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O’Melveny’s Barrett Comments on New Fee Disclosure Regulations

March 05, 2012 O’Melveny & Myers LLP’s Shannon Barrett, a Washington, DC-based partner in the Firm’s Financial Services Practice focused on ERISA litigation and counseling, was interviewed for a recent A.M. Best News Service report on new regulations by the US Department of Labor concerning fee disclosures by retirement plan service providers. In addition to the audio recording of the interview featured on A.M. Best’s website, Barrett’s comments were featured in a March 2, 2012 Insurance News Net article, “New Fee-Disclosure Regs Pose New Litigation Risks for Retirement Plan Providers.”

The recent regulations could pose new litigation risks, given the murkiness surrounding the question of whether service providers act as fiduciaries under the federal Employee Retirement Income Security Act (ERISA), said Barrett. Under the new rules, service providers will be required to disclose "whether they expect to be providing fiduciary services," he said. For many service providers, however, there is a "real legal question" as to whether they are fiduciaries. Much of the current litigation involving 401(k) plans, involves the issue of whether entities that are record-keepers have taken on additional responsibilities that were sufficient to make them fiduciaries, said Barrett. The regulation will thus force record-keepers and similar service providers to "stake a position on something that is a very disputed legal issue."

In addition, Barrett said, the regulation is creating a "technical set of rules" record-keepers must follow. Failure to do so will expose their clients, the fiduciaries, to civil liability for any consequences of a transaction, even if those fiduciaries are acting in good faith in hiring a record-keeper, he said.