Fee Policy Statement Kit: Best Practices for Managing Plan Expenses

1. Q4 2014
TP476
2015
Fee Policy Statement: Best Practices for
Managing Plan Expenses Under ERISA

2. 1974
ERIS
A
1980’s
401(k)
Plans
2000 - 2002
Corporate Fiduciary
Governance
Enron, WorldCom Tyco
2002
fi360 Fiduciary
Best Practices –
Investment Policy
Statement
2006
Pension
Protection
Act
2012
408(b)2
The Game
Changer
2014
Fee
Policy
Stateme
nt
Evolution of DC Plan Governance
2 This material is not for distribution to plan participants.

3. Opening “Pandora’s Box” – Fee Documentation Process
8 This material is not for distribution to plan participants.

4. Basic Fiduciary Duties
▪ Acting solely in the interests of the participants & their
beneficiaries
▪ Being “prudent”
▪ Paying only reasonable and necessary expenses of
the plan
▪ Following the terms of the plan
▪ Not engaged in prohibited transactions
Source: U.S. Department of
Labor (DoL)
4 This material is not for distribution to plan participants.

5. Investment Policy Statement & The Investment Committee
How to Write an Investment Policy Statement
The IPS is the cornerstone of a prudent process.
 Most important fiduciary
task
 Defines roles and
responsibilities
 Defines a prudent process
 Paper trail of a prudent
investment process
 How can a fiduciary follow a
process that has not been
defined in writing?
Best Practices for Investment Committees
Investment committees purpose and objectives
5 This material is not for distribution to plan participants.
 Establish plan policies
and procedures for
investment fiduciaries
 Establish and document
formal process to make
investment decisions
 Create and execute
Investment Policy
Statement

6. Regulatory / Judicial Landscape

7. Regulatory Landscape
New regulations are designed to provide
plan sponsors and employees with more
information from which to make better-
informed decisions.
Jason C. Roberts, Esq
Partner at Retirement Law Group, PC & CEO of Pension Resource Institute, LLC
Quotes are for information only and should not be considered an endorsement, testimonial or recommendation of any product or viewpoint.
7 This material is not for distribution to plan participants.

8. Regulatory Disclosures – 408(b)(2) & 404(a)(5)
Source: Pension Resource Institute
Photos and quotes are for information only and should not be considered an endorsement, testimonial or recommendation
of any product or viewpoint.
ERISA Sec. 408(b)(2)
▪ Disclosures to plan sponsors
▪ Effective July 1, 2012 for all new and existing
contracts
▪ Disclosure by all Covered Service Providers
(CSP)
▪ Compensation for services rendered
▪ Fees must be reasonable
▪ Benchmarking
ERISA Sec. 404(a)(5)
▪ Disclosures to eligible employees
▪ Effective August 30, 2012 (calendar year plans)
▪ Plan more than 100 participant, add’l disclosure
▪ Non-event?
The disclosures required under these
regulations have the potential to
highlight gaps in current fee allocation
policies.
8 This material is not for distribution to plan participants.

9. New Regulations Impacting Fee Allocation
Source: Pension Resource
Institute
Covered Service Providers
Required to provide disclosures into a service
contract/agreement. Any changes must be disclosed no
later than 60 days from the date the service provider is
notified of such change.
Form 5500/Schedule C Participant Disclosures
9 This material is not for distribution to plan participants.
Plan Sponsors
Required to be filed
annually
Must be provided prior to eligible
employees annually and
participants quarterly

