THE NEW FEE DISCLOSURE RULES Much to Do Before the Effective Date February 7, 2012
Participant-Level Fee Disclosures
Overview New Department of Labor regulations require plans to periodically provide participant notices about fees paid by the plan Applies to participant-directed individual account plans, such as 401(k) plans For calendar-year plans, the first participant notice is due by August 30, 2012 3
Timing Most of the new disclosures are required For calendar year plans, first notice is required by August 30, 2012, For any new participants, when they enter the plan, AND Annually thereafter In addition, some types of changes to the annual disclosures require an interim notice 30-90 days before the change is effective Other disclosures are required quarterly For calendar year plans, first quarterly notice is required by November 14, 2012 4
Electronic Delivery Participant fee disclosures may be distributed electronically under the general electronic delivery rules Work-related computer access, or Consent to electronic delivery New electronic disclosure rules for participant benefit statements may be used for certain fee disclosure information Benefit statement may be made available through a secure, continuous access website Participants must be provided with a notice that describes The availability of the statements, How the statements can be accessed, and That participants can request a paper statement free of charge 5
Examples of Required Information Annually Identification of investment options, category of each investment, and designated investment managers Detailed explanation of fees and expenses that may be charged Historical performance Appropriate benchmark comparisons Limitations on transfers into or out of each fund Directions to a website with access to more information Glossary of investment terms Quarterly Dollar amount of fees actually charged other than through expense ratios, with explanation of services provided Explanation that some fees were paid through revenue sharing 6
Annual Disclosures DISCLOSURE CONTENT OVERVIEW Annual Notice Disclosures Plan-related information Expense Administrative (fee schedule) • Individual (fee schedule if related information) • Investment information Quarterly Disclosures Expense details Administrative (actual) • Individual (actual) • Who Provides Disclosure Plan administrator or administrator’s designee Notice can be provided via SPD and/or benefits statements 7
Annual Notice REQUIRED INFORMATION A. Plan-level Information Plan’s investment options Description of brokerage windows or other arrangements outside the plan’s designated investments Any designated investment managers Procedures for participant-directed investment instructions Restrictions on transfers or changing investment elections Voting and tender rights associated with the investment options ( e.g. , trustee will exercise all) 8
Annual Notice REQUIRED INFORMATION B. Expense Information Plan must give information on plan-level administrative expenses and individual expenses • Possible charges • How allocated (pro rata, per capita, etc.) These are expenses paid directly by the plan/participant Do not include expenses “reflected in annual operating expenses of designated investment alternative” If fees are partially paid by revenue sharing, a statement to that effect 9
Annual Notice REQUIRED INFORMATION B. Expense Information Administrative Individual Fees for plan administration Amount of fees charged against individual account (rather than • Legal to a plan as a whole) for . . . • Accounting • Plan loan • Recordkeeping • QDRO • Investment advice All fees that may be charged • Brokerage windows to plan • Shareholder-type fees for designated investment alternatives (loads, sales charges, redemption fee, etc.) 10
Annual Notice REQUIRED INFORMATION C. Investment Information (if required) Covered plan must provide investment disclosures to participants if the plan has one or more designated investment alternatives • Disclosures limited to designated investment alternatives • Don’t include brokerage windows or investments purchased through brokerage windows No requirement for mid-year update if information changes 11
Annual Notice REQUIRED INFORMATION C. Investment Information (if required) Must be furnished in a comparative format (DOL-provided mode is safe harbor) The following information must be provided for each investment 1. Name of each investment option 2. Type or category of investment ( e.g. , balanced fund) 3. Performance data (calendar-year returns for 1-yr, 5-yr and 10-yr) 4. Comparison of returns to an appropriate benchmark over the same periods 5. Statement that past performance is not necessarily an indication of future performance 6. Amount and description of shareholder-type fees ( e.g. , sales loads, surrender fees) 12
Annual Notice REQUIRED INFORMATION C. Investment Information (if required) The following information must be provided for each investment 8. Operating expenses as a percentage ( e.g. , expense ratio) 9. Operating expenses as a dollar amount per $1,000 investment 10. Purchase or withdrawal restrictions ( e.g. , round trip, equity wash) 11. Internet website address for specific investment information 12. Statement that fees and expenses are only one of several factors to consider 13. Statement that cumulative fees can substantially reduce growth of account 14. A general glossary of investment terms and website address providing the glossary 13
Annual Notice – Investment Details PERFORMANCE DATA / BENCHMARKS Fixed or stated return: Return and Term • Statement if adjustment may occur Other • 1-, 5- and 10-year average total return (or life of investment, if shorter) ending on most recently completed calendar year • Benchmark and 1-, 5- and 10-year performance ♦ Appropriate broad-based securities market index over the 1-year, 5-year and 10-year periods ♦ Best practice: Use a widely recognized benchmark 14
Annual Notice – Investment Details PERFORMANCE DATA / BENCHMARKS Special rules for employer stock, fixed-income investment and annuities Money market funds and stable value funds are not considered fixed-income investments 15
Annual Notice – Investment Details INVESTMENT FEE INFORMATION Fixed return investments • Amount and description of any shareholder-type fees For each investment without fixed return • Amount and description of each shareholder-type fee and • Total annual operating expenses of the investment expressed as a percentage ( e.g. , expense ratio) and a $ amount per $1,000 investment 16
Annual Notice – Investment Details INVESTMENT FEE INFORMATION Fees charged directly against investment, such as . . . • Commissions • Sales loads • Sales charges • Deferred sales charges • Redemption fees • Surrender charges • Exchange fees • Account fees • Purchase fees Not included in fund’s annual operating expenses 17
Annual Notice – Investment Details WEBSITE FOR ADDITIONAL INFORMATION Different requirements for annuities and fixed income Glossary of terms, if not outlined on annual notice 18
Quarterly Disclosures EXPENSE DETAILS At least quarterly, participants must receive a statement showing . . . Administrative expenses • Dollar amount actually charged during the preceding quarter to participant’s account for administrative services (various payees, trust, legal, etc., can be reported as one number) • General description of services provided to participant or beneficiary for such amount • If applicable, an explanation that some administrative expenses were paid from operating expenses of one or more designated investment alternatives ( e.g. , revenue sharing) Individual expenses • Dollar amount actually charged during the preceding quarter to participant’s account for individual services (does not include charges allocated to whole plan) • Description of services provided to participant or beneficiary for such amount 19
Service Provider Fee Disclosures
Prohibited Transactions Certain transactions involving a qualified retirement plan are explicitly “prohibited,” even if fair or favorable to the plan, unless there is an exemption The DOL has issued new regulations making it a prohibited transaction for plan fiduciaries to enter into agreements with certain service providers without receiving sufficient disclosures 21
New Disclosures by Service Providers Service providers are covered if they expect to receive $1,000 in compensation, and are: Investment manager or advisor, Recordkeeper or broker, or Other service provider who receives indirect compensation Information to be disclosed in writing: Services provided, Compensation to be received, Capacity of fiduciary or not, and Plan investments and investment options 22
When the Plan Should Receive the New Disclosures Timing Before contracts entered into, Within 60 days of being informed of a change, and Upon request Effective Date First disclosure due no later than July 1, 2012 Under best practices, the Committee should obtain a report periodically (at least annually) 23
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