Reasonable Contract or Arrangement Under Section 408(b)(2)-Fee Disclosure, 70988-71005 [E7-24064]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 72, Number 239 (Thursday, December 13, 2007)]
[Proposed Rules]
[Pages 70988-71005]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-24064]



[[Page 70987]]

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Part III





Department of Labor





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Employee Benefits Security Administration



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29 CFR Part 2550



Reasonable Contract or Arrangement Under Section 408(b)(2)--Fee 
Disclosure; Proposed Rule

Federal Register / Vol. 72, No. 239 / Thursday, December 13, 2007 / 
Proposed Rules

[[Page 70988]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

RIN 1210-AB08


Reasonable Contract or Arrangement Under Section 408(b)(2)--Fee 
Disclosure

AGENCY: Employee Benefits Security Administration, DOL.

ACTION: Proposed regulation.

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SUMMARY: This document contains a proposed regulation under the 
Employee Retirement Income Security Act of 1974 (ERISA) that, upon 
adoption, would require that contracts and arrangements between 
employee benefit plans and certain providers of services to such plans 
include provisions that will ensure the disclosure of information to 
assist plan fiduciaries in assessing the reasonableness of the 
compensation or fees paid for services that are rendered to the plan 
and the potential for conflicts of interest that may affect a service 
provider's performance of services. The proposed regulation will 
redefine what constitutes a ``reasonable contract or arrangement'' for 
purposes of the statutory exemption from certain prohibited transaction 
provisions of ERISA. The regulation, upon adoption, will affect 
employee benefit plan sponsors and fiduciaries and the service 
providers to such plans.

DATES: Written comments on the proposed regulation should be received 
by the Department of Labor on or before February 11, 2008.

ADDRESSES: To facilitate the receipt and processing of comment letters, 
the Employee Benefits Security Administration (EBSA) encourages 
interested persons to submit their comments electronically by e-mail to 
e-ORI@dol.gov, or by using the Federal eRulemaking portal at https://
www.regulations.gov. Persons submitting comments electronically are 
encouraged not to submit paper copies. Persons interested in submitting 
paper copies should send or deliver their comments (preferably at least 
three copies) to the Office of Regulations and Interpretations, 
Employee Benefits Security Administration, Attn: 408(b)(2) Amendment, 
Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210. All comments will be available to the public, 
without charge, online at https://www.regulations.gov and https://
www.dol.gov/ebsa and at the Public Disclosure Room, N-1513, Employee 
Benefits Security Administration, U.S. Department of Labor, 200 
Constitution Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Kristen L. Zarenko, Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration, (202) 693-8510. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

(1) General

    In recent years, there have been a number of changes in the way 
services are provided to employee benefit plans and in the way service 
providers are compensated. Many of these changes may have improved 
efficiency and reduced the costs of administrative services and 
benefits for plans and their participants. However, the complexity of 
these changes also has made it more difficult for plan sponsors and 
fiduciaries to understand what the plan actually pays for the specific 
services rendered and the extent to which compensation arrangements 
among service providers present potential conflicts of interest that 
may affect not only administrative costs, but the quality of services 
provided.
    Despite these complexities, section 404(a)(1) of ERISA requires 
plan fiduciaries, when selecting or monitoring service providers, to 
act prudently and solely in the interest of the plan's participants and 
beneficiaries and for the exclusive purposes of providing benefits and 
defraying reasonable expenses of administering the plan. Fundamental to 
a fiduciary's ability to discharge these obligations is the 
availability of information sufficient to enable the fiduciary to make 
informed decisions about the services, the costs, and the service 
provider. In this regard, the Department of Labor (Department) has 
published interpretive guidance concerning the disclosure and other 
obligations of plan fiduciaries and service providers under ERISA.\1\
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    \1\ See, e.g., Field Assistance Bulletin 2002-3 (November 5, 
2002) and Advisory Opinions 97-16A (May 22, 1997) and 97-15A (May 
22, 1997).
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    In addition to technical guidance, the Department makes available 
on its Web site various materials intended to assist plan fiduciaries 
and others in understanding their obligations, the importance of fees, 
and the assessment of service provider relationships.\2\ The 
Department's Web site also provides a Model Plan Fee Disclosure Form to 
assist fiduciaries of individual account pension plans when analyzing 
and comparing the costs associated with selecting service providers and 
investment products.\3\
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    \2\ See https://www.dol.gov/ebsa/publications/
undrstndgrtrmnt.html and https://www.dol.gov/ebsa/newsroom/
fs053105.html.
    \3\ https://www.dol.gov/ebsa/pdf/401kfefm.pdf. This model form 
was developed jointly by the American Bankers Association, the 
Investment Company Institute, and the American Council of Life 
Insurers.
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    Although the Department has issued technical guidance and 
compliance assistance materials relating to the selection and 
monitoring of service providers, the Department nevertheless believes 
that, given plan fiduciaries' need for complete and accurate 
information about compensation and revenue sharing, both plan 
fiduciaries and service providers would benefit from regulatory 
guidance in this area. For this reason, the Department proposes the 
amendment described below relating to the conditions for a ``reasonable 
contract or arrangement'' under section 408(b)(2) of ERISA, as set 
forth in 29 CFR Sec.  2550.408b-2.\4\
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    \4\ The Department also implemented changes to the information 
required to be reported concerning service provider compensation and 
compensation arrangements as part of the Form 5500 Annual Report. 
These changes to Schedule C of the Form 5500 complement the 
amendment proposed in this Notice in assuring that plan fiduciaries 
have the information they need to monitor their service providers 
consistent with their duties under section 404(a)(1) of ERISA. See 
72 FR 64731.
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(2) The Statutory Exemption for Services

    Section 406(a)(1)(C) of ERISA generally prohibits the furnishing of 
goods, services, or facilities between a plan and a party in interest 
to the plan. As a result, absent relief, a service relationship between 
a plan and a service provider would constitute a prohibited 
transaction, because any person providing services to the plan is 
defined by ERISA to be a ``party in interest'' to the plan.\5\ However, 
section 408(b)(2) of ERISA exempts certain arrangements between plans 
and service providers that otherwise would be prohibited transactions 
under section 406 of ERISA. Specifically, section 408(b)(2) provides 
relief from ERISA's prohibited transaction rules for service contracts 
or arrangements between a plan and a party in interest if the contract 
or arrangement is reasonable, the services are necessary for the 
establishment or operation of the plan, and no more than reasonable 
compensation is paid for the services.\6\ Regulations issued by the 
Department clarify each of these conditions to the exemption.\7\
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    \5\ See ERISA Sec.  3(14)(B).
    \6\ See ERISA Sec.  408(b)(2).
    \7\ See 29 CFR Sec.  2550.408b-2.

