Ucs 408b2 disclosure webinar_may5_2011

Welcome to Today’s Presentation

New ERISA Disclosure Contracts Are Coming: What You Need to Know and Do

Ian KopelmanPartner and Chair, Employee Benefits and Executive Compensation Group, DLA Piper USA LLP

Phone: (312) 368-2161Email: [email protected]

James Scheinberg, CIMA® AIFA®

Manager Partner, North Pier Fiduciary Management, LLCPhone: (800) 403-7065Email: [email protected]

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Presentation Table of Contents

Regulations, Requirements, Responsibilities and Deadlines

Participant Disclosure Slide 4

Provider Disclosure Slide 14

What to Look For, What to do, Due Diligence & Negotiation Tips

Provider Disclosure Slide 25

Participant Disclosure Slide 37

PARTICIPANT FEE DISCLOSUREA COMPLIANCE GUIDE FOR PLAN SPONSORS

Ian S. Kopelman

DLA Piper LLP (US)

May 5, 2011

5

Participant Fee Disclosure Rules

DOL final regulations issued October 20, 2010, effective

January 1, 2012 for calendar year plans

Cover participant-directed individual account plans regardless

of compliance with ERISA Section 404(c)

Compliance with the regulations will satisfy the plan

administrator’s fiduciary duty to disclose plan fees to

participants and Section 404(c) disclosure requirements as

long as the information used is complete and accurate

6

Timing

General rule for plan-related, administrative and individual expensesDisclosure on or before the first date a participant can direct investments and at least annually thereafter

Description of any changes at least 30 but not more than 90 days before effective date, except for unforeseeable events or circumstances beyond the plan administrator’s control then as soon as reasonably practicable

Transition rule – Initial disclosures must be provided to current participants within 60 days of effective date for the plan

Certain information must be provided quarterly – can be included with participant statements

7

Fiduciary Responsibility

Disclosure is fiduciary responsibility of plan administrator

Plan administrator means

The person (individual, committee or entity) specifically designated by the terms of the plan

If none designated, the plan sponsor

If neither of the above, a person designated by the DOL

Regular and periodic disclosures to make sure that participants are

Aware of their rights and responsibilities regarding investments

Provided sufficient information regarding the plan and investments, including fees and expenses, to make informed decisions

8

General Plan-Related Information

Explanation of investment instruction processWhen and how to give investment instructions

Any restrictions on investments or transfers between funds

Any plan provisions regarding voting, tender or similar rights

Identification of designated investment alternatives and designated investment managers

Description of any brokerage windows or similar arrangements

9

Administrative Expenses

General Description of fees and expenses for general plan administrative services (such as legal fees) that may be separately charged against individual accounts

Explanation of fees and how they are allocated

Quarterly statement Dollar amount of administrative fees and expenses actually charged to participant’s account during preceding quarter

Description of the services to which charges relate

If applicable, an explanation that some expenses were paid from annual operating expenses of investment alternative through revenue sharing or similar arrangements

10

Individual Expenses

Explanation of fees and expenses charged to individual accounts and not on plan wide basis such as fees forProcessing plan loans or QDROs

Investment advice

Brokerage windows, commissions, or similar charges

Quarterly statement with

Dollar amount of the individual expenses that are actually charged

during preceding quarter to the participant’s account

Description of the services to which charges relate

11

Investment Expenses

Automatic disclosures must be provided on or before first date

participant can direct investments and at least annually thereafter

Information to be automatically disclosed

Name, type of investment and performance data reflecting

1, 5 and 10 year annual returns

Benchmark (broad-based market index)

Fees charged directly against participant’s account and description of

any restrictions

Total annual operating expenses expressed as both percentage and

dollar amount

12

Investment Expenses

Information to be automatically disclosed

Statements regarding impact of fees and expenses on investment

returns, general securities disclosures and directing participants to

DOL website for more information

Investment provider’s website

Glossary of terms

Limitations and fees on withdrawals, transfers or surrender

Name of any annuity product with description of objectives and goals

and benefits and factors that determine price of guaranteed income

payments

13

Investment Expenses

Any materials relating to exercise of voting, tender or similar rights

provided after investment

Copies of prospectuses, financial statements or reports, statement

of the value of a share or unit and list of portfolio assets provided

upon participant’s request

Investment information must be in a comparative format,

prominently display the date and include

Name, address and telephone number of the plan administrator or its

designee

Explanation of how to request and obtain additional information

14

Disclosure Methods

Plan-related and administrative expense information can be

disclosed in SPD or benefit statements if distribution frequency

requirements are met

DOL electronic disclosure rules apply

Regulations provide a model disclosure for investment expense

information – use not required but will be deemed to have

satisfied regulations

15

Investments - DOL Model Disclosure

Sample performance information

Average Annual Total Return as of 12/31/XXXX Benchmark

Name/Type of Option 1-yr 5-yr 10-yrSince Inception 1-yr 5-yr 10yr

Since Inception

Index Fund/ S&P 500www.website address

26.5% .34% -1.03% 9.25% 26.46% .42% -.95% 9.30%

Sample fees and expense information

Total Annual Operating Expenses

Shareholder-Type Fees Name/Type of Option As a % Per $1000

Index Fund/ S&P 500 0.18% $1.80 $20 annual service charge subtracted from investments held in this option if valued at less than $10,000.

