EBSA Delivers Schedule C FAQs

The Department of Labor (DoL) Employee Benefits Security Administration (EBSA) offered advice on the 2009 Form 5500 Schedule C. The answers clear up some quandaries advisers and sponsors might have about the definition of indirect compensation for Schedule C purposes, particularly in bundled arrangements. The FAQs also cover such issues as the alternative reporting option for eligible indirect compensation, electronic disclosure of fee information by service providers, fee reporting for brokerage window options in participant directed plans, and reporting on gifts, entertainment and other non-monetary compensation.

Among its 40 questions and answers, the DoL specifies that the compliance fees received by a plan recordkeeper from mutual fund agents (such as advisers) are reportable indirect compensation. However, amounts received by a plan recordkeeper from fund agents would not constitute eligible indirect compensation. If it were to count as eligible indirect compensation, “it would substantially undermine the bundled fee reporting option,’ the DoL said.

In alliance arrangements between broker/dealers and recordkeepers in which the broker/dealer compensates the recordkeeper, that also does not count as an eligible indirect compensation, unless it is charged to the investment fund.

The DoL said that commissions paid to an agent in connection with the sale of an investment, product, or service to a plan is reportable indirect compensation. Overall, the FAQs outlined reportable indirect compensation as including: investment management fees; fees related to purchases and sales of interests in the fund; brokerage commissions; fees charged in connection with purchase and sales of interests in the fund; fees for providing services to investors or participants, such as communication; and administration fees, such as recordkeeping.

Also, the department is not requiring plan administrators to report service providers on the Schedule C as failing to provide fee and compensation information if the service provider furnishes the plan administrator with a written statement that the service provider made a good faith effort to make any necessary recordkeeping and information system changes in a timely fashion, and despite such efforts, was unable to complete the changes for the 2009 plan year.

The full FAQ document is available here.

More information about changes to the 5500 can be found in Hidden in Plain Sight? and Second Cite.