File No.:
17005-012(1)
TO:
FROM:
Independent Registered Investment Advisers
Fred Reish
DATE:
February 22, 2012
RE:
ERISA Section 408(b)(2) Disclosure Information and Sample Agreement
This memorandum provides an overview discussion about how the Department of Labor’s
408(b)(2) final regulation affects independent registered investment advisers (Advisers) and
includes a sample agreement prepared by Fred Reish of the Drinker Biddle & Reath law firm
(attached as Exhibit A). This memorandum and the sample agreement are designed to be used
by independent Advisers and their counsel in preparing service agreements between Advisers
and plan sponsors/fiduciaries of participant directed retirement plans, such as 401(k) plans, for
which the adviser will provide non-discretionary investment advice under Section 3(21)(A)(ii) of
the Employee Retirement Income Security Act of 1974 (ERISA).
The attached sample agreement has been prepared as a starting point document for Advisers and
will need to be carefully reviewed by Advisers with their own legal or other advisers. The
sample was prepared without regard to the law of any state. Advisers should consult with their
own attorney before incorporating any of the provisions in the sample agreement into their own
advisory agreement, or adopting or otherwise relying upon the sample agreement for use in their
advisory practice. Further, Advisers should discuss with their own counsel whether additional
provisions are appropriate from a general legal compliance and/or risk management standpoint.
The Standard, Mr. Reish and Drinker Biddle & Reath shall not be responsible or held liable for
any Adviser’s use of the attached sample agreement.
In reviewing the sample agreement, Advisers and counsel should consider various
clarifications/options described in footnotes as well as definitions in the Glossary (attached as
Exhibit B).
This memorandum and the attached sample agreement are based on information available
and relevant DOL guidance issued as of February 22, 2012 and do not incorporate any
changes or revisions to the law or applicable regulations that may arise after that date.
Advisers should note that while Department of Labor (DOL) Final Regulation section
2550.408b-2(c) (the “Regulation”) is a final regulation, the DOL has indicated that it will issue
proposed regulations regarding a summary or guide requirement. Thus, it is possible that a
summary requirement will be added and that advisory agreements will need to be modified
accordingly. We doubt, however, that any such requirement will be in place before the
Regulation’s July 1, 2012 effective date.
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The Regulation, which interprets Section 408(b)(2) of ERISA and Section 4975(d)(2) of the
Internal Revenue Code (“IRC”), requires “covered service providers” to make advance written
disclosure of their services, status, and compensation. Under the Regulation, the definition of
covered service provider includes a service provider who performs services to a plan as an
investment adviser registered under the Investment Advisers Act of 1940 or state law and who
reasonably expects to receive $1,000 or more in direct or indirect compensation for its services.
As most (if not all) Advisers will receive that amount over the life of an agreement with a plan,
Advisers are covered service providers subject to the Regulation.
The failure of a covered service provider to comply with the provisions of the Regulation gives
rise to a prohibited transaction under ERISA and the IRC. The sample agreement is designed to
assist Advisers and their counsel in preparing agreements that comply with the requirements of
the Regulation. Thus, the attached sample agreement includes the required disclosures generally
applicable to Advisers. However, we should note that there are a number of additional
disclosures applicable to other covered service providers, such as recordkeepers, broker-dealers,
and certain other plan fiduciaries that manage certain investments in which a plan may invest.
As a result, this agreement should not be used to satisfy the disclosures for other service
providers. Further, as the sample agreement was prepared for use by independent Advisers (i.e.,
standalone advisers with no affiliates, subcontractors, or related entities), it may require
significant changes if the Adviser is affiliated with other entities, such as recordkeepers, brokerdealers, etc. As a result, Advisers should consult with legal counsel if they have any affiliates
providing other services to plans.
While the Regulation does not require that the disclosures be included in a written agreement,
from a risk management standpoint we consider it a best practice for Advisers to have a written
agreement and believe it makes sense to include the disclosures in the Adviser’s agreement.
