CUT THROUGH THE CONFUSION OFPARTICIPANT FEEDISCLOSUREGAIN CONTROL             berrydunn.com
FEE DISCLOSUREWhy now?•   When things go bad, complaints arise     − Lost decade re: equity returns     − Numerous lawsuit...
FEE DISCLOSUREWhy now? – The DOL decided it was time for action•   No need for Congress as foundational rules were existen...
PROVIDER FEE DISCLOSUREERISA requires Provider disclosure•   ERISA provides that a Service Provider contract with a    ret...
PROVIDER FEE DISCLOSUREERISA requires disclosure•   Are your Provider service contracts reasonable?•   Do you know what al...
PROVIDER FEE DISCLOSUREDOL issues interim final regulation on 7/16/2010requiring Provider Fee disclosure•   Now effective ...
PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation•   Covered plans     − ERISA covered retirement plans       e.g....
PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation•   Covered service providers =    Generally, those providing ser...
PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation•   Covered service providers•   This can get confusing – make yo...
PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation•   Responsible Plan fiduciary =    The person or committee with ...
PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation•   What must Service Provider disclose?     − A description of a...
PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation•   What happens if a failure occurs?     − 15% excise tax for Se...
PARTICIPANT FEEDISCLOSUREERISA also requires Participant fee disclosure•   If Participants are allowed to invest, then dis...
PARTICIPANT FEEDISCLOSUREDOL issues final regulation on 10/14/2010 requiringParticipant Fee disclosure•   Current effectiv...
PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation•   New rule applies only to ERISA covered, defined co...
PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation•   So what is required and by whom?     − Plan admini...
PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation•   Plan administrator = generally, the Employer or a ...
PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation•   Written annual disclosure     − General Plan infor...
PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation•   Written annual disclosure     − General Plan infor...
PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation•   Written annual disclosure     − Fee information   ...
PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation•   Written annual disclosure     − Investment informa...
PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation•   Written annual disclosure – comparative investment...
PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation•   Written annual disclosure – Electronic delivery   ...
PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation•   Written quarterly disclosure     − Must report fee...
PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation•   The ramifications of non-compliance     − Employer...
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How to Cut Through the Confusion of Participant Fee Disclosure

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How to Cut Through the Confusion of Participant Fee Disclosure

