Fee Disclosure. Get the 411 on 408(b)(2) Presented by: Ben Healy, AVP, Operations Eric Grzejka, Manager, Retirement Plan Consulting

Transcription

1 Fee Disclosure Get the 411 on 408(b)(2) Presented by: Ben Healy, AVP, Operations Eric Grzejka, Manager, Retirement Plan Consulting

2 Save the Date UPCOMING EVENTS May For Companies (New York, NY) Retirement Plans for Nonprofits: What All Plan Sponsors Need to Know June 17, 2015 For Companies (Waltham, MA) 15 th Annual Educational Exchange Register in Webinars & Events under For Companies at

3 Today s Agenda Overview Prohibited transactions Covered plans Covered services and providers Compensation and expenses What to expect from Sentinel Actions you should take How we can help

4 Fee Disclosure Overview The DOL has pursued a variety of regulatory initiatives focused on fee transparency. Form 5500 Schedule changes Effective for the 2009 plan year ERISA Section 408(b)(2) regulatory project Effective date - July1, 2012 ERISA Section 404(a) regulatory project Effective date - August 30, 2012

5 408(b)(2): What P lans? All employee pension benefit plans subject to ERISA Defined Contribution Plans Profit Sharing 401(k) Money Purchase Defined Benefit Plans Pension Cash Balance ERISA 403(b) Plans

6 408(b)(2): What P lans are excluded? The final rule does NOT apply to: simplified employee pension plans (SEPs) SIMPLE retirement accounts, IRAs certain annuity contracts and custodial accounts described in Internal Revenue Code section 403(b) Nonqualified executive compensation plans Governmental and Church plans Plans with owners and spouses of owners only employee welfare benefit plans. Lisa.Francis@sentinelgroup.com

7 Prohibited Transactions Anyone paid by a plan for doing anything is a Party in Interest It is a Prohibited Transaction for a Party in Interest to get paid by a plan

8 Prohibited Transactions Exemption from the Prohibited Transaction rules if: The contract or arrangement is reasonable Services are necessary No more than reasonable compensation is paid Exemption for employer if: Required disclosures made Take action if notice is not provided

9 Prohibited Transactions What are the consequences? Refund any fees, commissions, compensation Prohibited transaction excise tax Interest, penalties Termination of service provider DOL has increased enforcement DOL and SEC harmonizing efforts (signed Memorandum of Understanding (MOU) DOL has hired new enforcement agents

10 Fee Disclosure Overview Plan Sponsor Fee Disclosure 408(b)(2) Fiduciary can only enter into service agreement if: Fee arrangement with service provider is reasonable Only reasonable compensation is paid for services Services are necessary for the operation of the plan Fiduciary can only make a determination if all compensation arrangements are known Who is a Responsible Fiduciary? Responsible fiduciaries are the primary individual or group that has the authority to enter into contracts with a Covered Service Provider.

11 Who is a C overed Service Provider? Expected to receive $1,000 or more in fees Directly or indirectly by all affiliated entities Services: Fiduciary Investment Managers and Advisors Platform recordkeeping or brokerage service provider Specified indirect compensation recipients such as auditors, accountants, actuaries, appraisers, consultants, custodians, etc.

12 What must be disclosed? Description of services to be provided Status as a Fiduciary Disclosure of all direct or indirect compensation received Any related parties involved Any termination compensation

13 Investment Disclosures Description of any compensation Sub TA 12(b)1 fees Description of operating expenses Description of any other ongoing expenses

14 What Are You Paying? Administrative fees TPA, Accounting Asset Management Charges Mutual Fund Expenses Advisory fees, 12b-1 fees, trading, legal, printing, etc. EXPENSE RATIO 1.15% MANAGEMENT FEE Fees paid to investment Advisor for managing the portfolio 0.50% OTHER FEES Generally custodial, administrative, and legal expenses 0.30% 12b-1 FEE Fee for distribution, advertising and compensating brokers 0.25% + + SUB-TA FEE Paid to the TPA, record keeper or used to offset plan fees 0.10%

15 Direct Payments Plan Sponsor Custodian Recordkeeper Other CSP Hard Dollar Payments Plan Participant Investment Providers Investment Fees/Expenses

16 Indirect Payments Plan Sponsor Custodian Recordkeeper Other CSP Soft dollar payments 12b-1, revenue sharing Plan Participant Investment Providers Investment Fees/Expenses

17 What to Expect from Us We fully support these regulations Help with confusion caused by these regulations Understanding of our different entities and how you may be engaged with us How to access your disclosure(s)

18 Accessing Your Disclosure Log into your Plan Sponsor account Select Statements, Forms & Reports View Reports

19 Your Disclosure 1. Description of Services 1

20 Your Disclosure 1. Direct Fees 2. Transactional or Additional Fees 3. Indirect Compensation 1 2 3

21 Your Disclosure 1. Sub-contractors 2. Status as a Plan Fiduciary 3. Any Affiliates 1 2 3

22 Your Disclosure - Investments Investment Expenses Investment Performance

23 What Should You Do to C omply? 1. Determine who in your company is the Responsible Plan Fiduciary 2. Determine which plans are covered plans and who are CSPs for these plans 3. Inventory any service agreements your have received 4. Establish procedures to track receipt of disclosures and evaluate completeness 5. Establish process to request additional info, if necessary 6. Document, in writing, trustee meetings benchmarking and provider reviews 7. Ensure that you received the disclosures in timely manner 8. Report disclosure failures to DOL

24 C ompliance Failure What Action to Take If a CSP fails to comply: Written request for information Notify Department of Labor (DOL) Review Contract

25 Determining Reasonableness Plan fiduciaries are required to determine whether fees are reasonable for the services provided and that the services support their plan goals.

26 We Can Help Benchmarking Provides assessment of plan fees against your plan s peer group Due Diligence Meeting

27 Recent 408(b)(2) News DOL seeking industry input on Effectiveness of 408(b)(2) Disclosure Requirements Focus Groups to: Assess Responsible Plan Fiduciaries experience in receiving the disclosure Assess the effectiveness of the disclosure Determine how well plan fiduciaries understand the disclosure Evaluate whether, and how, a guide, summary, or similar tool would help fiduciary understand the disclosures Expect upcoming separate disclosure requirements for Welfare benefit plans Sentinel continues to monitor any developments on this topic and will make clients aware of any changes.

28 Upcoming Events Questions? May For Companies (New York, NY) Retirement Plans for Nonprofits: What All Plan Sponsors Need to Know June 17, 2015 For Companies (Waltham, MA) 15 th Annual Educational Exchange Register in Webinars and Events under For Companies and For You at