1. CAPSTONE FINANCIAL
401K RULES AND REGULATION
408(b)(2) Disclosures and Agreements
David J. Melilli
President
856-248-0645
davidm@capstonesuccess.com
www.capstonesuccess.com

2. OVERVIEW
The purpose of this presentation is to identify the main issues for
plan sponsors and provide an overview of the fiduciary
responsibilities involved with company sponsored retirement
plans. The obligation to review information provided by service
providers falls on the fiduciary, business owner or plan sponsor;
this individual has the power to engage the service provider, who
is referred to in the 408(b)(2) regulation as the “responsible plan
fiduciary.”
We will review the rules and regulation changes and how they
will effect business owners.

3. ERISA §408(B)(2)
April 1, 2012, is a significant date for plan sponsors and
their plan committees. By that date, they will have received
and will need to begin evaluating information from their
plan’s service providers. The information being disclosed
will detail all fees and expenses, as well as any conflicts of
interest within the plan. The regulation 408(b)(2) requires
plan service providers to make disclosures about their
services, compensation and fiduciary status – to their
clients and participants by April 1 of next year. As a result,
starting next spring, plan sponsors will face heightened
expectations and legal responsibilities.

4. FIDUCIARIES OF RETIREMENT PLANS
Fiduciaries of retirement plans are now
going to be held accountable for the
evaluation of expenses paid by their plans
participants for services and investments. In
fact, it is both a fiduciary breach and a
prohibited transaction to have a plan in place
that is currently paying more than what is
considered reasonable expenses.
Many plan sponsors are not aware that they must
also evaluate the reasonableness of the
compensation of their plans’ service providers.

5. POTENTIAL LIABILITY FOR BUSINESS OWNERS
 Plan Structure
 Plan Administrative Costs
 Investment Costs
 Total Expense Ratios on plan investments
 12b-1 Fees
 Sales Commissions
 Advisory Fee
 Investment Firm Fee
 Revenue Sharing with Administrative Providers
 Direct & Indirect Service Fees

6. NEW DOL REGULATION
The 408(b)(2) regulation requires your plan’s service
providers to disclose information about their services,
status and compensation. Major changes will be seen
on monthly statements being sent to all participants,
they will now see a detailed breakdown of all
investment & transaction fees as well as plan
administrative fees; the breakdown will give an exact
amount being paid by every participant each month.
All fees will be disclosed on participants monthly
statement.

7. FEE DISCLOSURE
Compensation is divided into three categories: direct, indirect, related
parties. All of the following fees will be required and printed on each
participant statement.
Direct compensation: This category covers any payments made directly
from the plan or trust. As an example, if a service provider sends you an
invoice and it is paid through plan assets, that is considered direct
compensation.
Indirect compensation: This category covers any payments being made
from any source other than directly from the plan or the plan sponsor.
Compensation among related parties: Commissions or incentive
compensation based on business placed or retained with your plan and
its services. In addition, 12b-1 (marketing expense on mutual funds)
fees that might be paid to a recordkeeper or broker-dealer.

8. RECORDKEEPER DISCLOSURES
Recordkeeper disclosures: Your recordkeeper will need to make
additional disclosures in regards to compensation from service providers.
The recordkeeper, or bundled providers that include recordkeeping
services, will need to:
 Describe all direct and indirect compensation it receives; and
 If its compensation is offset or rebated, or otherwise adjusted,
for any compensation it, or its affiliates or subcontractors,
receives, the recordkeeper will need to provide you with a
reasonable estimate of what it would charge your plan without
those factors being considered.

9. PLAN INVESTMENT FEES
 Transaction compensation: Fees that are charged
against the investments for, e.g., commissions,
redemption fees, surrender charges.
 Operating expenses: Charges against the investments
for their ongoing operation. e.g., expense ratios.
 Other ongoing expenses: Items such as wrap fees,
mortality and expense fees.
 Financial Advisory Fees
 Investment Company Fees

10. PLAN SPONSOR RESPONSIBILITIES
 Review and Evaluate Each disclosure
 Is compensation reasonable for the services being
received?
 Are the services appropriate for the plan? Are
additional services required?
 Are they meeting the needs of the plan sponsors
and participants?
 Has the plan sponsor done adequate due diligence
on the plan service providers and investment
choices?

11. FAILURE TO MAKE PLAN CORRECTIONS
 Taxes and Penalties
 Suspension of the retirement plan
 Employee initiated litigation due to:
 Investment loss
 Excessive Fees
 Lack of resources to make educated investment
decisions
 Unreasonable administrative fees/newly disclosed fees

12. WHAT SHOULD A PLAN SPONSOR DO?
 Do a comprehensive plan review prior to April 2012.
 Ascertain all expense information currently being
paid on the plan.
 Review the suitability of the plan structure for all
participants.
 Review investments choices and fees, determine if
they are appropriate.
 Review all service providers and their fees,
determine if they are appropriate.
 Evaluate financial advisor’s performance

13. MAKING CHANGES
 Fee based platform
 Fee based financial advisor
 Fee based service providers
 Low cost investments & Exchange Traded Funds
 No transaction fees
 Monthly Financial Advisory visits with participants
 Participant friendly technology

14. CAPSTONE FINANCIAL
DAVID J. MELILLI
PRESIDENT
856-248-0645
DAVIDM@CAPSTONESUCCESS.COM
WWW.CAPSTONESUCCESS.COM
PLEASE CALL OR EMAIL TO MAKE AN APPOINTMENT FOR A PLAN
REVIEW.
THANK YOU.