408(b)(2)FEE DISCLOSURE

By: Kathy K. Walker, VPSimpkins & Associates

DISCLOSURE……………….DISCLOSURE……………….• The information provided in this presentation is

based upon complex requirements of the IRS and Treasury Regulations.

• Although care has been taken to present the material accurately, S&A disclaims any implied or actual warranties as to the accuracy of any material herein or completeness and any liability with respect thereto.

• Neither S&A nor its representatives give legal, tax or financial advice.

• This PowerPoint is intended to be used as an executive summary or overview.

408(b408(b)(2))(2)Fee DisclosureFee Disclosure

• Proposed regs issued December 13, 2007• Department of Labor published interim

final rule – July 16, 2010• An interim final rule is a binding rule• Can be replaced by a final rule following

the comment period• Effective July 1, 2012

408(b)(2)408(b)(2)Fee DisclosureFee Disclosure

• The final rule applies to “covered plans”• Which plans are “covered plans”• Which plans are excluded

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• The final rule will apply to all contracts between covered plans and covered service providers in effect on July 1, 2012

408(b)(2)408(b)(2)FEE DISCLOSUREFEE DISCLOSURE

• Form 5500 – Schedule C• Form 5500 – Schedule A

408(b)(2)408(b)(2)FEE DISCLOSUREFEE DISCLOSURE

• Must be in writing and include a description of the following:– Services to be provided– Direct compensation– Indirect compensation– Any compensation that will be paid to the service

provider• Transaction basis• Charged against the plan’s investment and reflected n

the net value of the investment

408(b)(2)408(b)(2)FEE DISCLOSUREFEE DISCLOSURE

• Must be in writing – cont’d– Any compensation that will be paid with the

termination of a contract– The manner in which the compensation will be

paid– Any compensation that will be charged directly

against the amount invested – The annual operating expenses– Any ongoing expenses in addition to the annual

operating expenses

Investment Professional Compensation and Services Acknowledgement

Plan Name: ______________________________________________________________________ Plan Contract Number: _____________________________________________________________ Investment Professional:____________________________________________________________ Broker Dealer:_____________________________________________________________________ Date: ___________________________________ This disclosure is intended to help plan sponsors and other trustees understand the costs associated with their qualified retirement plans. Your investment professional’s goal is to provide education and guidance to you and your plan participants regarding your retirement plan. Please see the Statement of Services below for a detailed description of the services that may be provided to your plan. Such education and guidance allows you to make an informed decision about the selection and implementation of a qualified retirement plan based on the unique needs of your company and its employees. To that end, the investment professional may have agreements with several insurance and mutual fund companies (providers) that offer retirement plan investment products. These providers typically offer group annuities or mutual funds as funding vehicles for retirement plans . In its capacity as broker-dealer, the broker dealer and its representatives do not serve as fiduciaries to retirement plans or provide investment, tax or legal advice. However, the broker dealer or investment professional may also be a registered investment adviser and may act in a fiduciary capacity to certain retirement plans within the limits of its advisory programs.

The investment professional acknowledges that he/she is a fiduciary to the retirement plan The investment professional is not acting as a fiduciary to the retirement plan

Group annuity providers typically apply part of an annual contract charge, which is described in the annuity contract between the client (usually the plan sponsor or trustee) and the provider, to compensate the Broker Dealer and its representatives. The compensation received by Broker Dealer is commonly based on deposits into the plan and/or assets, held in the plan and is agreed upon when the plan proposal is prepared for the client as part of the client’s overall cost. Broker Dealer then pays investment professionals a percentage of the compensation it receives based on each investment professional’s overall annual

investment production

Statement of Services Participant Communications

Development of employee education program strategies and tactics including employee meetings to educate them on the benefits of plan participation, the need to save at increasing levels, proper investment portfolio design, asset allocation and investment option usage

Solicit employee feedback regarding the retirement plan via an employee survey Work with plan sponsor to develop measurable annual employee education goals and objectives Plan sponsor meeting to review the objectives of the plan and whether the plan is adequately benefiting the business’

key employees Plan sponsor meeting to review participant level activities including asset allocation, deferral rates and loan activity to

determine the effectiveness of plan utilization Employee meetings to educate them on the steps necessary to execute an IRA rollover Employee meetings tailored to the needs of employees over 50 years of age who are beginning to plan for retirement Plan sponsor meeting to discuss the concept of income replacement ratio; what it is, how to achieve plan sponsor’s goal

and whether participants are on track to meet their goals Train employee of plan sponsor to conduct basic plan enrollment sessions

Plan Management Assistance

Provide a periodic review of the goals of the plan compared to the actual results achieved Discuss and refresh Road Map activities for future quarters Provide an annual review encompassing investment performance vs. benchmarks, plan participation, deferral rates and

testing results for the past year Provide a quarterly review focused on investment performance and participant satisfaction Assist with plan design and review how plan design choices may impact participant experience Provide a periodic review of the existing plan provider and compare to alternatives available in the market Provide a periodic review of third party administrative services including statement accuracy, distribution and loan

processing, compliance testing accuracy and 5500 form completion Benchmark plan design elements against peer organization plans to ensure a competitive benefit structure Discuss recent regulatory developments, legislative updates or product developments that may affect the plan Provide a periodic update to the Board of Trustees Provide a periodic review of plan expenses relative to investment options and plan administration Every 3 – 5 years prepare a review of plan pricing by obtaining competitive bids from other vendors Assist in review and comparison of vendor proposals and services Assist with planning for transitioning to a new vendor