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[[Page 70989]]

    In this Notice, the Department proposes to amend the regulations 
under ERISA section 408(b)(2) to clarify the meaning of a 
``reasonable'' contract or arrangement. Currently, the regulation at 29 
CFR Sec.  2550.408b-2(c) states only that a contract or arrangement is 
not reasonable unless it permits the plan to terminate without penalty 
on reasonably short notice.\8\ In the amendment described below, the 
Department proposes to add that, in order for a contract or arrangement 
for services to be reasonable, it must require that certain information 
be disclosed by the service provider to the responsible plan fiduciary. 
The Department believes that in order to satisfy their ERISA 
obligations, plan fiduciaries need information concerning all 
compensation to be received by the service provider and any conflicts 
of interest that may adversely affect the service provider's 
performance under the contract or arrangement. Accordingly, under the 
proposal, an arrangement would not be reasonable unless the service 
provider agrees to furnish, and in fact does furnish, the required 
information to the responsible plan fiduciary. The ``responsible plan 
fiduciary'' is the fiduciary with authority to cause the plan to enter 
into, or extend or renew, a contract or arrangement for the provision 
of services to the plan.
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    \8\ See 29 CFR Sec.  2550.408b-2(c).
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B. Proposed Amendment to Regulations Under ERISA Section 408(b)(2)

(1) Overview of Proposed Regulation

    In general, the proposal amends paragraph (c) of Sec.  2550.408b-2 
by moving, without change, the current provisions of paragraph (c) to a 
newly designated paragraph (c)(2) and adding a new paragraph (c)(1) to 
address the disclosure requirements applicable to a ``reasonable 
contract or arrangement.'' The new paragraph (c)(1) of Sec.  2550.408b-
2 generally requires that, in order to be reasonable, any contract or 
arrangement between an employee benefit plan and certain service 
providers must require the service provider to disclose the 
compensation it will receive, directly or indirectly, and any conflicts 
of interest that may arise in connection with its services to the plan.
(a) Scope of the Proposal
    Paragraph (c)(1)(i) of the proposal describes the scope of the 
regulation's disclosure requirements. The Department recognizes that 
responsible plan fiduciaries may not always need all of the required 
disclosures from every type of service provider in order to evaluate 
the reasonableness of the service provider's compensation. Thus, this 
paragraph limits the proposal's application to contracts or 
arrangements to provide services by service providers that fall within 
one or more of three categories. The first category, described in 
paragraph (c)(1)(i)(A), includes within the scope of the regulation 
service providers who provide services as a fiduciary under ERISA or 
under the Investment Advisers Act of 1940. Paragraph (c)(1)(i)(B) 
includes service providers who provide banking, consulting, custodial, 
insurance, investment advisory (plan or participants), investment 
management, recordkeeping, securities or other investment brokerage, or 
third party administration services, regardless of the type of 
compensation or fees that they receive. Finally, paragraph (c)(1)(i)(C) 
includes service providers who receive any indirect compensation in 
connection with accounting, actuarial, appraisal, auditing, legal, or 
valuation services.
    The Department believes that the compensation arrangements for 
services provided by the service providers enumerated in paragraphs 
(c)(1)(i)(A) and (B) are most likely to give rise to conflicts of 
interest. As to the service providers enumerated in paragraph 
(c)(1)(i)(C), the Department believes that requiring every service 
contract or arrangement with these providers to satisfy the 
requirements of the proposed regulation may not be appropriate or yield 
helpful information to plan fiduciaries. However, the Department 
believes that these providers perform some of the most important and 
potentially influential services to plans and, to the extent these 
service providers receive indirect compensation in connection with 
their services, similar conflict of interest concerns would be raised, 
as with other enumerated service providers.
    If a contract or arrangement meets the threshold scope requirement 
in paragraph (c)(1)(i), then the terms of such contract or arrangement 
must satisfy the proposal's disclosure requirements in order to be 
reasonable for purposes of paragraph (c)(1), regardless of the nature 
of any other services provided or whether the plan is a pension plan, 
group health plan, or other type of welfare benefit plan. Nevertheless, 
the proposal's application to contracts or arrangements between plans 
and the listed categories of service providers should not be construed 
to imply that responsible plan fiduciaries do not need to obtain and 
consider appropriate disclosures before contracting with service 
providers who do not fall within these categories. Responsible plan 
fiduciaries must continue to satisfy their general fiduciary 
obligations under ERISA with respect to the selection and monitoring of 
all service providers. Further, contracts or arrangements with these 
service providers must be ``reasonable'' and otherwise satisfy the 
requirements of section 408(b)(2) of ERISA.
    The proposal also applies only to contracts or arrangements for 
services to employee benefit plans. The proposed regulation, if 
adopted, would not apply to contracts or arrangements with entities 
that are merely providing plan benefits to participants and 
beneficiaries, rather than providing services to the plan itself. For 
example, a pharmacy benefit manager that contracts with an employee 
benefit plan to manage the plan's prescription drug program would be 
covered as a service provider to the plan providing third party 
administration or recordkeeping, and possibly consulting, services. 
However, if a fiduciary contracts on behalf of a welfare plan with a 
medical provider network, for example an HMO, a doctor that is part of 
the network and that has no separate agreement or arrangement with the 
plan would not be a service provider to the plan; the doctor merely 
provides medical benefits to the plan's participants and beneficiaries.
(b) Disclosure Concerning Compensation and Services
    If a contract or arrangement for services falls within the scope of 
the proposed regulation, the contract or arrangement must comply with 
paragraphs (c)(1)(ii) through (vi) of the proposal. Paragraph 
(c)(1)(ii) requires that the contract or arrangement be in writing. The 
proposal requires specific disclosures and representations from the 
service provider, and the Department believes they must be made in 
writing to ensure a meeting of the minds between the service provider 
and the responsible plan fiduciary.
    The proposed regulation next provides in paragraph (c)(1)(iii) that 
the terms of the contract or arrangement must specifically require the 
service provider to disclose in writing, to the best of its knowledge, 
the information set forth in the proposal. The Department believes it 
is important for the responsible plan fiduciary to obtain assurance 
from the service provider that it has disclosed complete and accurate 
information. To ensure that the responsible plan fiduciary has the 
opportunity to consider all required disclosures before entering into a

