presentation on 1/20/12

1. CUT THROUGH THE CONFUSION OF
PARTICIPANT FEE
DISCLOSURE
GAIN CONTROL berrydunn.com

2. FEE DISCLOSURE
Why now?
• When things go bad, complaints arise
− Lost decade re: equity returns
− Numerous lawsuits against retirement plans
− Increased scrutiny of all fees
GAIN CONTROL

3. FEE DISCLOSURE
Why now? – The DOL decided it was time for action
• No need for Congress as foundational rules were existent
ERISA requires disclosure (it always has!)
GAIN CONTROL

4. PROVIDER FEE DISCLOSURE
ERISA requires Provider disclosure
• ERISA provides that a Service Provider contract with a
retirement plan is a prohibited transaction unless the contract is
reasonable [Sec. 408(b)(2)]
• How can any employer determine reasonableness absent fee
disclosure?
IT’S ALL ABOUT REASONABLE SERVICE CONTRACTS
GAIN CONTROL

5. PROVIDER FEE DISCLOSURE
ERISA requires disclosure
• Are your Provider service contracts reasonable?
• Do you know what all of the potential fees are?
• Once you know the fees, must you compare?
GAIN CONTROL

6. PROVIDER FEE DISCLOSURE
DOL issues interim final regulation on 7/16/2010
requiring Provider Fee disclosure
• Now effective 4/01/2012 
• Rule requires a Covered Service Provider rendering services to
a Covered Plan to provide disclosure to a responsible Plan
fiduciary before a contract is signed.
• Applies to existing contracts as of 4/01/2012
GAIN CONTROL

7. PROVIDER FEE DISCLOSURE
DOL Provider disclosure regulation
• Covered plans
− ERISA covered retirement plans
e.g., 401(k), 403(b), defined benefit, etc.
• Plans not covered
− Welfare plans
− IRA based plans
− Non-ERISA plans
− Deferred compensation ‘top hat’ plans
GAIN CONTROL

8. PROVIDER FEE DISCLOSURE
DOL Provider disclosure regulation
• Covered service providers =
Generally, those providing services to Plan in excess of $1,000
over life of contract.
− Recordkeeper (e.g., Fidelity) Yes No
− Investment fiduciary Yes No
− TPA Yes No
− Plan Auditor Yes No
− Attorney Yes No
GAIN CONTROL

9. PROVIDER FEE DISCLOSURE
DOL Provider disclosure regulation
• Covered service providers
• This can get confusing – make your Providers do the work.
• IF AN ENTITY PROVIDES SERVICES TO YOUR PLAN –
REQUIRE A FEE DISCLOSURE or A WRITTEN SIGNED
STATEMENT SAYING IT IS NOT A COVERED SERVICE
PROVIDER UNDER THE RULES
GAIN CONTROL

10. PROVIDER FEE DISCLOSURE
DOL Provider disclosure regulation
• Responsible Plan fiduciary =
The person or committee with the authority to enter into a
contract for services on behalf of the Plan
GAIN CONTROL

11. PROVIDER FEE DISCLOSURE
DOL Provider disclosure regulation
• What must Service Provider disclose?
− A description of all expected services and fees
− All direct and indirect compensation
− Compensation paid among related parties
− Compensation for termination of arrangement
− Manner of receipt of services
• Must the fees be summarized?
GAIN CONTROL

12. PROVIDER FEE DISCLOSURE
DOL Provider disclosure regulation
• What happens if a failure occurs?
− 15% excise tax for Service Provider
May have to refund fees to Plan
− Possible fiduciary breach by employer
Potential for Participant suit
GAIN CONTROL

13. PARTICIPANT FEE
DISCLOSURE
ERISA also requires Participant fee disclosure
• If Participants are allowed to invest, then disclosure is required
− Voluntary in the past Section 404(c) regulations
− Mandatory now Section 404(a) regulations
GAIN CONTROL

14. PARTICIPANT FEE
DISCLOSURE
DOL issues final regulation on 10/14/2010 requiring
Participant Fee disclosure
• Current effective date for initial disclosure –
− Calendar year plans: 5/31/2012
− Fiscal year plans:
Later of 5/31/2012 or fiscal PY beginning after 5/31
GAIN CONTROL

15. PARTICIPANT FEE
DISCLOSURE
DOL final Participant disclosure regulation
• New rule applies only to ERISA covered, defined contribution,
Participant directed retirement plans
− 401(k), 403(b) Yes
− 457(b) non-governmental No
− IRA based plans No
GAIN CONTROL

16. PARTICIPANT FEE
DISCLOSURE
DOL final Participant disclosure regulation
• So what is required and by whom?
− Plan administrator must provide plan, fee & investment
information on an annual and quarterly basis.
− Annual disclosure - is comprehensive
− Quarterly disclosure - is focused on fees
GAIN CONTROL

17. PARTICIPANT FEE
DISCLOSURE
DOL final Participant disclosure regulation
• Plan administrator = generally, the Employer or a Committee
− A TPA is NOT a “plan administrator”
− The Plan document will identify the Plan administrator
GAIN CONTROL

18. PARTICIPANT FEE
DISCLOSURE
DOL final Participant disclosure regulation
• Written annual disclosure
− General Plan information
− Fee information
− Investment information (with chart)
GAIN CONTROL

19. PARTICIPANT FEE
DISCLOSURE
DOL final Participant disclosure regulation
• Written annual disclosure
− General Plan information
− Structure & mechanics of Plan’s investment provisions
− List of designated investment alternatives
− Description of any brokerage window
GAIN CONTROL

20. PARTICIPANT FEE
DISCLOSURE
DOL final Participant disclosure regulation
• Written annual disclosure
− Fee information
− All administrative expenses (TPA, legal, etc.)
− Expenses that may be deducted from Participant
accounts (loan fees, etc.)
GAIN CONTROL

21. PARTICIPANT FEE
DISCLOSURE
DOL final participant disclosure regulation
• Written annual disclosure
− Investment information (for each investment alternative)
− Performance data (1, 5 & 10 year)
− Benchmark information
− Fee & expense information
− Website address
− Glossary
ALSO, A COMPARATIVE CHART IS REQUIRED
GAIN CONTROL

22. PARTICIPANT FEE
DISCLOSURE
DOL final participant disclosure regulation
• Written annual disclosure – comparative investment chart
− Multiple investment providers (think 403b plan) cannot send
out separate, comparative charts.
− Someone needs to create a single, comparative chart
package
GAIN CONTROL

23. PARTICIPANT FEE
DISCLOSURE
DOL final participant disclosure regulation
• Written annual disclosure – Electronic delivery
− Plan can deliver Plan and Expense information with the
Participant benefit statement.
− Allows use of IRS E-delivery rules or 24/7 web delivery.
− Plan can deliver comparative chart with Participant
Statement but only under more cumbersome DOL rules
− Participants required to ‘opt in’
GAIN CONTROL

24. PARTICIPANT FEE
DISCLOSURE
DOL final participant disclosure regulation
• Written quarterly disclosure
− Must report fees charged to or deducted from Participant
account
Re: administrative and individual expenses
− Expected to be included with quarterly Participant
statements
GAIN CONTROL

25. PARTICIPANT FEE
DISCLOSURE
DOL final participant disclosure regulation
• The ramifications of non-compliance
− Employer/Fiduciaries will lose Section 404(c) protection
− Employer/Fiduciaries may be liable for a fiduciary breach
GAIN CONTROL