That being said, since the Regulation takes effect July 1, 2012 for existing as well as new
relationships, rather than have existing clients execute new agreements with the required
disclosures, Advisers may decide to provide a separate written disclosure to existing clients by
July 1, 2012. Such disclosures may be done electronically. However, for risk management
purposes the Adviser should have a method in place to verify receipt of the disclosure and to
retain records of the disclosure. Thus, for existing relationships, Advisers must disclose the
current services, status and compensation by July 1, 2012; for new relationships (and for
extensions or renewals of pre-existing relationships), on July 1, 2012 and thereafter Advisers will
need to provide the services, status and compensation disclosures reasonably in advance of
entering into the arrangement (or extension or renewal).
The sample agreement includes amendment language designed to allow the Adviser to make
changes to the agreement by providing sufficient advance notice, in accordance with DOL
Advisory Opinion 97-16A (the “Aetna Opinion”). Under the Aetna Opinion, an Adviser may be
subject to a fiduciary claim if the agreement gives the Adviser power to unilaterally change its
fees under the agreement. By tracking the advance notice requirements and giving the
responsible plan fiduciary an opportunity to terminate the agreement and find a new provider
before the amended fee takes effect, under the Aetna Opinion, Advisers can avoid this fiduciary
issue. Alternatively, Advisers could provide that the agreement, including the fee provisions,
can only be amended by a writing signed by both the Adviser and the responsible plan fiduciary.
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Exhibit A
SAMPLE
ADVISORY AGREEMENT1
Plan Sponsor:
__________________________________
[name]
__________________________________
[address]
__________________________________
__________________________________
__________________________________
[email address]
Plan:
__________________________________
[name of plan]
Investment Adviser:
__________________________________
__________________________________
__________________________________
Date:
_______________________, 20________
The Plan Sponsor, as the responsible plan fiduciary for the Plan, engages the Investment
Adviser (“Adviser”) to provide the services described in this Agreement according to the
terms of this Agreement.2
1.
Fiduciary Authority. The Plan is a participant-directed plan and the Plan Sponsor
has the authority to designate investment alternatives under the Plan and the
related trust, and to enter into an Agreement with third parties to assist in these
and related duties. In this capacity, the Plan Sponsor (or, to the extent the Plan
1
This sample agreement is based on information available and relevant DOL guidance issued as of
February 22, 2012 and does not incorporate any changes or revisions to the law or applicable
regulations that may arise after that date.
2
Under Department of Labor Final Regulation section 2550.408b-2(c) (the “Regulation”), disclosures must
be made to the “responsible plan fiduciary,” who is “a fiduciary with the authority to cause the plan to enter
into, or extend or renew, the contract or arrangement.” If the plan sponsor does not have such authority, the
agreement should be revised to reflect the proper party. Typically, for small plans, an executive officer
acting on behalf of the plan sponsor is the responsible plan fiduciary. However, as plans get larger, they
usually operate through plan committees. In such a case, the plan committee is likely the responsible plan
fiduciary. If the trustee is a discretionary trustee who has authority to hire an investment adviser, the
trustee could be the responsible plan fiduciary.
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Sponsor has delegated its investment authority to an investment committee, the
committee) is referred to as the “Client.”
2.
3.
Services. Adviser agrees to provide the following services to Client, the Plan and
the Plan participants:
(A)
Fiduciary Services: Adviser will perform the Fiduciary Services described
in Appendix A.
(B)
Non-Fiduciary Services: Adviser will perform the Non-Fiduciary Services
described in Appendix B.
(C)
Client acknowledges that Adviser has no responsibility to provide any
services related to the following types of assets: employer securities; real
estate (except for real estate funds and publicly traded REITs); stock
brokerage accounts or mutual fund windows; participant loans; nonpublicly traded partnership interests; other non-publicly traded securities
(other than collective trusts and similar vehicles); or other hard-to-value
securities or assets. Such assets (except for real estate funds, publicly
traded REITs, and collective trusts and similar vehicles) shall be referred
to collectively as “Excluded Assets.” The Excluded Assets shall be
disregarded in determining the Fees payable to Adviser pursuant to
Section 3 of this Agreement, and the Fees shall be calculated only on the
remaining assets (the “Included Assets”).3
Fees.4
(A)
The compensation of the Adviser for the performance of the Services is
described in Appendix C.
(B)
Unless agreed to in writing by the parties, Adviser will not receive any
other compensation, direct or indirect, for its services under this
Agreement.5 If Adviser receives any other compensation for the Services,
3
Section 2(C) is designed to reflect securities over which Advisers often do not have responsibility and
should be reviewed by the Adviser with counsel to determine whether this provision should be revised in
any manner.
