Participant Fee Disclosures in Employer-Sponsored Retirement Plans March 2012.

Participant Fee Disclosuresin Employer-Sponsored

Retirement Plans

March 2012

Participant Fee DisclosureBackground

•In February 2012, the Department of Labor published final regulations related to fee disclosures to participants in many ERISA-governed retirement plans.

– At times, these are referred to as “404(a)(5) Disclosures”– Although called fee disclosure regulations, the required disclosures

go far beyond information on fees alone •All participant-directed ERISA plans must comply with the new regulations.•Deadline for compliance is August 30, 2012.•Failure to comply can result in significant penalties, including the potential disqualification of the plan.•IMPORTANT: Compliance with the new regulation is a fiduciary responsibility, not a service provider responsibility.

2© 2012 Verisight, Inc.

Participant Fee Disclosure

What is the goal of 404(a)(5) Regulations?

•Providing participants in participant directed ERISA plans with more information regarding the fees, expenses, costs, and certain investment information associated with their directed investment options in those plans.



Who is the notice provider?

•The Plan Administrator (typically this is the Plan Sponsor) is responsible for preparing and delivering the required participant fee disclosures.

– Plan sponsors may rely on their plan’s service providers, recordkeepers and investment advisors, to provide the required information to their participants.

– Verisight will support clients with a solution to comply with the regulations.



Who must receive the notices?

•Each eligible participant must be furnished with the required disclosures even if he/she has not yet enrolled in the plan.

– Any participant with a balance in the plan.

– Any eligible employee that is not yet participating.

– Any beneficiary that has the right to direct investments within the plan.



What must be disclosed?

•Plan-related information:

– Investment instructions and limitations

– Investment alternatives

– Administrative fees/expenses

– Individual fees/expenses

•And…



What must be disclosed?

•Investment-related information:

– Identifying information about each investment option

– Performance data

– Benchmark information

– Fee and expense information

– Glossary of terms

– Website address for additional information



When is the deadline to start providing disclosures?

•The initial disclosure must be provided on or before August 30, 2012. The first quarterly disclosure must be provided by November 14, 2012 (with information for the third quarter).



When must disclosures be provided on an ongoing basis?

•Plan- and investment-related information: on or before the first date participants and beneficiaries can direct their investments and annually thereafter

•Administrative and individual expenses actually charged to a participant’s account: quarterly

•Changes to plan-related information: 30 to 90 days in advance



In summary, there are essentially four different disclosure requirements:

•A “New Participant” disclosure

•An annual disclosure

•A quarterly disclosure

•An “Investment or Fee Change” disclosure



What are the required disclosures?

•New Participant Disclosure– On or before first contribution– All newly eligible participants– Plan-related fee information– Investment-related information

• Comparative chart on plan investments




•Annual Disclosure– To all eligible participants– Specific fee information– Investment-related information– Comparative chart on plan investments




•Investment Changes and Fee Changes–Between 30-90 days prior to fund and fee changes–All eligible participants–Outlining any changes to investments (fund changes, fund additions, fund name and ticker symbol changes, etc.) and any changes to fees (administrative fee changes, distribution fee changes, etc.)




•Quarterly Disclosure– To participants charged a fee during the prior quarter– Specific dollar amount– General description of fees



What about plans that feature advisor-created model portfolios?

•In certain cases, these models may be considered a designated investment alternative.•Designated investment alternatives are subject to the new disclosure rules, including (among other things):

– Fee disclosure– Performance and benchmarking– Fact sheet and website availability



How must the disclosure notices be provided?

•Electronic delivery is acceptable for eligible employees that meet one of two criteria:

– Have specifically opted to receive plan notices electronically; or

– Have access to an electronic delivery system (generally, an email system) used to deliver the notices and use the system as an integral part of their job

•Otherwise, hard copies of the notices must be mailed out to any participant eligible to receive the notice.



Summary of disclosure services Verisight will provide to clients in our bundled service model:

•New Participant Disclosure

– A Participant Disclosure Document (PDD) will be provided with enrollment materials.

•Annual Disclosure

– A Participant Disclosure Document (PDD) which includes website address information for each investment option and the required glossary of financial terms

•Quarterly Disclosure

– A new lengthier participant quarterly statement.

– All participants will have the option to opt for hard copy or online statements



Summary of disclosure services Verisight will provide to clients in our bundled service model:

•Change Notice Disclosure– A Participant Disclosure Document (PDD) will be provided whenever a material

change is made to the plan.

•For Advisors with Designated Investment Alternative Models– A tool to create the necessary information and website to comply with the new

regulations



Sample New Participant, Annual, and Change Disclosure:



Sample Quarterly Disclosure:



Next Steps:

•Verisight will provide additional information as the deadline approaches

•Verisight will be contacting advisors and clients with a questionnaire to capture information about other fees being passed through to the plan that must be disclosed. Examples of these are:

– Audit fees

– Legal fees

– Consulting fees

– Advisory fees

•Verisight will be contacting advisors and clients to discuss disclosure delivery options



Next Steps:

•Advisor best practices in anticipation of deadline:

– Review fund menus to ensure that the menu is “optimized” prior to fee disclosure effective date. For example:

• Improve share classes

• Contract fund menu to make disclosure and management more efficient

•For advisors with models:

– Attend future webcasts with specifics on Verisight’s model participant disclosure model solution

– Decide if the solution is right for you

– Work with Verisight team to implement solution or identify an alternative approach to compliance


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Participant Fee Disclosures in Employer-Sponsored Retirement Plans March 2012.

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