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New Retirement Plan Fee Disclosure Requirements: What You Need to Know and Do Now Edward P. Smith Marjorie M. Glover David Gallai Rachel M. Santangelo.

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Presentation on theme: "New Retirement Plan Fee Disclosure Requirements: What You Need to Know and Do Now Edward P. Smith Marjorie M. Glover David Gallai Rachel M. Santangelo."— Presentation transcript:

1 New Retirement Plan Fee Disclosure Requirements: What You Need to Know and Do Now Edward P. Smith Marjorie M. Glover David Gallai Rachel M. Santangelo May 23, 2012

2 Agenda Overview of Recent DOL Fee Disclosure Initiatives Service Provider Fee Disclosure Requirements Participant Level Fee Disclosure Requirements Electronic Delivery of Fee Disclosure 1

3 Recent DOL Fee Disclosure Initiatives Participant Level Fee Disclosure Requires plan fiduciaries to disclose information to plan participants to help participants make informed investment decisions Initial Disclosure Required August 30, 2012 Service Provider Fee Disclosure Requires service providers to disclose information to help plan fiduciaries determine whether fees are reasonable and whether there are any actual or potential conflicts of interest Effective July 1, 2012 Form 5500, Schedule C Disclosure Disclosure of compensation paid to service providers that receive $5,000 or more in compensation Effective for Plan Years Beginning On and After January 1,

4 Service Provider Fee Disclosure Purpose Legislative History Covered Plans Covered Service Providers Required Disclosure Timing Penalties Corrective Action Employer Action Required 3

5 Service Provider Fee Disclosure - Purpose ERISA Section 408(b)(2) Generally prohibits provision of goods and services or facilities between parties in interest and service providers unless arrangement and compensation for services are “reasonable” ERISA 408(b)(2) Regulations Requires Service Providers to Disclose Information to Plan Fiduciaries to Help Plan Fiduciaries – Assess reasonableness of compensation paid to service providers Determine whether there are any actual or potential conflicts of interest that affect service provider’s performance of services Satisfy reporting and disclosure requirements under ERISA 4

6 5 Service Provider Fee Disclosure - History Final Regulations Issued February 2012 Proposed Regulations Issued December 2007 Interim Final Regulations Issued July 2010

7 Service Provider Fee Disclosure – Covered Plans Which Plans Are Covered by Fee Disclosure Requirements? Defined contribution and defined benefit plans Exceptions: Frozen 403(b) plans (entered into, frozen and benefits fully vested before 2009) SEPs, Simple IRAs and IRAs Non-Employee KEOGHs and HR 10 DOL intends to issue separate regulations covering welfare plans in future 6

8 Service Provider Fee Disclosure – Covered Service Providers Which Service Providers Are Required to Provide Fee Disclosure to Plan Fiduciaries? Certain service providers who reasonably expect to receive $1,000 or more (directly or indirectly) as a result of providing “covered services” Entity entering into arrangement is responsible for making service provider fee disclosures (even if entity provides multiple services to plan) 7

9 8 Service Provider Fee Disclosure – Covered Service Providers Covered Service Providers (CSPs)  Fiduciary Services Provided to Plan  Fiduciary Services Provided to Investment Contract, Product, Entity That Holds Plan Assets and In Which Plan Has Equity Interest  Registered Investment Advisory Services  Recordkeeping or Brokerage Services Provided to Participant-Directed Individual Account Plan (if one or more investment options are made available in connection with such services) ( “Platform Providers”)  Accounting, Auditing, Actuarial, Appraisal, Banking, Consulting, Custodial, Insurance, Investment Advisory, Legal, Recordkeeping, Securities or Other Investment Brokerage, Third-Party Administration or Valuation Services, Where Service Provider, Affiliate or Subcontractor Reasonably Expects to Receive Indirect Compensation or Other Compensation