16

Complete and Accurate Information

Plan administrator is not liable for completeness and accuracy

of information if it relies reasonably and in good faith on

information provided by service provider or investment fund

provider

Separate regulations impose disclosure requirements on plan

service providers – but plan administrator is ultimately

responsible for obtaining and disclosing information to

participants

17

Service Provider Disclosures

DOL interim final regulations issued July 16, 2010, delayed

effective date of January 1, 2012

Require covered service providers to disclose fee information to a

responsible plan fiduciary

Responsible plan fiduciary – has authority to cause plan to enter

into, extend or review contracts

Covered service provider – provides services to plan as a fiduciary

or a registered investment advisor, provides recordkeeping or

brokerage services or other otherwise receives indirect

compensation

18


Description of the services to be provided

If applicable,

Statement that service provider will provide services as a fiduciary

Statement that service provider will provide services as a registered investment advisor

Separate descriptions of direct and indirect compensation that service provider expects to receive

Direct compensation -- fees charged directly to plan or participant accounts

Indirect compensation -- fees which are not charged directly to plan or participant accounts, but received from other sources, including description of services and name of payer

19


Description of compensation that will be paid among service

provider and related parties, including services and names of

payers and recipients

Description of compensation that will be directly charged against

the plan’s investments and reflected in the net value of the

investments, including services and names of payers and recipients

In advance of contract, description of compensation reasonably

expected in connection with contract termination and how any

prepaid amounts will be calculated and refunded

20


Description of how compensation will be received, whether billed to plan or deducted directly from participant accounts or investments

Compensation may be described as formula

For recordkeeping services

Description of any direct and indirect compensation service provider,

any affiliate or any subcontractor expects to receive

If services are to be provided without explicit compensation or

compensation is offset or rebated based on other compensation

received, a reasonable and good faith estimate of the cost of such

services

21


For services as fiduciary for an investment that holds plan assets description of Compensation that will be charged directly against amounts invested

Investment’s annual operating expenses if return is not fixed

Ongoing expenses in addition to annual operating expenses

Generally disclosure must be made reasonably in advance of date the service contract is entered into, extended or renewed

Changes in required information must be disclosed as soon as practicable, but not later than 60 days after service provider is informed of change except for extraordinary circumstances

New investments must be disclosed as soon as practicable, but not later than date of designation

22

Consequences of Failure to Comply

If service provider fails to comply with regulations, contract is a prohibited transaction under ERISA

Exemption applies if responsible plan fiduciary was reasonably unaware of failure and Reasonably believed that contract satisfied regulations

Did not know or have reason to know that provider would fail to comply

Immediately upon discovering failure, requested in writing that provider furnish missing information

If provider fails to do so promptly, notifies DOL of failure

If exemption requirements are met, only service provider is subject to penalties and excise taxes on prohibited transactions

23

Information Sources

Much of the information regarding investment funds, including

performance and expenses, is included in prospectus or similar

disclosure documents required by securities laws

Service provider contracts with service providers will typically

disclose direct compensation

Plan administrator may have to specifically request information

regarding

Indirect compensation

Compensation paid among related parties

New ERISA Disclosure Documents are ComingWhat You Need to Know and Do

North Pier Fiduciary Management, LLC

Jim Scheinberg CIMA ®, AIFA ®

(800)403-7065www.npier.com

408(b)(2) Service Provider Disclosures - What to look for:

Recordkeeper DisclosuresAll revenue

Shelf space fees from fund companies (non-plan specific)

Structural conflicts of interest (ownership)

Recordkeeper Declarations

Any fiduciary services


Advisor DisclosuresAll Compensation – Must be Disclosed

12b-1, Fees & Commissions

Contingent Commissions

Non-monetary Compensation

Co-marketing Activities

Research Arrangements

Advisor Fiduciary Declarations

What’s functions are included and what is omitted?


4 Major Categories of Advisor Fiduciary Functions

Investment Advisory3(21) consulting or 3(38) discretionary?

Investment Management Models / TDFs

Fiduciary Processes ‘Friend of Court’ or Fiduciary?

Employee Education and Advice


Difference Between ‘Friend of Court’

Service not outlined in service agreement and is tangential to primary agreement

…and Advisor/Consultant as a Fiduciary

Services are delineated in a service agreement and performed as a fiduciary to the plan - held to “fiduciary” standard

“Choices must be made for exclusive benefit of participants and their

beneficiaries.”

*ERISA 404(a)(1)(A)


Potential consulting (one time) functions that could be provided by a Fiduciary

Plan Reviews

One-time process or investment ‘audits’

Vendor Searches

Fee Studies / Benchmarking

Manager / Target Date Searches

Fiduciary Processes Engagements

408(b)(2) - Things to Do…

Record Keeper DisclosuresArmed with revenue disclosures:

Benchmark to compare value

Callan Study: 85% calculated plan fees within the past year and 84% of those benchmarked as a result of their findings.