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contract or arrangement with a service provider to the plan, the 
proposal requires that the contract or arrangement include a 
representation by the service provider that, before the contract or 
arrangement was entered into, all required information was provided to 
the responsible plan fiduciary.
    The proposal does not prescribe the manner in which such 
disclosures should be presented to the plan fiduciary, other than 
requiring a statement by the service provider that the disclosures have 
been made. All of the required disclosures need not be contained in the 
same document, as long as all of the required information is presented 
to the responsible plan fiduciary in writing before such fiduciary 
enters into the contract or arrangement. Written disclosures may be 
provided in separate documents from separate sources and may be 
provided in electronic format, as long as these documents, 
collectively, contain all of the elements of disclosure required by the 
regulation. For example, a prospectus required by Federal securities 
laws, or a Form ADV required to be filed by a registered investment 
adviser, may include some of the indirect fee or conflict of interest 
information that a service provider would be required to disclose under 
this proposal. In these circumstances, the contracting parties are free 
to incorporate such materials by reference. The Department expects that 
the service provider will clearly describe these additional materials 
and explain to the responsible plan fiduciary the information they 
contain. The Department invites comments on whether, and the extent to 
which, duplicate disclosures can be avoided, while at the same time 
ensuring that responsible plan fiduciaries receive comprehensive, 
straightforward, and helpful information concerning the service 
provider's compensation and possible conflicts of interest.
    The proposal also does not designate any specific time period prior 
to entering into the contract or arrangement for receipt of the 
required disclosures, other than requiring a representation by the 
service provider that all information was provided in writing before 
the parties entered into the contract. The Department believes it would 
be incumbent on the service provider to furnish current and accurate 
information to the plan fiduciary. Further, the responsible plan 
fiduciary, consistent with its general fiduciary obligations under 
ERISA, must ensure in its negotiations with a service provider that he 
or she obtains current and accurate information from the service 
provider sufficiently in advance of entering into the contract or 
arrangement to allow the fiduciary to prudently consider the 
information.
    To facilitate the responsible plan fiduciary's determination that 
the service provider will receive no more than reasonable compensation, 
paragraph (c)(1)(iii)(A) of the proposal provides that the contract or 
arrangement must require the service provider to disclose the services 
to be provided to the plan and all compensation it will receive in 
connection with the services. A service provider must describe all 
services that it will provide, regardless of whether such services are 
described in the proposal's applicable scope provision. For example, if 
a plan consultant will provide appraisal, legal, and administrative 
services to the employee benefit plan in addition to its consulting 
services, then all of these services must be described. The subsections 
that follow in paragraph (c)(1)(iii)(A)(1) through (4) of the proposal 
clarify the requirement that the service provider disclose all 
compensation or fees that it will receive for its services.
    Paragraph (c)(1)(iii)(A)(1) broadly defines compensation or fees to 
include money and any other thing of monetary value received by the 
service provider or its affiliate in connection with the services 
provided to the plan or the financial products in which plan assets are 
invested. Examples of compensation or fees that are covered by this 
definition include, but are not limited to: gifts, awards, and trips 
for employees, research, finder's fees, placement fees, commissions or 
other fees related to investment products, sub-transfer agency fees, 
shareholder servicing fees, Rule 12b-1 fees, soft dollar payments, 
float income, fees deducted from investment returns, fees based on a 
share of gains or appreciation of plan assets, and fees based upon a 
percentage of the plan's assets. The Department believes that an 
investment of plan assets or the purchase of insurance is not, in and 
of itself, compensation to a service provider for purposes of this 
regulation. However, persons or entities that provide investment 
management, recordkeeping, participant communication and other services 
to the plan as a result of an investment of plan assets will be treated 
as providing services to the plan.
    Consistent with recommendations of the ERISA Advisory Council 
Working Group, the Department concludes that plan fiduciaries must 
receive more comprehensive information about the compensation or fees 
involved in plan administration and investments, including indirect 
compensation.\9\ Indirect compensation includes fees that service 
providers receive from parties other than the plan, the plan sponsor, 
or the service provider.
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    \9\ See ERISA Advisory Council Working Group report at https://
www.dol.gov/ebsa/publications.
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    Service providers also must disclose compensation or fees received 
by their affiliates from third parties. For purposes of the proposal, 
an ``affiliate'' of a service provider is defined in paragraph 
(c)(1)(iii)(A)(1) to be any person directly or indirectly (through one 
or more intermediaries), controlling, controlled by, or under common 
control with the service provider, or any officer, director, agent, or 
employee of, or partner in, the service provider. The Department does 
not intend this requirement to result in any ``double counting'' of 
compensation. For instance, an employee's salary or a bonus that is 
paid to an employee from the general assets of his or her employer 
(i.e., the service provider) would not need to be separately disclosed, 
even if the employee is paid in connection with services to an employee 
benefit plan. The proposal merely clarifies that disclosure of any 
direct or indirect compensation that otherwise is required under the 
proposal cannot be avoided merely because such compensation is paid to 
an employee or agent of the service provider or an affiliate, rather 
than directly to such service provider or affiliate.
    The proposal next provides in paragraph (c)(1)(iii)(A)(2) that if a 
service provider cannot disclose compensation or fees in terms of a 
specific monetary amount, then the service provider may disclose 
compensation or fees by using a formula, a percentage of the plan's 
assets, or a per capita charge for each participant or beneficiary. The 
Department understands that it is not always possible at the time the 
parties enter into a service contract or arrangement to know the exact 
amount of compensation, whether direct or indirect, that the service 
provider will receive for its services. However, the service provider 
must describe its compensation or fees in such a way that the 
responsible plan fiduciary can evaluate its reasonableness. For 
instance, the service provider must clearly explain any assumptions 
that would be used in determining the compensation or fees according to 
any such formula or other charge.
    Paragraph (c)(1)(iii)(A)(3) of the proposed regulation clarifies 
the nature of disclosures that must be provided