  1. 1. CUT THROUGH THE CONFUSION OFPARTICIPANT FEEDISCLOSUREGAIN CONTROL berrydunn.com
  2. 2. FEE DISCLOSUREWhy now?• When things go bad, complaints arise − Lost decade re: equity returns − Numerous lawsuits against retirement plans − Increased scrutiny of all feesGAIN CONTROL
  3. 3. FEE DISCLOSUREWhy now? – The DOL decided it was time for action• No need for Congress as foundational rules were existent ERISA requires disclosure (it always has!)GAIN CONTROL
  4. 4. PROVIDER FEE DISCLOSUREERISA requires Provider disclosure• ERISA provides that a Service Provider contract with a retirement plan is a prohibited transaction unless the contract is reasonable [Sec. 408(b)(2)]• How can any employer determine reasonableness absent fee disclosure? IT’S ALL ABOUT REASONABLE SERVICE CONTRACTSGAIN CONTROL
  5. 5. PROVIDER FEE DISCLOSUREERISA requires disclosure• Are your Provider service contracts reasonable?• Do you know what all of the potential fees are?• Once you know the fees, must you compare?GAIN CONTROL
  6. 6. PROVIDER FEE DISCLOSUREDOL issues interim final regulation on 7/16/2010requiring Provider Fee disclosure• Now effective 4/01/2012 • Rule requires a Covered Service Provider rendering services to a Covered Plan to provide disclosure to a responsible Plan fiduciary before a contract is signed.• Applies to existing contracts as of 4/01/2012GAIN CONTROL
  7. 7. PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation• Covered plans − ERISA covered retirement plans e.g., 401(k), 403(b), defined benefit, etc.• Plans not covered − Welfare plans − IRA based plans − Non-ERISA plans − Deferred compensation ‘top hat’ plansGAIN CONTROL
  8. 8. PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation• Covered service providers = Generally, those providing services to Plan in excess of $1,000 over life of contract. − Recordkeeper (e.g., Fidelity) Yes No − Investment fiduciary Yes No − TPA Yes No − Plan Auditor Yes No − Attorney Yes NoGAIN CONTROL
  9. 9. PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation• Covered service providers• This can get confusing – make your Providers do the work.• IF AN ENTITY PROVIDES SERVICES TO YOUR PLAN – REQUIRE A FEE DISCLOSURE or A WRITTEN SIGNED STATEMENT SAYING IT IS NOT A COVERED SERVICE PROVIDER UNDER THE RULESGAIN CONTROL
  10. 10. PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation• Responsible Plan fiduciary = The person or committee with the authority to enter into a contract for services on behalf of the PlanGAIN CONTROL
  11. 11. PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation• What must Service Provider disclose? − A description of all expected services and fees − All direct and indirect compensation − Compensation paid among related parties − Compensation for termination of arrangement − Manner of receipt of services• Must the fees be summarized?GAIN CONTROL
  12. 12. PROVIDER FEE DISCLOSUREDOL Provider disclosure regulation• What happens if a failure occurs? − 15% excise tax for Service Provider May have to refund fees to Plan − Possible fiduciary breach by employer Potential for Participant suitGAIN CONTROL
  13. 13. PARTICIPANT FEEDISCLOSUREERISA also requires Participant fee disclosure• If Participants are allowed to invest, then disclosure is required − Voluntary in the past Section 404(c) regulations − Mandatory now Section 404(a) regulationsGAIN CONTROL
  14. 14. PARTICIPANT FEEDISCLOSUREDOL issues final regulation on 10/14/2010 requiringParticipant Fee disclosure• Current effective date for initial disclosure – − Calendar year plans: 5/31/2012 − Fiscal year plans: Later of 5/31/2012 or fiscal PY beginning after 5/31GAIN CONTROL
  15. 15. PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation• New rule applies only to ERISA covered, defined contribution, Participant directed retirement plans − 401(k), 403(b) Yes − 457(b) non-governmental No − IRA based plans NoGAIN CONTROL
  16. 16. PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation• So what is required and by whom? − Plan administrator must provide plan, fee & investment information on an annual and quarterly basis. − Annual disclosure - is comprehensive − Quarterly disclosure - is focused on feesGAIN CONTROL
  17. 17. PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation• Plan administrator = generally, the Employer or a Committee − A TPA is NOT a “plan administrator” − The Plan document will identify the Plan administratorGAIN CONTROL
  18. 18. PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation• Written annual disclosure − General Plan information − Fee information − Investment information (with chart)GAIN CONTROL
  19. 19. PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation• Written annual disclosure − General Plan information − Structure & mechanics of Plan’s investment provisions − List of designated investment alternatives − Description of any brokerage windowGAIN CONTROL
  20. 20. PARTICIPANT FEEDISCLOSUREDOL final Participant disclosure regulation• Written annual disclosure − Fee information − All administrative expenses (TPA, legal, etc.) − Expenses that may be deducted from Participant accounts (loan fees, etc.)GAIN CONTROL
  21. 21. PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation• Written annual disclosure − Investment information (for each investment alternative) − Performance data (1, 5 & 10 year) − Benchmark information − Fee & expense information − Website address − Glossary ALSO, A COMPARATIVE CHART IS REQUIREDGAIN CONTROL
  22. 22. PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation• Written annual disclosure – comparative investment chart − Multiple investment providers (think 403b plan) cannot send out separate, comparative charts. − Someone needs to create a single, comparative chart packageGAIN CONTROL
  23. 23. PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation• Written annual disclosure – Electronic delivery − Plan can deliver Plan and Expense information with the Participant benefit statement. − Allows use of IRS E-delivery rules or 24/7 web delivery. − Plan can deliver comparative chart with Participant Statement but only under more cumbersome DOL rules − Participants required to ‘opt in’GAIN CONTROL
  24. 24. PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation• Written quarterly disclosure − Must report fees charged to or deducted from Participant account Re: administrative and individual expenses − Expected to be included with quarterly Participant statementsGAIN CONTROL
  25. 25. PARTICIPANT FEEDISCLOSUREDOL final participant disclosure regulation• The ramifications of non-compliance − Employer/Fiduciaries will lose Section 404(c) protection − Employer/Fiduciaries may be liable for a fiduciary breachGAIN CONTROL

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