PARTICIPANT FEE DISCLOSURE UNDERSTANDING YOUR RESPONSIBILITIES AS A PLAN SPONSOR

Transcription

1 PARTICIPANT FEE DISCLOSURE UNDERSTANDING YOUR RESPONSIBILITIES AS A PLAN SPONSOR

2 In October of 2010, in an effort to help participants make more informed decisions, the Department of Labor ( DOL ) finalized participant fee disclosure regulations. These regulations significantly increase the amount of information you as a plan sponsor are required to provide to participants, particularly regarding information on investment choices including associated fees and expenses. Effective date The regulations are effective for plan years beginning on or after November 1, 2011, however, the DOL has provided a rule extending the initial date to provide participant fee disclosures to align with the effective date of sponsor fee disclosures. Following the new rule, the majority of sponsors (including those with calendar year plans) will be required to provide participant fee disclosures no later than August 30, Schwab believes an open approach to fee disclosure makes sense and that participants should understand the services they are receiving in their retirement plan, as well as the fees associated with those services. We also understand the challenges these new fiduciary requirements impose on plan sponsors, and we are committed to providing communications and resources to help you and your organization meet these new requirements. Contents Required ongoing disclosures sponsors must provide to their participants How Schwab can help you meet your participant fee disclosure responsibilities... 4 Important considerations and action items... 5 Annual and new participant fee disclosure content... 6 Next steps... 7 Participant Fee Disclosure Page 2 of 8

3 Required ongoing disclosures sponsors must provide to their participants Some sponsors may be under the impression that the new disclosure is simply an annual event, however, the participant fee disclosure rules outline several items that sponsors of participant-directed individual account plans covered by ERISA must provide to participants on both an ongoing and on an ad hoc basis. Schwab can help you fulfill your participant fee disclosure responsibilities. The following is a list of items required under the new rules: Annual Disclosure On an annual basis, the regulations require you as the Plan Sponsor to send all eligible participants a comprehensive disclosure providing specific fee and investment related information. The disclosure is required to include a comparative chart on plan investments, a sample of which was provided by the DOL in the regulation. information that is provided in the Annual or New Participant fee disclosure (e.g. fund changes, fund additions, ticker symbol changes, fund name changes, administrative fee changes, etc.) Additionally, certain changes may require Schwab to provide you with a provider fee disclosure (under ERISA 408(b)(2)) prior to the change taking place. New Participant Disclosure On or before the date that participants can first direct their investments in the plan, you must send all newly eligible participants a comprehensive disclosure providing the same specific fee and investment related information provided in the Annual Disclosure. Internet Web Site Address You are required to provide all eligible participants access to an internet web address with specific information about the plan s investment options in addition to what is provided in the comparative chart in the Annual and New Participant disclosure. Quarterly Disclosure On a quarterly basis, you are required to provide participants charged a fee to their account during the prior quarter a disclosure detailing the specific dollar amounts charged and a general description of administrative fees and/or individual expenses. The disclosure can be provided in the participant s quarterly benefit statement. Investment and Fee Change Disclosure At least 30 days but no more than 90 days prior to the effective date of a fee or investment change, all eligible participants must receive a disclosure outlining any changes to fee and investment Glossary You must provide all eligible participants with a general glossary of investment and financial terms to assist them in understanding the plan s investment options. This can be provided on the participant web site. Participant Request In addition to the required disclosures above, all eligible participants have the right to request from you a copy of prospectuses, financial reports, statements of valuation and of assets held by each of the plan s investment options. Participant Fee Disclosure Page 3 of 8

4 How Schwab can help you meet your participant fee disclosure responsibilities Schwab recognizes that these new regulations have placed an additional burden on plan sponsors. If requested, we can offer the following items to help you meet these new requirements: Annual and New Participant Disclosures Schwab has designed and can populate a standard Annual Disclosure and a New Participant Disclosure intended to meet the disclosure requirements. These disclosures were designed to be participant friendly and have been tested for readability. With complete census information and your agreement that the disclosures are accurate and meet the requirements, Schwab can deliver the disclosures to your participants via U.S. Mail or , but will work with you to determine the best method for your participants. Quarterly Disclosure Schwab will include the quarterly disclosure of individual investment expenses and administrative fees actually charged to participant accounts as separate line items in quarterly benefit statements. Investment and Fee Change Disclosure Schwab has designed and can populate an Investment and Fee Change Disclosure, which is based on the Annual/New Participant disclosure. The disclosure has been designed to incorporate the like-fund mapping provisions of 404(c)(4) to eliminate the need for a separate notice. With accurate census information, Schwab can deliver the notices to your participants via U.S. Mail, but will work with you to determine the best method for your participants. Internet Web Site Address The participant web site will be updated to include additional investment information intended to meet the Internet Web Site Address requirement. Glossary The participant web site will include a Glossary intended to meet the disclosure requirements. Participant Questions Schwab has included the participant call center number in multiple locations on the disclosures to encourage participants to call us with any questions to help reduce the number of inquiries you may receive directly from your employees. Participant Fee Disclosure Page 4 of 8

