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[object Object],[object Object],www.nyhart.com Presented by Eric Roberts, RIA Copyright 2011. All Rights Reserved.
Eric Roberts ,[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
How did we get to 408(b)(2)?
[object Object],[object Object],Hidden Fees and Conflicts of Interest
[object Object],[object Object],Hidden Fees and Conflicts of Interest
[object Object],Hidden Fees and Conflicts of Interest
The Fee Transparency Timeline Form 5500 Effective 1/1/09 408(b)(2) Interim Final 7/10/10 404(a)(5) Final Reg  10/20/10 408(b)(2) Takes Affect  4/1/12 404(a)(5) Takes Affect  6/1/12 ERISA §408(b)(2) is designed to increase fee transparency
What is Regulation  408(b)(2)?
[object Object],[object Object],ERISA  § 408(b)(2)
[object Object],[object Object],[object Object],[object Object],Covered Plans
Let’s Run An Analysis for the Broker-Dealer “Free” Plan
SITUATION ANALYSIS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
SITUATION ANALYSIS Current Plan’s Fee Schedule of Services COMPANY: XYZ & Son Manufacturing, Inc. Annual Administration:   No Charge Annual Recordkeeping Per Participant:  No Charge  Broker Fee:   Paid from 12b-1 Fee Mutual Fund Expense:   See schedule
SITUATION ANALYSIS Current Plan – Example Fund From Portfolio American Balanced Fund (% as of 6/30/11) Cash:  8.60%  U.S. Stocks:  57.90%  Non-U.S. Stocks:  6.40%  Bonds:  27.00%  Other:  0.10%  100.00%
SITUATION ANALYSIS Current Plan – Share Class Selected American Balanced Fund Share Class / Target Ticker Expense Ratio R-1 RLBAX 1.40% R-2 RLBBX 1.40% R-3 RLBCX 0.94% R-4 RLBEX 0.65% R-5 RLBFX 0.35% R-6 RLBGX 0.30%
SITUATION ANALYSIS What are the fees and expenses hidden inside the fund and in this particular share class?
SITUATION ANALYSIS Current Plan – Share Class Selected American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-1 RLBAX 1.40% 0.24% 0.99% 0.10% R-2 RLBBX 1.40% 0.24% 0.75% 0.25% R-3 RLBCX 0.94% 0.24% 0.50% 0.15% R-4 RLBEX 0.65% 0.24% 0.25% 0.10% R-5 RLBFX 0.35% 0.24% none none R-6 RLBGX 0.30% 0.24% none none
SITUATION ANALYSIS Let’s Reveal The Hidden Costs of the Fund American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX 0.94% 0.24% 0.50% 0.15% Plan Costs under Broker-Dealer Scenario Costs % of Plan Assets Administration & Recordkeeping $0 0.00% Investment $94,000 0.94% Total $94,000 0.94%
SITUATION ANALYSIS Let’s Reveal The Hidden Costs of the Fund American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX 0.94% 0.24% 0.50% 0.15% Share Class Ticker Fund Expense Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX $94,000.00 $24,000.00 $50,000.00 $15,000.00
SITUATION ANALYSIS Let’s Reveal The Hidden Costs of the Fund American Balanced Fund Total Cost: $94,000 or $470 per participant Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX 0.94% 0.24% 0.50% 0.15% Share Class Ticker Fund Expense Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX $94,000.00 $24,000.00 $50,000.00 $15,000.00
SITUATION ANALYSIS The Broker-Dealer has NO FIDUCIARY LIABILITY OR RESPONSIBILITY .