4
Under the Regulation, Adviser is required to disclose all compensation (direct or indirect), which Adviser
(and/or its affiliates or subcontractors) will receive in connection with the services under this agreement.
For example, if Adviser (or an affiliate) will receive revenue sharing payments from the mutual fund
investment options offered by the Plan, the amount of, or formula for calculating, such compensation must
be disclosed as well as the payer of the indirect compensation and a description of the compensation
arrangement. (Note that there is a significant risk of a prohibited transaction under ERISA Section
406(b)(1) and (3) if Adviser does not offset or refund indirect payments related to recommended
investments when it is providing fiduciary investment advice. That prohibition is not exempted by the
Regulation.)
5
This sample agreement assumes that the Adviser will receive only direct compensation from the plan or
the plan sponsor and will not receive any indirect compensation. If this is not correct, additional changes
must be made to the agreement, including without limitation, changes to reflect the indirect compensation,
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Adviser will disclose the amount of such compensation, the services
provided for such compensation, the payer of such compensation, and a
description of Adviser’s arrangement with the payer to Client in
accordance with Section 7(E) and will offset that compensation against its
stated fees.
4.
Fiduciary Status: Limitations on Functions. Client acknowledges that:
(A)
In performing the Fiduciary Services, Adviser is acting as a fiduciary of
the Plan under both the Employee Retirement Income Security Act
(“ERISA”) (for the purposes of providing nondiscretionary investment
advice only) and as a registered investment adviser under [the Investment
Advisers Act of 1940/laws of the state of ______________].6 Client
acknowledges that it has retained, and will exercise, final decision-making
authority and responsibility for the implementation of any
recommendations or advice rendered to Client by Adviser as a Fiduciary
Service.
(B)
In performing the Non-Fiduciary Services, Adviser is not acting as a
fiduciary of the Plan as defined in ERISA.
(C)
In performing both Non-Fiduciary Services and Fiduciary Services,
Adviser does not act as, nor has Adviser agreed to assume the duties of, a
trustee or the Plan Administrator, as defined in ERISA, and Adviser has
no discretion or responsibility to interpret the Plan documents, to
determine eligibility or participation under the Plan, or to take any other
action with respect to the management, administration or any other aspect
of the Plan.
(D)
Adviser does not provide legal or tax advice.
(E)
Investments are subject to various market, political, currency, economic,
and business risks, and may not always be profitable; and further that
Adviser does not and cannot guarantee financial results.
(F)
Adviser may, by reason of performing services for other clients, from time
to time acquire confidential information. Client acknowledges and agrees
that Adviser is unable to divulge to the Client or any other party, or to act
the services for such indirect compensation, the payer with respect to such compensation, and a description
of the compensation arrangement.
6
Under the Regulation, Adviser must disclose if it will be acting as a fiduciary and, if applicable, whether
Adviser will be providing services as an investment adviser registered under either the Investment Advisers
Act of 1940 or any State law. As such, the agreement should be revised as applicable. Adviser should be
careful in how it states fiduciary status because Adviser may be providing both fiduciary and non-fiduciary
services. For example, Adviser may not be a fiduciary with respect to participant investment education.
As there is a different standard of care required for fiduciary versus non-fiduciary services, from a risk
management standpoint, it may be possible for Adviser to limit its potential liability for errors in
performing non-fiduciary services as opposed to fiduciary services.
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upon, any such confidential information with respect to its performance of
this Agreement.
5.
(G)
Adviser is entitled to rely upon all information provided to Adviser
(whether financial or otherwise) from reputable third parties or by Client,
Client’s representatives or third-party service providers to Client, the Plan
or the Adviser, without independent verification. Client agrees to
promptly notify Adviser in writing of any material change in the financial
and other information provided to Adviser and to promptly provide any
such additional information as may be reasonably requested by Adviser.
(H)
Adviser will not be responsible for voting (or recommending how to vote)
proxies of the mutual fund shares held by the Plan (or its trust).
Responsibility for voting proxies of investments held by the Plan or its
trust remain with Client (or, if applicable, the Plan participants).