10 9 Service Provider Fee Disclosure – Required Disclosure General Disclosure  Services – Description of Services Provided to Plan  Status – Statement That CSP Will Provide Services to Plan as Fiduciary or Registered Investment Advisor (If Applicable)  Compensation – Description of any “Direct Compensation” or “Indirect Compensation” That CSP Reasonably Expects to Receive  “Direct Compensation” is any compensation received from plan  “Indirect Compensation” is compensation received from any source other than plan, plan sponsor, service provider, affiliate or subcontractor (for example, revenue sharing, commissions)  Service providers who disclose indirect compensation must identify service for which indirect compensation is received and payer of indirect compensation and describe arrangement with payer of indirect compensation  Compensation on Termination – Description of Any Compensation Due in Connection With Termination of Arrangement  Method of Payment – Whether Billed to Plan or Paid from Plan Assets

11 10 Service Provider Fee Disclosure – Required Disclosure Additional Disclosure for “Bundled Services” Additional Disclosure for Recordkeepers Compensation that will be paid among service provider, affiliate or subcontractor if paid on transaction basis Examples: Commissions, soft dollars, finder’s fees and incentives Description of any “direct compensation” and “indirect compensation” recordkeeper reasonably expects to receive in connection with services Compensation is charged directly against plan investment and reflected in net value of investment Example: 12b1 fees If no explicit charge for recordkeeping services, or if charges for recordkeeping services are offset or rebated against other compensation received by service provider, must provide: Reasonable good faith estimate of cost to plan of recordkeeping services, including explanation of methodology and assumptions used to prepare the estimates, estimate should take into account rates that service provider would charge to or be paid by third parties or prevailing market rates for similar services for similar plan with similar number of participants Detailed explanation of recordkeeping services that would be provided

12 11 Service Provider Fee Disclosure – Required Disclosure Additional Investment Disclosure for Fiduciary Services and Recordkeeping or Brokerage Services for Self-Directed Accounts Description of any compensation that will be charged directly against an investment and which is not included in annual operating expenses of investment contract, product or entity Examples: Commissions, sales loads, sales charges, redemption fees, surrender charges, exchange fees, account fees and purchase fees Description of annual operating expenses (e.g., expense ratio) if not fixed-return investment and any ongoing expenses in addition to operating expenses (e.g., wrap fees, mortality and expense fees) or for a designated investment alternative, the total annual operating expenses expressed as a % and calculated in accordance with DOL participant fee disclosure rules For any designated investment alternative, or other information within the control of, or reasonably available to, CSPs and required for plan administrator to comply with DOL fee disclosure rules CSP may provide current disclosure materials of unaffiliated issuer of designated investment alternative, provided issuer is registered investment company (mutual fund), insurance company or financial institution supervised by state or federal agency

13 Service Provider Fee Disclosure – Form and Delivery Disclosure Must Be Made to Responsible Plan Fiduciary (RPF) - Plan fiduciary with authority to cause plan to enter into services arrangement 12

14 Service Provider Fee Disclosure – Form and Delivery Form of Disclosure Written Electronic No Prescribed Form Guide, Summary or Similar Tool Encouraged DOL has issued model or sample guide DOL may publish rules in future requiring use of guide 13

15 Service Provider Fee Disclosure – Form and Delivery 14 Required InformationLocation(s) Description of the services that ABC will provide to your Plan.Master Service Agreement § 2.4, p. 1 A statement concerning the services that ABC will provide an [an ERISA fiduciary] [a registered investment adviser]. Master Service Agreement § 2.4, p. 2 Compensation ABC will receive from your Plan ("direct" compensation).Master Service Agreement § 2.4, p. 4 Compensation ABC will receive from other parties that are not related to ABC ("indirect" compensation). Master Service Agreement § 3.3, p. 4 Stable Value Offering Agmt § 3.1, p. 4 Compensation that will be paid among ABC and related parties.Master Service Agreement § 3.5, p. 6 Compensation ABC will receive if you terminate this service agreement.Master Service Agreement § 9.2, p. 11 The cost to your Plan of recordkeeping services.Master Service Agreement § 3.4, p. 5 Fees and Expenses relating to your Plan's investment options. *Total Annual Operating Expenses (1) Capital and Income Fund Trans. Fees: InvestCo Prospectus, Fund Summary, p. 2 TAOE:* InvestCo Prospectus, Fund Summary, p. 2 (2) International Stock Fund Trans. Fees: TAOE: (3) Small Cap Fund Trans. Fees: TAOE: (4) Bond Market Index Fund Trans. Fees: TAOE: (5) Stable Value Fund Trans. Fees: Stable Value Offering Agmt, § 2.4, p. 3 TAOE: Stable Value Offering Agmt, § 2.3, p. 3 (6) Money Market Fund Trans. Fees: TAOE:

16 Service Provider Fee Disclosure Compliance Deadlines Deadline for initial disclosures by current CSP is July 1, 2012 Deadline for disclosures for contracts with new CSP is effective date of contract Must be provided reasonably in advance of entering into contract Ongoing Disclosure Changes to initial disclosure must be disclosed as soon as CSP is informed of change Annual disclosure of changes to investment information required 15

17 Service Provider Fee Disclosure Service Provider - Correction of Errors CSP may correct error by disclosing corrected information as soon as practicable, but not later than 30 days after CSP knows of error CSP must act in good faith and with reasonable diligence 16

18 Service Provider Fee Disclosure Consequences of Failing to Make Disclosure Prohibited transaction to both CSP and RPF Both parties subject to excise taxes (15% to 100% of amount involved) and other adverse consequences 17

19 Service Provider Fee Disclosure – PT Class Exemption Prohibited Transaction Class Exemption Requirements (Exempts RPF but not CSP from Prohibited Transaction) RPF did not know that CSP failed or would fail to provide disclosures and reasonably believed required disclosures were provided At a minimum, DOL expects RPF to compare disclosures it receives from service providers with requirements contained in regulations to ensure all required information has been included Upon discovering failure, RPF requested in writing that CSP make disclosure If CSP fails to comply with request within 90 days or indicates earlier that it will not supply the disclosure, RPF must notify DOL of failure RPF must then determine whether to terminate arrangement with CSP consistent with duty of prudence If failure relates to future services and is not disclosed promptly after end of 90 day period, RPF must terminate arrangement as quickly as possible, consistent with duty of prudence Must still disclose prohibited transaction on Plan’s annual Form 5500 filing 18

20 Service Provider Fee Disclosure Action Required by Employers Establish Team to Review and Monitor Service Provider Fee Disclosure HR, Benefits, Finance Coordinate Team with Participant Level Fee Disclosure Team Establish Service Provider Fee Disclosure Review Timeline and Procedures, Including Procedures for Reviewing Initial, Quarterly and Annual Fee Disclosure Monitoring Changes to Previously-Disclosed Information Addressing Non-Compliance Negotiating New, Extended and Renewed Contracts Documenting Compliance with ERISA Section 408(b)(2) 19

21 Service Provider Fee Disclosure Action Required by Employers – Initial Identify All Covered Plans and CSPs Review All Service Contracts and Fee Disclosure Received To Date Determine Whether Any Follow Up or Corrective Action is Needed and Take Such Action Contact All CSPs That Have Not Yet Provided Required Disclosure Maintain Records to Document Initial Review Process and Results 20

22 Service Provider Fee Disclosure Action Required by Employers – Ongoing Review Quarterly and Annual Fee Disclosure Monitor Changes to Previously-Disclosed Information Address Non-Compliance Reduce Fees, Change CSPs, DOL Report Negotiate New, Extended and Renewed Contracts Incorporate Required Service Provider Fee Disclosure Identify Responsibility for Participant-Level Fee Disclosure CSP Representations and Warranties CSP/RPF Indemnification Document Ongoing Compliance with ERISA Section 408(b)(2) 21

