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10 Questions
www.nyhart.com
Presented by Eric Roberts, RIA
Copyright 2011. All Rights Reserved.
What to Ask Your 401(k) or 403(b)
Vendor to Get Fee Transparency
Eric Roberts
Fiduciary Consultant
eric.roberts@nyhart.com | (317) 845-3511
Qualifications or certifications:
Accredited Retirement Plan Consultant through The
Society of Professional Asset-Managers and
Recordkeepers and Series 63 and 65 designations..
 
What 10 questions should you be asking
your defined contribution plan vendor
that will help you understand the actual
services, fees and costs associated with
your current benefit?
408(b)(2) takes affect April 1, 2012.
3
What is
ERISA § 408(b)(2)?
Defined Contribution (i.e. 401(k), ERISA 403(b))
and Defined Benefit Pension plans. Excluded from
this definition:
• IRAs
• Simplified employee pensions, and
• Simple retirement accounts.
Covered Plans
Q. Are you a covered service provider?
The service provider must reasonably expect to receive $1,000 or
more of compensation, direct or indirect, for providing covered
services.
This applies even if the services or compensation will be received by an
affiliate or subcontractor.
6Question 1 of 10
Q. What services do you provide to the plan?
Covered services include the following:
1.) Fiduciary services, including:
• Those provided directly to a plan as a fiduciary.
• Those provided as an investment adviser registered under the
Investment Advisers Act of 1940 or comparable state law.
• Those provided as a fiduciary to an investment contract, product or
entity that holds plan assets and in which the plan has a direct equity
investment (this does not include managers of mutual funds).
7Question 2 of 10
Q. What services do you provide to the plan?
Covered services include the following:
2.) Recordkeeping or brokerage services provided to a participant-directed
individual account plan, i.e., a 401(k) or ERISA 403(b) plan, if the plan
makes one or more designated investment alternatives available.
8Question 2 of 10
Covered services include the following:
3.) Other services for indirect compensation. This includes indirect
compensation received by the provider of the service, as well as affiliates
and subcontractors.
The list of services is very broad and includes banking, consulting, custodial,
insurance, investment advisory, recordkeeping, securities or other
investment brokerage, third party administration and various professional
services.
9
Q. What services do you provide to the plan?
Question 2 of 10
Q. Are you a fiduciary to the plan?
If the covered service provider is a fiduciary to the plan, we believe that a
well crafted Fiduciary Acceptance and Acknowledgement Form that
comprehensively covers fiduciary roles and responsibilities may be the
most valuable engagement document in a service provider’s arsenal.
Equally as important, is the person employed by the company / plan
sponsor who is the “responsible fiduciary”. This person has the authority
to cause the plan to enter into, or extend or renew, the contract or
arrangement.
The covered service provider must know who the responsible fiduciary is
so that all disclosures, etc. are provided to this person.
10Question 3 of 10
Q. What is direct and indirect compensation?
Direct compensation
Compensation received directly from the plan or plan sponsor.
Indirect compensation
Compensation received from a source other than the plan, plan sponsor,
the covered service provider or an affiliate or subcontractor in connection
with the services arrangement.
This generally includes fees received from an investment fund, such as 12b-
1 fees, or from another service provider, such as a finder’s fee.
11Question 4 of 10
Q. How will your compensation be disclosed?
Disclosure of all direct and indirect compensation that the service provider, an affiliate or
a subcontractor expects to receive from the plan must be disclosed.
In the case of indirect compensation, the service provider must identify the services for
which the indirect compensation will be received as well as the payer of the indirect
compensation.
• Format: May be expressed as a dollar amount, formula, percentage of covered plan
assets, a per capita charge, or by any other reasonable method that allows a plan fiduciary
to evaluate the reasonableness of the comp.
• Manner of Receipt: Disclosure must include a description of the manner in which the
compensation will be received, (i.e., billed or deducted directly from participant’s
accounts).
• Transaction-Based Fees: Compensation set on a transaction basis (i.e., commissions
or soft dollars) or charged directly against the plan’s investment (i.e., 12b-1 fees) and paid
among the covered service provider, an affiliate or a subcontractor must be separately
disclosed.