[[Page 70991]]

concerning bundled arrangements. In many cases, administrative and 
investment services are provided to employee benefit plans in 
``bundled'' arrangements, whereby a package or ``bundle'' of services 
is provided, either directly or through affiliates or subcontractors of 
a service provider. These bundles are priced to the plan by a single 
service provider as a package, rather than on a service-by-service 
basis. For example, rather than hiring separate service providers for 
investment management, recordkeeping, Form 5500 annual report 
preparation, participant communications and statement preparation, 
payroll processing, and other functions, a plan fiduciary may arrange 
for one service provider to have all of these services performed as a 
bundle. The provider of the bundle may in turn use other affiliated 
service providers, or unaffiliated subcontractors, to provide some of 
the services in the bundle. However, the responsible plan fiduciary 
obtains a ``package deal'' and will negotiate only with the provider of 
the bundle.
    Under paragraph (c)(1)(iii)(A)(3) of the proposed regulation, if a 
service provider offers a bundle of services, then a contract or 
arrangement must require only that the provider of the bundle make the 
prescribed disclosures. This bundled service provider must disclose 
information concerning all services to be provided in the bundle, 
regardless of who provides them. Further, the bundled service provider 
must disclose the aggregate direct compensation or fees that will be 
paid for the bundle, as well as all indirect compensation that will be 
received by the service provider, or its affiliates or subcontractors 
within the bundle, from third parties. Generally, the bundled provider 
is not required to break down this aggregate compensation or fees among 
the individual services comprising the bundle. For instance, the 
service provider would not have to break down the aggregate fee into 
the amount that will be charged for preparing the Form 5500 annual 
report and the amount that will be charged for preparing participant 
statements. Also, the bundled provider generally is not required to 
disclose the allocation of revenue sharing or other payments among 
affiliates or subcontractors within the bundle.
    There are, however, exceptions to these rules. Specifically, 
paragraph (c)(1)(iii)(A)(3) requires the bundled provider to disclose 
separately the compensation or fees of any party providing services 
under the bundle that receives a separate fee charged directly against 
the plan's investment reflected in the net value of the investment, 
such as management fees paid by mutual funds to their investment 
advisers, float revenue, and other asset-based fees such as 12b-1 
distribution fees, wrap fees, and shareholder servicing fees if charged 
in addition to the investment management fee. Also, paragraph 
(c)(1)(iii)(A)(3) requires the separate disclosure of compensation or 
fees of any service provider under the bundle that are set on a 
transaction basis, such as finder's fees, brokerage commissions, or 
soft dollars. Soft dollars include research or other products or 
services, other than execution, received from a broker-dealer or other 
third party in connection with securities transactions. Compensation or 
fees that are charged on a transaction basis must be separately 
disclosed even if paid from mutual fund management fees or other 
similar fees. The Department does not believe that disclosure of these 
fees would require bundled providers to disclose any revenue sharing 
arrangements or bookkeeping practices among affiliates that could 
legitimately be classified as proprietary or confidential. Further, the 
Department believes that investment-based charges, commissions, and 
other transaction-based fees paid to affiliates are just as likely to 
be relevant to the responsible plan fiduciary's evaluation of potential 
conflicts of interest, whether or not they are part of a bundled 
service arrangement.
    Paragraph (c)(1)(iii)(A)(4) requires that the service provider also 
explain the manner of receipt of compensation, for example whether the 
service provider will bill the plan, deduct fees directly from plan 
accounts, or reflect a charge against the plan investment. The 
description also must explain how any pre-paid fees will be calculated 
and refunded when the contract or arrangement terminates.
(c) Disclosure Concerning Conflicts of Interest
    The subsections that follow in (B) through (F) of paragraph 
(c)(1)(iii) are intended to inform the responsible plan fiduciary of 
the service provider's relationships or interests that may raise 
conflicts of interest for the service provider in its performance of 
services for the plan. As service arrangements have become more 
complex, so have the ways that service providers are compensated, as 
well as the relationships among different players in the plan service 
provider industry. Plan fiduciaries must know of these relationships 
and indirect sources of compensation because they may impact the manner 
in which the provider performs services for the plan. There may be 
other, oftentimes subtle, influences on the service provider or its 
affiliates that may be relevant to a plan fiduciary's assessment of the 
objectivity of a service provider's decisions or recommendations.
    The Department's attention to service providers' potential 
conflicts of interest is not new. For example, in 2005 the Department 
issued guidance with the Securities and Exchange Commission concerning 
potential conflicts of interest involved in pension consultant 
relationships.\10\ This guidance provides a list of tips and related 
explanations to help plan fiduciaries obtain the information necessary 
to ensure that engagement of the pension consultant serves the best 
interest of the plan's participants and beneficiaries. The Department 
believes that the engagement of many plan service providers presents 
similar issues for the plan fiduciary. Accordingly, under the proposal, 
a contract or arrangement must require that the service provider 
disclose specific information that will help the responsible plan 
fiduciary assess any real or potential conflicts of interest.
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    \10\ See ``Selecting and Monitoring Pension Consultants--Tips 
for Plan Fiduciaries'' at https://www.dol.gov/ebsa/newsroom/
fs053105.html.
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    Subsection (B) of paragraph (c)(1)(iii) requires that the service 
provider identify whether it will provide services to the plan as a 
fiduciary, either as an ERISA fiduciary under section 3(21) of ERISA or 
as a fiduciary under the Investment Advisers Act of 1940. The 
Department believes it is important for the responsible plan fiduciary 
and the service provider to understand at the outset of their 
relationship whether or not the service provider considers itself a 
fiduciary and how this status affects the nature of the services to be 
provided.\11\
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    \11\ The Department notes that persons who perform one or more 
of the functions described in section 3(21)(A) of ERISA with respect 
to a plan are fiduciaries. See 29 CFR Sec.  2509.75-8. Thus, 
fiduciary status depends on a factual analysis of a person's 
activities with respect to a plan. Formal agreements stating whether 
a person is a fiduciary are not dispositive of whether the person 
actually is a fiduciary under ERISA by virtue of the functions 
performed.
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    Subsection (C) requires that the service provider disclose any 
financial or other interest in transactions in which the plan will 
partake in connection with the contract or arrangement. For example, if 
a service provider will be buying (or advising on the purchase of) a 
parcel of real estate for the plan, and an affiliate of the service 
provider owns an interest in the real estate, the service provider will