5 Important considerations and action items The following information may be helpful as you familiarize yourself with your participant fee disclosure responsibilities and the resources we can offer you. This is just a summary of items for you to consider. For details on any of these items, please contact your Client Service Manager. Schwab s Standardized Participant Fee Disclosure Offering Due to the complexity of the information required to be disclosed and the short time frame for providing each disclosure, Schwab s participant fee disclosure offering can not be altered nor can the components be customized. Eligibility and New Participant Disclosure Timing Due to timing constraints, sponsors that offer immediate eligibility, or eligibility periods less than 45 days, will need to provide the New Participant disclosures to eligible participants. Your Client Service Manager will discuss the materials available and ways for you to meet the requirements. Payroll Information Because participant fee disclosures are required to be provided to all eligible participants, if your payroll does not include census information for all eligible participants, you will need to provide the various disclosures to those eligible participants not included on the payroll file. Your Client Service Manager will discuss the materials available and identify ways for you to meet the requirements. Alternative Investment Options For plans containing Alternative Investment options, if the investment information necessary to meet the disclosure requirements is not available via standard channels such as Morningstar or Wall Street on Demand, you as a sponsor will need to provide the information to Schwab two months prior to the delivery of disclosures. If Schwab does not receive this information in the appropriate timeframe, we will be unable to send the participant fee disclosure notices or completely update the participant website to meet the requirements. Your Client Service Manager will contact you with the details on what additional information is needed for these alternative investments. Custom Fund Fact Sheets Certain information required to meet the Internet Web Site aspect of the disclosure rules is provided in investment fact sheets placed on the participant web site. If any of the investments in your plan use a custom prepared fact sheet, these may need to be updated to include new information not currently being calculated or provided that is necessary to meet the fee disclosure requirements. At your request, Schwab is able to post investment fact sheets from a third party to the participant website; however, we are unable to review the content of the fact sheet for accuracy or completeness. Your Client Service Manager will contact you with the details regarding the necessary changes. Benchmark Indexes The regulation requires that each plan investment be compared to a benchmark index that is not administered by an affiliate of the investment provider, its investment adviser, or a principal underwriter, unless the index is widely recognized and used. This means that certain custom benchmarks or fund company specific benchmarks may not meet the disclosure requirements. Your Client Service Manager will contact you to discuss any benchmark indexes that may need to be reviewed. Timing of Investment Changes Participant fee disclosure regulations mandate that changes to the core fund line up be communicated to participants days prior to the change. To ensure the participant notification can be provided within the required timeframe, Schwab will require a 45 day lead time, after receiving necessary documentation, to initiate a fund change. Prospectus Delivery The participant fee disclosure regulations have made corresponding changes to the requirements of ERISA 404(c) regarding mutual fund prospectus delivery. As a result, Schwab will no longer automatically provide mutual fund prospectuses to participants following their initial purchase in to a mutual fund as this is no longer a requirement. However, participants will be able to view and download prospectuses on the participant website or request them from the call center. Participant Fee Disclosure Page 5 of 8

6 Annual and new participant fee disclosure content The new participant fee disclosures require considerably more information than participants typically received in the past. Much of the information in the annual and new participant disclosures is summarized below to help you understand the scope and level of detail outlined in the new DOL regulations. Plan related information: Investment related information: General Information: Current list of the plan s investment options with required detail Description of any available self-directed brokerage account Explanation of how to provide investment instructions, as well as any restrictions Administrative Expense Information: An explanation of any fees and expenses for general administrative services such as recordkeeping, accounting and legal expenses which may be charged against the individual accounts of participants and are not reflected in the total annual operating expenses of any designated investment alternative. Individual Expense Information: An explanation of any transaction-based fees which may be charged to the participant such as loan origination, distribution processing and qualified domestic relations order reviews. Performance Data: 1, 5 and 10-year return information (or since inception, if shorter) as of December 31, of the most recent calendar year end for investments that do not have a fixed rate of return. The annual rate of return and the term of the investment for investments with a fixed rate of return. Benchmark Index Information: Corresponding 1, 5 and 10-year return information (or since inception, if shorter) for the appropriate broad-based securities market index must be provided for funds that do not have a fixed rate of return. There is no similar requirement for investments with a fixed rate of return. Fee and Expense Information: Total annual operating expense, expressed as a percentage of assets as well as a dollar amount for each $1,000 invested for investments that do not have a fixed rate of return. Any shareholder fees or restrictions on the participant s ability to withdraw from the investment. Participant Fee Disclosure Page 6 of 8

7 Next steps The new participant fee disclosure regulations add considerably to your responsibilities as a plan sponsor. Schwab is developing a variety of resources to help you meet those responsibilities and help your participants better understand the value, services and fees related to your workplace retirement plan. Please contact your Client Service Manager to discuss any questions you may have on how these new regulations will impact your plan. Participant Fee Disclosure Page 7 of 8

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