12Question 5 of 10
Q. What special rules exist for record keepers?
One who provides recordkeeping services must provide a description of
the direct and indirect compensation that the service provider and its
affiliates and its subcontractors expects to receive for its services.
If there’s no explicit fee for recordkeeping services, a reasonable, good
faith estimate must be provided. The estimate may take into account the
rate that the service provider would charge to a third party or prevailing
market rates for similar services.
Disclosing a de minimus amount when the amount has no relationship to
cost will not be regarded as reasonable.
13Question 6 of 10
Q. What rules exist for platform providers?
Recordkeepers and brokers that make designated investment alternatives available must
provide basic fee information for each such alternative for which recordkeeping or
brokerage services are provided. This is in addition to information regarding their own
compensation.
The information includes the expense ratio, ongoing expenses (i.e., wrap fees), as well as
transaction fees (i.e., sales charges, redemption fees, and surrender charges) that may be
charged directly against the amount invested.
• Pass-through of information on investment products. Disclosure obligations for
unaffiliated mutual funds may be satisfied by passing through the fund prospectus.
• Responsibility of other service providers. If there is no recordkeeper or broker to
provide the required information, such responsibility passes to the fiduciary of the
investment contract, product or entity.
• Brokerage window exclusion. They are not subject to the disclosure requirements
for platform providers.
14Question 7 of 10
Q. What happens if you fail to provide the
disclosures?
Because a service provider’s failure to comply with the disclosure
obligations results in a prohibited transaction, this could adversely affect
the plan sponsor or similar plan fiduciary. A separate class exemption that
provides relief for the plan fiduciary exists.
There is no relief for a service provider that fails to comply with the
disclosure requirements.
15Question 8 of 10
Q. What corrective action can I take for your
disclosure failure?
To qualify for relief, the plan sponsor or similar fiduciary must take
corrective steps with the service provider after discovering the disclosure
problem by requesting in writing the correct disclosure information.
If the service provider fails to comply within 90 days of such request, then
the Department of Labor must be notified no later than 30 days following
the earlier of the service provider’s refusal to furnish the requested
information; or the date which is 90 days after the date the written request
is made.
16Question 9 of 10
Q. When should I terminate a service contract?
Evaluate the nature of the particular disclosure failure and determine the
extent of the actions necessary under the facts and circumstances.
Some factors to consider:
• service providers responsiveness in providing the missing information;
• the availability, qualifications, and costs of potential service provider
replacements.
17Question 10 of 10
10 Questions
1. Are you a covered service provider?
2. What services do you provide to the plan?
3. Are you a fiduciary to the plan?
4. What is direct and indirect compensation?
5. How will your compensation be disclosed?
6. What special rules exist for recordkeepers?
7. What special rules exist for platform providers?
8. What happens if you fail to provide the disclosures?
9. What corrective action can I take for your disclosure failure?
10. When should I terminate a service contract?
18
ANY QUESTIONS?
This concludes our discussion
Eric Roberts
Fiduciary Consultant
eric.roberts@nyhart.com | (317) 845-3511
Qualifications or certifications:
Accredited Retirement Plan Consultant through The
Society of Professional Asset-Managers and
Recordkeepers and Series 63 and 65 designations..
 
So Where is the Peak?
Register for upcoming educational events on
pensions, 401(k), healthcare and other actuarial and
employee benefits topics at:
www.nyhart.com/events/
Looking for more benefit
presentations?
Looking for more benefit
presentations?
ACTUARY &EMPLOYEE BENEFITS
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.
ACTUARY &EMPLOYEE BENEFITS
Established in 1943, Nyhart is an ESOP
with 84 employees and offices in
Indianapolis, Chicago, Atlanta and
Kansas City.
Areas of Expertise Include:
• Cash Balance Plan
• Defined Benefit & Pension
• Defined Contribution & 401(k)
• Employee Stock Ownership Plan
• Flexible Spending, HRA & HSA
• Healthcare Actuarial Consulting
Learn more at www.nyhart.com
10 Questions to ask your 401(k) or 403(b) Vendor To Get Fee Transparency

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10 Questions to ask your 401(k) or 403(b) Vendor To Get Fee Transparency

  • 1. 10 Questions www.nyhart.com Presented by Eric Roberts, RIA Copyright 2011. All Rights Reserved. What to Ask Your 401(k) or 403(b) Vendor to Get Fee Transparency
  • 2. Eric Roberts Fiduciary Consultant eric.roberts@nyhart.com | (317) 845-3511 Qualifications or certifications: Accredited Retirement Plan Consultant through The Society of Professional Asset-Managers and Recordkeepers and Series 63 and 65 designations..  