[[Page 70992]]

have to state that it has an interest in the transaction and describe 
its affiliate's ownership of the real estate. The responsible plan 
fiduciary can then weigh the nature and extent of the conflict in 
analyzing the objectivity of the service provider when making the 
recommendations.
    The proposal also provides that a reasonable contract or 
arrangement must require the service provider to disclose its 
relationships with other parties that may give rise to conflicts of 
interest. Specifically, subsection (D) obligates the service provider 
to describe any material financial, referral, or other relationship it 
has with various parties (such as investment professionals, other 
service providers, or clients) that creates or may create a conflict of 
interest for the service provider in performing services pursuant to 
the contract or arrangement. If the relationship between the service 
provider and this third party is one that a reasonable plan fiduciary 
would consider to be significant in its evaluation of whether an actual 
or potential conflict of interest exists, then the service provider 
must disclose the relationship.
    Conflicts also may arise when a service provider can affect its own 
compensation in connection with its services. Under subsection (E) of 
the proposal, a contract or arrangement must require the service 
provider to identify whether it can affect its own compensation without 
the prior approval of an independent plan fiduciary and to describe the 
nature of this compensation. A common example of this potential 
conflict of interest is the receipt of ``float'' compensation.\12\ If 
the amount a service provider receives in float compensation will not 
be approved by an independent plan fiduciary, then the service provider 
must state that it will receive float compensation and explain the 
nature of this compensation.\13\
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    \12\ Many financial service providers, such as banks and trust 
companies, maintain omnibus accounts to facilitate the transactions 
of employee benefit plan clients. The service provider may retain 
earnings (``float'') that result from the anticipated short-term 
investment of funds held in these accounts. These accounts generally 
hold contributions and other assets pending investment. Plan 
fiduciaries also may transfer funds to an omnibus account in 
connection with issuance of a check to make a plan distribution or 
other disbursement.
    \13\ For more information concerning ``float'' compensation and 
the information concerning such compensation that plan fiduciaries 
should obtain from service providers, see the Department's Field 
Assistance Bulletin 2002-3 (Nov. 5, 2002) at https://www.dol.gov/
ebsa/regs/fab_2002-3.html.
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    Finally, the Department recognizes that service providers may have 
policies or procedures to manage these real or potential conflicts of 
interest. For example, a fiduciary service provider may have procedures 
for offsetting fees received from third parties (through revenue 
sharing or other indirect payment arrangements) against the amount that 
it otherwise would charge a plan client. Accordingly, subsection (F) of 
paragraph (c)(1)(iii) of the proposal provides that a reasonable 
contract or arrangement must require service providers to state whether 
or not any such policies or procedures exist and, if so, to provide an 
explanation of these policies or procedures and how they address 
conflicts of interest. The Department views this requirement as an 
opportunity for service providers to educate plan fiduciaries about how 
they address potential conflicts of interest.
(d) Material Changes to Disclosed Information
    Paragraph (c)(1)(iv) of the proposal provides that a reasonable 
contract or arrangement must require that, during the term of the 
contract or arrangement, service providers must disclose to responsible 
plan fiduciaries any material changes to the information that is 
required by paragraph (c)(1)(iii), subsections (A) through (F). Changes 
on the part of a service provider or its employee benefit plan business 
may occasionally occur and may alter the information previously 
disclosed by the service provider. If any resulting change to the 
information previously disclosed to a plan fiduciary would be viewed by 
a reasonable plan fiduciary as significantly altering the ``total mix'' 
of information made available to the fiduciary, or as significantly 
affecting a reasonable plan fiduciary's decision to hire or retain the 
service provider, then the change is material. To ensure that plan 
fiduciaries continue to be well-informed concerning the compensation 
and conflict of interest issues affecting their service provider 
relationships, a contract or arrangement must require service providers 
to notify fiduciaries of material changes within 30 days of the service 
provider's knowledge of the change.
(e) Reporting and Disclosure Requirements
    The proposed regulation under paragraph (c)(1)(v) requires that a 
reasonable contract or arrangement obligate the service provider to 
furnish all information related to the contract or arrangement and the 
service provider's receipt of compensation or fees thereunder that is 
requested by the responsible plan fiduciary or plan administrator in 
order to comply with the reporting and disclosure requirements of Title 
I of ERISA and the regulations, forms, and schedules issued thereunder. 
For example, this provision would obligate the service provider to 
furnish information that is necessary for the plan administrator to 
complete the annual report on Form 5500, and information that is 
necessary for the responsible plan fiduciary to comply with disclosure 
obligations to plan participants and beneficiaries.
    Of course, detailed reporting concerning some service providers may 
not be required for annual reporting purposes, for example because the 
amount or nature of the compensation paid to the service provider does 
not fall within the threshold or other requirements of the annual 
report on Form 5500. Further, not all employee benefit plans are 
subject to the same annual reporting requirements, for example small 
plans and certain self-funded welfare plans. This does not mean that 
service providers to these plans would not be required to fully satisfy 
the disclosure requirements of this proposed regulation, assuming they 
otherwise fall within the scope of the proposal. The Department 
anticipates that this proposal would apply more broadly to 
relationships between service providers and employee benefit plans that 
are not necessarily covered by ERISA's reporting requirements. The 
primary goal of this proposal--to provide comprehensive and useful 
information to responsible plan fiduciaries when entering service 
contracts or arrangements--is different than that of ERISA's annual 
reporting and disclosure requirements, which provide more limited 
retrospective financial information on direct and indirect service 
provider compensation to facilitate and reinforce the broader fiduciary 
obligations imposed by this proposal.
(f) Compliance by Service Providers
    The proposal's final requirement is contained in paragraph 
(c)(1)(vi). This condition provides explicitly that a service provider 
must comply with its obligations under the contract or arrangement as 
described in the proposed regulation. Not only must a contract or 
arrangement require disclosure from the service provider, but the 
service provider must actually provide all of the required disclosures 
in order for the contract or arrangement to be reasonable. Similarly, 
it is not enough for a service provider to commit in the written 
contract to later notify the responsible plan fiduciary of material 
changes to the disclosures contained in the contract; subsection (vi) 
requires that the service provider in fact provide such notification.

