1. What Plan Committees Must Do with the 408(b)(2) Disclosures
Presented by The Standard
FRED REISH, ESQ.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6,

2. Plan Expenses: Prohibited Transactions
Under section 408(b)(2) of ERISA, the prohibited transaction rules permit:
“Contracting or making reasonable arrangements with a party in interest for services necessary for the establishment or
operation of
the plan, if no
more
than
reasonable
compensation is
paid
therefor.”
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

3. Reasonable Contract or Arrangement
The rule: An arrangement for services between a “covered plan” and a “covered service provider” is not reasonable unless the 408(b)(2) regulation is satisfied.
Effective date: arrangements; arrangements.
July 1, reasonably
2012 for the in advance
existing for new
Consequence of failure:
covered provider.
plan sponsor (responsible plan fiduciary).
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

4. Covered Service Provider
Y The primary types of covered service providers are:
Recordkeepers
Investment advisers (RIAs)
Broker-dealers (“financial advisers”)
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

5. Disclosures The following disclosures responsible plan fiduciary: must
be made
to the
Y Services
Y Status
Y Compensation
Y Investment information
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

6. Disclosure of Compensation
“Compensation” may be described or estimated as a monetary amount, formula, percentage of assets, or a per capita charge or, if the compensation cannot reasonably be expressed in such terms, by any other reasonable method.
Any description or estimate must contain sufficient information to permit evaluation of the reasonableness of the compensation.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

7. 408(b)(2): Prohibited Transaction Issues
The failure to provide the disclosures results in the arrangement becoming a prohibited transaction for the adviser (or other covered service provider).
The failure to receive the disclosures will also result in a prohibited transaction for the plan fiduciaries unless they take specified steps.
See Drinker Biddle bulletin, “ERISA Service Provider Disclosures: What Plan Sponsors Need to Do Now,” /ERISA-Newsletter-for-Retirement-Service-Providers.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

8. 408(b)(2): Prohibited Transactions
The steps are:
Determine if any “covered” service providers failed to deliver the disclosures.
Determine if the disclosures were “adequate.”
Request in writing that any missing or inadequate disclosures be made.
If the covered service provider refuses to provide the disclosures or does not provide them in 90 days, terminate the service provider and report to the DOL.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

9. Prohibited Transaction
The preamble to the final regulation explains the DOL view:
“The Department does not believe that responsible plan fiduciaries should be entitled to relief absent a reasonable belief that disclosures required to be provided to the covered plan are complete . . .
Fiduciaries should be able to, at a minimum, compare the disclosures they receive from a covered service provider to the requirements of the regulation and form a reasonable belief that the required disclosures have been made.”
Note: The role of the adviser.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

10. Fiduciary Review
In addition to the prohibited transaction “duty,” there is fiduciary duty to evaluate the services, status and compensation of the service providers:
“The Department believes that plan fiduciaries need
this information, when service providers, to
selecting
satisfy
and
their
monitoring
fiduciary
obligations under ERISA section 404(a)(1) to act
prudently and solely in the
interest of the plan’s
participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan.”
Preamble to final 408(b)(2) regulation.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

11. 408(b)(2): Fiduciary Issues
The fiduciary concerns:
Y Is the compensation reasonable?
Y Are the services adequate/appropriate?
Y Are the conflicts manageable?
Plan committees must engage in a prudent process to evaluate these issues.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

12. Understanding Disclosures
In the preamble to the final regulation, explained:
the DOL
“This regulation requires that responsible
plan
fiduciaries receive the basic information needed to make informed decisions about service costs and potential conflicts of interest.
If responsible understanding
plan fiduciaries need assistance in any information furnished by the
service provider, as a matter of prudence, they should request assistance, either from the service provider or elsewhere.”
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

13. Risk Management Considerations for evaluating service providers:
Y Evaluate
Request for proposals
Benchmarking
Evidence
Y Consider nature, quality and quantity of services
Y Negotiate costs and compensation
Share classes
Expense recapture accounts
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

14. The Role of the Adviser
Y Since many plan sponsors are not aware of their prohibited transaction and fiduciary duties, advisers should educate plan sponsors about these issues.
Y Since most plan sponsors do not have access to market data to evaluate the compensation of the service providers, advisers should offer evaluation services.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

15. The Role of the Adviser
Y Is it a conflict of interest for advisers to assist in the evaluation of the advisers’ compensation?
Y Advisers should consider the value of their services and the presentation of that value.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

