Retirement Plan Investment Fee Disclosure

Information on the new retirement plan fee disclosure rule and how it will impact nonprofit organizations offering 403(b) and other retirement plan solutions - Tate & Tryon - Nonprofit CPA Firm

1. Retirement Plan Investment Fee
Disclosures and Employer
Responsibilities
Tuesday, October 16, 2012

Speakers:
John Kubichek, CPA, CFE
Michael Aylward, CEBS, CRPS
Guest:
David J. Moore

2. Agenda
Introduction
Fee Disclosures – from Covered Service
Providers (CSPs) to Plans
Fee Disclosures – from Plans to Participants
Potential non-compliance and its
consequences

Conclusions and Q&A



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3. Introduction
Roles of DOL and IRS
Background of prior regulations
Reasonableness of fees (and all services) is not a
new requirement
Form 5500, Schedule C disclosures began 2009
General plan fiduciary responsibilities
The need for new regulations
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4. Introduction – Fees do matter
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5. Fee Disclosures – CSPs to Plans
ERISA§408(b)(2)
Plan Sponsors and other fiduciaries must be
provided with information concerning fees
and other compensation received by
“Covered Service Providers” for their plans
as well as potential conflicts of interest.

Effective July 1, 2012 for ERISA plans
(excludes government, church, nonqualified
deferred compensation plans and health and
welfare plans)


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6. Fee Disclosures – CSPs to Plans
CSPs include registered investment advisors,
record- keepers, brokers who make designated
investment alternatives available to the plan, and
other service providers receiving indirect
compensation expected to receive $1,000 or
more in direct or indirect compensation over the
cumulative term of their contracts.
Certain service providers are exempted from the definition of CSP, including service providers
who are paid by the plan sponsor or by direct
compensation (e.g. legal counsel, accountants,
auditors, etc.) and providers of certain annuity
contracts held within 403(b) plans.
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7. Fee Disclosures – CSPs to Plans
Direct compensation is paid directly from the
plan assets of the covered plan

Indirect compensation is not paid from the plan, but is paid from one service provider to
another. Examples include commissions, finder’s fees, 12b-1 fees, termination fees,
marketing allowances and other types of
revenue sharing arrangements.


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8. Fee Disclosures – CSPs to Plans
Compensation can be disclosed in total
dollar amount; as a percentage of assets; as
a per participant charge, or via a formula that
would allow the Plan Sponsor to calculate
with reasonable certainty the amount of
compensation being paid.
Initial disclosures were to be made by July 1,
2012, and any changes to information
disclosed must be made as soon as
practicable, but no later than 60 days from
the date of which the CSP is informed of the
change.
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9. Fee Disclosures – CSPs to Plans
Format for disclosure:
The regulations do not require a specific format for
disclosure.

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10. Fee Disclosures – CSPs to Plans
Assessment of “reasonableness” of fees
The regulations do not define “reasonable” fees
Suggested approaches:
1. Benchmarking
2. Request for Proposal (RFP) bidding process
3. Others
Reminder: consider the total value of the services
received
Document in writing
Complete at least annually

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11. Fee Disclosures – from Plans to
Participants
ERISA §404(a)(5)
Plans must provide investment -related
information in a format that permits workers to
comparison shop among investment options

Effective August 30, 2012 for calendar year
ERISA plans for annual disclosures (if fiscal
year, effective date is the later of 60 days after
the beginning of the plan year or 8/30/12).
Quarterly disclosures to participants are due 45
days after the quarter end – generally by
November 14, 2012


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12. Fee Disclosures – from Plans to
Participants
Applies to participant-directed individual
plans, such as 401(k) and 403(b)
Disclosures are to be made to all plan
participants, including eligible employees
who are not participating in the plan and
terminated employees with balances in the
plan

Plan sponsor is responsible for ensuring that all plan-
eligible employees receive the disclosures.

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13. Fee Disclosures – from Plans to
Participants
Annual disclosures:
General plan information, including investment
instructions, investment options, and information about
permitted investments outside those designated by the
plan, if permitted by the plan
Administrative expense information, including general plan
administrative fees and expenses that may be charged to
or deducted from individual participant accounts, such as
legal, accounting, and recordkeeping services

Individual expense information, including fees and
expenses that may be charged to or deducted from the
individual account of a specific participant based on the
actions taken by that person, such as fees for plan loans,
distributions, and for processing qualified domestic
relations orders


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14. Fee Disclosures – from Plans to
Participants
Quarterly disclosures:
Quarterly statements showing dollar amount of plan fees
and expenses deducted from accounts
Description of services to which the fees relate
Performance data, including 1, 5, and 10 year returns for
funds that do not have a fixed rate of return
Annual rates of return for fixed rate investments
Benchmark data, including 1, 5, and 10 year returns for
relevant benchmark indexes.