[[Page 70993]]

    Subsection (vi) also refers to relief that may be available to a 
responsible plan fiduciary when a service provider fails to comply with 
this requirement. In addition to this proposed regulation, the 
Department is publishing a proposed Class Exemption in today's Federal 
Register. Subject to certain conditions, this Class Exemption will 
provide relief from ERISA's prohibited transaction rules for a 
responsible plan fiduciary when a contract or arrangement fails to be 
``reasonable,'' through no fault of the responsible plan fiduciary, but 
due to a service provider's failure to satisfy its disclosure 
obligations under this regulation. The proposed Class Exemption is 
discussed below in paragraph (2), ``Consequences of Failure to Satisfy 
the Proposed Regulation.''
(g) Relationship Between Disclosures and the Plan Fiduciary's ERISA 
Section 404(a) Duties
    The parties to a service contract or arrangement that falls within 
the scope of paragraph (c)(1)(i) of the proposal must, at a minimum, 
satisfy the requirements contained in this proposal and the other 
conditions to ERISA section 408(b)(2) in order for the provision of 
services under the contract or arrangement to be exempt from ERISA's 
prohibited transaction rules. However, the engagement of any particular 
service provider will not necessarily satisfy the fiduciary's 
obligations under section 404(a) of ERISA to act prudently and solely 
in the best interest of the plan's participants and beneficiaries 
merely because the service provider furnishes the information described 
in the proposed regulation.
    Section 404(a) of ERISA requires that the responsible plan 
fiduciary engage in an objective process designed to elicit information 
necessary to assess not only the reasonableness of the compensation or 
fees to be paid for services, but also the qualifications of the 
service provider and the quality of the services that will be 
provided.\14\ Although the steps taken by a responsible plan fiduciary 
may vary depending on the facts and circumstances, solicitation of bids 
among service providers is a means by which the responsible plan 
fiduciary can obtain information relevant to the decision-making 
process. A responsible plan fiduciary should not consider any one 
factor, including the fees or compensation to be paid to the service 
provider, to the exclusion of other factors. Further, a fiduciary need 
not necessarily select the lowest-cost service provider, so long as the 
compensation or fees paid to the service provider are determined to be 
reasonable in light of the particular facts and circumstances.
---------------------------------------------------------------------------

    \14\ See, e.g., Information Letters to D. Ceresi (Feb. 19, 1998) 
and to T. Konshak (Dec. 1, 1997).
---------------------------------------------------------------------------

    Further, plan fiduciaries are not limited by the disclosures 
required in this proposal. Plan fiduciaries may ask service providers 
for any additional information that they feel is necessary to their 
decision. For example, a responsible plan fiduciary may have questions 
for a service provider concerning the specific personnel that will be 
assigned to manage or perform services under the contract or 
arrangement.
    Finally, although this proposal looks to disclosures made at the 
time a service contract or arrangement is entered into or renewed, 
responsible plan fiduciaries must continue to monitor service 
arrangements and the performance of service providers. Receipt of the 
disclosures described in this proposed regulation at the onset of a 
service relationship will not relieve plan fiduciaries of this ongoing 
obligation.
(h) Existing Requirement Concerning Termination of Contract or 
Arrangement
    Paragraph (c)(2) of the regulation continues to require that 
service contracts or arrangements permit termination by the plan 
without penalty and on reasonably short notice. This requirement has 
not been changed, though the Department invites comments from the 
public as to any practical issues relating to the current regulation's 
requirements concerning contract termination. Specifically, the 
Department would like to know whether the current regulatory framework 
presents practical problems and whether further regulatory or 
interpretive guidance could address these problems.
(i) Other Statutory Exemptions Concerning Service Providers
    The Department understands that, in certain circumstances, plans 
and service providers to such plans must rely on statutory exemptions 
other than section 408(b)(2) of ERISA in order to conduct business 
without violating ERISA's prohibited transaction provisions. Therefore, 
the Department invites comment on the extent to which the application 
of the disclosure requirements contained in this proposed regulation 
will affect, or may be affected by, other ERISA statutory exemptions 
that may relate to plan service arrangements.

(2) Consequences of Failure To Satisfy the Proposed Regulation

    If the contract or arrangement fails to require disclosure of the 
information described in the proposed regulation, or if the service 
provider fails to disclose such information, then the contract or 
arrangement will not be ``reasonable.'' Therefore, the service 
arrangement will not qualify for the relief from ERISA's prohibited 
transaction rules provided by section 408(b)(2). The resulting 
prohibited transaction would have consequences for both the responsible 
plan fiduciary and the service provider. The responsible plan 
fiduciary, by participating in the prohibited transaction, will have 
violated section 406(a)(1)(C) of ERISA's prohibited transaction 
rules.\15\ The service provider, as a ``disqualified person'' under the 
Internal Revenue Code's (Code) prohibited transaction rules, will be 
subject to the excise taxes that result from the service provider's 
participation in a prohibited transaction under Code section 4975.\16\
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    \15\ See ERISA Sec.  406(a)(1)(C).
    \16\ The Internal Revenue Code (Code) also provides statutory 
relief for transactions between a plan and a service provider that 
otherwise would be prohibited. Any excise taxes imposed by Code 
section 4975(a) and (b) for failure to satisfy the statutory 
exemption are paid by the disqualified person who participates in 
the prohibited transaction, in this case the service provider, not 
the plan fiduciary. See Code Sec.  4975(a), (b), (c)(1)(C), (d)(2), 
and (e)(2)(B).
---------------------------------------------------------------------------

    The Department believes that this significant result will provide 
incentives for all parties to service contracts or arrangements to 
cooperate in exchanging the disclosures required by the proposed 
regulation. However, the Department also believes that, in certain 
circumstances, a responsible plan fiduciary should not be held liable 
for a prohibited transaction that results when a service provider, 
unbeknownst to the plan fiduciary, fails to satisfy its disclosure 
obligations as required by the proposed regulation. Accordingly, the 
Department also published a proposed Class Exemption in today's Federal 
Register. The scope of the relief provided by the Class Exemption and 
the conditions that must be satisfied by a responsible plan fiduciary 
in order to obtain such relief are discussed in the preamble to the 
proposed Class Exemption. The Department notes that, in general, the 
parties seeking to avail themselves of either the statutory exemption 
provided by ERISA section 408(b)(2), or the administrative exemption 
provided in the Department's proposed Class Exemption, will bear the 
burden of establishing compliance with the conditions of these 
exemptions.