10. ▪ Settled for $35 Million
▪ Unreasonable recordkeeping & admin
fees
▪ Funds with excessive fees used incorrect
benchmark
▪ Multi-manager structure – unreasonable
▪ Inability to aggregate assets to obtain
better pricing
▪ Delayed crediting participant contributions
10 This material is not for distribution to plan participants.
▪ Improper use of fund revenue
sharing
▪ Plan document stated, “the
costs of administration of plan
will be paid by the company.”
▪ Plan amended to state, “the
costs of administration of the
plan, net of any adjustments by
CSP, will be paid by the
company.”
▪ +$35 Million in damages failed to monitor
required fees for recordkeeping services
▪ As plan AUM grew, recordkeeper revenue
grew beyond required revenue needed
▪ ABB failed to renegotiate (fiduciary
breech)
▪ Improperly used revenue sharing to
subsidize corporate expenses associated
with payroll and health & welfare plan
admin
“Had these plans incorporated a Fee Policy Statement, they may have avoided
significant losses of time, reputation & expense associated with litigating with plan
participants”
-Jason C. Roberts,
Esq Partner at Retirement Law Group, PC & CEO of Pension
Resource Institute, LLC
Lessons Learned: Fee Monitoring & Allocation
Quotes are for information only and should not be considered an endorsement, testimonial or recommendation of
any product or viewpoint.

11. What Does the DoL Expect of Plan Sponsors?
DoL Advisory Opinion 2013-03A
▪ Plan fiduciaries must:
– Assure that the compensation the plan pays directly or indirectly to a CSP for services is
reasonable, including any revenue sharing
– Act prudently and in the best interests of plan participants and beneficiaries in the
negotiation of the specific formula and methodology for revenue sharing
– Understand the formula, methodology and assumptions used by the CSP in arriving
at the amounts to be returned to the plan or used to pay plan service providers
– Be capable of periodically monitoring the actions taken by the CSP in its duties to assure,
that amounts to which the plan may be entitled are correctly calculated & applied
Source: U.S. Department of Labor (DoL), Pension
Resource Institute
11 This material is not for distribution to plan participants.

12. Refresher: Understanding Plan Costs & Revenue Sharing
Most of a plan’s costs are offset by the investments in a practice known as
“revenue sharing” here’s how it works:
12 This material is not for distribution to plan participants.
Understanding your plan's costs:
Investment expenses
(Expense ratios and management fees)
+ Recordkeeping and administration fees
+ Advisory expenses
(Investment advisors, consultants, accountants,
attorneys)
= Total Plan Cost

13. Understanding Service Provider Economics
ASSET GROWTH IN
THE PLAN OVER
TIME
Assets
Time
13 This material is not for distribution to plan participants.

14. Fee Policy Statement:
Controlling and Allocating Plan Expenses

15. What is a Fee Policy Statement?
▪ A plan governance tool to provide plan fiduciaries with a documented
and systematic approach to making decisions affecting the
management of the plan.
– Who is paying the fee to the recordkeeper of the plan?
– How are plan expenses paid or allocated?
– How is excess revenue being captured and allocated?
– How often are fees monitored?
15 This material is not for distribution to plan participants

16. Creating a Fee Policy
▪ Purpose
– To satisfy ERISA and prudently discharge duties to
pay expenses
▪ Fee policies
– How to pay for and allocate plan expenses
▪ Monitoring frequency
▪ Method of revenue sharing recapturing
– PERA / ERISA account
– Fee equalization
– Ensure CSPs are following the policy
16 This material is not for distribution to plan participants

17. The Fee Documentation Process

18. Are you Familiar with PERAs?
PERA – Plan Expense Recapture Account
▪ Mechanism to collect 12b-1,Sub-TA other forms of revenue sharing
▪ Maintained by recordkeeper to pay for eligible plan expenses
Two Structures
▪ In-Plan Account – revenue sharing amounts are considered plan assets
▪ Recordkeeper Account – revenue sharing payments are not considered plan assets
Distinction is important as it impacts the Plan fiduciaries’ duties
under ERISA
Note: If amounts held in PERA are considered plan assets, fiduciaries must determine the method in which any refunds
(excess revenue) will be credited back to participant accounts.
18 This material is not for distribution to plan participants

