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Extension To Compliance Date For 408(B)(2)

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July 2011

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Page 1: Extension To Compliance Date For 408(B)(2)

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Extension to Compliance Date for 408(b)(2)Fred Reish · Partner/Chair, Financial Services ERISA TeamTo: Liz JutilaDate: July 25, 2011

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Last week, the Department of Labor (DOL) extended the compliance date for 408(b)(2) toApril 1, 2012. While that only gives us another three months (from the current deadline ofJanuary 1), it is welcome relief. We have several observations about the extension:

• Generally speaking, our service provider clients were on course to provide disclosures totheir ERISA plans and to modify their intake procedures for new clients. However, theywere feeling pressure to complete the work by the January 1 deadline.

• The pressures primarily related to compensation disclosures. That is, our clients, by andlarge, have completed the work on the disclosures about services and status. However, thecompensation disclosures are complex and often voluminous . . . particularly for broker-dealers and recordkeepers. At this point, the procedures for most of the easiercompensation disclosures have been determined. However, work remains to be done onmore complex compensation disclosures, for example, brokerage accounts and openarchitecture compensation disclosures by broker-dealers.

• It is unlikely that there will be another extension. In its release, the DOL explained thatthe reason for this extension was that it had not released its final guidance under 408(b)(2)and, as a result, many service providers would need to make additional systems changesonce the guidance is published. At this point, that will likely be October or possibly evenNovember, depending on when the amended regulation is sent to the Office ofManagement and Budget.

• It appears that the holdup is that the DOL is having difficulty resolving the new “summaryand roadmap” disclosure requirements, which we understand is provided for in theamendment. The Department will need to either resolve the methodology for that disclosureor will need to eliminate the provision. We assume it will be the former.

• The DOL thinks that the 3 month extension will be adequate because it will not takesignificant additional effort to incorporate the changes into the work already being done.This suggests that the changes will either be relatively minor or possibly that some of thechanges will make the regulation easier, rather than harder, to implement.

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