Plan fiduciaries should ensure that these
quarterly disclosures are being made. They
most often will be made on the participants’
quarterly investment statement.

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15. Fee Disclosures – from Plans to
Participants
If the Plan has multiple CSPs, the
disclosures need to account for this
The DOL has provided model charts
CSPs may have enhanced or added to the
chart
The following are samples of the DOL’s
Model Comparative Chart, which may be
found at www.dol.gov/ebsa/participantfeerulemodelch
art.doc
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16. Fee Disclosures – from Plans to
Participants
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Table 1—Variable Return Investments

Name/
Type of Option

Average Annual Total Return
as of 12/31/XX
1yr. 5yr. 10yr. Since
Inception


Benchmark

1yr. 5yr. 10yr. Since
Inception

Equity Funds
A Index Fund/ S&P
500
www. website
address
26.5% .34% -1.03% 9.25%

26.46% .42% -.95% 9.30%
S&P 500
B Fund/ Large Cap
www. website
address
27.6% .99% N/A 2.26%

27.80% 1.02% N/A 2.77%
US Prime Market 750 Index
C Fund/ Int’l Stock
www. website
address
36.73% 5.26% 2.29% 9.37%

40.40% 5.40% 2.40% 12.09%
MSCI EAFE
Bond Funds
E Fund/ Bond Index
www. website
address
6.45% 4.43% 6.08% 7.08%

5.93% 4.97% 6.33% 7.01%
Barclays Cap. Aggr. Bd.
Other
F Fund/ GICs
www. website
address
.72% 3.36% 3.11% 5.56%

1.8% 3.1% 3.3% 5.75%
3-month US T-Bill Index
G Fund/ Stable Value
www. website
address
4.36% 4.64% 5.07% 3.75%

1.8% 3.1% 3.3% 4.99%
3-month US T-Bill Index
Generations 2020/
Lifecycle Fund
www. website
address
27.94% N/A N/A 2.45%

26.46% N/A N/A 3.09%
S&P 500

23.95% N/A N/A 3.74%
Generations 2020 Composite Index*

17. Fee Disclosures – from Plans to
Participants
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Table 2—Fixed Return Investments
Name/
Type of Option
Return Term Other
H 200X/ GIC
www. website
address
4% 2 Yr. The rate of return does not change during the stated
term.
I LIBOR Plus/ Fixed-
Type Investment
Account
www. website
address
LIBOR
+2%
Quarterly The rate of return on 12/31/xx was 2.45%. This rate is
fixed quarterly, but will never fall below a guaranteed
minimum rate of 2%. Current rate of return
information is available on the option’s Web site or at
1-800-yyy-zzzz.
J Financial Services
Co./ Fixed Account
Investment
www. website
address
3.75% 6 Mos. The rate of return on 12/31/xx was 3.75%. This rate of
return is fixed for six months. Current rate of return
information is available on the option’s Web site or at
1-800-yyy-zzzz.

18. Fee Disclosures – from Plans to
Participants
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Table 3—Fees and Expenses
Name /
Type of Option


Total Annual
Operating
Expenses
As a
%
Per
$1000

Shareholder-Type Fees

Equity Funds
A 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.
B Fund/
Large Cap
2.45% $24.50

2.25% deferred sales charge subtracted from amounts
withdrawn within 12 months of purchase.
C Fund/ International
Stock
0.79% $7.90

5.75% sales charge subtracted from amounts invested.
D Fund/
Mid Cap ETF
0.20% $2.00

4.25% sales charge subtracted from amounts
withdrawn.
Bond Funds
E Fund/
Bond Index
0.50% $5.00

N/A
Other
F Fund/
GICs
0.46% $4.60

10% charge subtracted from amounts withdrawn within
18 months of initial investment.

19. Fee Disclosures – from Plans to
Participants
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Table 4—Annuity Options
Name Objectives / Goals Pricing Factors Restrictions / Fees
Lifetime Income
Option

www. website
address
To provide a guaranteed
stream of income for
your life, based on
shares you acquire while
you work. At age 65,
you will receive monthly
payments of $10 for
each share you own, for
your life. For example, if
you own 30 shares at
age 65, you will receive
$300 per month over
your life.
The cost of each share
depends on your age and
interest rates when you
buy it. Ordinarily the
closer you are to
retirement, the more it
will cost you to buy a
share.

The cost includes a
guaranteed death benefit
payable to a spouse or
beneficiary if you die
before payments begin.
The death benefit is the
total amount of your
contributions, less any
withdrawals.




