Definition
Fee disclosure under ERISA 408(b)(2) is the required disclosure that covered service providers to an ERISA-covered retirement plan must give to the responsible plan fiduciary, describing the services provided, the direct and indirect compensation received, and the fiduciary status of the provider.
Why it matters
Without adequate disclosure, the arrangement between the plan and the service provider is not a reasonable arrangement under Section 408(b)(2), and payment of compensation from plan assets constitutes a prohibited transaction. The disclosure is the mechanism by which a plan fiduciary can evaluate the reasonableness of the compensation and services being received, benchmark them against alternatives, and document the fiduciary basis for retaining the provider.
How it works
Covered service providers — recordkeepers, investment advisers, brokers, third-party administrators, and others expected to receive $1,000 or more in direct or indirect compensation over the term of the arrangement — must furnish written disclosure describing the services to be provided, the direct compensation to be received from the plan, the indirect compensation to be received from third parties (including revenue-sharing, 12b-1 fees, and sub-transfer agent fees), the identity of the payer of indirect compensation, whether the provider expects to serve as an ERISA fiduciary or an investment adviser under the Investment Advisers Act of 1940, and the manner in which compensation is received. Disclosure is required in advance of contract entry and updated when material changes occur. If the responsible plan fiduciary does not receive adequate disclosure and does not correct the omission through the prescribed error-reporting procedure, the arrangement loses the 408(b)(2) exemption and the compensation payment becomes a prohibited transaction, exposing both the provider and the fiduciary to statutory penalties and correction obligations.
In practice
A plan participant does not receive the 408(b)(2) disclosure directly; the disclosure runs to the responsible plan fiduciary. Participants receive their own separate disclosure under ERISA 404(a)(5). What a fiduciary does with the 408(b)(2) disclosure is the substantive fiduciary act: reading it, benchmarking the compensation figures against comparable plans, comparing services delivered against services described, and documenting the review in committee minutes. A fiduciary who has received but not reviewed the disclosure, or who has reviewed it without documented benchmarking, has not performed the duty the exemption presumes. For sponsors, the 408(b)(2) file — disclosure documents, benchmarking analysis, and committee documentation of the review process — is the artifact that defends the arrangement in a fee-litigation context.
In the Longevity Standard Framework
Fee disclosure under ERISA 408(b)(2) enters the Longevity Standard framework as the plan-level cost transparency layer that operates upstream of the participant's accumulated balance and any lifetime income analysis that balance will later support. The disclosure surfaces the direct and indirect compensation supporting the recordkeeping, investment, and administrative services that determine what a participant's balance costs to hold and to grow through the accumulation phase. Where an in-plan lifetime income option is on the menu, 408(b)(2) disclosure is the appropriate surface for the carrier's structural cost transparency — including the carrier's required return on the regulatory capital it must hold against the contract.
Related terms
- Prohibited transaction
- Participant fee disclosure (ERISA 404(a)(5))
- ERISA fiduciary
- Investment policy statement
- Investment committee
- Plan committee
- Covered service provider
- Cost of income