23 22 DOL’s Participant-Level Disclosure Regulations ERISA Section 404(a)(1) contains ERISA’s fiduciary obligations Requires plan fiduciaries to act prudently and solely in the interest of participants and beneficiaries When a plan gives participants the ability to direct investments, DOL believes that Section 404(a)(1) requires plan fiduciaries to disclose certain information to participants to allow them to make informed investment decisions DOL issued regulations under Section 404(a) detailing what information must be disclosed to plan participants and when (the “participant-level disclosure regulations”) While this disclosure obligation overlaps with information that must be provided to participants under ERISA Section 404(c), this disclosure obligation is independent of Section 404(c) In other words, this disclosure obligation may apply even if a plan is not intended to be a “404(c) plan”

24 23 Who Must Provide the Disclosures? The plan administrator of a “covered individual account plan” is responsible for making complete and accurate disclosures A covered individual account plan is any participant-directed individual account plan, but excluding IRA-based SEP plans and SIMPLE accounts Disclosure rules apply regardless of the number of participants in the plan – no “small plan” exception Pursuant to FAB , certain pre-2009, “frozen” 403(b) contracts are exempt from the requirement to provide Investment-Related Information If the plan administrator, in making the disclosures, relies on information received from a plan service provider or an issuer of a designated investment alternative, the plan administrator will not be responsible for the completeness and accuracy of that information as long as the plan administrator’s reliance was reasonable and in good faith What is “reasonable”?

25 24 Who Must Receive the Disclosures? Each participant or beneficiary who, pursuant to plan terms, has the right to direct the investment of his or her plan account Only beneficiaries who actually have the right to direct investments must receive disclosures (for example, due to death of participant or alternate payee under a QDRO) Includes employees that are eligible to participate, even if they do not in fact participate and have no intention of participating

26 25 What Types of Information Must be Disclosed? General Plan-Related Information These are annual disclosures Administrative Expenses These are a mix of annual and quarterly disclosures Individual Expenses These are a mix of annual and quarterly disclosures Investment-Related Information These are generally annual disclosures, but some information must be updated periodically via a website and some information must be disclosed upon request

27 26 General Plan-Related Information What must be disclosed: Explanation of circumstances under which participants and beneficiaries can give investment instructions Explanation of any plan limits on such instructions, including plan limits on transferring to or from a designated investment alternative Description of plan provisions (including restrictions) relating to exercise of voting, tender, and similar rights related to an investment Identification of each designated investment alternative offered under the plan Identification of any investment managers Description of any brokerage window offered under the plan FAB – at a minimum, must explain how the window works and whom to contact with questions

28 27 Administrative Expenses What must be disclosed annually: Explanation of fees and expenses for general plan administration that may be charged against individual accounts (e.g., recordkeeping) Not disclosed here if the fee/expense is included within the “total annual operating expenses” of the investment FAB – reasonable disclosure still required even if specific fees/expenses are not known in advance (e.g., legal fees for the year) Explanation of how these fees/expenses will be allocated among the individual accounts (e.g., pro rata) What must be disclosed quarterly: Dollar amount of above fees/expenses actually charged against the individual account during the preceding quarter Disclosure of aggregate amount is sufficient; not required to provide service-by- service breakdown Description of the services to which those charges relate If applicable, statement that some or all of the plan’s administrative expenses for the preceding quarter were (or will be) paid from the annual operating expenses of one or more investments (i.e., revenue sharing payments) FAB – do not need to disclose the specifics of the revenue sharing payments for purposes of these disclosures

29 28 Individual Expenses What must be disclosed annually: Explanation of fees and expenses that may be charged on an individual basis against individual accounts (e.g., plan loan fees, brokerage window fees, commissions, investment advice fees) Not disclosed here if the fee/expense is included within the “total annual operating expenses” of the investment FAB – guidance for disclosures for brokerage windows; general statements with instructions about how to obtain more information may suffice in some cases What must be disclosed quarterly: Dollar amount of above fees/expenses actually charged against the individual account during the preceding quarter Description of the services to which those charges relate Quarterly disclosure not required if (1) fees/expenses are otherwise disclosed during the quarter (e.g., via a confirmation statement) or (2) no such fees/expenses incurred during the quarter

