OLR Bill Analysis
AN ACT REQUIRING SERVICE PROVIDERS UNDER CERTAIN RETIREMENT PLANS TO DISCLOSE CONFLICTS OF INTEREST.
This bill requires any person (i.e., contract service provider (CSP)) that (1) enters into a contract or agreement with a retirement plan to provide services to the plan and (2) reasonably expects to receive $1,000 or more in direct or indirect compensation for such services, to disclose to the plan's fiduciary any conflict of interest the service provider has with the plan. Under the bill, "retirement plan" means any retirement plan created under section 403(b) of the Internal Revenue Code that is not regulated under the Employee Retirement Income Security Act (ERISA).
The bill requires the Office of the State Treasurer, in consultation with the Department of Banking, to adopt implementing regulations guided by the U.S. Department of Labor's contract service provider disclosure rule published in the Federal Register on February 3, 2012 (see below).
EFFECTIVE DATE: October 1, 2017
CONFLICT OF INTEREST DISCLOSURE
Under the bill, the CSP disclosures must include a description of:
1. services to be provided to the retirement plan pursuant to the contract or agreement,
2. the compensation the service provider or its affiliate or subcontractor expects to receive as a result of such services, and
3. any direct or indirect compensation the service provider or its affiliate or subcontractor expects to receive in connection with the termination of such contract or agreement.
U.S. DEPARTMENT OF LABOR FINAL RULE
Under the federal rule, a CSP must provide written disclosure to a responsible plan fiduciary for the covered plan. The rule does not require a formal written contract delineating the disclosure obligations. Among other things, the federal rule requires CSPs to:
1. describe the services to be provided and all direct and indirect compensation to be received by a CSP, its affiliates, or subcontractors;
2. identify the sources for indirect compensation, the services to which such compensation relates, and describe its arrangement with the payer;
3. disclose allocations of compensation made among related parties (i.e., among a CSP's affiliates or subcontractors) when such allocations occur as a result of charges made against a plan's investment or are set on a transaction basis;
4. disclose whether they are providing recordkeeping services and the compensation attributable to such services, even when no explicit charge for recordkeeping is identified as part of the service “package” or contract; and
5. disclose an investment's annual operating expenses (e.g., expense ratio) and any ongoing operating expenses in addition to annual operating expenses.
Joint Favorable Substitute