Investment Support

Employee/participant focused meeting to educate employees on basic investment concepts Employee/participant focused meeting to educate employees on the basics of portfolio diversification and asset

allocation based on risk tolerance assessments Provide a questionnaire for use by employees/participants to assist in their determination of appropriate investment

portfolios Provide quantitative data to assist investment option selection and monitoring relative to performance, expenses and

other criteria as determined by the plan sponsor Periodically monitor investment option performance in comparison to appropriate and agreed upon benchmarks Work with plan sponsor to develop alternatives for replacing investment options that are experiencing prolonged

underperformance, manager change or style drift Provide an overview of investment market performance including an economic overview Provide a longer term review of investment market performance and product developments in response to market

conditions Provide a sample Investment Policy Statement Answer questions to assist plan sponsor in maintaining compliance with the plan’s Investment Policy Statement and

sound investment practices

Investment Support Employee/participant focused meeting to educate employees on basic investment concepts Employee/participant focused meeting to educate employees on the basics of portfolio diversification and asset

allocation based on risk tolerance assessments Provide a questionnaire for use by employees/participants to assist in their determination of appropriate investment

portfolios Provide quantitative data to assist investment option selection and monitoring relative to performance, expenses and

other criteria as determined by the plan sponsor Periodically monitor investment option performance in comparison to appropriate and agreed upon benchmarks Work with plan sponsor to develop alternatives for replacing investment options that are experiencing prolonged

underperformance, manager change or style drift Provide an overview of investment market performance including an economic overview Provide a longer term review of investment market performance and product developments in response to market

conditions Provide a sample Investment Policy Statement Answer questions to assist plan sponsor in maintaining compliance with the plan’s Investment Policy Statement and

sound investment practices

Statement of Services

Plan Compliance Meeting with the plan sponsor to discuss the various elements of fiduciary liability faced by the plan sponsor and discuss

practices to manage those risks, including discussions of ERISA code section 404(c). Meeting with the plan sponsor to discuss the value of maintaining an Investment Policy Statement to manage fiduci ary

risks associated with investment option selection and performance. Review testing results with plan sponsor to uncover opportunities for plan design changes including safe harbor design. Provide checklist of required annual testing and government reporting. Review the operational aspects of transmitting plan contributions and the associated data

Compensation Structure Check all boxes that apply

Group Annuity Transfer Commission (paid one-time on value of assets transferred) _______ bps Deposit Based Commission (paid on each deposit to the contract) ________ bps Trail Commission (paid on market value of contract holdings) ________ bps

Mutual Funds Finder’s Fee (paid one-time on value of assets transferred) ______ bps Trail Commission (paid on market value of account holdings) ______ bps Transaction Fees or Account Fees ( on non-DTF brokerage accounts only )$_____________

408(b)(2)408(b)(2)FEE DISCLOSUREFEE DISCLOSURE

• Bundled Services• Unbundling Fees

408(b)(2)408(b)(2)FEE DISCLOSUREFEE DISCLOSURE

• Exemption for Plan Fiduciary• Prohibited Transaction• Failure to comply

404(a)(5)404(a)(5)FEE DISCLOSUREFEE DISCLOSURE

• Fee Disclosure to plan participants

Participant Fee DisclosureParticipant Fee Disclosure

• Final Rule Overview– Fiduciary Act– Participant Directed Accounts– Notices

Participant Fee DisclosureParticipant Fee Disclosure

• Effective Date: July 1, 2012• Notice Required: August 30, 2012• Participant Statements: November 14,

2012 (45 days following end of quarter)

Participant Fee DisclosureParticipant Fee Disclosure

• Plan Related Information– General

• Circumstances under which participants and beneficiaries may give investment instructions

• Specific limitations on such instructions• Plan provisions relating to the exercise of voting

rights (and restrictions)• Identification of designated investment alternatives

offered• Identification of any designated investment

managers

Participant Fee DisclosureParticipant Fee Disclosure

• Plan Related Information– General

• Description of any “brokerage windows” that allow participants and beneficiaries to select investments outside those designated by the plan.

– Administrative Expenses• Fees and expenses not included in the total

operating expenses of any designated investment alternative

Participant Fee DisclosureParticipant Fee Disclosure

• Plan Related Information– Administrative Expenses

• How will it be allocated• Revenue Sharing, 12(b)-1 fees, sub transfer agent

fees, etc.– Individual Expenses

• Explanation of any fees or expenses based on actions taken by the participant, such as loans and QDRO’s

Participant Fee DisclosureParticipant Fee Disclosure

• Investment Related Information – Identifying Information

• The name of each designated investment alternative

• Type or category of the investment

Participant Fee DisclosureParticipant Fee Disclosure

• Investment Related Information– Performance Data

• Investments without a fixed rate of return– Average annual return for 1, 5 and 10 year calendar

periods– Includes money market mutual funds and stable value

funds

• Investments with a fixed rate– The fixed or stated rate of return and the term of the

investment

Participant Fee DisclosureParticipant Fee Disclosure

• Investment Related Information– Benchmarks

• Investments without a fixed rate of return• Name and returns of an appropriate broad-based

securities market index of the preceding 1,5 and 10 year calendar returns