Department of Labor Issues Supplemental FAQs about the 2009 Form 5500 Schedule C Fee Disclosure Rules

On October 23, the U.S. Department of Labor (DOL) released its much-anticipated guidance on how to complete the new Schedule C to Form 5500. The new Schedule C must be used to report certain direct and indirect compensation received by service providers in connection with services provided to employee benefit plans, subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA). As discussed in one of our previous LawFlashes, available at http://www.morganlewis.com/pubs/EB_Form5500_ERISA408(b)(2)_LF_20dec07.pdf, the new Schedule C is applicable for plan years beginning in calendar year 2009 and represents major changes from the old schedule.

This new guidance takes the form of additional answers to frequently asked questions (FAQs), which supplement both the instructions to Schedule C and a set of FAQs released by the DOL in July 2008 (the 2008 FAQs). In general, the new FAQs clarify a number of technical issues and provide additional support for answers given in the 2008 FAQs.

Specifically, the new FAQs provide and clarify that:

• Promotional items (such as logo'd coffee mugs, calendars, greeting cards, and plaques) of insubstantial value are presumed not reportable.

• Reporting on Schedule C of a person's compensation is dependent upon the person's position or relationship with the plan.

• Mutual fund revenues (such as 12b-1 fees, sub-transfer fees, and shareholder services fees) paid through an agent of the mutual fund or other intermediary can still qualify as eligible indirect compensation reportable under the alternative reporting option under the schedule.

• The 2009 good faith reporting safe harbor, as provided for in 2008 FAQ #40, is only available where the service provider (i) makes a good faith effort to collect and provide the required information to the plan administrator, (ii) fails to collect all such information despite its efforts, and (iii) the service provider reports any and all such information its does collect for such reporting period, irrespective of the fact that such information may be incomplete.
  
  The FAQs further clarify that the DOL expects plan administrators to reach out to the plan's service providers who rely upon the safe harbor for 2009, in order to assess the steps that the service provider is taking in order to meet the reporting requirements for subsequent years.

• Fees, expenses, and charges of the plan or the plan's investments (such as contingent deferred sales charges, market value adjustments, surrender/termination charges, and redemption fees) constitute reportable compensation on Schedule C only to the extent such fee, expenses, or charge is received and retained by a plan service provider.

• Instances and situations where fees are received by service providers under a bundled services arrangement need to be separately reported.

• Certain requirements apply in meeting the alternative reporting option for eligible indirect compensation.

• Certain health plan fees will be treated as transactional charges and need to be reported as such under Schedule C.

This is likely to be the last formal guidance from the DOL on Schedule C before plans must file their 2009 Form 5500. Accordingly, it is important for plan administrators and plan service providers to make appropriate adjustments to their reporting systems in order to collect the necessary information for completing the new Schedule C, or otherwise take steps to comply with the requirements for meeting the safe harbor for 2009 and the new reporting requirements in subsequent years.

Below are the web addresses for the 2008 and 2009 FAQs:

2008: http://www.dol.gov/ebsa/faqs/faq_scheduleC.html

2009: http://www.dol.gov/ebsa/faqs/faq-sch-C-supplement.html

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis attorneys:

Chicago
Louis L. Joseph

New York
Craig A. Bitman

Philadelphia
I. Lee Falk
Vivian S. McCardell
Steven D. Spencer
Marianne R. Yudes
David B. Zelikoff

Pittsburgh
Lisa H. Barton
Lauren Bradbury Licastro

Washington, D.C.
Benjamin I. Delancy
Stuart P. Kasiske
Daniel R. Kleinman
Donald J. Myers
Michael B. Richman