408(b)(2)
FEE DISCLOSURE
By: Kathy K. Walker, VP
Simpkins &
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(b)(2)
Fee 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)
Fee Disclosure
• The final rule applies to “covered plans”
• Which plans are “covered plans”
• Which plans are excluded
408(b)(2)
Fee Disclosure
• The final rule will apply to all contracts
between covered plans and covered
service providers in effect on July 1, 2012
408(b)(2)
FEE DISCLOSURE
• Form 5500 – Schedule C
• Form 5500 – Schedule A
408(b)(2)
FEE 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)
FEE 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.
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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
Statement of Services
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
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 fiduciary
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
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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
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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)
FEE DISCLOSURE
• Bundled Services
• Unbundling Fees
408(b)(2)
FEE DISCLOSURE
• Exemption for Plan Fiduciary
• Prohibited Transaction
• Failure to comply
404(a)(5)
FEE DISCLOSURE
• Fee Disclosure to plan participants
Participant Fee Disclosure
• Final Rule Overview
– Fiduciary Act
– Participant Directed Accounts
– Notices
Participant 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 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 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 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 Disclosure
• Investment Related Information
– Identifying Information
• The name of each designated investment
alternative
• Type or category of the investment
Participant 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 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