30 29 Investment-Related Information What must be disclosed annually for each “designated investment alternative”: 1. Name of each investment alternative Inclusive of “closed” investments, but may limit provision of those disclosures about that investment alternative to those invested in that alternative 2. Type/category of each investment alternative (e.g., large-cap stock fund) No longer required to disclose type of management (e.g., passive); requirement was contained in the proposed regulations but now deleted 3. Performance data for 1, 5, and 10 year periods (or for the life of the investment alternative, if shorter) Must include a statement that past performance is not necessarily indicative of future performance For fixed-return investments, only need to disclose the fixed rate of return and the term of the investment in lieu of performance data If the rate is adjustable, must disclose that fact as well as current rate of return and minimum guaranteed rate of return Preamble makes clear that money market mutual funds and stable value funds are not fixed-return investments

31 30 Investment-Related Information (continued) What must be disclosed annually for each “designated investment alternative”: 4. Name and performance data for appropriate benchmarks “Appropriate broad-based securities market index” Performance data must be for the same performance periods as the comparator investment alternative Benchmark generally cannot be “related” to the comparator investment alternative (unless widely recognized and used) Benchmark not required for fixed-return investments

32 31 Investment-Related Information (continued) What must be disclosed annually for each “designated investment alternative”: 5. Fee and expense information for non-fixed-return investments Amount and description of shareholder-type fees not included in total annual operating expenses of the investment alternative Description of restrictions applicable to purchase, transfer, or withdrawal from the investment alternative Total annual operating expenses of the investment alternative expressed as a percentage (i.e., expense ratio) Total annual operating expenses of the investment alternative expressed as a dollar amount for a $1,000 investment over a 12-month period Statement that fees/expenses are only one of several factors to consider when making investment decisions Statement that cumulative effect of fees/expenses can substantially reduce the growth of the account and that participants can visit the EBSA website for an example For fixed-return investments, only need to disclose the first two sub- bullets above

33 32 Investment-Related Information (continued) What must be disclosed annually for each “designated investment alternative”: 6. Website address that provides access to the following: Name of issuer of each investment alternative Investment alternative’s objectives/goals, principal strategies and risks, portfolio turnover rate, performance data updated at least quarterly, and fee and expense information FAB – above information does not have to be contained on the “landing page” of the website address, but website must be user- friendly and information easy to find According to the preamble, DOL expects this website to be accurate and updated “as soon as reasonably possible” FAB – website should be “accurate and reasonably current” Plan administrator/sponsor may create and maintain the website or may contract with TPA or recordkeeper to do so

34 33 Investment-Related Information (continued) What must be disclosed annually for each “designated investment alternative”: 7. Glossary of terms to help participants and beneficiaries understand the investment alternatives (or a website address that that provides access to such a glossary) DOL considered publishing a sample glossary but decided against it

35 34 Investment-Related Information (continued) Format: Investment-related information must be disclosed in the form of a comparative chart DOL has issued a model chart Chart must also include contact information, note that additional information is available at a website, and note about how to receive paper copies of various items free of charge Additional information can be added to the chart as long as not inaccurate or misleading FAB – multiple charts from service providers/issuers can be furnished – single chart is not required – as long as furnished at the same time and charts are designed to facilitate comparison This relief is particularly important for 403(b) plans. Chart need not be provided more frequently than annually, as website will be updated more often However, DOL states that, under extraordinary circumstances, ERISA fiduciary duties may require that participants be affirmatively notified of important changes before the next chart is to be provided

36 35 Investment-Related Information (continued) Special Rules for Employer Securities Instead of describing principal strategies and risks, need only explain the importance of a well-balanced and diversified investment portfolio (see DOL’s FAB for sample language) Not required to disclose portfolio turnover rate Not required to disclose annual operating expenses unless participants acquire units of the stock fund as opposed to actual shares With respect to disclosure of performance data, different definition of “average annual total return” unless participants acquire units of the stock fund as opposed to actual shares

