FEE DISCLOSURE RULES PART II: MODELS AND Q&A

The Presenter

Bradley K. Arends, CEO – Alliance Benefit Group

• Industry

Past President Retirement Advisors & Designers of America Board of Managers Alliance Benefit Group National 2010 PLANSPONSOR “Top Providers” June 2010 Fidelity Investments Advisory Council Schwab Retirement Business Services Trust & Custody Advisory Board SunGard / Corbel Advisory Council

• Law Washington University School of Law – Class of 1984 American Bar Association Minnesota Bar Association Employee Benefit Section of the Minnesota Bar

I. Recap of 404(a)(5) Regulation & Unanswered Questions

II. Guidance from DOL

III. Portfolio Models DIA?

IV. Advisor Action Items

V. ABG Support

Agenda

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404(a)(5) Recap - The Deadlines

• August 30 – Initial Annual Disclosure Must detail fees that may be directly assessed to the

participant

• November 15 – Enhanced Quarterly Statements Must detail fees that were paid by the participant for the

applicable statement period

• Coverage Participant-Directed Plans

Individual Account Plans

(Not SEP or IRA or Frozen 403(b), Sole Proprietor Plans )

• Responsibility (is still on Plan Sponsor) Plan Sponsor can Outsource – Recordkeeper (ABG)

• Breach of Fiduciary Duty Inability to use 404(c) as a defense

Investment Losses

Excessive Fees

404(a)(5) Recap – The Rules

404(a)(5) Recap – The Questions

• The DOL’S final regulation leaves open-ended questions…

What qualifies as a “Designated Investment Alternative”?

Will Model Portfolios be viewed as a “DIA?”

404(a)(5) Recap - What is a DIA?

• 404a-5 (h)(4) “Designated Investment Alternative”

“Any investment alternative designated by the covered plan into which participants and beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts.”

ABG Requests Clarifications

• ABG Submits Comment Letter to DOL

Retains ERISA attorney, Fred Reish

Clarification of Term “Designated Investment Alternative” (“DIA”)

Clarification of “DIA” requirements

DOL Releases Q&A

• Q28 – Are Model Portfolios considered DIAs?

Answer: If a model is made up of core funds, it is not considered DIA.

Answer: If a model includes non-core funds, the model is considered a DIA.

• Q29 – Do the regulations also cover SDBAs?

Answer: Yes. SDBAs must follow these same disclosure requirements.

The Problem - DIA

• DIA Requirements:

Rate of Return on DIAs Advisor must submit SEC Compliant Performance/ROR to

their ABG Account Manager, at a minimum, annually

Dedicated Website for DIAs Description of the Investment Objective

SEC Compliant Performance/ROR

Expense Ratio

Unitized

Non-Core Funds DIA

The Solution – Avoid DIA

96-1 Education

3(21) “Strategies”

3(38) Managed Accounts (For participants with core funds)

Non-DIA

Your Options

Education Strategies

96-1

Non-Fiduciary Service

Participant Rebalancing

Check the Box

Core Funds

Strategies

3(21)

Auto Rebalancing

Check the Box

Core Funds

Managed Accounts

3(38)

Fiduciary Service

Core + Non-Core Funds

Your Options – 96-1 Education

• Rename Models to “Strategies”

• Non-Fiduciary Service

• Participant-Directed Rebalancing

• Use of Core Funds

• “Check the Box” Election

Education Strategies

96-1

Non-Fiduciary Service

Participant Rebalancing

Check the Box

Core Funds

Your Options – 3(21) Strategies

• Rename Models to “Strategies”

• Fiduciary Service

• Auto Rebalancing

• Use of Core Funds

• “Check the Box” Election

Strategies

3(21)

Auto Rebalancing

Check the Box

Core Funds

Your Options – 3(38) Managed Accounts

• Rename Models to “Managed Accounts”

• Fiduciary Service

• Auto Rebalancing

• Use of Core & Non-Core Funds

• Service Specific to Participant

Managed Accounts

3(38)

Fiduciary Service

Core + Non-Core Funds

Action Items for Advisors

• Considering the facts…

What type of advisor are you? 3(21)? 3(38)?

Do you have model portfolios in your plan(s)?

How will you view your models?

• Complete the Advisor Questionnaire (access via the Links button) and submit to your ABG Account Manager by Friday, July 13th, 2012.

ABG Fee Disclosure Resources

• The Alliance Benefit Group “Tool Box” that advisors can access to help their sponsors & ultimately, plan participants. Click the links icon to access these items.

• What’s included? Sample RIA 408(b)(2) Agreement

Fee Disclosure Help-Packet Sponsor Bulletin

408(b)(2) Sponsor Checklist

Disclosure Timeline

Fee Disclosure Repository Resources Accessible on Plan Sponsor Website – CSP Agreements,

Sponsor Checklist, Benchmark Report, etc…

Benchmarking – Plan Tools

Questions?

CONTACT: Tim Struck – tstruck@abg-mn.com Patty Richeson – pricheson@abg-mn.com Brad Arends – barends@abg-mn.com

Thank you for attending.