404a-5 Disclosures: What now? What next? Sunday, April 28, Bruce Ashton, Esq. Drinker Biddle & Reath LLP

Transcription

1 404a-5 Disclsures: What nw? What next? Sunday, April 28, 2013 Bruce Ashtn, Esq. Drinker Biddle & Reath LLP

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3 Agenda Review f the requirements Wh is respnsible fr reprting what, and when What must be disclsed Hw much detail is required Brkerage accunts: what needs t be reprted Electrnic distributin The latest guidance frm the DOL

4 Review f Requirements DOL Regulatin a-5 Applies nly t participant-directed plans Establishes a fiduciary bligatin, nt service prvider Became effective in 2010, but first disclsures weren t required until August 30, 2012

5 Review f Requirements Requires disclsures t participants f Plan related infrmatin Administrative expenses Individual expenses bth descriptive and dllar amunts Investment related expenses and infrmatin in cmparative chart frmat

6 Review f Requirements Timing f disclsures On r befre first date a participant can direct investments At least annually thereafter Quarterly statement f Administrative expenses Persnal expenses But nt investment related expenses and infrmatin Website disclsures Infrmatin n request

7 Review f Requirements Cmment: Disclsure bligatin applies t participants This means all eligible emplyees, nt just thse with an accunt balance Cnsider the implicatins fr plan administratin and hw t deliver the infrmatin

8 Review f Requirements Website infrmatin The cmparative chart fr designated investment alternatives (DIAs) must include: Perfrmance fr 1, 5 and 10 years, as cmpared t brad based benchmark. The ttal annual perating expense r expense rati expressed as a percentage and as a dllar amunt per $1,000 invested. Any sharehlder-type fee r restrictin. cntinued...

9 Review f Requirements Website infrmatin Plus, the website must include: Prtfli turnver rate. Objectives and gals. Participant strategies and risks. Updated fee and perfrmance infrmatin.

10 Review f Requirements Fiduciary respnsibility The legal bligatin falls n the ERISA plan administratr (ERISA 3(16)) Typically, the plan spnsr r the plan cmmittee. As a practical matter, plan administratr will rely n service prviders t draft and distribute the disclsures Typically, the recrdkeeper

11 Review f Requirements Reliance by Plan Administratr the regulatin says: A plan administratr will nt be liable fr the cmpleteness and accuracy f infrmatin used t satisfy these disclsure requirements when the plan administratr reasnably and in gd faith relies n infrmatin received frm r prvided by a plan service prvider r the issuer f a designated investment alternative.

12 Review f Requirements Reliance by Plan Administratr (cnt.) Hw des the administratr develp reasnable gd faith reliance? One pssible apprach is t use a 404a-5 checklist t cmpare disclsures prvided by the recrdkeeper r service prvider with the requirements f the regulatin.

13 Brkerage Accunt Disclsures Brkerage accunts are nt DIAs S Are there any participant disclsure requirements? Unhh yeah therwise it wuldn t be n the agenda.

14 Brkerage Accunt Disclsures In Field Assistance Bulletin R, the DOL explained three steps t be taken by the plan administratr: First, prvide a general descriptin f the windw, accunt, r arrangement. Secnd, explain any fees and expenses that may be charged against the individual accunt f a participant n an individual, rather than n a plan-wide, basis. Third, prvide participants with a statement f the dllar amunt f fees and expenses that actually were charged during the preceding quarter against their individual accunts

15 Brkerage Accunt Disclsures General explanatin: DOL says at a minimum, the descriptin must prvide sufficient infrmatin t enable participants t understand: hw the windw, accunt, r arrangement wrks (e.g., hw and t whm t give investment instructins); accunt balance requirements, if any; restrictins r limitatins n trading, if any; hw the windw, accunt, r arrangement differs frm the plan's designated investment alternatives; and whm t cntact with questins.

16 Brkerage Accunt Disclsures Explanatin f fees and expenses, including: any fee r expense necessary fr the participant t start, pen, r access an accunt, such as enrllment, initiatin, r start up fees, r t stp, clse r terminate access; any nging fee r expense (annual, mnthly, r ther) necessary fr the participant t maintain access t the accunt, including inactivity fees and minimum balance fees; and any cmmissins r fees (e.g., per trade fee) charged in cnnectin with the purchase r sale f a security, including frnt r back end sales lads if knwn.

17 Brkerage Accunt Disclsures Explanatin f fees and expenses (cnt.) Nte: the explanatin wuld nt include any fees r expenses f the investment selected by the participant r beneficiary (e.g., Rule 12b-1 r similar fees reflected in the investment's ttal annual perating expenses). There is als sme relief fr infrmatin that isn t knwn up frnt. The Department understands that in sme circumstances the specific amunt f certain fees assciated with the purchase r sale f a security thrugh a windw, accunt, r arrangement, such as frnt end sales lads fr pen-end management investment cmpanies registered under the Investment Cmpany Act f 1940 may nt be knwn by the plan administratr r prvider f the windw, accunt, r arrangement in advance f the purchase r sale f the security by a participant.

