Plan Sponsor Fee Disclosure

Transcription

1 Plan Sponsor Fee Disclosure Standard Retirement Services, Inc.

2 Overview Full, clear disclosure of all fees associated with qualified retirement plans has long been a goal of the Department of Labor (DOL). In the past three years, the DOL has released a series of regulations intended to aid both plan sponsors and plan participants in understanding the fees they pay in association with their plan. In February 2012, the DOL published final regulations requiring that service providers to qualified plans disclose certain fees and services to plan sponsors before entering into a contract. The regulations provide guidance on specific information regarding the fees and services providers must disclose to plan administrators and other plan fiduciaries. The regulations require that the information is provided in writing to the plan, but the disclosure does not necessarily have to be in contract form. The information on the following pages is intended to give you an overview of the new requirements. Be assured that The Standard will partner with you to help you understand your obligations under the new regulations. NOTE: This brochure is for general informational purposes and is not legal advice. The regulations discussed in this brochure are complex and will raise varying concerns for different affected parties. Your own legal counsel should be consulted for specifi c concerns and questions.

3 Basic Fiduciary Requirements Under ERISA Under ERISA, a services arrangement covering a qualified plan must be reasonable to avoid being considered a prohibited transaction. The contract provisions and the compensation charged for services must be reasonable, and the services provided should be helpful and appropriate to the plan. The new regulations add a disclosure requirement to the above reasonable services exception. Plan fiduciaries will be able to assess the reasonableness of the services covered because the new fee and service information will clearly state the compensation to be paid to the provider(s), the costs associated with investment options offered, and highlight any potential conflicts of interest that may exist between the service providers. Following implementation of the regulations, plan sponsors should have more tools with which to make informed choices for their plans. New Disclosure Requirements Plans Covered The regulations apply to any pension plans that are subject to ERISA. This includes defined benefit plans and defined contribution plans such as 401(k) and 403(b) plans. The regulations do not apply to individual retirement accounts or individual retirement annuities (IRAs), SEP IRAs, SIMPLE IRAs or welfare plans. Service Providers Covered A covered service provider is one that reasonably expects to receive $1,000 or more in compensation for its services to a plan. Plan Sponsor Fee Disclosure 3

4 Services Covered Five Categories Services are considered covered when they are provided: Directly to the plan as an ERISA fiduciary As an ERISA fiduciary to an investment contract, product or entity that holds plan assets and in which a plan has a direct equity investment Directly to the plan as a registered investment adviser under either the Investment Advisers Act of 1940 or state law For recordkeeping and brokerage services For indirect compensation Definition Of Compensation Direct compensation is compensation the covered service provider receives directly from the plan. Indirect compensation is compensation received from any source other than the covered plan, the plan sponsor or an affiliate, the covered service provider or a subcontractor. Disclosure Requirements The new requirements state that disclosures must: Be provided in writing, but do not have to be in a written agreement Include a description of the services provided State whether services will be provided as a fiduciary, or as a registered investment advisor, if applicable Describe the direct compensation the service provider expects to receive (in either dollar amount or as a formula) and the manner of receipt (billed or deducted from plan accounts or investments) Include description from recordkeepers of various fees associated with the investment options, a requirement that may be satisfied by using fund prospectuses Describe the indirect compensation the service provider expects to receive, the payer of the indirect compensation and the arrangement between the payer and the service provider Describe any termination service charges Reveal if service providers are providing recordkeeping services to the plan and the compensation attributable to such services, even if no explicit charge is identified for recordkeeping 4 Standard Retirement Services, Inc.

5 Other Details The disclosure information may be delivered electronically, provided the plan sponsor can access the notice with reasonable ease. Recordkeepers and brokers may distribute the information they receive from investment fund providers to meet these requirements. The disclosures may be provided in multiple documents and do not have to follow any particular format. Plan sponsors may request and receive additional information. Timing Of Disclosures A covered service provider must provide the disclosures to the responsible plan fiduciary within a reasonable amount of time before the contract or arrangement is entered into, extended or renewed. Subsequent material changes to plan-related fees and expenses must be provided as soon as possible, but not more than 60 days from the date the service provider has knowledge of the change. Changes to investment related fees and expenses must be disclosed annually. There is no full annual disclosure requirement. Relief For Responsible Plan Fiduciaries The final rules provide relief for fiduciaries from prohibited transaction liability should a covered service provider fail to disclose the required information. The following conditions must be met: The plan fiduciary did not know of the failure and reasonably believed the required information had been disclosed. Upon discovering the failure, the plan fiduciary makes a written request to the service provider for the information. If the service provider fails to comply within 90 days of the request, the plan fiduciary must notify the DOL of the failure and take steps to terminate the agreement. Penalties For Service Providers Service providers that do not comply with the regulations are subject to an excise tax of 100 percent of the fees involved. This type of failure is also actionable under ERISA. Effective Date The regulations are effective July 1, Plan Sponsor Fee Disclosure 5

6 Getting Ready For Fee Disclosure The Standard is preparing for fee disclosure and making updates to our systems. Specifically, our plans include the following: While the regulations require fee disclosure only for plans subject to ERISA, we intend to provide the information to all plan sponsors. Although the regulations do not require additional disclosures to existing plans if all the required information has previously been disclosed (for example, in a service agreement such as The Standard s), we intend to provide consolidated fee information to clients as the compliance deadline approaches. As an investment fiduciary, we will make available to plan sponsors the investment information disclosures for funds (such as mutual funds, etc.) that are on our recordkeeping platform. The Standard is committed to making the new fee disclosure regulations easy for you to understand and useful in analyzing plan fees. We look forward to working with you as the regulations are implemented. Please do not hesitate to call your pension consultant or service professional at The Standard with any questions. 6 Standard Retirement Services, Inc.

7 This brochure is for plan sponsors working with Standard Retirement Services, Inc., and StanCorp Equities, Inc., subsidiaries of StanCorp Financial Group, Inc. It is not intended for presentation to plan participants. The Standard is the marketing name for StanCorp Financial Group, Inc., and its subsidiaries. StanCorp Equities, Inc., member FINRA, distributes group annuity contracts issued by Standard Insurance Company and may provide other brokerage services. Third-party administrative services are provided by Standard Retirement Services, Inc. Investment advisory services are provided by StanCorp Investment Advisers, Inc., a registered investment advisor. StanCorp Equities, Inc., Standard Insurance Company, Standard Retirement Services, Inc., and StanCorp Investment Advisers, Inc., are subsidiaries of StanCorp Financial Group, Inc. and all are Oregon corporations. Standard Retirement Services, Inc SW Sixth Avenue Portland OR Plan Sponsor Fee Disclosure RP (3/12)