[[Page 70994]]

C. Effective Date

    The Department proposes that its amendments to regulation section 
2550.408b-2(c) be effective 90 days after publication of the final 
regulation in the Federal Register. The Department invites comments on 
whether the final regulation should be made effective on a different 
date.

D. Request for Comments

    The Department invites comments from interested persons on the 
proposed regulation and other issues discussed in this Notice. Comments 
should be submitted electronically by e-mail to e-ORI@dol.gov, or by 
using the Federal eRulemaking portal at https://www.regulations.gov. 
Persons wishing to submit paper copies should address them to the 
Office of Regulations and Interpretations, Employee Benefits Security 
Administration, Room N-5655, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Washington, DC 20210, Attn: 408(b)(2) Amendment. All 
comments received will be available for public inspection, without 
charge, at https://www.regulations.gov or at https://www.dol.gov/ebsa and 
in the Public Disclosure Room, N-1513, Employee Benefits Security 
Administration, 200 Constitution Avenue, NW., Washington, DC 20210.
    The comment period for this proposed regulation will end 60 days 
after publication of the proposed rule in the Federal Register. The 
Department believes that this period of time will afford interested 
persons an adequate amount of time to analyze the proposal and submit 
comments.

E. Regulatory Impact Analysis

(1) Overview of the Proposal

    Under section 406(a)(1)(C) of ERISA's prohibited transaction rules, 
the furnishing of goods, services, or facilities between a plan and a 
party in interest to the plan is generally prohibited.\17\ A service 
relationship between a plan and a service provider would thus 
constitute a prohibited transaction in the absence of regulatory 
relief, because ERISA defines any person providing services to the plan 
as a ``party in interest'' to the plan.\18\ Section 408(b)(2) of ERISA, 
however, exempts certain arrangements between plans and service 
providers that otherwise would be prohibited transactions. To obtain 
relief under that section, the arrangement must be reasonable, the 
services must be necessary for the establishment or operation of the 
plan, and no more than reasonable compensation must be paid for the 
services.\19\ Regulations issued by the Department clarify each of 
these conditions to the exemption.\20\
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    \17\ See ERISA Sec.  406(a)(1)(C).
    \18\ See ERISA Sec.  3(14)(B).
    \19\ See ERISA Sec.  408(b)(2).
    \20\ See 29 CFR 2550.408b-2.
---------------------------------------------------------------------------

    To further clarify the meaning of a ``reasonable'' contract or 
arrangement under section 408(b)(2), the Department proposes to amend 
the regulation at 29 CFR Sec.  2550.408b-2(c). Under the proposal, a 
contract or arrangement to provide covered services to a plan would not 
be reasonable unless it requires the service provider to disclose, in 
writing, certain information before the contract or arrangement is 
entered into, extended, or renewed. The Department believes that, in 
order to satisfy their ERISA obligations, plan fiduciaries need 
information concerning all compensation to be received by the service 
provider and any conflicts of interest that may adversely affect the 
service provider's performance of the contract or arrangement.
    The proposal requires that, in order to be considered a reasonable 
contract or arrangement, the contract must require the service provider 
to furnish the specified information to the responsible plan fiduciary. 
The rule also would require that the service provider comply with its 
contractual obligation and actually furnish the specified information. 
These disclosures are intended to enable the responsible plan fiduciary 
to ensure that no more than reasonable compensation is paid to the 
service provider for the services and to illustrate any actual or 
potential conflicts of interest that may affect the service provider's 
judgment.
    Once adopted, these requirements will apply to all contracts or 
arrangements between plans (including pension plans, group health 
plans, and other types of welfare benefit plans) and service providers 
who are fiduciaries; who provide banking, consulting, custodial, 
insurance, investment advisory, investment management, recordkeeping, 
securities or other investment brokerage, or third party administration 
services; or who receive indirect compensation for accounting, 
actuarial, appraisal, auditing, legal, or valuation services to the 
plan (collectively ``covered services'' or ``covered providers'').
    The Department's interest in this proposal stems from concerns 
about the fees paid for by employee benefit plans, and the ability of 
plan sponsors and fiduciaries to understand these fees which may be 
paid directly or indirectly by plans. The Department believes that 
greater understanding of these fees by the affected parties will 
increase efficiency and competition in the service provider market and 
generate benefits to plans and thus to plan participants. Although the 
Department believes this rule will have the greatest effect on service 
providers to pension plans, the Department identified other employee 
benefit plans, such as health and welfare plans, that would be affected 
by this regulation and could realize benefits from the proposal similar 
to the benefits realized by pension plans.
    In a separate regulatory effort, the Department has revised 
Schedule C of the annual Form 5500, which is filed by most large plans. 
Schedule C collects information about plan service providers that were 
compensated in excess of $5,000. These revisions are intended to 
improve the reported information on compensation and revenue sharing 
arrangements of service providers to employee benefit plans. Similar to 
the proposed revisions under section 408(b)(2) of ERISA, the revisions 
to Schedule C are intended to help plan sponsors and fiduciaries in 
determining the reasonableness of the fees they pay to service 
providers and to help assess any potential conflicts of interest. While 
the proposed regulation under section 408(b)(2) of ERISA concerns the 
disclosure of information during the decision-making process, the 
changes to Schedule C concern the provision of retrospective 
information as part of a plan's annual reporting obligations.
    The Department is also publishing, simultaneously with this 
regulatory initiative, a proposed class exemption for plan fiduciaries 
in certain circumstances when plan service arrangements fail to comply 
with ERISA section 408(b)(2). The exemption is published elsewhere in 
this issue of the Federal Register. In the preamble to the exemption, 
the Department describes how it has taken into account the availability 
of conditional relief under the exemption in assessing the economic 
costs and benefits of the regulation. The Department believes that the 
exemption is essential to achieve the purposes underlying the 
regulation.