  • 3. What 10 questions should you be asking your defined contribution plan vendor that will help you understand the actual services, fees and costs associated with your current benefit? 408(b)(2) takes affect April 1, 2012. 3
  • 4. What is ERISA § 408(b)(2)?
  • 5. Defined Contribution (i.e. 401(k), ERISA 403(b)) and Defined Benefit Pension plans. Excluded from this definition: • IRAs • Simplified employee pensions, and • Simple retirement accounts. Covered Plans
  • 6. Q. Are you a covered service provider? The service provider must reasonably expect to receive $1,000 or more of compensation, direct or indirect, for providing covered services. This applies even if the services or compensation will be received by an affiliate or subcontractor. 6Question 1 of 10
  • 7. Q. What services do you provide to the plan? Covered services include the following: 1.) Fiduciary services, including: • Those provided directly to a plan as a fiduciary. • Those provided as an investment adviser registered under the Investment Advisers Act of 1940 or comparable state law. • Those provided as a fiduciary to an investment contract, product or entity that holds plan assets and in which the plan has a direct equity investment (this does not include managers of mutual funds). 7Question 2 of 10
  • 8. Q. What services do you provide to the plan? Covered services include the following: 2.) Recordkeeping or brokerage services provided to a participant-directed individual account plan, i.e., a 401(k) or ERISA 403(b) plan, if the plan makes one or more designated investment alternatives available. 8Question 2 of 10
  • 9. Covered services include the following: 3.) Other services for indirect compensation. This includes indirect compensation received by the provider of the service, as well as affiliates and subcontractors. The list of services is very broad and includes banking, consulting, custodial, insurance, investment advisory, recordkeeping, securities or other investment brokerage, third party administration and various professional services. 9 Q. What services do you provide to the plan? Question 2 of 10
  • 10. Q. Are you a fiduciary to the plan? If the covered service provider is a fiduciary to the plan, we believe that a well crafted Fiduciary Acceptance and Acknowledgement Form that comprehensively covers fiduciary roles and responsibilities may be the most valuable engagement document in a service provider’s arsenal. Equally as important, is the person employed by the company / plan sponsor who is the “responsible fiduciary”. This person has the authority to cause the plan to enter into, or extend or renew, the contract or arrangement. The covered service provider must know who the responsible fiduciary is so that all disclosures, etc. are provided to this person. 10Question 3 of 10
  • 11. Q. What is direct and indirect compensation? Direct compensation Compensation received directly from the plan or plan sponsor. Indirect compensation Compensation received from a source other than the plan, plan sponsor, the covered service provider or an affiliate or subcontractor in connection with the services arrangement. This generally includes fees received from an investment fund, such as 12b- 1 fees, or from another service provider, such as a finder’s fee. 11Question 4 of 10
  • 12. Q. How will your compensation be disclosed? Disclosure of all direct and indirect compensation that the service provider, an affiliate or a subcontractor expects to receive from the plan must be disclosed. In the case of indirect compensation, the service provider must identify the services for which the indirect compensation will be received as well as the payer of the indirect compensation. • Format: May be expressed as a dollar amount, formula, percentage of covered plan assets, a per capita charge, or by any other reasonable method that allows a plan fiduciary to evaluate the reasonableness of the comp. • Manner of Receipt: Disclosure must include a description of the manner in which the compensation will be received, (i.e., billed or deducted directly from participant’s accounts). • Transaction-Based Fees: Compensation set on a transaction basis (i.e., commissions or soft dollars) or charged directly against the plan’s investment (i.e., 12b-1 fees) and paid among the covered service provider, an affiliate or a subcontractor must be separately disclosed. 12Question 5 of 10
  • 13. Q. What special rules exist for record keepers? One who provides recordkeeping services must provide a description of the direct and indirect compensation that the service provider and its affiliates and its subcontractors expects to receive for its services. If there’s no explicit fee for recordkeeping services, a reasonable, good faith estimate must be provided. The estimate may take into account the rate that the service provider would charge to a third party or prevailing market rates for similar services. Disclosing a de minimus amount when the amount has no relationship to cost will not be regarded as reasonable. 13Question 6 of 10
