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GAIN CONTROL berrydunn.com CUT THROUGH THE CONFUSION OF PARTICIPANT FEE DISCLOSURE
GAIN CONTROL berrydunn.com
CUT THROUGH THE CONFUSION OF PARTICIPANT FEE DISCLOSURE
GAIN CONTROL
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
PARTICIPANT FEE DISCLOSURE
DOL final Participant disclosure regulation
• Written annual disclosure − General Plan information
− Fee information
− Investment information (with chart)
GAIN CONTROL
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
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
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
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
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
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
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