18 Brkerage Accunt Disclsures Explanatin f fees and expenses (cnt.) Therefre, the DOL says that the fllwing rdinarily will satisfy the requirements f the regulatin. : a general statement that such fees exist and that they may be charged against the individual accunt f a purchasing r selling participant and directins as t hw the participant can btain infrmatin abut such fees in cnnectin with any particular investment,

19 Brkerage Accunt Disclsures Statement f the dllar amunt: This is part f the quarterly statement requirement The statement must include a descriptin f the services t which the charge relates The descriptin must clearly explain the charges Examples: $19.99 brkerage trades $25.00 brkerage accunt minimum balance fee $13.00 brkerage accunt wire transfer fee $44.00 frnt end sales lad.

20 Electrnic Disclsures Three majr pieces f guidance: ERISA Regulatin b-1(c) Field Assistance Bulletin Technical Release

21 Electrnic Disclsures General plicy is in Reg b-1(c), which establishes a safe harbr: Disclsures must be made using measures reasnably calculated t ensure actual receipt f the material (Reg b-1(b)(1)) Safe harbr has tw categries: Participants wh can effectively access dcuments at wrk as an integral part f their duties Participants wh affirmatively cnsent t getting electrnic disclsures

22 Electrnic Disclsures FAB : Addresses gd faith reliance regarding pensin benefit statements made by PPA Said that prviding benefit statements under the 104b-1(c) safe harbr was gd faith reliance Als said furnishing statements in accrdance with Treasury regs was gd faith reliance

23 Electrnic Disclsures Technical Release : Manner f disclsure under 404a-5 is reserved in the regulatin Disclsures f administrative and individual expenses may be included in a pensin benefit statement and may be furnished in the same manner Disclsures f investment related infrmatin may nt be included in the benefit statement, but they may be delivered in accrdance with the DOL reg safe harbr But there is an alternative.

24 Electrnic Disclsures Technical Release : There are 6 cnditins t the alternative: Participant vluntarily prvides address Initial ntice must prvide an explanatin abut electrnic delivery An annual ntice must d the same The plan administratr must take apprpriate and necessary measures reasnably calculated t ensure actual receipt Must take steps t preserve cnfidentiality f inf Ntices must be calculated t be understd

25 Latest Guidance Nthing new since FAB R Q&A 28 addresses asset allcatin mdels are they DIAs? DOL says nt s lng as certain requirements are met: must be clearly presented t the participants and beneficiaries as merely a means f allcating accunt assets amng specific designated investment alternatives. i.e., the mdel cannt be presented as if it is an investment in its wn right (mre)

26 Latest Guidance Asset allcatin mdels (cnt.) The investment cannt be in an entity, but instead must be an investment directly in the underlying funds i.e., the mdel cannt give the participant a unit participatin The participant shuld be given a descriptin f the mdel prtfli and hw it wrks, e.g., the differences between different mdels, such as cnservative, mderate, etc.. The participant disclsure materials als must explain hw it [that is, the mdel] differs frm the plan s designated investment alternatives. e.g., an asset allcatin strategy vs. an investment (mre)

27 Latest Guidance Asset allcatin mdels (cnt.) Finally, the DOL says if the plan ffers nly mdels made up f investments nt separately designated, each mdel must be treated as a DIA, such that detailed investment related disclsures must be made Sme interpret this t mean that if a mdel includes investments that are nt designated investment alternatives, the mdel must be treated as a DIA Query what the DOL really means

28 Latest Guidance Designated investment manager In Q&A 4 f the FAB, the DOL intrduces the cncept f a designated investment manager r DIM. A DIM is an ERISA 3(38) investment manager that is selected by the plan fiduciaries and made available t participants t manage their accunts A DIM can use investments abve and beynd the designated investment alternatives withut running the risk f DIA status But a DIM must manage a participant s accunt n a participant-by-participant basis.

29 Latest Guidance Designated investment manager (cnt.) What disclsures are required? The fllwing are required initially and annually A descriptin f the services A descriptin f the DIM s fees as dllar amunts n the quarterly statements, unless charged t the plan as a whle In the later case, they wuld appear in the admin fees

30 QUESTIONS?

31 BRUCE ASHTON, ESQ Century Park East, Suite 1400 Ls Angeles, CA (310) (310) [fax] CALIFORNIA DELAWARE ILLINOIS NEW JERSEY NEW YORK PENNSYLVANIA WASHINGTON DC WISCONSIN 2012 Drinker Biddle & Reath LLP All rights reserved. A Delaware limited liability partnership