Retirement Plan Fee Disclosures - Prepare Now for Upcoming Changes!


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An overview of the retirement plan fee-disclosure regulations that will become effective Jan. 1, 2012, for most 401(k) and ERISA 403(b) plans.

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Retirement Plan Fee Disclosures - Prepare Now for Upcoming Changes!

  1. 1. Fee Disclosure Requirements Tricia Cage Vice President, Senior Retirement Plan Consultant Bill Karbon Vice President, Director of Compliance October 13, 2011
  2. 2. What Will We Cover? <ul><li>Overview of Plan Sponsor Fee Disclosures </li></ul><ul><li>Overview of Participant Fee Disclosures </li></ul>
  3. 3. Plan Sponsor Fee Disclosures
  4. 4. Plan Sponsor Fee Disclosures <ul><li>Originally effective July 16, 2011, changed to January 1, 2012, changed again to April 1, 2012 </li></ul><ul><li>Covered Service Providers (CSPs) required to provide Disclosures about certain Compensation received with respect to services provided to Covered Plans </li></ul><ul><li>Failure to meet requirements results in prohibited transaction subjecting service provider to 15% excise tax and possible need to disgorge fees </li></ul>
  5. 5. Plan Sponsor Fee Disclosures <ul><li>Covered Service Provider (CSP): </li></ul><ul><ul><li>One who enters into contract or arrangement with the plan </li></ul></ul><ul><ul><li>Expects to receive more than $1,000 in compensation </li></ul></ul><ul><ul><li>Compensation is received by the CSP, an affiliate, or a subcontractor in connection with the provision of services by the CSP, an affiliate or a subcontractor </li></ul></ul><ul><ul><ul><li>CANNOT avoid rules by having another entity perform the services or get the compensation </li></ul></ul></ul>
  6. 6. Plan Sponsor Fee Disclosures <ul><li>Regulations do NOT apply if: </li></ul><ul><ul><li>CSP service contract is with the plan sponsor, and not the plan </li></ul></ul><ul><ul><li>and </li></ul></ul><ul><ul><li>CSP is paid only by the plan sponsor </li></ul></ul><ul><ul><li>and </li></ul></ul><ul><ul><li>CSP gets no direct or indirect payments from the plan </li></ul></ul>
  7. 7. Plan Sponsor Fee Disclosures <ul><li>Service covered: </li></ul><ul><ul><li>Services provided as a fiduciary or RIA </li></ul></ul><ul><ul><li>Recordkeeping or brokerage services </li></ul></ul><ul><ul><li>Other services </li></ul></ul><ul><ul><ul><li>Accounting </li></ul></ul></ul><ul><ul><ul><li>Auditing </li></ul></ul></ul><ul><ul><ul><li>Actuarial </li></ul></ul></ul><ul><ul><ul><li>Consulting </li></ul></ul></ul><ul><ul><ul><li>Custodial </li></ul></ul></ul><ul><ul><ul><li>Insurance </li></ul></ul></ul><ul><ul><ul><li>Investment Advisory </li></ul></ul></ul><ul><ul><ul><li>Legal </li></ul></ul></ul><ul><ul><ul><li>TPA </li></ul></ul></ul>
  8. 8. Plan Sponsor Fee Disclosures <ul><li>Covered Plan: </li></ul><ul><ul><li>ERISA-covered retirement plans </li></ul></ul><ul><ul><li>Expected to be expanded to apply to health and welfare plans </li></ul></ul><ul><ul><li>Does NOT apply to: </li></ul></ul><ul><ul><ul><li>SEPs </li></ul></ul></ul><ul><ul><ul><li>SIMPLE IRAs </li></ul></ul></ul><ul><ul><ul><li>IRAs </li></ul></ul></ul>
  9. 9. Plan Sponsor Fee Disclosures <ul><li>Reportable Compensation: </li></ul><ul><ul><li>Anything of monetary value </li></ul></ul><ul><ul><ul><li>Only includes nonmonetary compensation if over $250 during term of arrangement </li></ul></ul></ul><ul><ul><li>Compensation received directly from plan </li></ul></ul><ul><ul><li>Indirect compensation </li></ul></ul><ul><ul><ul><li>Received from third party </li></ul></ul></ul><ul><ul><ul><li>Services performed under arrangement between plan and CSP </li></ul></ul></ul><ul><ul><ul><li>Bonus / override payments </li></ul></ul></ul>