19. 19 This material is not for distribution to plan participants
Settlor v. Non-Settlor Expenses
What are eligible plan expenses under ERISA?
Source: Jason Roberts, PRI
The following fees typically are considered non-
settlor fees and can be paid from plan assets:
Recordkeeping fees Participant education fees
Trustee fees Legal fees (related to non-settlor
functions, i.e. preparation of
required ongoing plan
amendments)
Custodial fees Investment management fees
Plan accounting fees Plan fidelity bond fees
Plan audit fees Fees associated with IRS
determination letter application
Plan actuarial service fees Loan administration fees
Reporting fees
(Form 5500, etc.)
QDRO fees
Participant communication fees
The following fees typically are considered settlor
fees and cannot be paid from plan assets:
Plan design or other fees associated
with the establishment of the plan
EPCRS/VCP compliance fee
Plan termination fees VFC correction fees
Fees associated with discretionary
plan amendments
Amendment of plan for a merger or
spin-off
Audit CAP sanctions

20. Does the Provider Offer a Recapture Account or Other Equalization Method?
20 This material is not for distribution to plan participants
Questions
▪ If PERA, then how are credits accounted for (e.g. on books of provider vs.
unallocated plan account)?
▪ What process does the plan have to monitor the credits?
▪ If equalized, how does the method affect various classes of participants?
▪ Is the arrangement reasonable?

21. Expense Allocation Methods

22. Background: Expense Allocation Methods
22 This material is not for distribution to plan participants
Traditional methods for allocating plan expenses include:
▪ Solely paid for by the company (from corporate assets)
▪ By the company less any credits received from investments (revenue sharing)
▪ Solely paid by the plan’s participants
Methods for administrative expenses paid by the plan/participants:
▪ CSPs billing plan directly deducting expenses from participants’ accounts or from forfeiture accounts
▪ CSPs offsetting fees with revenue sharing, deducting additional cost from participants
▪ Use of PERA to collect revenue sharing to pay CSPs directly and excess revenue sharing returned to Plan
or retained by the recordkeeper.
Fiduciaries must determine if the expense is properly paid from plan assets and fee allocation method among participants
(e.g. on pro rata or per capita basis).
Source: Jason
Roberts, PRI

23. Allocating Expenses and/or Credits
23 This material is not for distribution to plan participants
▪ Pro Rata: allocated on the basis of the account size of the participant in relation to the
plan’s total assets
▪ Per Capita: spread out equally among all participants
▪ Hybrid Method: combined pro rata & per capita approach
▪ Fee Equalization: recordkeeping costs are applied evenly across all funds in the plan
▪ Individual Charges: charges to individuals who receive specific services, such as loan fees,
QDROs, etc.
Source: Jason
Roberts, PRI

24. Which Approach is Reasonable? - Appropriate? - Fair?
Source:
Callan
DoL’s FAB 2003-3:
Choosing dollar or basis point fee deemed “most appropriate” depends on what is “solely in
the
interest of participants”. It can disfavor one class of participants - “provided that a rational
basis exists for the selected method”.
Flat dollar into basis point charge
24 This material is not for distribution to plan participants
Fees assessed on a percentage
basis
Hypothetical Plan
Example: Plan Assets:
$100M
# Participants: 2,000
Admin Costs: $100k

25. Fixed Fees – Changing How Services are Paid
Example of Fixed Fee
Arrangement
Source:
Callan
25 This material is not for distribution to plan participants

26. What is the Right Choice?
▪ Determine the source of fee payment—the plan sponsor, participant, or a combination of both.
▪ Evaluate and select the method of fee payment—fixed fee or asset-based fee.
▪ Establish the payment approach—percentage fee, dollar fee, 12b-1, revenue sharing, and/or an
internal allocation.
Source:
Callan
26 This material is not for distribution to plan participants

27. Ethos and the Prudent Process

28. 401k Ethos & the “Prudent” Process
Don Trone
Co-Author of 401k
Ethos
28 This material is not for distribution to plan participants
Ethos (ē-thäs) gr.
The link between leadership behaviors, core
values and a decision-making process