16. Reader's Guide and Benchmark Group
WHAT IS THIS REPORT?
This Fiduciary Benchmarks Fees, Plan Design, and Participant Success Measures Report provides comprehensive "apples-to- apples" comparisons of a plan's fees, design, and participant success measures to those of a Benchmark Group of 53 similar plans.
Note: Your report does not include performance evaluations
HOW WAS THE BENCHMARK GROUP DETERMINED?
We considered 9 relevant sort factors to identify the 53 similar plans that comprise the Benchmark Group.
Benchmark Group Sort Factors
Plan Assets
Number of Participants
This Plan
$10,000,
Benchmark Group
$8mm - $12mm to 195
of the plan's investment options. This important information
Last Year You Bid or Reviewed Your Plan
2011
Last 3 years
is beyond the scope of this report.
Company Industry
Computer and Electronic Product Manufacturing
All
WHY IS IT IMPORTANT?
Department of Labor regulations under ERISA and, specifically, section 408(b)(2) require that all fees be "reasonable" for services being provided. The information in this report can help in working with service providers to meet this requirement and improve the plan.
Plan Type
Uses Auto-Enrollment Has Employer Match
% of Plan Assets in Index Funds
% of Plan Assets in Managed Accounts
401(k)
For New Hires Yes 10% 5%
Defined Contribution
13%
81%
0% to 45%
0% to 5%
THIS PLAN'S SERVICE PROVIDERS
HOW WAS THIS REPORT BUILT?
We used a four-step process to build the report:
Service Providers Used Across the Benchmark Group
% of Benchmark Group
This Plan's Specific
Service Provider Type
Using Service Provider Type
Service Providers
Recordkeeper
100%
Yamane Plan Services
Advisor / Consultant
81%
ACME Consulting
Third-Party Administrator
19%
WT Benefits, LLC
Other Service Providers 9%
None
We identified 53 similar plans for comparison (Benchmark Group).
We summarized fees being paid for the plan based on the information provided by the plan sponsor and the plan's service providers.
We examined the plan's design and associated complexity.
We examined 10 participant success measures that indicate how well plan participants are preparing for retirement.
HOW IS THIS REPORT BEST USED?
FBi Reports are a key element in an annual plan review process. Maximum value is achieved when the plan's sponsor, its advisor or consultant, recordkeeper and other plan service providers participate.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 16

17. Service Providers' Fee Disclosure
This page summarizes the fees paid to the plan's primary service providers. It's important to consider plan services when assessing whether fees are reasonable. Please note that self directed account and participant level activity fees are not included in the information below.
ADVISOR/CONSULTANT
INVESTMENT MANAGERS
Disclosure of Advisor/Consultant Fees
Plan Fee in Dollars % of Total
Fee
Disclosure of Investment Manager Fees
Plan Fee in Dollars
% of Total Fee
Investment Fees - 0%
$49,871
100%
Commissions
Total Fees
Finders' Fees
Other Fees
$20,000
Advisor/Consultant's Fees vs. Benchmark Group in percent
Investment Manager's Fees vs. Benchmark Group in percent
HOW DO THE PLAN FEES COMPARE
to the average in the Benchmark Group?
HOW DO THE PLAN FEES COMPARE
to the average in the Benchmark Group?
this plan's advisor/consultant fees are approximately 0.20% per year
this plan's investment manager fees are approximately 0.50% per year
this is 0.03% less per year
this is equal to $3,000 less per year
this is $19 less per participant per year
this is 0.07% more per year
this is equal to $7,000 more per year
this is $45 more per participant per year
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 17

18. Duty to Monitor
The preamble to the DOL’s proposed regulation under ERISA §408(b)(2) states:
“Finally, although this proposal looks to disclosures made at the time a service contract or arrangement is
entered into or fiduciaries must arrangements and providers .”
renewed, responsible continue to monitor
plan
service service
the performance of
Note: Other than changes, 408(b)(2) disclosures are only required at the inception of the arrangement.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

19. Subsequent Disclosures
Y Change to disclosed information:
Within 60 days of covered service provider being informed of change.
Annually for investment disclosures.
Y Disclosure errors: Can be corrected within 30 days of knowledge of error made in good faith and with reasonable diligence.
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

20. Questions?
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

21. FRED REISH, ESQ.
1800 Century Park East, Suite Los Angeles, CA 90067
(310)
(310) [fax] ●
CALIFORNIA | DELAWARE | ILLINOIS | NEW JERSEY NEW YORK | PENNSYLVANIA | WASHINGTON DC | WISCONSIN
© 2012 Drinker Biddle & Reath LLP | All rights reserved.
A Delaware limited liability partnership
What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012

22. What Plan Committees Must Do with the 408(b)(2) Disclosures | December 6, 2012