(I)
Client understands that Adviser (i) may perform other services for other
clients, (ii) may charge a different fee for other clients, and (iii) may give
advice and take action that is different for each client even when
retirement plans are similar.
Representations of Client. Client represents and warrants as follows:7
(A)
It is the “responsible plan fiduciary” for the control and/or management of
the assets of the Plan, and for the selection and monitoring of service
providers for the Plan. Adviser is entitled to rely upon this statement until
notified in writing to the contrary.
(B)
The person signing the Agreement on behalf of Client has all necessary
authority to do so.
(C)
The execution of this Agreement and the performance thereof is within
the scope of the investment authority authorized by the governing
instrument and/or applicable laws. The signatory on behalf of Client
represents that the execution of the Agreement has been duly authorized
by appropriate action and agrees to provide such supporting
documentation as may be reasonably required by Adviser.
(D)
The Plan and related Trust permit payment of fees out of Plan assets.
Client has determined that the fees charged by Adviser are reasonable and
are the obligation of the Plan; however, if Client desires, it may pay the
fees directly, rather than with Plan assets.8
7
Section 5 lists common client representations. Adviser should review the provisions with counsel to
determine if they are appropriate or should be revised.
8
Adviser must disclose the manner in which compensation will be received. See Appendix C of this
sample agreement for sample language regarding the manner of receipt.
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6.
Representation of Adviser. Adviser represents as follows:
(A)
It is registered as an investment adviser under the [Investment Advisers
Act of 1940] [laws of the state of _____________].9
(B)
It has the power and authority to enter into and perform this Agreement.
(C)
It will disclose, to the extent required by ERISA Regulation Section
2550.408b-2(c), to Client any change to the information in this Agreement
required to be disclosed by Adviser under ERISA Regulation Section
2550.408b-2(c)(1)(iv)(A) through (D) and (G) as soon as practicable but
no later than 60 days from the date on which Adviser acquires knowledge
of the change (unless such disclosure is precluded due to extraordinary
circumstances beyond Adviser’s control, in which case the information
will be disclosed as soon as practicable).10
(D)
If the responsible plan fiduciary or Plan Administrator requires
information related to this Agreement and any compensation or fees
received in connection with this Agreement in order for the Plan to
comply with the reporting and disclosure requirements of Title I of
ERISA and the regulations, forms and schedules issued thereunder, it shall
make a written request to Adviser at least thirty (30) days in advance of
the due date for such reporting or disclosure. Upon receipt of such written
request and in accordance with ERISA Regulation Section 2550.408b2(c)(1)(vi)(A), Adviser will disclose such information reasonably in
advance of such due date, unless such disclosure is precluded due to
extraordinary circumstances beyond the Adviser’s control, in which case
the information will be disclosed as soon as possible.
(E)
If Adviser makes an unintentional error or omission in disclosing the
information required under ERISA Regulation Section 2550.408b2(c)(1)(iv), a change to such information as described in part 6(C) hereof
and disclosed pursuant to ERISA Regulation Section 2550.408b2(c)(1)(v)(B), or information required under ERISA Regulation Section
2550.408b-2(c)(1)(vi) as described in part 6(D) hereof, Adviser will
disclose to Client the corrected information as soon as practicable but no
9
Under the Regulation, Adviser must disclose if it will be acting as a fiduciary and, if applicable, whether
Adviser will be providing services as an investment adviser registered under either the Investment Advisers
Act of 1940 or any State law. Section 6(A) should be completed as appropriate.
10
Under the Regulation, Adviser is required to disclose changes (material or not) to the required services,
status and compensation disclosure information within 60 days unless delayed due to extraordinary
circumstances beyond Adviser’s control. While such a provision is not required to be in the agreement, we
generally believe it is good to include as a reminder to the Adviser.
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later than thirty (30) days from the date on which Adviser knows of such
error or omission.11
7.
Standard of Care.
(A)
Adviser will perform the Fiduciary Services described in Appendix A to
the Plan in accordance with the standard of care of the prudent man rule
set forth in ERISA Section 404(a)(1)(B).
(B)
Adviser will perform the Non-Fiduciary Services described in
Appendix B and shall not be liable for any liabilities and claims arising
thereunder, unless directly arising from Adviser’s intentional misconduct
or gross negligence.
8.