Let’s Run An Analysis When An Registered Investment Adviser  (As A Fiduciary)
SITUATION ANALYSIS RIA’s Fee Schedule of Services COMPANY: XYZ & Son Manufacturing, Inc. Annual Administration:   $3,000 Annual Recordkeeping Per Participant:  $50/per RIA Flat Fee:   $25,000 Mutual Fund Expense:   See schedule
SITUATION ANALYSIS RIA Plan– Proper Share Class Selected American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-1 RLBAX 1.40% 0.24% 0.99% 0.10% R-2 RLBBX 1.40% 0.24% 0.75% 0.25% R-3 RLBCX 0.94% 0.24% 0.50% 0.15% R-4 RLBEX 0.65% 0.24% 0.25% 0.10% R-5 RLBFX 0.35% 0.24% none none R-6 RLBGX 0.30% 0.24% none none
SITUATION ANALYSIS RIA Plan– Proper Share Class Selected American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-1 RLBAX 1.40% 0.24% 0.99% 0.10% R-2 RLBBX 1.40% 0.24% 0.75% 0.25% R-3 RLBCX 0.94% 0.24% 0.50% 0.15% R-4 RLBEX 0.65% 0.24% 0.25% 0.10% R-5 RLBFX 0.35% 0.24% none none R-6 RLBGX 0.30% 0.24% none none
SITUATION ANALYSIS Current Plan – Share Class Selected American Balanced Fund No Hidden Fees Plus Lower Costs for Shares. Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-1 RLBAX 1.40% 0.24% 0.99% 0.10% R-2 RLBBX 1.40% 0.24% 0.75% 0.25% R-3 RLBCX 0.94% 0.24% 0.50% 0.15% R-4 RLBEX 0.65% 0.24% 0.25% 0.10% R-5 RLBFX 0.35% 0.24% none none R-6 RLBGX 0.30% 0.24% none none
SITUATION ANALYSIS Let’s View the Overall Fees with the RIA American Balanced Fund Plan Costs under RIA Scenario Costs % of Plan Assets Administration $3,000 0.03% Recordkeeping ($50 x 200) $10,000 Recapture Fee used to offset Recordkeeping ($10,000) 0.00% RIA Fee $25,000 Recapture Fee used to offset RIA Fee ($25,000) Investment $65,000 0.65% Total $68,000 0.68%
SITUATION ANALYSIS Let’s View the Overall Fees with the RIA American Balanced Fund Share Class Ticker Fund Expense Mngmnt Fee 12b-1 Fee Sub-TA Fee R-4 RLBEX $65,000.00 $24,000.00 $25,000.00 $10,000.00
SITUATION ANALYSIS Let’s Reveal The Hidden Costs of the Fund American Balanced Fund Total Cost: $68,000 or $340 per participant Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX 0.94% 0.24% 0.50% 0.15% Share Class Ticker Fund Expense Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX $94,000.00 $24,000.00 $50,000.00 $15,000.00
What difference does this make for me and my participants?
Let’s Take An Average Employee ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
How fees impact overall retirement earnings for a participant.
How fees impact overall retirement earnings for a participant Lost Retirement Savings: $50,750 or 7.81%
Steps You Can Take Now Before 408(b)(2) Takes Affect ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
ANY QUESTIONS? ,[object Object]
Eric Roberts ,[object Object],[object Object],[object Object],[object Object],[object Object]
So Where is the Peak? ,[object Object],[object Object],Looking for more benefit presentations?
[object Object],16 Actuaries Consulting In 48 States . Nyhart is one of the nation’s largest independent actuarial and employee benefit firms, consulting to and administering the plans for clients with more than $14 billion in assets.  Our team of benefit advisers deliver personalized analysis and recommendations, translating complex calculations and issues into common language that enables corporations, associations, churches and governments to effectively manage their retirement and health care benefits.
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
 

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The Impact of IRS Regulation 408(b)(2) & Your 401(k)

  • 1.
  • 2.
  • 3.
  • 4. How did we get to 408(b)(2)?
  • 5.
  • 6.
  • 7.
  • 8. The Fee Transparency Timeline Form 5500 Effective 1/1/09 408(b)(2) Interim Final 7/10/10 404(a)(5) Final Reg 10/20/10 408(b)(2) Takes Affect 4/1/12 404(a)(5) Takes Affect 6/1/12 ERISA §408(b)(2) is designed to increase fee transparency
  • 9. What is Regulation 408(b)(2)?
  • 10.
  • 11.
  • 12. Let’s Run An Analysis for the Broker-Dealer “Free” Plan
  • 13.
  • 14. SITUATION ANALYSIS Current Plan’s Fee Schedule of Services COMPANY: XYZ & Son Manufacturing, Inc. Annual Administration: No Charge Annual Recordkeeping Per Participant: No Charge Broker Fee: Paid from 12b-1 Fee Mutual Fund Expense: See schedule
  • 15. SITUATION ANALYSIS Current Plan – Example Fund From Portfolio American Balanced Fund (% as of 6/30/11) Cash: 8.60% U.S. Stocks: 57.90% Non-U.S. Stocks: 6.40% Bonds: 27.00% Other: 0.10% 100.00%
  • 16. SITUATION ANALYSIS Current Plan – Share Class Selected American Balanced Fund Share Class / Target Ticker Expense Ratio R-1 RLBAX 1.40% R-2 RLBBX 1.40% R-3 RLBCX 0.94% R-4 RLBEX 0.65% R-5 RLBFX 0.35% R-6 RLBGX 0.30%
  • 17. SITUATION ANALYSIS What are the fees and expenses hidden inside the fund and in this particular share class?
  • 18. SITUATION ANALYSIS Current Plan – Share Class Selected American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-1 RLBAX 1.40% 0.24% 0.99% 0.10% R-2 RLBBX 1.40% 0.24% 0.75% 0.25% R-3 RLBCX 0.94% 0.24% 0.50% 0.15% R-4 RLBEX 0.65% 0.24% 0.25% 0.10% R-5 RLBFX 0.35% 0.24% none none R-6 RLBGX 0.30% 0.24% none none
  • 19. SITUATION ANALYSIS Let’s Reveal The Hidden Costs of the Fund American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX 0.94% 0.24% 0.50% 0.15% Plan Costs under Broker-Dealer Scenario Costs % of Plan Assets Administration & Recordkeeping $0 0.00% Investment $94,000 0.94% Total $94,000 0.94%
  • 20. SITUATION ANALYSIS Let’s Reveal The Hidden Costs of the Fund American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX 0.94% 0.24% 0.50% 0.15% Share Class Ticker Fund Expense Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX $94,000.00 $24,000.00 $50,000.00 $15,000.00
  • 21. SITUATION ANALYSIS Let’s Reveal The Hidden Costs of the Fund American Balanced Fund Total Cost: $94,000 or $470 per participant Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX 0.94% 0.24% 0.50% 0.15% Share Class Ticker Fund Expense Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX $94,000.00 $24,000.00 $50,000.00 $15,000.00
  • 22. SITUATION ANALYSIS The Broker-Dealer has NO FIDUCIARY LIABILITY OR RESPONSIBILITY .
