Enhanced ERISA Reporting Obligations
In the realm of financial planning and online marketing, there have been significant updates that aim to increase transparency and protect consumers.
Firstly, the U.S. Department of Labor has issued new disclosure regulations under Section 408(b)(2) of ERISA. These regulations require fiduciaries and service providers to disclose detailed information about fees and compensation arrangements for 401(k) plan services before they are engaged. Employers and plan sponsors have a corresponding duty to review and evaluate the reasonableness of these fees, documenting their fiduciary process thoroughly to demonstrate compliance and avoid potential breaches or violations of ERISA rules.
Key points about the updated Section 408(b)(2) disclosure rules include:
- Service providers, such as brokers, consultants, and recordkeepers, must disclose their compensation and material financial arrangements related to the 401(k) plan services in advance.
- Plan sponsors have a duty to review and evaluate the reasonableness of fees and compensation using the disclosures, and documentation of the review process is essential.
- While much of the 408(b)(2) regulation historically focused on retirement plans, recent legislative amendments have extended strict disclosure and fiduciary requirements to group health plans under ERISA §408(b)(2)(B).
In short, fiduciaries must ensure they receive the required fee disclosures before contracting with providers, actively and prudently assess whether fee arrangements are reasonable compared to market standards, and maintain documentation evidencing their evaluation and decision-making processes.
Meanwhile, in the world of online marketing, the Federal Trade Commission (FTC) has updated its Endorsement Guides. These guidelines require affiliate marketers to disclose compensation received for product promotions through reviews, rankings, or testimonials. While the FTC primarily focuses on advertisers, ad agencies, and public relations firms, individual endorsers are also encouraged to disclose their relationships with brands.
In the business world, concepts like Phantom Equity are gaining traction. Phantom Equity, also known as shadow stock, allows key employees or independent contractors to have a stake in a start-up company's success without owning shares. This type of deferred compensation offers an alternative means for employees to benefit from the company's growth, similar to Incentive Stock Options, which are referred to as qualified or statutory stock options.
As always, it's essential to stay informed and make well-informed decisions regarding your financial future and online activities. We invite you to leave a review to share your thoughts on these updates and their potential impact on you.
[1] Source: U.S. Department of Labor, Employee Benefits Security Administration, "Disclosure of Fees and Expenses Under Section 408(b)(2) of ERISA" (accessed April 15, 2023)
[3] Source: U.S. Department of Labor, Employee Benefits Security Administration, "FAQs About Fiduciary Duties" (accessed April 15, 2023)
- In the context of retirement plans, the updated Section 408(b)(2) disclosure rules mandate that service providers disclose their compensation and financial arrangements related to 401(k) plan services, which can be considered a business transaction involving investing.
- As for online marketing, the Federal Trade Commission (FTC) modified its Endorsement Guides to require affiliate marketers to disclose compensation received, demonstrating transparency in the finance sector, particularly when it comes to investing.
