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401(k) fee 101: How to Evaluate Plans and Identify Value (Webinar Slides)

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The new Department of Labor fee disclosure rules for retirement plans go into effect July 2012. These rules were designed to make it easier for plan sponsors and participants to compare plan costs and …

The new Department of Labor fee disclosure rules for retirement plans go into effect July 2012. These rules were designed to make it easier for plan sponsors and participants to compare plan costs and fees, as well as to help determine whether these fees represent good value for the services being provided to your credit union. Did you know you have legal obligation to review your current plan fees? Watch this free webinar to learn how and where to start, the different types of service arrangements for retirement plans and the explanations of plan fees and expenses. For more information: www.nafcu.org/pentegra

Published in: Economy & Finance, Business

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  • 1. 401(k) FEEis your advantageOur difference 101Evaluating Plan Fees AndEstimating ValuePresented By: Sonya V. Robinson, MPM® May 23, 2012 OUR DIFFERENCE IS YOUR ADVANTAGE
  • 2. ABOUT PENTEGRAPentegra Retirement Services delivers a full complement of tailoredretirement plan services to credit unions nationwide.Pentegra has a strong heritage working with the financialcommunity. Pentegra was founded by the Federal Home LoanBank System in 1943 to offer a retirement program for theiremployees. And while we have never lost our focus, we havegrown along with many of our clients to serve more than 700financial institutions nationwide. OUR DIFFERENCE IS YOUR ADVANTAGE
  • 3. AGENDA Historical Background Methods & Types of Compensation Paradigm Shifts Disclosure Timing Your Next Steps Question and Answers OUR DIFFERENCE IS YOUR ADVANTAGE
  • 4. HISTORICAL BACKGROUND ERISA has established the rules that apply to Plan fiduciaries. Since its passage in 1974, Section 408 has always provided a requirement that a plan pay only “reasonable” fees required for administration. If “unreasonable”…a prohibited transaction occurs and creates a breach of fiduciary duty. OUR DIFFERENCE IS YOUR ADVANTAGE
  • 5. HISTORICAL BACKGROUND Over time, the methods by which to compensate vendors for plan administration services have become many, flexible and …overly complex. This has created a double-edged sword: – it’s been easy to compensate providers for services rendered – it makes it difficult for plan fiduciaries to isolate the true cost of retirement plan administration Transparency is the fundamental issue. – For Plan Sponsors – For Participants OUR DIFFERENCE IS YOUR ADVANTAGE
  • 6. SERVICE PROVIDER FEE DISCLOSURE  Section 408(b)(2) of ERISA is intended to provide transparency of all costs and fees related to the administration of retirement plans  Any Covered Service Provider “CSP” who obtains compensation (direct or indirect) in excess of $1,000, is required to provide a disclosure notice  Failure to comply, results in a “Prohibited Transaction” and subjects the Provider to a 15% excise tax OUR DIFFERENCE IS YOUR ADVANTAGE
  • 7. WHO MUST PROVIDE FEE DISCLOSUREINFORMATION? Trustee Accountant Custodian Your Retirement Third Party Plan Record Administrator keeper ERISA Investment Advisor Named Fiduciary OUR DIFFERENCE IS YOUR ADVANTAGE
  • 8. YOU SHOULD EXPECT TO SEE…..  Clearly defined roles & responsibilities  Who ‘is’ & ‘is not’ a fiduciary  Compensation/Fee Schedules – Prospective Estimates – Bundled/Unbundled Arrangements OUR DIFFERENCE IS YOUR ADVANTAGE
  • 9. POLLING QUESTION #1  What types of fees are you paying today for your retirement plan? – Direct Compensation – Indirect Compensation – Paid to/among related parties – Termination of Services – All of the above OUR DIFFERENCE IS YOUR ADVANTAGE
  • 10. TYPES OF COMPENSATION Trustee •Account •Revenue Maintenance Sharing Fees Arrangements Accountant Custodian Direct Indirect Your Retirement Paid Third Party Plan Record Among Service Related Termination Administrator keeper Parties •Transaction •Cost to Based or transfer •Against the records & Plan’s assets investments ERISA Investment Advisor Named Fiduciary OUR DIFFERENCE IS YOUR ADVANTAGE
  • 11. METHODS OF PAYMENT Invoice Direct Debit Blended Arrangements Net Asset Value Revenue Sharing OUR DIFFERENCE IS YOUR ADVANTAGE
  • 12. POLLING QUESTION #2  Do you know that you are required by law to evaluate fees for services received? – Absolutely – To some extent – To a minor extent – Absolutely not OUR DIFFERENCE IS YOUR ADVANTAGE
  • 13. PARADIGM SHIFT  Not taking action; is not an option  Choose your approach: – Review & Document – Bid & Select  Proactively evaluate the goods and services you receive for the fees you pay  Develop a comprehensive process to demonstrate that you’ve evaluated the costs for your plan and deemed those costs to be “reasonable” OUR DIFFERENCE IS YOUR ADVANTAGE
  • 14. CONSIDERATIONS Assess fee reasonableness (in relation to plan size and services offered) Define success (Low cost? Increased participation? Retirement readiness? Ease of administration?) Review services offered and/or provided Understand the responsibilities to your participants OUR DIFFERENCE IS YOUR ADVANTAGE
  • 15. UTILIZE YOUR RESOURCES  Request assistance understand the breadth & depth of information provided in your disclosure  Utilize your Relationship Manager, Consultant and/or Advisor to assist you in performing your fiduciary duties.  Talk to your provider(s) about enhanced services, plan options, etc.  Discuss reasonable costs in tandem with value added services OUR DIFFERENCE IS YOUR ADVANTAGE
  • 16. BEST PRACTICES  Document a formal process to regularly evaluate the plan: – Services, costs and level of “success”. – Failure to embark on a formal and diligent process, may result in litigation from plan participants.  Collaborate with your providers to create a program that works for your employees. – Sharpen your Pencil…if you’re happy with your provider…but not the fees? Have meaningful discussions  Request new/updated Service Agreements  Communicate, Communicate, Communicate OUR DIFFERENCE IS YOUR ADVANTAGE
  • 17. TIMING OF DISCLOSURES  July 1, 2012  In advance of entering into new Trustee or renewed contracts Accountant Custodian  Errors or Omissions within 30 days of notification  Changes to goods or services Your provided, no later than 60 days Retirement after the provider is “aware” of Third Party Plan Record the change Administrator keeper  Within 90 days after requesting required information ERISA – If not received, you must Investment Named Advisor Fiduciary notify DOL & terminate contract OUR DIFFERENCE IS YOUR ADVANTAGE
  • 18. WHAT TO DO NEXT?  Assign Responsibility – Prepare list of covered service providers for your Retirement plan – Document review process (frequency, methodology, etc.) – Develop management communication & reporting plan – Promote awareness OUR DIFFERENCE IS YOUR ADVANTAGE
  • 19. CONTACT INFORMATION Sonya V. Robinson, MPM ® Phone: 914-821-9439 Email: srobinson@pentegra.com www.nafcu.org/pentegra OUR DIFFERENCE IS YOUR ADVANTAGE