  10. 10. Plan Sponsor Fee Disclosures <ul><li>Fiduciary Service Disclosures: </li></ul><ul><ul><li>Description of fiduciary services provided </li></ul></ul><ul><ul><li>If applicable, statement that CSP, affiliate or subcontractor (Provider) will provide services as a fiduciary </li></ul></ul><ul><ul><li>If applicable, statement that the Provider will provide services to the plan as an investment advisor under the 1940 Act or any State law </li></ul></ul>
  11. 11. Plan Sponsor Fee Disclosures <ul><li>Manner of Disclosure: </li></ul><ul><ul><li>Must be written </li></ul></ul><ul><ul><li>May use DOL electronic delivery rules </li></ul></ul><ul><ul><li>Can come from different sources </li></ul></ul>
  12. 12. Plan Sponsor Fee Disclosures <ul><li>Disclosure of Compensation Information: </li></ul><ul><ul><li>Monetary amount </li></ul></ul><ul><ul><li>Formula </li></ul></ul><ul><ul><li>Percentage of plan assets </li></ul></ul><ul><ul><li>Per capita charge per participant </li></ul></ul><ul><ul><li>Any other reasonable method </li></ul></ul>
  13. 13. Plan Sponsor Fee Disclosures <ul><li>Timing of Disclosures: </li></ul><ul><ul><li>“ Reasonably in advance of the date the contract is entered into, extended, or renewed” </li></ul></ul><ul><ul><li>Exception </li></ul></ul><ul><ul><ul><li>If investment vehicle is not known at the time the contract is entered into, must provide information not more than 30 days after provider knows that the vehicle will be used </li></ul></ul></ul>
  14. 14. Plan Sponsor Fee Disclosures <ul><li>Timing of Change to Disclosures: </li></ul><ul><ul><li>“ As soon as practicable, but not later than 60 days from the date on which the CSP knows of the change” </li></ul></ul>
  15. 15. Participant Fee Disclosures
  16. 16. Participant Fee Disclosures <ul><li>According to DOL </li></ul><ul><ul><li>There are estimated to be 483,000 participant-directed individual account plans </li></ul></ul><ul><ul><li>72 million participants </li></ul></ul><ul><ul><li>$3 trillion in assets </li></ul></ul>
  17. 17. Participant Fee Disclosures <ul><li>Effective no later than the later of: </li></ul><ul><ul><li>60 days after the plan’s anniversary date that occurs on or after November 1, 2011 </li></ul></ul><ul><ul><li>or </li></ul></ul><ul><ul><li>60 days after the effective date of the plan sponsor fee disclosure rules (April 1, 2012) </li></ul></ul><ul><li>Applicable to defined contribution plans </li></ul><ul><ul><li>Plan must be subject to ERISA </li></ul></ul><ul><ul><li>Plan where participant has “right to direct the investment of assets held in, or contributed to, his or her individual account” </li></ul></ul>
  18. 18. Participant Fee Disclosures <ul><li>Plan Disclosures </li></ul><ul><ul><li>Annual Disclosures </li></ul></ul><ul><ul><ul><li>Plan information </li></ul></ul></ul><ul><ul><ul><li>Expenses (Administrative and Individual) </li></ul></ul></ul><ul><ul><li>Quarterly Disclosures </li></ul></ul><ul><ul><ul><li>Amount of administrative expenses </li></ul></ul></ul><ul><ul><ul><li>Amount of individual expenses </li></ul></ul></ul>
  19. 19. Participant Fee Disclosures <ul><li>On annual basis, must disclose following plan info: </li></ul><ul><ul><li>Explanation of the circumstances under which participants and beneficiaries may give investment instructions </li></ul></ul><ul><ul><li>Explanation of any specified limitations on such instructions under the terms of the plan, including any restrictions on transfer to or from a designated investment alternative </li></ul></ul><ul><ul><li>Description of or reference to plan provisions relating to exercise of voting, tender and similar rights appurtenant to an investment in a designated investment alternative as well as any restrictions on such rights </li></ul></ul><ul><ul><li>Identification of any designated investment alternatives offered under the plan </li></ul></ul><ul><ul><li>Identification of any designated investment managers </li></ul></ul><ul><ul><li>Description of any brokerage window </li></ul></ul>