  • 23. Let’s Run An Analysis When An Registered Investment Adviser (As A Fiduciary)
  • 24. SITUATION ANALYSIS RIA’s Fee Schedule of Services COMPANY: XYZ & Son Manufacturing, Inc. Annual Administration: $3,000 Annual Recordkeeping Per Participant: $50/per RIA Flat Fee: $25,000 Mutual Fund Expense: See schedule
  • 25. SITUATION ANALYSIS RIA Plan– Proper Share Class Selected American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-1 RLBAX 1.40% 0.24% 0.99% 0.10% R-2 RLBBX 1.40% 0.24% 0.75% 0.25% R-3 RLBCX 0.94% 0.24% 0.50% 0.15% R-4 RLBEX 0.65% 0.24% 0.25% 0.10% R-5 RLBFX 0.35% 0.24% none none R-6 RLBGX 0.30% 0.24% none none
  • 26. SITUATION ANALYSIS RIA Plan– Proper Share Class Selected American Balanced Fund Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-1 RLBAX 1.40% 0.24% 0.99% 0.10% R-2 RLBBX 1.40% 0.24% 0.75% 0.25% R-3 RLBCX 0.94% 0.24% 0.50% 0.15% R-4 RLBEX 0.65% 0.24% 0.25% 0.10% R-5 RLBFX 0.35% 0.24% none none R-6 RLBGX 0.30% 0.24% none none
  • 27. SITUATION ANALYSIS Current Plan – Share Class Selected American Balanced Fund No Hidden Fees Plus Lower Costs for Shares. Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-1 RLBAX 1.40% 0.24% 0.99% 0.10% R-2 RLBBX 1.40% 0.24% 0.75% 0.25% R-3 RLBCX 0.94% 0.24% 0.50% 0.15% R-4 RLBEX 0.65% 0.24% 0.25% 0.10% R-5 RLBFX 0.35% 0.24% none none R-6 RLBGX 0.30% 0.24% none none
  • 28. SITUATION ANALYSIS Let’s View the Overall Fees with the RIA American Balanced Fund Plan Costs under RIA Scenario Costs % of Plan Assets Administration $3,000 0.03% Recordkeeping ($50 x 200) $10,000 Recapture Fee used to offset Recordkeeping ($10,000) 0.00% RIA Fee $25,000 Recapture Fee used to offset RIA Fee ($25,000) Investment $65,000 0.65% Total $68,000 0.68%
  • 29. SITUATION ANALYSIS Let’s View the Overall Fees with the RIA American Balanced Fund Share Class Ticker Fund Expense Mngmnt Fee 12b-1 Fee Sub-TA Fee R-4 RLBEX $65,000.00 $24,000.00 $25,000.00 $10,000.00
  • 30. SITUATION ANALYSIS Let’s Reveal The Hidden Costs of the Fund American Balanced Fund Total Cost: $68,000 or $340 per participant Included in Expense Ratio Share Class / Target Ticker Expense Ratio Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX 0.94% 0.24% 0.50% 0.15% Share Class Ticker Fund Expense Mngmnt Fee 12b-1 Fee Sub-TA Fee R-3 RLBCX $94,000.00 $24,000.00 $50,000.00 $15,000.00
  • 31. What difference does this make for me and my participants?
  • 32.
  • 33. How fees impact overall retirement earnings for a participant.
  • 34. How fees impact overall retirement earnings for a participant Lost Retirement Savings: $50,750 or 7.81%
  • 35.
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Editor's Notes

  1. Investment expense is a common fee that is often excluded
  2. Because rates are averaged over two years, it will take a couple of years for costs to decline Plans will likely see high requirements drop quickly to zero within a few years of rates increasing
  3. Areas of Expertise Include: Cash Balance Plan Defined Benefit & Pension Defined Contribution & 401(k) Employee Stock Ownership Plan (ESOP) Flexible Spending, HRA & HSA Healthcare Actuarial Consulting Learn more at www.nyhart.com
  4. Areas of Expertise Include: Cash Balance Plan Defined Benefit & Pension Defined Contribution & 401(k) Employee Stock Ownership Plan (ESOP) Flexible Spending, HRA & HSA Healthcare Actuarial Consulting Learn more at www.nyhart.com