The Department of Labor has required certain fees disclosures and charged plan sponsors with making sure those fees are “reasonable.” The actual DOL regulations are 22 pages long and the word “reasonable” is mentioned 49 times. How do you determine if your plan’s fees are “reasonable?”

1. New DOL Regulations:
The Road to
Reasonableness
Dennis Gogarty, Chase Deters
December 11, 2012
Thrive. Grow. Achieve.

2. Raffa Wealth Management, LLC
Presents:
New DOL Regulations: The Road to Reasonableness
Dennis Gogarty, CFP®, AIF®
President, Raffa Wealth Management
Chase Deters, CFP®, ChFC®
Portfolio Manager, Raffa Wealth Management

3. New Regulation Requirements
Force Transparency - Require Disclosure
The Department of Labor‟s New Regulations
• Disclosure to Plan Sponsors – 408(b)2
─ Service Description
─ Compensation for services (direct and indirect)
─ Fiduciary status of service provider
• Disclosure to Plan Participants – 404(a)5
─ Mutual fund related disclosures
─ Comparison chart – fees and rates of return
The DOL believes that plan fiduciaries need this information, when selecting and monitoring service
providers, to satisfy their fiduciary obligations under ERISA section 404(a)(1) to act prudently and
solely in the interest of the plan‟s participants and beneficiaries and for the exclusive purpose of
providing benefits and defraying reasonable expenses of administering the plan.
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4. The Challenge
• DOL Regulations state that plan fiduciaries must:
– “…ensure that arrangements with their service providers are
„reasonable‟ and that only „reasonable‟ compensation is paid
for services.”
• Failure to comply can result in prohibited
transactions with legal liability exposure
Number of times “reasonableness” or “reasonable”
is mentioned in the 22 page long DOL regulation?
49
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5. What is “Reasonable?”
• DOL Regulations cannot define a figure
• Doesn‟t have to be the least expensive option
• Expenses will vary based on:
– Number of Participants
– Total Plan Assets
– Number and Complexity of your plan(s)
– Annual Salary Deferrals
– Other services being provided (bundled or unbundled TPA, one-
on-one educational meetings, etc.)
• Smaller plans may pay more in a percentage of
assets, than larger plans, but much less in a total
dollar amount
– Making determining what “reasonable” is, very difficult to
determine
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6. The Road to Reasonableness
Evaluating Plan Fees and Expenses
Your current retirement plan investment advisor might not be equipped to help
you independently access your plan’s fees due to a natural conflict of interest.
You have two avenues to examine to determine if your
plans fees are truly reasonable:
1. Distribute a RFP: send a proposal request to several other
investment advisors to survey the marketplace on what else
is available
2. Peer Benchmark Assessment: use an independent third party
to provide you a report of an apples-to-apples benchmark
comparison of your plan‟s fees in relation to other plans of
similar size and structure
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7. The Road to Reasonableness
Distribute a Request For Proposal (RFP)
The following excerpt is directly from the DOL‟s guide “Understanding Retirement
Plan Fees and Expenses”
• Begin by establishing an objective process to aid in your
decision making
• Think about the specific services you would like (e.g., tax,
trustee/custodian, recordkeeping, investment
management, investment education or advice)…
• Consider the level of responsibility you want the
prospective service provider to assume…
• Give all prospective service providers complete and
identical information about your plan. This information
should include the number of plan participants and the
amount of plan assets as of a specified date.
2011 Dept. of Labor
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8. The Road to Reasonableness
Determine Your Plan‟s Total Fees
1. Administrative Fees:
─ Custodial fees – who holds the plan assets
─ Administrative fees – files tax forms, processes
distributions and loans
─ Record keeping fees – day to day transactions and
statements
2. Investment Advisory Fees
3. Weighted Average Mutual Fund Fees
─ Net amount paid to the mutual fund managers,
weighted by the percentage of plan assets in each fund
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9. The Road to Reasonableness
Start by understanding your total plans costs segmented
by service provider
Current Scenario - - Plan assets $2,034,300 ABC Foundation 403b Retirement Plan
Participant Accounts - - 101
RWM/XYZ Retirement Percent Dollar
Custodian State Street Global Adv (SSgA) 0.00% $0
Adminstrator XYZ Retirement $336.66/mo 0.20% $4,036
Recordkeeper XYZ Retirement 0.58% $11,799
Total Admin Fees 0.78% $15,835
Investment Advisor RWM 0.35% $7,120
Mutual Fund Company Multi-Family* 0.50% $10,172
Total Investment Expenses 0.85% $17,292
Total - ABC Foundation 403b Retirement Plan 1.63% $33,126
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10. The Road to Reasonableness
Issue an RFP to consultants or advisors that offer a
comprehensive retirement plan solution
1. Conduct an initial group call to communicate your needs and
preferences.
2. Request a single “recommended” solution either bundled or unbundled
─ Custody
─ Recordkeeping
─ Administration
─ Investment advisory
3. Ask for a description of services, fees, and fiduciary status:
4. Ask for fund expenses and what portion of fund expenses pay for any of
the services above.
─ US stocks
─ Intl Stocks
─ Bonds
─ Stable Value or Guaranteed Contracts
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11. Difference in Fiduciary Status
None 3(21) Fidcuiary 3(38) Fiduciary
Description Level of Fiduciary Responsibility
Duty of loyalty to serve the
exlusive best interest of
the plan participants and
beneficiaries
Duty of care to exercise
the skill, diligence and
prudence of a professional
Shall have reasonable
grounds for believing
recommendations are
suitable
Description Level of Fiduciary Authority
Makes recommendations
to plan sponsor
Maintains discretion to
make decisions and
implement changes
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12. The Road to Reasonableness
Set up a scoring system to
compare the RFP responses
by each investment advisor:
• Firm Experience
• Key Personnel Experience
• Quality of References
• Educational Event Offerings
• Level of Fiduciary Status
• Administrative Cost level
• Advisory Fee level
• Investment Expense level