  20. 20. Participant Fee Disclosures <ul><li>Two types of individual expenses </li></ul><ul><ul><li>Administrative </li></ul></ul><ul><ul><ul><li>Fees for general plan administration charged against accts (and not reflected in annual operating expenses of investment vehicle). </li></ul></ul></ul><ul><ul><ul><li>For example: </li></ul></ul></ul><ul><ul><ul><ul><li>Legal </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Accounting </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Record keeping </li></ul></ul></ul></ul>
  21. 21. Participant Fee Disclosures <ul><li>Two types of individual expenses </li></ul><ul><ul><li>Individual </li></ul></ul><ul><ul><ul><li>Fees actually charged against individual account for services to individual (rather than on plan-wide basis and not reflected in annual operating expenses of investment vehicle).For example: </li></ul></ul></ul><ul><ul><ul><ul><li>Plan loans, QDROs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Redemption fees, sales/loads </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Investment advice </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Brokerage windows </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Similar services charged on an individual basis (e.g. distribution fees) </li></ul></ul></ul></ul>
  22. 22. Participant Fee Disclosures <ul><li>General Administrative Expenses: </li></ul><ul><ul><li>Explanation </li></ul></ul><ul><ul><li>How allocated (pro rata, per capita) </li></ul></ul><ul><li>Individual Expenses </li></ul><ul><ul><li>Explanation </li></ul></ul><ul><li>Does not include expenses “reflected in an annual operating expenses of designated investment alternative” </li></ul><ul><li>Does not require dollar amount in annual statements </li></ul>
  23. 23. Participant Fee Disclosures <ul><li>ERISA Plan Administrator (ERISA §3(16)) must give the disclosure </li></ul><ul><ul><li>Plan Administrator not liable for completeness and accuracy of information if: </li></ul></ul><ul><ul><ul><li>Information received from or provided by service provider or issuer of investment; and </li></ul></ul></ul><ul><ul><ul><li>Acted reasonably and in good faith </li></ul></ul></ul><ul><li>Disclosure goes to “each participant that, pursuant to the terms of the plan, has the right to direct the investment of assets held in, or contributed to, his or her individual account” </li></ul>
  24. 24. Participant Fee Disclosures <ul><li>Updates for changes: </li></ul><ul><ul><li>Not less than 30 days and no more than 90 before the effective date of ANY change to the information, each participant and beneficiary shall be furnished a description of such change </li></ul></ul><ul><ul><ul><li>Exception for unforeseeable events or circumstances beyond plan administrators control, if so, then as soon as reasonably practicable </li></ul></ul></ul>
  25. 25. Participant Fee Disclosures <ul><li>Quarterly expense disclosures: </li></ul><ul><ul><li>Administrative expenses: </li></ul></ul><ul><ul><ul><li>Dollar amount actually charged during the preceding quarter to the participant’s account for administrative services; </li></ul></ul></ul><ul><ul><ul><li>Description of the services provided to the participant or beneficiary for such amount; and </li></ul></ul></ul><ul><ul><ul><li>If applicable, an explanation that ”… some of the plan’s admin. expenses for the preceding qtr were paid from the total annual operating expenses of one or more of the plan’s designated investment alternatives (e.g. through revenue sharing…”. </li></ul></ul></ul>
  26. 26. Participant Fee Disclosures <ul><li>Quarterly expense disclosures: </li></ul><ul><ul><li>Individual expenses </li></ul></ul><ul><ul><ul><li>Dollar amount actually charged during the preceding quarter to the participant’s account for individual services </li></ul></ul></ul><ul><ul><ul><li>Description of the services provided to the participant or beneficiary for such amount </li></ul></ul></ul>