Termination. Either party may terminate this Agreement upon [_______]12 days
prior written notice to the other party. Such termination will not, however, affect
the liabilities or obligations of the parties arising from transactions initiated prior
to such termination, and such liabilities and obligations (together with the
provisions of section 7 and subsections 4(G) and 10(H)) shall survive any
expiration or termination of this Agreement. Upon termination, Adviser will have
no further obligation under this Agreement to act or advise Client with respect to
services under this Agreement.
9.
Receipt of Disclosure. Client undertakes to review and consider the disclosures
made by Adviser (including in this Agreement and the Form ADV Part 2), in
particular the portions related to services, compensation, and potential conflicts of
interest, as well as the remainder of the disclosures concerning, among other
matters, background information such as educational and business history,
business practices such as the types of advisory services provided, the methods of
securities analysis used, and the like. For purposes of the written disclosure
statement required under the Act, Client acknowledges receipt of the Form ADV
Part 2 not less than 48 hours prior to entering into this Agreement.
10.
Miscellaneous.13
(A)
Notices. Any and all notices required or permitted under this Agreement
shall be in writing and shall be sufficient in all respects if (i) delivered
personally, (ii) mailed by registered or certified mail, return receipt
requested and postage prepaid, or (iii) sent via a nationally recognized
overnight courier service to the address on the first page of this
11
Advisers must disclose errors and omissions within this timeframe in order to avoid having an
inadvertent error or omission cause a prohibited transaction. Further, including this information allows the
Adviser to make the correction.
12
Adviser must determine how much notice to require for termination of the agreement.
13
Section 10’s miscellaneous provisions are meant to provide Adviser with common language included in
service agreements. However, Adviser should discuss with counsel whether such provisions are
appropriate for Adviser.
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Agreement, such other address as any party shall have designed by notice
in writing to the other party.
(B)
Assignability. This Agreement is not assignable by either Party hereto
without the prior written consent of the other Party.
(C)
Effect. This Agreement shall be binding upon and shall inure to the
benefit of the Parties and their respective heirs, successors, survivors,
administrators and assigns.
(D)
Entire Understanding and Modification. This Agreement constitutes and
contains the entire understanding between the parties and supersedes all
prior oral or written statements dealing with the subject matter herein.
This Agreement can be amended or modified by the written consent of the
Parties.
(E)
Severability. If any one or more of the provisions of this Agreement shall,
for any reason, be illegal or invalid, such illegality or invalidity shall not
affect any other provision of this Agreement and this Agreement shall be
enforced as if such illegal or invalid provision had not been contained
herein.
(F)
Headings. All headings used herein are for ease of reference only and in
no way shall be construed as interpreting, decreasing or enlarging the
provisions of this Agreement.
(G)
Applicable Law; Forum.14 The laws of the State of ______________ shall
govern this Agreement in all respects, including but not limited to the
construction and enforcement thereof, unless otherwise preempted or
superseded by federal law, including--but not limited to--ERISA.
(H)
Arbitration Agreement.15 To the extent permitted by law, all controversies
between Client and Adviser, which may arise out of or relate to any of the
services provided by Adviser under this Agreement, or the construction,
performance or breach of this or any other Agreement between Adviser
and Client, whether entered into prior to, on or subsequent to the date
hereof, shall be settled by binding arbitration in _______________,
_____________ County, ______________, under the Commercial
Arbitration Rules of the American Arbitration Association. Judgment
upon any award rendered by the arbitrator(s) shall be final, and may be
entered into any court having jurisdiction.
14
This agreement is not designed to meet any particular state law requirements. Adviser should discuss
state law issues with its own counsel.
15
Adviser should consult with counsel to determine if an arbitration provision is appropriate. We have
included sample language to consider if Adviser wants to include an arbitration provision.
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(I)
Amendment Process. The Agreement may also be modified, including
without limitation the services to be provided by Adviser or the fees
charged by Adviser, in the manner set forth herein and consistent with the
procedure described in Department of Labor Advisory Opinion 97-16A.
