For mid-sized employers, complying with 408(b)(2) disclosure requirements is more than a regulatory checkbox, it’s vital for protecting your organization from compliance risks and potential penalties. The Department of Labor (DOL) actively enforces ERISA’s fee disclosure rules for all employer sizes, and although precise audit rates by employer segment are not published, oversight is ongoing (oig.dol.gov). At Basic Capital, we work closely with mid-sized employers to help them avoid compliance pitfalls and build participant trust through clear fee disclosures.

Vigilant compliance with 408(b)(2) is essential for every employer overseeing a retirement plan.

Understanding these disclosures and your role as a fiduciary is the first step in protecting your plan’s integrity and your organization’s reputation.

Purpose and Scope of 408(b)(2) Disclosures

Think of 408(b)(2) disclosures as the foundation for transparent, fair retirement plan administration. DOL regulations require all covered service providers to disclose both direct and indirect compensation, making sure fiduciaries are fully informed about the costs and potential conflicts associated with their plans. These disclosures also protect employers against prohibited transactions under ERISA Section 406(a).

408(b)(2) disclosures apply to any “covered plan” under ERISA, including most 401(k) plans, and require that service providers share information on all fees, direct and indirect, as well as their fiduciary status and the scope of their services. This gives employers a complete view of what they’re paying for and why, supporting both compliance and strong plan governance.

For a deeper dive into fee disclosure best practices, see our practical guide to 401(k) fee disclosures for employers.

Who’s Responsible for What: Fiduciaries, Service Providers, and Key Roles

Under ERISA, both employers and service providers have clear, documented responsibilities. The “responsible plan fiduciary” is defined by the DOL as the person or group with the authority to cause the plan to enter into, extend, or renew a contract or arrangement (law.cornell.edu). This typically includes HR/benefits leaders and finance executives at mid-sized organizations.

The responsible plan fiduciary must also have the ability to terminate the contract or arrangement with service providers on reasonably short notice and without penalty, as required by DOL regulation.

Here’s what each key role is expected to do:

• Employers (Fiduciaries): Must review all 408(b)(2) disclosures, evaluate fee reasonableness, and document due diligence.

• Covered Service Providers: Are required to disclose all services, compensation (direct and indirect), and their fiduciary status up front and upon changes. Examples include recordkeepers, investment advisors, and third-party administrators.

Both sides must maintain transparent records and actively monitor for compliance.

For a closer look at the evaluation process for plan providers, see How Mid-Market Employers Evaluate 401(k) Plan Providers.

What Must Be Disclosed: Services, Fees, and Compensation

It’s a question nearly every employer faces: What exactly needs to be included in a 408(b)(2) disclosure?

The real answer is that plan sponsors must receive a detailed account of all services provided, clearly delineated fees, and disclosures of both direct and indirect compensation. This includes not only fees paid directly from the plan but also any compensation received from third parties (like revenue sharing arrangements).

Audits have revealed that incomplete reporting of indirect compensation is a common compliance gap (natlawreview.com). A common red flag is missing detail on revenue sharing or affiliated service provider fees, which the DOL considers a material omission.

Disclosures should also specify whether the service provider is acting as a fiduciary.

Confirming that every type of fee and payment is disclosed allows employers to assess reasonableness and identify potential conflicts of interest.

To better understand the true costs associated with your plan, see 401(k) Provider Pricing: True Costs for Employers vs Employees.

How to Review and Respond to 408(b)(2) Disclosures

Here’s how to make your process audit-ready:

1. Collect All Disclosures: Gather complete 408(b)(2) statements from every current and potential service provider.

2. Review for Completeness: Verify that disclosures cover all services, direct and indirect compensation, and fiduciary status.

3. Compare Fees: Benchmark disclosed fees against industry standards to confirm reasonableness.

4. Document Your Review: Keep records of every step and any questions or clarifications sought. Keeping a due diligence file and checklist helps establish a clear audit trail.