29. Ethos and Governance
29 This material is not for distribution to plan participants
Provides a decision-making framework which grants the capacity to manage all three
facets: regulatory, governance, and stewardship. This framework is the essence of
ethos.
Source: 3Ethos
Licensed to the Leadership Center for Investment Stewards

30. 5 Step Decision-Making Process
Source: 3Ethos
Licensed to the Leadership Center for Investment Stewards
CSP disclosures to determine the nature and
sources of Compensation
Examine Competing Interests of Plan
Participants and Available Allocation
Methods
Develop a Fee Policy Statement that
aligns with the Chosen Strategy
Implement Fee Policy Statement and
Incorporate Into Plan Documents
Monitor Fees and Reconcile Payments
1
2
3
4
30 This material is not for distribution to plan participants
5

31. 31 This material is not for distribution to plan participants
Leadership does not come with
detailed maps – only a general sense
of direction.
Don Trone
Co-Author of 401k Ethos
Quotes are for information only and should not be considered an endorsement, testimonial or recommendation of any product or viewpoint.

32. Advisor Best Practices and Getting Started

33. Plan Sponsor Guide – for introducing the conversation
and explaining how the FPS can help plan fiduciaries
manage risk and save time
ERISA Plan Expense Worksheet – for helping plan
fiduciaries evaluate plan expenses
Sample Fee Policy Statement – a framework for
documenting decisions about expenses
Implementing the Fee Policy Statement – Process and
Sales Ideas
Beyond Benchmarking: Advisor Best Practices & Tools
The Advisor Guide and kit materials are designed to provide a framework for Reviewing plan expenses and
working with plan sponsors to develop and implement a Fee Policy Statement.
What Plan Sponsors need to access
33 This material is not for distribution to plan participants
CSP(s)
408(b)(2) Disclosures
Fiduciaries
DOL / IRS
Schedule C
Form 5500
Employees/Participants
404(a) Disclosures

34. Document with a Fiduciary Audit File
✓ Fee Policy
Statement
Audit Files Checklist
▪ One of the most important best practices:
Prudent process and consistent documentation
▪ The fiduciary audit file is one of the most
valuable tools to document prudent
process.
▪ Get it right, and get it in writing.
✓Plan Documents
✓Gov’t / Regulatory Requirements &
Communications
✓Journals and Ledgers
✓Section 404(c) Compliance
✓ERISA Fidelity Bond
✓Participant Communication Documents
✓Investment Policy Statement
✓Third Party Service Provider Documents
✓Procedures and Minutes of All Meetings
34 This material is not for distribution to plan participants

35. Brian P. Bouchard
Brian P. Bouchard, AIF ®, CRPC ®, CRPS ®
Regional Retirement Consultant
Brian Bouchard is the regional retirement consultant for the Northeast Region at
Thornburg Investment Management. He has over 20 years of experience in qualified
plan sales. At Thornburg, he is responsible for delivering the firm’s investment only
retirement plan focused sales strategy and value-added services to plan advisor and
retirement plan platform alliances.
Prior to joining Thornburg, Brian was a retirement plan consultant at Merrill Lynch in
New England, and a regional retirement director for the Morgan Stanley Smith
Barney Retirement Group. Brian received his BA from The Catholic University of
America, and a Graduate Certificate of Special Studies in Administration and
Management from the Harvard University Extension School. He is currently
registered with FINRA with a Series 7 and also holds the AIF, CRPC and CRPS
designations.
35 This material is not for distribution to plan participants.

36. www.thornburg.com
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a
prospectus or summary prospectus containing this and other information, contact your financial advisor
or visit thornburg.com. Read them carefully before investing.
Not FDIC Insured. May lose value. No bank guarantee.
Thornburg Funds are distributed by Thornburg Securities Corporation.
2300 North Ridgetop Road
Santa Fe, New Mexico 87506
877-215-1330