Adviser may propose to increase or otherwise change the fees charged, to
change the services provided or otherwise modify this Agreement by
giving Client reasonable advance notice of the proposed change. The
notice shall be given in the manner described in this Agreement. The
notice will (1) explain the proposed modification of the fees, services or
other provisions; (2) fully disclose any resulting changes in the fees to be
charged as a result of any proposed change in the services or other
changes to this Agreement; (3) identify the effective date of the change;
(4) explain Client’s right to reject the change or terminate this Agreement;
and (5) state that pursuant to the provisions of this Agreement, if Client
fails to object to the proposed change(s) before the date on which the
change(s) become effective Client will be deemed to have consented to
the proposed change(s).
If Client objects to any change to this Agreement proposed by Adviser,
Adviser shall not be authorized to make the proposed change. In that
event Client shall have an additional sixty (60) days from the proposed
effective date (or such additional time beyond 60 days as may be agreed
by Adviser) to locate a service provider in place and instead of Adviser.
If at the end of such additional sixty (60) day period (or such additional
time period as agreed by Adviser), the parties have not reached
Agreement on the proposed changes, this Agreement shall automatically
terminate.
(J)
Waiver of Limitation. Nothing in this Agreement shall in any way
constitute a waiver or limitation of any rights which Client or Plan or any
other party may have under ERISA or federal or state securities laws.
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This Agreement constitutes both an agreement between the parties and a disclosure
statement under ERISA Regulation Section 2550.408b-2. The Parties have caused this
Agreement to be executed by their duly authorized officers as of the date set forth above.
This Agreement shall not be binding on Adviser until accepted by it, in writing, as
indicated by its signature below.
Plan Sponsor:*
Adviser:
__________________________________
_________________________________
By:________________________________
By:_______________________________
Print Name: _________________________
Title: _____________________________
Title: ______________________________
*The Plan Sponsor is signing this Agreement both as the employer that sponsors the Plan
and as the fiduciary responsible for selecting the Plan’s investments and engaging its
service providers.
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APPENDIX A16
Adviser will perform the following fiduciary services:
(i)
Provide non-discretionary investment advice to Client about investment
alternatives available for the Plan in accordance with the Plan’s investment
policies and objectives. Client shall have the final decision-making authority
regarding the initial selection, retention, and removal of investment options.
(ii)
Assist in the development of an investment policy statement (IPS). The IPS
establishes the investment policies and objectives for the Plan, and shall set forth
the asset classes and investment categories to be offered under the Plan, as well as
the criteria and standards for selecting and monitoring the investments. Client
shall have the ultimate responsibility and authority to establish such policies and
objectives and to adopt the investment policy statement.
(iii)
Prepare periodic investment advisory reports that document consistency of fund
management and performance to the guidelines set forth in the IPS and make
recommendations to maintain or remove and replace investment options.
(iv)
Meet with Client on a periodic basis to discuss reports and recommendations.
(vii)
Provide investment advice to the Client with respect to the selection of a qualified
default investment alternative (“QDIA”) for participants who fail to make an
investment election.
(viii) Other services as follows:17
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
16
Under the Regulation, Adviser must disclose the services it will provide under the agreement. It is
important that Adviser carefully consider and disclose what services will be provided. We have included
sample services based on common provisions but Adviser must determine whether the descriptions reflect
what it will do and/or if other services should be listed.
17 Adviser should do one of the following: (1) add additional service(s), delete this reference, or (3) put
“none” after the colon.
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APPENDIX B18
NON-FIDUCIARY SERVICES
Adviser will perform the following Non-Fiduciary services:
(i)
Assist in the education of the participants in the Plan about general investing
principles and the investment alternatives available under the Plan in accordance
with Department of Labor Interpretive Bulletin 96-1. Adviser will not provide
investment advice concerning the appropriateness of any investment option for a
particular participant or beneficiary under the Plan and will not be acting as an
ERISA fiduciary for purposes of providing educational services.
(ii)
Assist in the group enrollment meetings designed to increase retirement plan
participation among employees. Adviser will not be acting as an ERISA
fiduciary for purposes of providing enrollment support services.
(iii)
Other services as follows:19
18
Under the Regulation, Adviser must disclose the services it will provide under the agreement. It is
important that Adviser carefully consider and disclose what services will be provided. We have included
sample services based on common provisions but Adviser must determine whether the descriptions reflect
what it will do and/or if other services should be listed.
19 Adviser should do one of the following: (1) add additional service(s), delete this reference, or (3) put
“none” after the colon.
