4135 / What is a reasonable service provider agreement?

The stated purpose of the regulations is to address the reasonableness of a service provider’s arrangement with a plan. The regulations state “no contract or arrangement for services between a ‘covered’ plan and a ‘covered service provider’ is reasonable within the meaning of ERISA Section 408(b)(2) unless the requirements of the regulation are satisfied.” A reasonable arrangement, for purposes of these regulations, is one where a covered service provider provides certain required disclosures to a plan fiduciary. If the disclosures are not provided, the arrangement is not reasonable and will constitute a prohibited transaction unless properly corrected.¹ The actual details of the fees paid for the services provided must also be considered when determining whether a service provider agreement is reasonable.

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1. Labor Reg. § 2550.408b(c)(1)(i).

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