  • 14. Q. What rules exist for platform providers? Recordkeepers and brokers that make designated investment alternatives available must provide basic fee information for each such alternative for which recordkeeping or brokerage services are provided. This is in addition to information regarding their own compensation. The information includes the expense ratio, ongoing expenses (i.e., wrap fees), as well as transaction fees (i.e., sales charges, redemption fees, and surrender charges) that may be charged directly against the amount invested. • Pass-through of information on investment products. Disclosure obligations for unaffiliated mutual funds may be satisfied by passing through the fund prospectus. • Responsibility of other service providers. If there is no recordkeeper or broker to provide the required information, such responsibility passes to the fiduciary of the investment contract, product or entity. • Brokerage window exclusion. They are not subject to the disclosure requirements for platform providers. 14Question 7 of 10
  • 15. Q. What happens if you fail to provide the disclosures? Because a service provider’s failure to comply with the disclosure obligations results in a prohibited transaction, this could adversely affect the plan sponsor or similar plan fiduciary. A separate class exemption that provides relief for the plan fiduciary exists. There is no relief for a service provider that fails to comply with the disclosure requirements. 15Question 8 of 10
  • 16. Q. What corrective action can I take for your disclosure failure? To qualify for relief, the plan sponsor or similar fiduciary must take corrective steps with the service provider after discovering the disclosure problem by requesting in writing the correct disclosure information. If the service provider fails to comply within 90 days of such request, then the Department of Labor must be notified no later than 30 days following the earlier of the service provider’s refusal to furnish the requested information; or the date which is 90 days after the date the written request is made. 16Question 9 of 10
  • 17. Q. When should I terminate a service contract? Evaluate the nature of the particular disclosure failure and determine the extent of the actions necessary under the facts and circumstances. Some factors to consider: • service providers responsiveness in providing the missing information; • the availability, qualifications, and costs of potential service provider replacements. 17Question 10 of 10
  • 18. 10 Questions 1. Are you a covered service provider? 2. What services do you provide to the plan? 3. Are you a fiduciary to the plan? 4. What is direct and indirect compensation? 5. How will your compensation be disclosed? 6. What special rules exist for recordkeepers? 7. What special rules exist for platform providers? 8. What happens if you fail to provide the disclosures? 9. What corrective action can I take for your disclosure failure? 10. When should I terminate a service contract? 18
  • 20. Eric Roberts Fiduciary Consultant eric.roberts@nyhart.com | (317) 845-3511 Qualifications or certifications: Accredited Retirement Plan Consultant through The Society of Professional Asset-Managers and Recordkeepers and Series 63 and 65 designations..  
  • 21. So Where is the Peak? Register for upcoming educational events on pensions, 401(k), healthcare and other actuarial and employee benefits topics at: www.nyhart.com/events/ Looking for more benefit presentations? Looking for more benefit presentations?
  • 22. ACTUARY &EMPLOYEE BENEFITS 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.
  • 23. ACTUARY &EMPLOYEE BENEFITS Established in 1943, Nyhart is an ESOP with 84 employees and offices in Indianapolis, Chicago, Atlanta and Kansas City. Areas of Expertise Include: • Cash Balance Plan • Defined Benefit & Pension • Defined Contribution & 401(k) • Employee Stock Ownership Plan • Flexible Spending, HRA & HSA • Healthcare Actuarial Consulting Learn more at www.nyhart.com

Editor's Notes

  1. Amends a prohibited transaction rule under ERISA and the Internal Revenue Code. That rule says that it is a prohibited transaction for a plan to enter into an arrangement with a service provider unless the “arrangement” is reasonable and the compensation being received by the service provider is reasonable. The regulation adds disclosure requirements for the service provider so that plan fiduciaries can determine whether a service provider arrangement is reasonable.
  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