February 10, 1997
TO: PENSION COMMITTEE No. 5-97
AD HOC COMMITTEE ON BUNDLED SERVICES
RE: REQUEST FOR COMMENT: DRAFT ICI SUBMISSION TO DOL
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As you were previously informed, on October 17, 1996, the Institute and American Bankers
Association jointly filed an advisory opinion request with the Department of Labor regarding the
application of ERISA prohibited transaction rules to bundled services products. Attached is a
DRAFT supplemental submission, which responds to Department of Labor (DOL) inquiries
regarding that filing. In particular, the DOL has sought (1) clarification of the frequency and nature
of fee disclosure and (2) specific examples of the notice and opportunity which a plan fiduciary
would have to make plan-level decisions regarding the modification of a bundled services
product’s investment menu.
With regard to fee disclosure, the DOL has asked ICI and ABA to include a statement that a
nondiscretionary trustee discloses on a quarterly basis the precise dollar amount that the trustee
earns from mutual funds with respect to a plan’s investment in each fund. In the draft submission
we state that the Department should not impose a single, precise disclosure standard. Such a
standard is impractical, and prospectus disclosure is sufficient to provide a plan fiduciary with the
necessary information to make a prudent decision regarding the appropriateness of a particular
bundled services product.
We invite you to provide comments on the draft. In particular, we seek confirmation of two
points made in the draft submission. First, the draft states that prospectus disclosure is currently
the standard practice in the bundled services market. If other types of disclosures are regularly
being made, please let us know.
Second, the draft indicates that plan-by-plan, dollar amount disclosure is burdensome and
difficult to provide. It is our understanding that nondiscretionary trustees offering a bundled
services product often hold plan assets in aggregated "omnibus" accounts with mutual funds. The
funds, in turn, calculate service fees based on assets in those omnibus accounts, not on a plan-by-
plan basis. Furthermore, it is our understanding that many nondiscretionary trustees do not have
the current technological ability to make such fee computations on a plan-by-plan basis. Please
inform us whether this characterization is accurate.
Any comments should be made by telephone or facsimile to Russ Galer, (202) 326-5835,
or Cathy Heron, (202) 326-5830. Our fax number is (202) 326-5839/5841. Please comment by close
of business, Thursday, February 13.
We will keep you informed of developments.
Russell G. Galer
Assistant Counsel - Pension