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APPENDIX C
FEE SCHEDULE20
Fees are billed quarterly in arrears.21
Such quarterly period is the “Billing Period.”
Adviser will bill Client directly for payment from Plan assets.22
For purposes of determining and calculating fees, Plan assets are valued net of Excluded
Assets as of the last day of a calendar quarter, unless otherwise indicated.
The annual fee for services shall be calculated as follows:
Advisory Fee Schedule23
Plan Assets
Annual Fee
Up to $__________
______bps per annum
$$$$$ up to $$$$$$
______bps per annum
Over $
______bps per annum
Unless otherwise indicated, annual fees are based on the market value of the Plan assets.
The initial fee will be the amount, prorated for the number of days remaining in the initial
Billing Period from the effective date of this Agreement, based upon the market value of
20
With respect to Compensation, under the Regulation, Adviser must disclose:
 the direct and/or indirect compensation it will receive. Either the amount or a formula (e.g. an
asset-based fee schedule) can be used to disclose the compensation;
 the manner in which the compensation will be received (e.g. whether the plan will be billed or the
compensation will be deducted directly from plan assets);
 whether Adviser expects to receive any compensation in connection with termination of the
agreement;
 how any prepaid amounts will be calculated and refunded upon termination; and
 with respect to indirect compensation, the services being performed for the indirect compensation,
the payer and a description of the compensation arrangement.
If Adviser has independent contractor representatives whose compensation is commission-based or is
charged directly against the plan’s investments, this agreement should be revised to separately disclose
the representative’s compensation.
21 If Adviser bills fees in advance, this provision should be revised accordingly. Further, if fees are paid in
advance, Adviser must include a provision explaining what happens with respect to the advance payments
when the arrangement is terminated.
22
There are other ways to handle the billing. For example, Client may pre-authorize the Plan’s custodian to
calculate the payments and send them to Adviser. In any event, the manner of payment must be disclosed.
If Adviser is able to deduct fees from the Plan, Adviser should be careful to comply with (or structure the
arrangement to avoid application of) the SEC’s deemed custody rules.
23 We have included a tiered fee schedule as a sample. However, if Adviser charges a flat fee (e.g., as a
percentage of assets or dollar amount), the fee schedule should be revised accordingly.
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the Plan assets on the first business day of the initial Billing Period. Thereafter, the fee
will be based upon the market value of the Plan assets on the last business day of the
previous Billing Period (without adjustment for anticipated withdrawals by Plan
participants or other anticipated or scheduled transfers or distributions of assets) and will
be due and payable within [ days].24 If this Agreement is terminated prior to the end of
a Billing Period, Adviser shall be entitled to a fee, prorated for the number of days in the
Billing Period prior to the effective date of termination, based on the market value of the
Plan assets on the effective date of termination and will return to the Plan any amount
received in advance of the Billing Period in excess of such amount.
24
Adviser should determine the correct timeframe for its billing purposes.
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Exhibit B
GLOSSARY
Set forth below are definitions that may be useful in reviewing the Sample Agreement
with respect to the Regulation:
Affiliate – A person or entity who directly or indirectly controls, is controlled by, or is
under common control with, a covered service provider; or is an officer, director, or
employee of, or partner in, the covered service provider.
Compensation – Anything of monetary value (for example, money, gifts, awards, and
trips).
Covered Plans – ERISA-governed retirement plans other than SEP IRAs and SIMPLE
IRAs. Individual retirement accounts are not covered plans. Additionally, 403(b) plans
that were frozen before January 1, 2009 are excluded from the definition of covered
plans.
Covered Service Provider – A service provider that enters into an arrangement with a
plan and reasonably expects to receive $1,000 or more in compensation, direct or
indirect, in connection with the services described in the Regulation.
Direct Compensation – Compensation received directly from the covered plan.
Indirect Compensation – Compensation received from any source other than the covered
plan, the pan sponsor, the covered service provider, an affiliate, or a subcontractor.
Responsible Plan Fiduciary – A fiduciary with authority to cause the covered plan to
enter into, or extend or renew, the contract or arrangement.
Subcontractor – Any person or entity (or an affiliate of such person or entity) that is not
an affiliate of the covered service provider and that reasonably expects to receive $1,000
or more in compensation for performing one or more services for the covered plan.
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