37 36 Investment-Related Information (continued) Special Rules for Annuity Options “Annuity” defined by reference to purchase of a stream of retirement income payments guaranteed by an insurance company Regulations provide for alternative disclosures for the Investment- Related Information, including alternative requirements for the information to be provided through website access Comparative chart format still required Special Rules for Fixed-Return Investments Alternative requirements for the information to be provided through website access Special Rules for Target Date and Similar Funds – not yet; DOL expressly reserved this for future rulemaking

38 37 Investment-Related Information (continued) Additional Disclosure Obligations of Investment-Related Information Modeled after obligations already in place under Section 404(c) regulations Once a participant has invested in an investment alternative, if voting, tender, or similar rights are passed through under the terms of the plan, then must send to the participant any materials received by the plan regarding those rights Must provide the following information annually or upon request: Prospectuses or similar documents (or proper summaries) for an investment alternative FAB provides further guidance as to which documents satisfy this requirement Financial statements/reports or similar materials for an investment alternative provided to the plan Value of a share/unit of an investment alternative and date of valuation List, value, and proportion of assets in an investment alternative which constitute “plan assets”

39 38 What is a “Designated Investment Alternative”? Generally, any investment option into which participants may direct the investment of assets held in their plan accounts Does not include: Brokerage windows Investment management service where investment manager is selected to allocate assets among the plan’s investment options Model portfolios made up of the plan’s underlying investment options, unless participant acquires an interest in that portfolio Exception does not apply if model portfolio includes investment options not otherwise available under the plan Investment platform where the platform provider selects investment options that are not specifically identified as available under the plan must be considered carefully Underlying investment options may be “designated investment alternatives” FAB – DOL provides safe harbor if the platform holds more than 25 investment options; will need to make disclosures for some but not all of those investment options FAB – DOL cautions about giving participants who are not financially sophisticated too many investment options (more than “a manageable number”), particularly options about which disclosures would not be required FAB – if enough participants invest in an investment option that is not otherwise a “designated investment alternative” (e.g., via a brokerage window or platform), may need to treat that option as a “designated investment alternative” for disclosure purposes Suggests need to monitor participant investments made through a brokerage window

40 39 How Must the Disclosures be Provided? Need not be provided as stand-alone document, but best practices may evolve this way The annual disclosures of General Plan-Related Information, Administrative Expenses, and Individual Expenses can be provided as part of the SPD or the ERISA Section 105 pension benefit statement Distribution of the SPD or the pension benefit statement must continue to meet the disclosure frequency requirements of these rules The quarterly disclosures of Administrative Expenses and Individual Expenses can be provided as part of the ERISA Section 105 pension benefit statement Above examples are not exclusive means by which disclosures can be made Disclosures must be written in a manner calculated to be understood by the average plan participant DOL has issued limited relief to allow these disclosures to be made electronically

41 40 When Must the Disclosures be Provided? ANNUAL DISCLOSURES Annual disclosures must be provided on or before the date on which a participant or beneficiary can first direct his or her investments and then annually thereafter For plans with immediate eligibility, these disclosures may need to be provided with any enrollment forms/papers on the first day of work If there is a change in the information in the annual disclosures for General Plan- Related Information, Administrative Expenses, or Individual Expenses, then generally must disclose that change 30 – 90 days before the change is effective There is an exception if such advance notice cannot be provided due to unforeseeable circumstances or circumstances beyond the control of the plan administrator (in which case as much notice as “reasonably practicable” must be provided) First annual disclosures (for calendar year plans) must be provided by August 30, 2012 QUARTERLY DISCLOSURES Must be provided each quarter and must cover the prior quarter (e.g., disclosure covering January – March provided during April – June timeframe) “Quarter” refers to any three-consecutive-month period First quarterly disclosures (for calendar year plans) must be provided by November 14, 2012 (covering the July 2012 – September 2012 timeframe)