  27. 27. Participant Fee Disclosures <ul><li>Investment Disclosures </li></ul><ul><ul><li>Annually, regulations require that information on investment alternatives be presented in a comparative format such as a chart or similar format that includes: </li></ul></ul><ul><ul><ul><li>prominent display of the date; </li></ul></ul></ul><ul><ul><ul><li>Statement that additional investment information (including more current performance information) is available at the listed web addresses (it appears there is no obligation to update other than annually); </li></ul></ul></ul><ul><ul><ul><li>Statement of how to request paper copies free of charge. </li></ul></ul></ul><ul><ul><li>Sample chart provided in an appendix to reg. </li></ul></ul>
  28. 28. Participant Fee Disclosures <ul><li>Investment Disclosures – Information Provided Automatically </li></ul><ul><ul><li>For each designated investment alternative, must include: </li></ul></ul><ul><ul><ul><li>Identifying information </li></ul></ul></ul><ul><ul><ul><li>Performance data/benchmarks </li></ul></ul></ul><ul><ul><ul><li>Fee information </li></ul></ul></ul><ul><ul><ul><li>Web site </li></ul></ul></ul><ul><ul><li>Glossary </li></ul></ul><ul><ul><li>Other mandatory statements </li></ul></ul><ul><ul><li>Special disclosures for annuity investments </li></ul></ul><ul><ul><li>Special rules for employer securities </li></ul></ul>
  29. 29. Participant Fee Disclosures
  30. 30. Participant Fee Disclosures <ul><li>Investment Disclosures – Fee Disclosures </li></ul><ul><ul><li>Commissions </li></ul></ul><ul><ul><li>Sales loads </li></ul></ul><ul><ul><li>Sales charges </li></ul></ul><ul><ul><li>Deferred sales charges </li></ul></ul><ul><ul><li>Redemption fees </li></ul></ul><ul><ul><li>Surrender charges </li></ul></ul><ul><ul><li>Exchange fees </li></ul></ul><ul><ul><li>Account fees </li></ul></ul><ul><ul><li>Not included in annual operating expenses </li></ul></ul>
  31. 31. Participant Fee Disclosures
  32. 32. Participant Fee Disclosures <ul><li>Web site Information </li></ul><ul><ul><li>Sufficiently specific to provide participants access to the following Information for each designated investment alternative: </li></ul></ul><ul><ul><ul><li>the name of the investment’s issuer or provider, </li></ul></ul></ul><ul><ul><ul><li>objectives or goals (consistent with SEC Form N-1A or N-3) </li></ul></ul></ul><ul><ul><ul><li>the investment’s principal strategies and attendant risks, </li></ul></ul></ul><ul><ul><ul><li>the assets comprising the investment’s portfolio, </li></ul></ul></ul><ul><ul><ul><li>the investment’s portfolio turnover, </li></ul></ul></ul><ul><ul><ul><li>the investment’s performance and </li></ul></ul></ul><ul><ul><ul><li>related fees and expenses </li></ul></ul></ul>
  33. 33. Contact for more information <ul><ul><li>Tricia Cage, CRPS, RPA, CEBS, AIF ® </li></ul></ul><ul><ul><li>VP, Senior Retirement Benefits Consultant </li></ul></ul><ul><ul><li>CBIZ Insurance Services, Inc. </li></ul></ul><ul><ul><li>9755 Patuxent Woods Drive, Suite 200 </li></ul></ul><ul><ul><li>Columbia, MD  21046 </li></ul></ul><ul><ul><li>Direct: (443) 259-3211 </li></ul></ul><ul><ul><li>Fax: (855) 288-0215 </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul><ul><ul><li>Bill Karbon, MSPA, CPC </li></ul></ul><ul><ul><li>VP, Director of Compliance </li></ul></ul><ul><ul><li>CBIZ Insurance Services, Inc. </li></ul></ul><ul><ul><li>1009 Lenox Drive, Suite 105 </li></ul></ul><ul><ul><li>Lawrenceville, NJ  08648 </li></ul></ul><ul><ul><li>Direct: (609) 895-5332 </li></ul></ul><ul><ul><li>Fax: (609) 896-1849 </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul>
  34. 34. Questions