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13. The Road to Reasonableness
Plan B
Peer Benchmark Assessment
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14. The Road to Reasonableness
Peer Benchmark Assessment
The easiest way to independently verify if your plan‟s fees and
expenses are in line with industry standards is to perform an
independent benchmark assessment of your current plan that
contains:
1. Database for fee comparisons should be derived directly from
industry service providers
2. Your plan‟s fees should be normalized
• Adjusting for bundled and unbundled plans (Custodian, Recordkeeper, TPA,
Advisor, and Money Managers)
• Normalizing percentage, flat, and per participant fees
• Adjusting for ERISA Spending Account Credits (i.e. AFCA)
3. Resulting in a simple, transparent & practical report
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15. The Road to Reasonableness
Fiduciary Benchmarks: The Output
The following topics should be included in your assessment and a
review of your plan relative to your peers :
1. Total Plan Fees
• Review fees by source of funds and service provider being compensated
2. Investments
• Comparison of the fees being paid for every investment option in the plan
relative to your peer group‟s expenses
3. Value- Add by Provider
• List of services being provided that help a Plan Sponsor administer the plan
fulfill their Fiduciary Duties
• Metrics to help determine participant utilization of the plan, or “Retirement
Readiness”
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16. Fiduciary Benchmarks, Inc.
Fiduciary Benchmarks, Inc. was launched to support plan sponsors, advisors,
recordkeepers and other plan service providers in addressing the new DOL
regulations.
They have partnered with many of the prominent service providers for a
comprehensive database that contains greater detail than what can be found
using 5500 reports.
www.fiduciarybenchmarks.com
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17. Fiduciary Benchmarks: The Output
Benchmark Peer Group
Your plan is
compared against
53 other retirement
plans of similar size
and structure
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18. Fiduciary Benchmarks: The Output
Plan Fees Summary
Your plan’s total fees are itemized
by service provider and compared
to the benchmark group.
• This plan’s annual fees are
1.06% per year
• This is 0.07% higher, or $7,000
more per year than the average
• This equates to $45 more per
employee per year
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19. Fiduciary Benchmarks: The Output
Service Providers‟ Fee Disclosure
Service providers’ fees are
compared to the benchmark
group, allowing you to easily
identify the service provider who’s
fees are over/under average
• Recordkeeper
• Third Party Administrator
• Advisor/Consultant
• Investment Manager
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20. Fiduciary Benchmarks: The Output
Investment Lineup Summary
Each investment’s expense in the plan is
compared with the benchmark group to
determine the source of any outliers.
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21. Fiduciary Benchmarks: The Output
Plan Success Measures
10 recognized industry standards measure how well your plan helps participants
prepare for retirement in comparison to the benchmark group.
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22. The Road to Reasonableness
Final Results
Upon completion of your benchmark assessment, the final task is to
summarize the various aspects of your plan in an internal memo, and outline
the reasons for keeping/changing your plan.
Based on the enclosed analysis comparing our plan with xx similar plans, we
find that our plan‟s fees are reasonable for the following reasons:
1. All service providers‟ fees are ____ with the average peer expenses
2. The average investment expense ratio is ____ with the average
3. The plan participants are taking advantage of the benefits being offered
Analysis conducted on x/x/xx by _________ and subsequent review is
scheduled in 3-5 years.
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23. The Road to Reasonableness
Summary
1. Confirm receipt of the 408(b)2 disclosures from service
providers.
2. Understand the fees (direct and indirect) being paid by
your plan for the services being provided and the fiduciary
status of the service providers.
3. Measure reasonableness
– Have an independent analysis of your plan‟s fees/services/fiduciary status
performed
– Conduct an RFP for a comprehensive retirement plan solution
4. Maintain all documents in a fiduciary file
5. Summarize the procedures and result in a memo and
retain for your files
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24. Questions?
Dennis Gogarty, CFP®, AIF® Chase Deters, CFP®, ChFC®
(202) 955-6734 (202) 955-7217
dennis@raffawealth.com chase@raffawealth.com
www.raffawealth.com
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25. Disclosures
All economic and performance information is historical and not indicative of future results. Different
types of investments involve varying degrees of risk, and there can be no assurance that the future
performance of any specific investment, investment strategy, or product made reference to directly or
indirectly in this material, will be profitable, equal any corresponding indicated historical performance
level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or
information provided here serves as the receipt of, or as a substitute for, personalized investment advice
from Raffa Wealth Management or any other investment professional. Further, the charts and graphs
contained herein should not serve as the sole determining factor for making investment decisions. To
the extent that you have any questions regarding the applicability of any specific issue discussed to your
individual situation, you are encouraged to consult with Raffa Wealth Management. All information,
including that used to compile charts, is obtained from sources believed to be reliable, but Raffa Wealth
Management does not guarantee its reliability. All performance results have been compiled solely by
Raffa Wealth Management, are unaudited, and have not been independently verified. Information
pertaining to Raffa Wealth Management‟ advisory operations, services, and fees is set forth in Raffa
Wealth Management‟ current disclosure statement, a copy of which is available from Raffa Wealth
Management upon request. Past performance is not a guarantee of future results and any investment
can lose value.
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