42 41 Takeaways No automatic penalty for non-compliance, but non-compliance is a breach of fiduciary duty Potential civil liability if damages could be tied to the lack of disclosures Potential criminal liability for willful violations (would be reserved for rare cases) Non-compliance will result in loss of Section 404(c) protection for plan fiduciaries Section 404(c) otherwise protects fiduciaries from investment losses incurred by participants as a result of their investment decisions Regulations expressly provide that compliance with these Section 404(a) disclosure requirements does not relieve fiduciaries of their duty to prudently select and monitor a plan’s investment options DOL has also made clear its position that the Section 404(c) regulations do not relieve fiduciaries of this duty to prudently select and monitor investment options – this point has been the subject of a number conflicting court decisions in recent years Fiduciaries should continue to monitor the plan’s investment options to determine if they are appropriate, including brokerage windows If not already in process, determine who will be responsible for drafting and begin that process ASAP Review draft disclosures with ERISA counsel before they are finalized and distributed Who will distribute them and how will they be distributed? Review (and renegotiate?) agreements with service providers to allocate and/or clarify responsibilities related to these disclosures

43 Electronic Delivery of Participant Fee Disclosures Final DOL regulations on participant-level fee disclosures reserve section on manner of disclosure DOL has issued interim guidance on how participant- level fee disclosures can be made electronically DOL guidance provides two separate rules for electronic disclosures: 42 Rule for disclosures of plan- related information included in pension benefit statement (e.g., general plan-related information, administrative expenses and individual expenses) Rule for all disclosures, including investment- related information and other information not included in pension benefit statement ALL DISCLOSURESIN PENSION BENEFIT STATEMENT

44 Disclosures of Plan-Related Information Included In Pension Benefit Statement Disclosures of plan-related information included in pension benefit statement may be furnished electronically in same manner as other information in same pension benefit statement Three options for furnishing pension benefit statement electronically:  DOL electronic delivery safe harbor rule  IRS electronic delivery rule  FAB electronic delivery rule (continuous access websites) 43

45 DOL Electronic Delivery Safe Harbor Rule 44 Category of RecipientRequirements Current employees with ability to access electronic documents at work location, if access to employer’s electronic system is an integral part of participant’s employment duties These current employees must receive affirmative communication describing significance of materials and offer to receive a paper copy free of charge Others (e.g., current employees for whom access to employer’s electronic system is not an integral part of employment duties, former employees, beneficiaries, or “alternate payees” under a QDRO), if intended recipient affirmatively consents to receiving disclosures electronically Consent must be provided electronically in manner that demonstrates recipient’s ability to access disclosures electronically Clear and conspicuous statement must be provided indicating: types of documents consent applies to consent may be withdrawn at any time certain other information

46 IRS Electronic Delivery Rule 45 RuleRequirements General rule requires affirmative consent to electronic delivery, which consent must be made (or confirmed) electronically, in a manner that demonstrates ability to access disclosures electronically Recipient must be provided with a clear and conspicuous statement explaining: right to receive paper copy free of charge right to withdraw consent scope of consent procedures to update electronic contact information hardware / software requirements Exception for recipients who have effective ability to access electronic medium used to provide disclosure For such recipients, affirmative consent is not required as long as, at the time the disclosure is provided, recipient is advised of right to receive paper copy free of charge

47 FAB Electronic Delivery Rule 46 Pension benefit statement may be provided through a website pursuant to this rule if: Plan provides participants continuous access to pension benefit statements through one or more secure websites (“continuous access websites”) Participants are provided notice that explains availability of required pension benefit statement and how it may be accessed Participants are notified they may request paper copies free of charge, and Notices are written in a manner reasonably calculated to be understood by the participants

48 Disclosures Provided Separately From Pension Benefit Statement Disclosures that are provided separately from pension benefit statement cannot be furnished electronically under IRS rule or FAB Instead, disclosures may be made:  Using existing DOL electronic delivery safe harbor rule; or  Under temporary guidance under DOL Technical Release R for electronic delivery 47

