Under ERISA, plan fiduciaries must act prudently in selecting service providers and must ensure that only reasonable compensation is paid for services provided to plans. To perform this function, the fiduciary must have sufficient information regarding fees and compensation that the service provider receives and must ascertain whether there are interests on the part of the service provider that may call into question the objectivity of the service provider in providing its services to the plan. EBSA has proposed amending the existing regulation to clarify what constitutes a reasonable contract or arrangement and to require more comprehensive written disclosure concerning plan contracts with service providers.For more information, see the Department of Labor’s fact sheet titled Proposed Regulation Relating To Service Provider Disclosures Under ERISA Section 408(b)(2) at: http://www.dol.gov/ebsa/pdf/fs408b2.pdf.

On November 20, 2007, the Employee Benefits Security Administration (EBSA) announced a proposal to expand the type of consideration that can be accepted by an employee benefit plan in settlement of litigation. Although the Employee Retirement Income Security Act (ERISA) prohibits certain transactions, EBSA passed a regulation in 2003 generally exempting a plan’s receipt of consideration from a related party in settlement of litigation. Under the present regulation, the consideration has to be in the form of cash. The proposed amendment would permit the receipt of non-cash consideration, including the promise of future employer contributions, but only where the consideration can be objectively valued. The proposal also would permit plans to acquire, hold or sell non-qualifying employer securities such as warrants and stock rights where such securities are received in settlement of litigation, including bankruptcy proceedings.

The complete text of the proposal is available at http://www.dol.gov/ebsa/regs/fedreg/notices/20071121.htm.

According to the DOL, only two-thirds of eligible employees participate in their employer’s 401(k) plans. Studies suggest that this number could increase to over 90 percent if more employers implemented automatic enrollment plans - plans where the eligible employees “opt-out” rather than “opt-in.” Many employers are hesitant to offer such plans because they fear legal liability due to market fluctuations and the applicability of state wage withholding laws. Even when employers offer automatic enrollment, they often set up low-risk, low-return “default” investments.To remove these obstacles, Congress passed the Pension Protection Act (PPA) in 2006, which directed the Department of Labor to issue regulations making it easier for employers to automatically enroll their employees in contribution plans. On October 23, 2007, Secretary of Labor Elaine Chao announced a final rule providing relief to plan fiduciaries who invest the assets of these automatically enrolled employees in qualified default investment alternatives (QDIA). The new rule (1) provides conditions that must be satisfied for an employer to obtain safe harbor relief from fiduciary liability for investment outcomes; (2) identifies four types of QDIAs; (3) provides a “grandfather” clause for investment plans in existence before the passage of the PPA and this rule; and (4) states that ERISA supersedes any state law that would prohibit or restrict automatic contribution arrangements, regardless of whether such automatic contribution arrangements qualify for the safe harbor.

For more information, see the Department of Labor’s Fact Sheet titled Regulation Relating To Qualified Default Investment Alternatives In Participant-Directed Individual Account Plans at: http://www.dol.gov/ebsa/newsroom/fsQDIA.html.