The following Client Alert may be of interest to certain investment managers and advisers to ERISA plans and/or ERISA plan asset funds.

On February 3, 2012, the Department of Labor ("DOL") issued a final regulation (the "Regulation") under Section 408(b)(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Regulation requires advance disclosure of the services to be provided to "covered plans" and the "compensation" to be received by "covered service providers" for providing such services. The goal of the Regulation is to ensure that plan fiduciaries have the information they need to: assess the reasonableness of compensation received by the covered service provider; identify any potential conflicts of interest; and satisfy their reporting and disclosure obligations under ERISA. Although the Regulation also places obligations on service providers who perform recordkeeping, brokerage and other services, the primary focus of this Alert is to provide a broad overview of the Regulation's application to investment managers and advisers to ERISA plans and/or ERISA plan asset funds.

What is the deadline for compliance?

The deadline for compliance with the Regulation is July 1, 2012. Thus, if an arrangement between a covered service provider and a covered plan meet the requirements described in the Regulation, contracts entered into on or after July 1, 2012 must comply with the Regulation; contracts or arrangements in existence prior to July 1, 2012 also must be brought into compliance as of such date. Generally, the disclosures must be provided “reasonably in advance” of the date the contract or arrangement is entered into, extended or renewed (subject to the July 1, 2012 compliance date), in order for the responsible plan fiduciary to review, analyze, and consider the disclosures in compliance with such plan fiduciary’s own ERISA obligations.

What is covered?

As noted above, the Regulation requires that "covered service providers" notify responsible plan fiduciaries of the "compensation" received for "covered services" provided to "covered plans." The Regulation generally defines a "covered plan" as ERISA-governed defined benefit and defined contribution plans. It does not apply to IRAs, SEP IRAs, SIMPLE IRAs, certain frozen 403(b) plans, welfare benefit plans, governmental or church plans. Disclosure obligations may also arise if you are providing fiduciary and/or registered investment advisory services to an ERISA plan asset fund. An ERISA plan asset fund, generally, is a fund that is deemed to hold ERISA plan assets and, accordingly, does not meet an exemption from such treatment (e.g., a fund holding less than 25% from "benefit plan investors," QPAMs, and certain mutual funds).

"Covered service providers" are those who enter into a contract or arrangement with a covered plan and (i) reasonably expect to receive greater than $1,000 in "compensation" during the term of the arrangement, for the purposes of (ii) providing "covered services."

The "covered services" described in the Regulation that most likely relate to investment managers and advisers are the following:

(a) Services provided as a fiduciary or registered investment adviser, including:

1. services provided directly to a covered plan as a fiduciary,
2. services provided as a fiduciary to an investment contract, product or entity that holds plan assets (and does not meet an ERISA exemption) and in which the covered plan has a direct equity investment, or
3. services provided directly to the covered plan as a registered investment adviser.

(b) Other services for indirect compensation, including, among a number of other services, investment advisory, securities or other investment brokerage or valuation services.

What must be disclosed?

Subject to possible exemptions (not discussed herein), if you provide the types of covered services noted above, you must comply with the Regulation’s disclosure obligations. The disclosures must be made in writing and generally should include the following information:

(a) Services. A clear description of all services to be provided under the contract. With respect to services provided as a fiduciary or registered investment adviser, the Regulation applies to services provided directly to a covered plan pursuant to a contract.

(b) Compensation. A description of all direct and indirect compensation (in excess of $1,000) to be received by the service provider and its affiliates and subcontractors. For these purposes, “compensation” includes anything of monetary value (e.g., money, gifts, awards, and trips), but excludes non-monetary compensation of less than $250.

(c) Recordkeeping Services. A description of all recordkeeping services and fees being provided or received under the contract.

(d) Manner of Payment. A description of the manner in which payment will be received (e.g., by invoicing the covered plan or by debiting the covered plan’s account).

(e) Fiduciary Status/Registered Investment Adviser Status. A statement disclosing whether the covered service provider, or an affiliate or subcontractor, will provide any services to the covered plan as a fiduciary or registered investment adviser.

(f) Investment Disclosure. In the event fiduciary services are provided to an ERISA plan asset fund, the following should be disclosed: (i) a description of compensation that will be charged directly against an investment (e.g., sales loads, sales charges, etc.), (ii) a description of the annual operating expenses if the return is not fixed, as well as any ongoing expenses in addition to annual operating expenses, and (iii) ongoing expenses other than annual operating expenses.

What are the penalties for failure to comply?

Generally, failure by a covered service provider to comply with the Regulation will result in a covered service provider's contract with the plan being deemed a prohibited transaction under ERISA, which may require the responsible plan fiduciary to terminate the agreement and report the service provider’s failure to disclose to the Department of Labor. Failure can result in excise taxes being imposed on the service provider.

What should you do and how can we help?

As the enforcement and compliance date of July 1, 2012, draws near, we recommend that you immediately review your operations, disclosures, and agreements in order to prepare for the Regulation’s requirements, as these disclosures may require modifications to your existing practices and documents. We are happy to assist in this effort, and to (i) assess whether the Regulation applies to the various services that you perform and to the particular relationships that you have, and (ii) make any needed adjustments to affected practices and documents.

This Client Alert is for information purposes only and should not be construed as legal advice. This information is not intended to create, and receipt of it does not constitute a lawyer-client relationship.