49 DOL Technical Release R Pending further guidance, plan administrator may furnish fee disclosures through electronic media (including a continuous access website) in accordance with the following conditions:  Voluntary Provision of Address: Recipients must voluntarily provide address for purpose of receiving disclosures  Initial Notice: Initial notice must be clear and conspicuous, provided contemporaneously and in same medium as request for address, and contain the following information: Statement that providing address is entirely voluntary, and that as result of providing address, required disclosures will be made electronically Brief description of fee disclosure information that will be furnished electronically and how it can be accessed Statement that paper copies may be requested and will be provided free of charge Statement that individual may opt out of receiving electronic disclosures at any time Procedure for updating addresses Pending further guidance, plan administrator may furnish fee disclosures through electronic media (including a continuous access website) in accordance with the following conditions:  Voluntary Provision of Address: Recipients must voluntarily provide address for purpose of receiving disclosures  Initial Notice: Initial notice must be clear and conspicuous, provided contemporaneously and in same medium as request for address, and contain the following information: Statement that providing address is entirely voluntary, and that as result of providing address, required disclosures will be made electronically Brief description of fee disclosure information that will be furnished electronically and how it can be accessed Statement that paper copies may be requested and will be provided free of charge Statement that individual may opt out of receiving electronic disclosures at any time Procedure for updating addresses 48

50 DOL Technical Release R  Annual Notice: Same information provided in initial notice must be provided to participants annually Annual notice must be furnished on paper unless there is evidence that participant interacted electronically with plan since prior annual notice was provided  Delivery: Plan administrator must take measures reasonably calculated to ensure actual receipt of transmitted information (e.g., return receipt or notice of undelivered mail)  Confidentiality: Plan administrator must take measures reasonably calculated to ensure that electronic delivery system protects confidentiality of personal information  Calculated to be Understood: Notice must be written in manner calculated to be understood by average plan participant  Annual Notice: Same information provided in initial notice must be provided to participants annually Annual notice must be furnished on paper unless there is evidence that participant interacted electronically with plan since prior annual notice was provided  Delivery: Plan administrator must take measures reasonably calculated to ensure actual receipt of transmitted information (e.g., return receipt or notice of undelivered mail)  Confidentiality: Plan administrator must take measures reasonably calculated to ensure that electronic delivery system protects confidentiality of personal information  Calculated to be Understood: Notice must be written in manner calculated to be understood by average plan participant 49

51 DOL Technical Release R Special Transition Rule This rule allows employer, plan sponsor or plan administrator to deem address already on file as having been voluntarily provided, if: addresses of participants and beneficiaries are already on file Participants are provided transition initial notice between 30 and 90 days before date that initial fee disclosures must be provided, and Transition initial notice is provided on paper, unless there is evidence that participant interacted with plan electronically during preceding 12 months Transition rule does not apply to addresses established or assigned by employer or plan sponsor, unless there is evidence that address was used by participant for plan purposes during preceding 12 months 50

52 Commentary DOL has received comments (including from 15 trade associations representing the retirement plan community) that DOL guidance does not make it feasible to provide disclosures electronically Comments criticize requirement to obtain affirmative consent and dependence on paper as default method of delivery Survey data shows that majority of service providers and recordkeepers will not attempt compliance with DOL Technical Release R due to cost concerns and administrative impracticality 51

53 Links to DOL Guidance Final DOL Service Provider Fee Disclosure Regulations Available at: ulations%20on%20Fee%20Disclosure.pdf ulations%20on%20Fee%20Disclosure.pdf Final DOL Participant-Level Fee Disclosure Regulations Available at: s.pdf s.pdf DOL Field Assistance Bulletin No ; Fee Disclosure Guidance Available at: Technical Release R; Revised Interim Policy on Electronic Disclosure Available at: 03r.pdfhttp://www.chadbourne.com/files/upload/EmploymentTechnical11- 03r.pdf 52

54 53 Thank You ******************** IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter addressed herein. For more information about why we are required to include this disclaimer, please click here or go to ******************** click here


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