5. Set a Review Cadence: Reassess disclosures annually and whenever there are significant changes in services or fees. Significant changes in services or fees should trigger an updated disclosure request and review by the committee.

Employers are increasingly adopting technology to manage and track documentation for 408(b)(2) compliance, a move that can streamline oversight and reduce administrative headaches.

For more compliance tools and resources, explore our 401(k) resources.

Common Pitfalls and Compliance Risks

Too often, employers assume disclosures are complete, only to discover gaps after a DOL review. The most frequent mistakes include failing to review indirect compensation, neglecting to update records, and not questioning ambiguous service descriptions.

408(b)(2) disclosure enforcement is a DOL priority: in recent years, the DOL has taken action against plans with incomplete or missing fee disclosures, resulting in penalties and required corrections (natlawreview.com). Courts have recently scrutinized the diligence of plan fiduciaries in assessing fee reasonableness and documentation, making proactive review essential.

Litigation trends show that failure to document fee review processes can increase employer liability.

Staying ahead of these risks means making disclosure review and documentation a regular process, not a one-time event.

To learn more about balancing participant and employer fees, see Participant Fees vs Employer Fees: Getting the Balance Right.

Real-World Lessons: Case Studies and Best Practices

A proactive approach to 408(b)(2) compliance yields far better results than a reactive one. For example, Benjamin F. Edwards & Co. made their 408(b)(2) process a routine part of client communications, leading to clearer fee structures and enhanced trust (benjaminfedwards.com). By contrast, firms that failed to clarify disclosure content faced increased scrutiny and, in some cases, regulatory demands for amendments.

Courts have required amendments to plan disclosures where information was found to be incomplete or ambiguous, echoing the SEC’s review of executive compensation disclosures as a parallel governance practice.

The lesson is clear: employers who regularly engage with service providers and update documentation are less likely to face compliance surprises.

For more on leveraging the evaluation process, visit How Mid-Market Employers Evaluate 401(k) Plan Providers.

After You Review: Documentation, Calendar, and Committee Governance

Get started (for employers) by building a schedule for regular disclosure review. Maintain organized records and assign a committee or designated owner to oversee compliance and prompt action on any new disclosures.

Employers may delegate review tasks to a committee but should maintain clear lines of accountability and periodic board reporting to avoid governance gaps.

Routine governance is the simplest way to keep your plan compliant and your fiduciary obligations clear.

Developing a review calendar and committee process makes compliance an expected part of your benefits administration, not a last-minute scramble.

Additional Resources and Compliance Support

When it comes to ongoing compliance, leveraging both internal and external expertise is essential. As Elisse B. Walter, former SEC Commissioner, noted: “Enhanced investor access will help ensure that investors and others will be able to evaluate information they are receiving... As Louis Brandeis said in 1914, 'Sunshine is the best disinfectant'" (sec.gov).

Employers are increasingly adopting specialized compliance software to automate document collection, monitor deadlines, and facilitate ongoing oversight.

For a detailed fee disclosure guide and tools for continuous improvement, see our practical guide to 401(k) fee disclosures for employers.

References

Cornell Law School. (n.d.). 29 CFR § 2550.408b-2 - General statutory exemption for services or office space. https://www.law.cornell.edu/cfr/text/29/2550.408b-2

National Law Review. (n.d.). Final DOL 408(b)(2) Disclosure Regulation. https://natlawreview.com/article/final-dol-408b2-disclosure-regulation

Office of Inspector General, DOL. (n.d.). Audit Reports & Results. https://oig.dol.gov/audit-reports-results.htm

Benjamin F. Edwards & Co. (n.d.). 408(b)(2) Fee Disclosure. https://www.benjaminfedwards.com/408b2/

U.S. Securities and Exchange Commission. (2010). Remarks by Elisse B. Walter. https://www.sec.gov/news/speech/2010/spch111010ebw.htm