1 TOPICS Fiduciary Responsibility Fee Disclosure to Plan Sponsors Participant-Level Fee Disclosure

Employee Benefits Security Administration EBSAs Mission: Detect and correct violations of ERISA and other relevant statutes. Develop policies and regulations that simplify compliance and encourage the growth and preservation of employment based benefits. Assist workers in getting information they need to protect their pension rights. Assist Plan Officials in understanding requirements of relevant statutes in order to meet their legal responsibilities. What do we do?

How Do We Do It? EBSAs Organizational Structure About 900 employees nationwide; 650 in the field 10 Regional Offices, 5 District Offices Boston Regional Office is responsible for all of New England and Upstate New York Each regional office staffed by a mix of Investigators and Benefit Advisors

Jurisdiction ERISA covers employee benefit plans established or maintained by private-sector employers Employee benefit plans excluded from our jurisdiction: governmental plans, church plans

Fiduciary Responsibility - Overview What is a fiduciary? In general – position of trust, acting for the benefit of others with a high duty of care and loyalty ERISA – any person who exercises discretionary authority or control over plan assets or administration, or gives investment advice

Basic Fiduciary Duties Acting solely in the interests of the participants and their beneficiaries Being prudent Paying only reasonable and necessary expenses of the plan Following the terms of the plan

7 Solely in the interest of means - Decisions made exclusively on the basis of what is good for the plan and its participants and beneficiaries

8 Prudence – If you need help, get it! Fiduciary must act with the care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use.

9 Reasonable expenses means - Expenses are reasonable only if they are necessary for the operation of the plan, and are not excessive for the service received. For example –

10 Following terms of the plan means - Follow the terms of the plan – do not exercise personal discretion when terms of plan are clear For Example -

11 Co-fiduciary liability A fiduciary will be liable for another fiduciarys violation if the fiduciary – participates in or acts to conceal a violation permits the other fiduciary to commit a violation has knowledge of another fiduciarys violation and fails to take reasonable steps to remedy

12 Steps to avoid common problems 1. Understand your plan and your responsibilities 2. Carefully select service providers 3. Make timely contributions 4. Avoid prohibited transactions 5. Make timely reports to government and disclosures to participants.

PROHIBITED TRANSACTIONS (AKA – What not to do with the Plans money and/or assets and who not to do it with) Stock Certificate

Example XYZ Company, Inc. XYZ Co. Inc. 401(k) Plan Plan Custodian Fiduciary hires Plans Custodian to provide additional services to the Plan Plan Fiduciary

15 ERISA §408(b)(2) Service Provider Disclosure to Pension Plan Fiduciaries Interim Final Regulation Published July 16, 2010 Employee Benefits Security Administration, DOL

16 Goal of Regulation To ensure that plan fiduciaries have the information they need to: Assess reasonableness of total comp. Identify potential conflicts of interest Satisfy reporting & disclosure requirements under Title I of ERISA

17 Scope – Which service providers are covered? A covered service provider is – An ERISA fiduciary providing services directly to a covered plan or to a plan asset investment vehicle; An investment adviser registered under Federal or state law; A record-keeper or broker who makes designated investment alternatives available to a covered DC plan (e.g., a platform provider); or

18 Scope -- Which service providers are covered? A provider that receives indirect comp. – i.e., comp. from parties other than plan or plan sponsor (e.g. third parties or affiliates) -- for providing any of the following services: accounting, auditing, actuarial, banking, consulting, custodial, insurance, investment advisory, legal, recordkeeping, securities brokerage, third party administration, or valuation.

19 Initial Disclosure Requirements If a covered service provider will provide services to a covered plan, the covered service provider must disclose specified information to the responsible plan fiduciary. In writing. Reasonably in advance of entering into the service contract or arrangement. CSP must disclose information on behalf of its affiliates and subcontractors, if applicable.

20 Initial Disclosure Requirements Compensation. All compensation that will be received by the covered service provider, its affiliates, or subcontractors. Direct compensation. Received directly from the covered plan. Indirect compensation. Received from third parties (sources other than the covered plan, the plan sponsor, the covered service provider and its affiliates or subcontractors).

21 Initial Disclosure Requirements Manner of Receipt. Describe how compensation will be received – i.e., billed to plan, deducted from plan accounts, etc.

22 Disclosure Errors & Failures Good faith error or omission? No prohibited transaction if covered service provider, acting in good faith and with reasonable diligence, makes a disclosure error or omission, if that error or omission is corrected. Must disclose the correct or omitted information as soon as possible, but no later than 30 days after discovering the error or omission.

23 Disclosure Errors & Failures Covered service provider fails to comply. Prohibited transactions will occur if the covered service provider fails to disclose required information. Covered service provider will be responsible for Internal Revenue Code §4975 excise tax on amount involved in prohibited transaction. Prohibited transaction must be reported.

24 Disclosure Errors & Failures Class Exemption for an Innocent Plan Fiduciary Responsible plan fiduciary will not be liable for prohibited transaction if conditions of the class exemption, contained in the IFR, are satisfied.

25 Miscellaneous Welfare plan disclosure. Rule reserves a new paragraph for future guidance concerning disclosure requirements for service providers to welfare benefit plans. Separate fee disclosure reg. initiative has begun – Public hearing was held on Dec. 7, 2010.

26 29 CFR a-5 Fiduciary Requirements for Disclosure in Participant- Directed Individual Account Plans Participant-level Fee Disclosure

27 Background RFI published April 25, Over 100 comments reviewed Notice of Proposed Rulemaking published July 23, Over 90 comments reviewed ERISA Advisory Council, GAO, and SEC reports and initiatives Focus group studies of comparative chart

28 For the First Time, Workers will Receive: Core information about their plan and its investment options, in format that helps them comparison shop. Investment information that is uniform across different types of investments, allowing for apples-to-apples comparisons. A quarterly statement showing the dollar amount of fees actually deducted from their account during preceding quarter.

29 Plan-related Information General plan operational and identification information Explanation of administrative expenses (e.g., legal, accounting, recordkeeping) Explanation of individual expenses (e.g., fees for processing loans or QDROs)

30 Investment-related Information Investment-related information must be in comparative chart or similar format that facilitates comparisons Model comparative chart in appendix Regulation includes special rules for employer security, annuity and fixed return investments to assure comparability and relevance

31 Comparative Chart Performance data (1-, 5-, 10-year) A benchmark over comparable periods Fee and expense information TAOE Shareholder-type fees Glossary or website address for a glossary

32 Effective and Applicability Dates Final rule published Oct. 20, 2010 at 75 FR Effective date: Dec. 20, 2010 Delayed applicability date: First day of plan year that begins on or after Nov. 1, 2011 For calendar year plans, applicability date will be Jan. 1, 2012