[15361]
November 18, 2002
TO: PENSION COMMITTEE No. 46-02
PENSION OPERATIONS ADVISORY COMMITTEE No. 75-02
RE: DOL RELEASES FIELD ASSISTANCE BULLETIN 2002-3 ON FLOAT ISSUES
The Department of Labor (“DOL”) has released Field Assistance Bulletin 2002-3
(attached), which provides guidance to plan fiduciaries regarding their duty to prudently select
and monitor service providers’ earnings on short-term investment of plan assets, commonly
called “float.” The Bulletin also describes the obligations of service providers to disclose
sufficient amounts of information to their employee benefit plan customers to enable plan
fiduciaries to make an informed decision about compensation agreements. The Bulletin notes
that DOL field offices have found little or no disclosure of specific information regarding
compensation earned in the form of float.
Duties of Plan Fiduciaries
The Bulletin states that a plan fiduciary must engage in an objective process designed to
elicit information necessary to assess the qualifications of the provider, the quality of services
offered, and the reasonableness of the fees charged in light of the services provided. A
responsible fiduciary should do the following:
review comparable providers and service arrangements (e.g., quality and costs)
in order to determine whether such providers may credit float to the provider’s
own account, rather than the plan;
review the circumstances under which the service provider may earn float;
ensure that their service agreements include time limits within which the
provider will implement investment instructions following receipt of cash from
the plan;
ensure that their service agreements specify the time at which assets are
transferred from the plan to the general account (e.g., the date the check is
requested, the date the check is written, or the date the check is mailed);
2
obtain from the service provider, if relevant, an indication as to when checks are
mailed following a direction to distribute funds;1
review periodic statements or reports of distribution checks to determine the
extent to which checks tend to remain outstanding for unusually long periods of
time (e.g., 90 or more days);
review sufficient information to enable the plan fiduciary to evaluate the float
as part of the total compensation to be paid for the services to be rendered under
the agreement, including the rates the provider generally expects to earn, e.g.,
money market rates2; and
periodically monitor compliance by the service provider with the terms of the
agreement and the reasonableness of compensation under the agreement to
ensure that it continues to comply with ERISA’s fiduciary requirements.
Duties of Service Providers
The Bulletin states that a service provider must disclose to its employee benefit plan
customers sufficient information concerning the administration of its accounts holding float so
that the customer can reasonably approve the arrangement based on an understanding of the
service provider's compensation. It is not sufficient, according to the Bulletin, for the service
provider to merely disclose in its service agreement that additional compensation may be paid
to the service provider as a result of float. Instead, the service provider should:
disclose the specific circumstances under which float will be earned and
retained by the service provider;
establish, disclose and adhere to specific time frames within which cash pending
investment direction will be invested following direction from the plan
fiduciary, as well as any exceptions that might apply;
disclose when the float period commences on distributions (e.g., the date check
is requested, the date the check is written, the date the check is mailed) and ends
(the date on which the check is presented for payment);
disclose, and adhere to, time frames for mailing and any other administrative
practices that might affect the duration of the float period; and
1 The DOL Bulletin acknowledges that float will be earned on disbursements until checks are presented for payment
by the payee, the timing of which is beyond the control of the plan and service provider.
2 The DOL Bulletin acknowledges that any projections by the fiduciary will result in only a rough approximation of
the potential float because of uncertainties with respect to both actual interest rates and the length of the periods
during which any given funds may be pending investment or pending disbursement.
3
disclose the rate of the float or the specific manner in which such rate will be
determined, e.g., a statement that earnings on cash pending investment and
earnings on uncashed checks are generally at a money market interest rate.
Lisa Robinson
Assistant Counsel
Attachment (in .pdf format)