(2) Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f) of the Executive 
Order, a ``significant regulatory action'' is an action that is

[[Page 70995]]

likely to result in a rule (1) having an annual effect on the economy 
of $100 million or more, or adversely and materially affecting a sector 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or State, local or tribal governments or 
communities (also referred to as ``economically significant''); (2) 
creating serious inconsistency or otherwise interfering with an action 
taken or planned by another agency; (3) materially altering the 
budgetary impacts of entitlement grants, user fees, or loan programs or 
the rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. OMB has 
determined that this action is significant under section 3(f)(1) 
because it is likely to materially affect a sector of the economy. 
Accordingly, the Department has undertaken, as described below, an 
analysis of the costs and benefits of the proposed regulation in 
satisfaction of the requirements of the Executive Order. The Department 
believes that the proposed regulation's benefits justify its costs.

(3) Need for Regulatory Action

    Employee benefit plans have evolved over the past several years, 
resulting in changes to both the services provided to the plans and the 
compensation received by service providers. Fee structures for service 
providers have, in some cases, become more complex and less transparent 
for plan sponsors or fiduciaries determining what is actually paid for 
services. This increased complexity also makes it more difficult to 
discern the service provider's potential conflicts of interest. It has 
also become more difficult to determine the impacts of these potential 
conflicts of interest on the fees paid by, or the quality of the 
services provided to, the plan.
    Despite these complexities, when selecting or monitoring service 
providers, plan fiduciaries must act prudently and solely in the 
interest of the plan's participants and beneficiaries and for the 
exclusive purpose of providing benefits and defraying reasonable 
expenses of administering the plan. To meet these obligations, it is 
vital that fiduciaries have enough information to make informed 
assessments and decisions about the services, the costs and the 
providers. In this regard, the Department has published interpretive 
guidance concerning the disclosure and other obligations of plan 
fiduciaries and service providers under sections 404, 406(b) and 408(b) 
of ERISA.\21\
---------------------------------------------------------------------------

    \21\ See, e.g. Field Assistance Bulletin 2002-3 (Nov. 5, 2002) 
and Advisory Opinions 97-16A (May 22, 1997) and 97-15A (May 22, 
1997).
---------------------------------------------------------------------------

    To the extent that plan fiduciaries are unable to obtain this 
information, or unable to use it to choose among service providers in a 
manner that upholds their fiduciary duty, a failure exists in the 
market for services for employee benefit plans. This market failure 
results from information asymmetry between the providers of plan 
services who possess information about their fee structures and 
potential conflicts of interest and plan fiduciaries that lack this 
information but need it to act in the best interest of their plans. The 
Department believes that both responsible plan fiduciaries and service 
providers will benefit from this proposed regulation, which will 
promote the efficiency of plan fiduciaries finding and using the 
information they need to search for service providers. This action 
furthers important public policy goals of increased transparency and 
increased competition in the service provider market.

(4) Regulatory Alternatives

    Executive Order 12866 directs Federal Agencies promulgating 
regulations to evaluate regulatory alternatives. The Department 
considered the following alternatives: Remaining with the status quo, a 
general regulatory framework, broad applicability, and a specific 
framework with limited application. These alternatives are described 
further below:
     Remain with status quo
    The Department weighed the option of remaining with the status quo 
and relying on the current regulatory framework. ERISA's existing 
fiduciary duties imposed by sections 404 and 408(b)(2) already require 
plan fiduciaries to ensure that fees paid to service providers are 
reasonable. As part of this duty, fiduciaries must obtain information 
about fees and conflicts of interest. Absent a regulation, the status 
quo framework relies upon these more general fiduciary requirements to 
ensure that plans pay reasonable service fees.
    The status quo alternative was rejected. Although the Department 
has issued technical guidance concerning plan fiduciaries' obligations 
to assess all compensation received by service providers, issues remain 
concerning the adequacy of current disclosures made to plans. The 
Department believes that plan fiduciaries would benefit from a clear 
and uniform regulatory standard for disclosure. Additionally, under the 
``status quo'' alternative, it is unclear whether non-fiduciary service 
providers are obligated by law to provide the information the 
Department believes fiduciaries need in order to evaluate whether a 
provider's fees are reasonable.
     General regulatory framework
    Second, the Department considered establishing a general regulatory 
framework requiring service providers to furnish, and plan fiduciaries 
to obtain, information on fee structures and conflicts of interest. 
This alternative would not have specified in detail the exact 
information that must be exchanged, but would have left this up to the 
parties to the contract or arrangement. The Department rejected this 
alternative because it believes both responsible plan fiduciaries and 
service providers would benefit from additional guidance concerning the 
information that must be exchanged. The Department felt that, although 
this alternative would create an obligation on the part of the parties 
to exchange information that relates to the reasonableness of fees, 
parties may be left with ongoing ambiguity about exactly what 
information is necessary to fully evaluate a service provider contract 
or arrangement. The Department therefore believes that this alternative 
would fail to generate significant benefits in the form of greater 
efficiency with higher costs than the status quo.
     Broad applicability
    Third, the Department considered applying the proposed regulation 
broadly to all service arrangements that rely on the section 408(b)(2) 
service provider exemption for relief from ERISA's prohibited 
transaction rules. Upon further consideration, this alternative was 
rejected because the Department believed that the proposal's written 
disclosure requirements should be targeted to a more specifically 
defined group of service providers. The Department believes that 
certain service arrangements generally do not involve complex 
compensation arrangements or conflicts of interest, and therefore need 
not be separately regulated in order to ensure that compensation 
information is disclosed. Benefits from this alternative and the 
proposed rule would be similar and benefits would be accruing primarily 
to those plans with complex service provider arrangements. This 
alternative would be more costly than the proposed framework as more 
service providers would be affected.
     Specific framework with limited application
    Lastly, the Department considered, and ultimately has adopted as 
its

[[Page 70996]]

proposal, a rule requiring that, in order to be reasonable, a contract 
or arrangement for services must mandate that certain sets of service 
providers disclose specified information about their compensation and 
conflicts of interest. The proposal covers typical plan service 
providers that are most likely to have complex compensation 
arrangements or conflicts of interest. They include: fiduciary service 
providers; providers furnishing banking, consulting, custodial, 
insurance, investment advisory or management, recordkeeping, securities 
or other investment brokerage, or third party administration services; 
or providers who receive indirect compensation for accounting, 
actuarial, appraisal, auditing, legal or valuation services. The 
Department believes this framework will yiel