ERISA 408(b)(2) - NFIB · Download slides at: ... •Services as an RIA Download slides at: ......

ERISA § 408(b)(2)

New Department of Labor Regulations and Their

Impact on Retirement Plan Sponsors

Presented by Todd Kading, CFP®, ChFC®, RF™

LeafHouse Financial Advisors, LLC

Download slides at: http://www.nfib.com/RetirementSponsors

Participate on Twitter: Follow @nfiblive and use hashtag #nfiblive

Meet Our Speaker Todd Kading

Managing Director

LeafHouse Financial Advisors

Prior to founding LeafHouse, Todd was

a partner in Austin-based Weaver,

Kading & Associates, one of the “Top

10 Most Dependable Wealth

Managers,” according to Texas

Monthly Magazine

Served on the Texas State University

Planned Giving Committee

Is the only Texas-based “Registered

Fiduciary”



Plan Sponsor Fee Disclosure

Regulation • Service providers are now required to disclose to plan

fiduciaries detailed information about fees earned and

services provided

• Applies to new and existing contracts and arrangements

• Effective April 1, 2012



Am I a Fiduciary? • Plan Fiduciaries are responsible for “acting solely in the interest of plan

participants and their beneficiaries and with the exclusive purpose of providing benefits to them”

• “Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan”

• Examples of Fiduciaries include parties who:

• Have control or discretion over the plan or its administration

• Are a member of the benefits or investment committee

• Who have influence in selecting committee members

• Sign the DOL Form 5500



What is a “Covered Plan?”

• ERISA covered defined contribution

and defined benefit plans eg. 401k,

403b, profit-sharing, pensions

• Does not apply to welfare plans

• Regulations expected Spring 2011



Who is a “Covered Service

Provider?” • A party who enters into an arrangement directly with the plan

to receive at lease $1,000 in compensation for services such

as:

• ERISA Fiduciary or Registered Investment Advisor (RIA)

• Recordkeeping or brokerage services to individual account plan,

with one or more investment options

• Anyone on a list of services and receiving indirect compensation

• Obligated to provide services to the plan, regardless of

whether they have hired an affiliate or subcontractor to

provide services on their behalf



Main Types of “Covered Service Providers”

• Recordkeeper

• Administrator

• Broker/Advisor

• Fiduciary



Main Types of “Covered Service Providers” cont.

• Recordkeeper

• Tracks contributions, amounts, types,

etc.

• Provides custodial services and

statement information

• Coordinates deposits from payroll




• Administrator

• Helps with daily admin functions

• Loans, hardship withdrawals

• Top heavy testing

• Plan design




• Broker/Advisor

• Matches employer with plan

providers

• Facilitates the sales process

• Liaison between provider and

sponsor




• Fiduciary

• Performs RFP of services providers

• Negotiates fees of providers

• Drafts Investment Policy Statement

• Picks investment choices

• Monitors & coordinates education

• Always acts in the best interests of

the plan and its participants



What Are Fiduciary Services?

• An ERISA Fiduciary must act solely in the interests of plan

participants with the exclusive purpose of providing benefits

to them and defraying reasonable plan expenses.

• Vendors are Fiduciaries if they provide fiduciary services

such as:

• Exorcising discretionary control over the operation,

administration, or management of the plan

• Rendering of investment advice for a fee

• Services to a collective investment trust or pooled separate

account

• Services as an RIA



Obligations of a “Covered Service Provider”

• Disclose certain information to “responsible plan fiduciary”

• Required to disclose on behalf of affiliates and

subcontractors providing services on behalf of the covered

service provider



Form of Disclosure • In writing

• No specific format

• Different documents from different sources are allowed but

they must contain all information



What Must Be Disclosed?

• Specific description of services to be

provided

• Status as a fiduciary (If yes, what scope?)

• Compensation

• Direct (received straight from the plan)

• Indirect (not from plan, plan sponsor,

covered service provider or affiliate)

• Payments among related parties



Compensation Paid Among Related Parties

• Compensation set on a transaction basis

commissions, soft dollars, finder’s fees

similar incentive compensation based on business

placed or retained

• Compensation charged directly against the plan’s

investment and reflected in the net value of the

investment (e.g., 12b-1 fees)

• Identify specific services for which

compensation will be received

• Identify payer and recipient of compensation,

including the status of each as an affiliate or a

subcontractor



Types of Fees

• Direct compensation (invoices)

• Per-participant fees

• 12b-1 fees

• Sub-transfer agent fees

• Asset management fees



What Else Must Be

Disclosed? • Compensation for termination of a contract

• Compensation received in connection with recordkeeping

• Manner of receipt (billed or deducted)

• Investment option disclosure



Timing of Disclosure

• Initial disclosure

• Before the contract or

arrangement is entered into

• Changes to information in initial

disclosure

• As soon as practicable

• No later than 60 days



Opportunities Created

• Gives the current Plan Sponsor and all Fiduciaries the

impetus to fully assess the reasonableness of costs and

benefits provided by all vendors

• Reinforces the fiduciary responsibility standard to Plan

Sponsors and other decision makers such as:

• Benefits committees

• Executive committees

• Human resource managers

• HR and benefits administrators

• CFOs



Key Issues to Consider • Does the Advisory Firm accept fiduciary duty (in writing)?

• Do you know what services are being rendered for the fees being

paid? Is it in writing?

• Is advice to the plan free of conflicts-of-interest?

• Is the advisor unaffiliated with a Broker/Dealer?

• Is your existing group of service providers offering appropriate

amounts of onsite education to participants?



Risk Management If you do not know the answers to these questions

or

if the answer to any of them is NO,

then you may have

A FIDUCIARY PROBLEM.



Fiduciary Risk Assessment

• Assessment Contents

• Fee assessment with a breakdown of costs among service providers

• Benchmarking of those fees to the national average

• Description of services, duties, and fiduciary status of service providers

• Details regarding plan design and investment selection

• List of recommendations on how to rectify any issues

• Required Documents:

• Summary Plan Description

• Enrollment Packet with Investment Menu

• Recent Monthly/Quarterly Invoice

• Investment Policy Statement (If Available)

• Plan Contract (If Available)



Department of Labor Interim Regulation Fact Sheet

http://www.dol.gov/ebsa/newsroom/fsimprovedfeedisclosure.html

Department of Labor Fiduciary Handbook

http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html

Valuable Resources



http://www.dol.gov/ebsa/newsroom/fsimprovedfeedisclosure.html

http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html

You may contact Todd Kading directly at:

[email protected] (512) 879-1505

9442 Capital of Texas Highway

Building II, Suite 150 Austin, TX 78759



mailto:[email protected]

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