Renegotiate/restructure fee arrangement

*Callan Associates’ 2011 DC Trends Survey, Defined Contribution Trends Survey: Positioning the DC Plan for the Future


Advisor DisclosuresArmed with disclosures:

Benchmark to compare value

Renegotiate/restructure fee arrangement

For omitted services – consider ADDING specialist.

Preform additional due diligence – as needed


Due DiligenceDon’t wait for your vendors & advisors to come to you. Preempt.

Ask for your own disclosure format

Plan a meeting to review issues

Hire outside counsel to investigate/interpret for you

Need Help? Different Scenarios

• Knowledgeable Sponsor,• Exhaustive Comparative Search

& Aid of Third Party in Selection, • Regular Benchmarking

• Long-Standing Relationship, • High Trust/Reliance,

• BUT NOT SURE, • More than 5 years since

benchmarking

• Newer to Fiduciary Oversight• Not involved when service

providers engaged (inherited relationships)

• Not sure of value

Cla

rity

an

d C

on

fid

ence

Ab

ility to A

ssess on

Ow

n

Time To Renegotiate: Why Now?

Typical pricing structures have changed

Asset based fees have swelled. Consider structure change.

M & A – you may be with a different organization than you hired

Differentiation of advisor service models

Who is doing the work?

What are they doing / not doing?

Competition is up

Firms have gotten scale, do you benefit or do they?

New technological resources

Tips For Renegotiating

Negotiating on price vs. Restructuring

Comparative Benchmarking (RFP-light) Forces competitive bid

Affirms relationship

Get Help! (using a third party advocate)Broader knowledge base

You don’t have to be the bad-guy in a good relationship

You get some Due Diligence included

Participant Fee DisclosuresWhat to look for…

A review of what will be disclosed:Administrative Expenses

Administrative fees include costs for general plan services such as recordkeeping, legal and accounting.

Method (per participant or asset based)

Investment Benchmarking

Investment Turnover

…the percentage a fund manager turns over their portfolio holdings each year

Participant Fee Disclosures

Potential ChallengesMay shock participants with larger balances

Sticker shock of seeing expenses

May cause drop in participation

Who will choose benchmarks?

Reccordkeeper may conflict with those used by advisor..

Are you monitoring investment turnover?

If not, perhaps you should start

Not included in an investment’s expense ratio

Participant Fee Disclosures-Things to do…

Get out ahead of the process. Ask for samples from vendors in advance

If concerned, preempt employee questions/concerns with education

With help of vendor

Internally

Consider restructuring fee methodology

New disclosures may reveal inequitable pricing structure


Example of Inequitable PricingManufacturing company with highly tenured workforce

2000 participants

$50,000,000 in assets

Asset based fee structure*

Recordkeeper / Admin: 35bps

Advisor: 10 bps

Average cost per participant of recordkeeping, administration and advisory: $112.50

Many older workers with high balances*Fees are paid through revenue sharing from mutual fund expense ratio. An ERISA reimbursement account may or may not be used.


Example of Inequitable Pricing

Admin. & Advisory

Paid by Participant

Worker A: 25 y.o.

with $4,000 in 401(k)

Worker B: 60 y.o.

with $300,000 in 401(k)

Alternatives to asset based pricing (such per capita) can alleviate all or part of this type of imbalance.

$18 / yr

$1350 / yr

© Copyright 2011. All rights reserved. North Pier Fiduciary Management LLC (NP) is an SEC registered investment advisor serving retirement plan sponsors and institutional investors. This release is published as general information. The information provided in this presentation is intended for informational purposes only, is general in nature and should not be construed as a recommendation or an offer or a solicitation to buy or sell any securities. All information provided and opinions are subject to change without notice. The information and statistical data contained here in have been obtained from sources we believe to be reliable but NP does not warrantee and is not responsible for the accuracy of content, errors or omissions. NP is not a law firm or an accountancy firm. NP does not provide or represent legal or tax advice. Contact your legal or tax advisor for specific advice regarding your circumstances

For more information, contact North Pier Fiduciary Management, 400 Corporate Pointe, #300, Culver City, CA 90230. We can be reached by phone at (800) 403-7065 and by email at [email protected] . You may also visit our website for more information at: www.npier.com.

Questions?

Thank You for Attending Today’s PresentationNew ERISA Disclosure Contracts Are Coming:

What You Need to Know and Do

Speakers:

Ian KopelmanPartner and Chair, Employee Benefits and Executive Compensation GroupDLA Piper US LLPPhone: 312-368-2161Email: [email protected]

James ScheinbergManaging PartnerNorth Pier Fiduciary Management, LLCPhone: (800) 403-7065Email: [email protected]

mailto:[email protected]

Ucs 408b2 disclosure webinar_may5_2011

Education

Transcript of Ucs 408b2 disclosure webinar_may5_2011