of Participant Account Fees” on October 23, 2012.
At the ASPPA annual conference on October 28, 2012, Bruce Ashton presented a workshop on the “Non-Investment Fiduciary,”
and spoke on October 29, 2012 about “Open MEPs.” Fred Reish presented workshops at the ASPPA conference on “Allocation for
Plan Expenses and Revenue Sharing: Fiduciary and Qualification Issues” on October 29 and 30, 2012 and presented on “Retirement
Distributions and Lifetime Income” on October 31, 2012.
Bruce Ashton and Fred Reish presented “ERISA Disclosures: Questions Broker-Dealers Are Asking” on November 1, 2012 in a
webinar hosted by Financial Services Institute, Inc.
Financial Services ERISA Team www.drinkerbiddle.com 10

11. Financial Services ERISA | November 2012
Financial Services ERISA Team
Heather B. Abrigo Mona Ghude Joan M. Neri
(310) 203-4054 (215) 988-1165 (973) 549-7393
Heather.Abrigo@dbr.com Mona.Ghude@dbr.com Joan.Neri@dbr.com
Gary D. Ammon Robert L. Jensen Fred Reish
(215) 988-2981 (215) 988-2644 (310) 203-4047
Gary.Ammon@dbr.com Robert.Jensen@dbr.com Fred.Reish@dbr.com
Bruce L. Ashton Melissa R. Junge Ryan C. Tzeng
(310) 203-4048 (312) 569-1309 (310) 203-4056
Bruce.Ashton@dbr.com Melissa.Junge@dbr.com Ryan.Tzeng@dbr.com
Mark M. Brown Sharon L. Klingelsmith Michael A. Vanic
(215) 988-2768 (215) 988-2661 (310) 203-4049
Mark.Brown@dbr.com Sharon.Klingelsmith@dbr.com Mike.Vanic@dbr.com
Bradford P. Campbell Christine M. Kong Joshua J. Waldbeser
(202) 230-5159 (212) 248-3152 (312) 569-1317
Bradford.Campbell@dbr.com Christine.Kong@dbr.com Joshua.Waldbeser@dbr.com
Summer Conley Howard J. Levine
(310) 203-4055 (312) 569-1304
Summer.Conley@dbr.com Howard.Levine@dbr.com
Joseph C. Faucher Sarah Bassler Millar
(310) 203-4052 (312) 569-1295
Joe.Faucher@dbr.com Sarah.Millar@dbr.com
Employee Benefits & Executive Compensation Practice Group
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© 2012 Drinker Biddle & Reath LLP. All rights reserved. A Delaware limited liability partnership. Jonathan I. Epstein and Andrew B. Joseph, Partners in Charge of the Princeton and Florham Park,
N.J., offices, respectively.
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