Payment amounts are
based on your life
expectancy only and would
be reduced if you choose a
spousal joint and survivor
benefit.

You will pay a 25%
surrender charge for any
amount you withdraw
before annuity payments
begin.

If your income payments
are less than $50 per
month, the option’s issuer
may combine payments
and pay you less
frequently, or return to you
the larger of your net
contributions or the cash-
out value of your income
shares.

20. Consequences of non- compliance
Plan Sponsor is ultimately responsible for
compliance as the fiduciary
If CSP does not provide fee disclosures:
Request the missing information from the CSP in
writing
Duty to fire CSP if information not still not provided
Notify DOL in writing
Sample Notice at
http://
www.dol.gov/ebsa/DelinquentServiceProviderDi
sclosureNotice.doc
Potential prohibited transaction
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21. Consequences of non- compliance
Under IRS rules, the service provider would
become a “disqualified person” and there
could be excise tax
Potential for lawsuits against the plan for
excessive investment fees
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22. Conclusions
Heightened focus on fees impact:
1
Equity mutual fund average total expense ratio:
0.99% in 2000 and reduced to 0.79% in 2011
Bond mutual fund average total expense ratio: 0.76%
in 2000 and reduced to 0.62% in 2011
Money market fund average total expense ratio:
0.49% in 2000 and reduced to 0.21% in 2011



1 Investment Company Institute’s ICI Research Perspective, April 2012.

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23. Comments or Questions?
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24. Speaker Biography
John Kubichek, is a manager in Tate & Tryon’s Audit and Assurance
Services department with more than 14 years of public accounting
experience working with a variety of nonprofit and for profit clients.

Over the past decade, Mr. Kubichek has managed a variety of
employee benefit plan audits, including 401(k), 403(b), multi-employer
and defined benefit plan audits. He is currently the chair of Tate &
Tryon’s Employee Benefit Plan Audit committee.

Mr. Kubichek’s emphasis on nonprofit organizations serviced include
multiple trade associations, charitable foundations, and healthcare
facilities. The size of clients has varied from $100K to over $200M in
annual revenues. He also has considerable experience with OMB
Circular A-133 and in forensic accounting engagements.

John is a Certified Public Accountant and Certified Fraud Examiner.
He received a Bachelor of Science degree in accounting from Geneva
College. He is active in the community by serving on a local church
committee dedicated to hunger relief.
John Kubichek, CPA, CFE
Audit Manager
Tate & Tryon
Direct: 202- 419-5149
[email protected]

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25. Speaker Biography
Michael Aylward is a partner in The KLA Group at RBC Wealth
Management. He provides comprehensive investment management
and retirement planning services for associations, non- profit
organizations and corporations, as well as individual investors and
their families. He has worked for more than 25 years in financial
services and business management industry.

He has served in executive positions with USTrust, Bank Boston and
Ruesch International. Additionally, he was a division Vice President
with a major Washington DC trade group representing small to
medium sized businesses.

Mike is a Certified Employee Benefits Specialist through the Wharton
School and the International Foundation of Employee Benefit Plans.
Additionally, he is a Chartered Retirement Plans Specialist through the
College for Financial Planning. He received a Bachelor of Arts degree
in management and a Masters of Business Administration degree in
finance from Boston College. Mike served in the Military Police Corps -
United States Army.

Michael G. Aylward, CEBS,
CRPS
Vice President - Financial
Advisor, Consulting Group
RBC Wealth Management
Direct:703- 342-1188
[email protected]
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26. Guest Biography
David Moore is a Vice President, Managing Director in Fidelity’s Tax-
Exempt Market relationship management team. He joins us today as a
guest to provide Fidelity’s perspective on how they have helped their
clients comply with the new disclosure requirements.

David joined Fidelity in 1999 and overall has 17 years of industry
experience in the design, operation, and administration of defined
contribution and equity compensation plans. He previously managed a
team of project managers in Fidelity’s large corporate implementation
group where he was responsible for managing new client conversions
such as Cardinal Health, Texas Instruments, Cap Gemini and
Cablevision, as well as corporate actions for existing clients such as
Verizon, Microsoft, Hewlett- Packard and Novartis. Before joining
Fidelity, David was a Client Relationship Manager for Scudder Kemper
Investments, where his client list included the University of Minnesota,
West Virginia University and The Conference Board.

David received a Bachelor of Arts degree in Finance from the
University of Massachusetts – Lowell and a Masters of Business
Administration degree in Finance from Bentley University. David also
holds FINRA Series 7 and 63 licenses.
David J. Moore
Vice President, Managing
Director
Fidelity Investments
Direct: 617- 563-0260
[email protected]
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