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A focus on ERISA §404a-5
Regulatory developments affecting defined contribution plans
This presentation is provided by Vantage Benefits Administrators for informational purposes only, and while every effort is made to ensure the accuracy of its contents, it should not be relied upon as being tax, legal or financial advice. Neither Vantage Benefits Administrators or any of its affiliates, representatives, employees, or agents provides tax, financial or legal advice. The information within reflects events as of September 1, 2012.
AGENDA
An introduction to ERISA §404a-5
How will this benefit participants?
WFG & VBA are here to support you
Why ERISA §404a-5?• DOL’s Goal:
– To create a general awareness of fees in a 401(k) plan– To increase awareness of investment and plan-related
information amongst participants – To encourage employees to enroll and participate
• Participants need information about their plan, its fees and their investment options that is:– Easy to understand– Easy to read– Easy to compare
How does the DOL define “participant”?
• All employees eligible to participate in the plan, including those:– Enrolled– Not enrolled
AND
• Beneficiaries who have the right to direct investments in their accounts
What information do plan sponsors need to provide under §404a-5?
• Plan-related information that includes: – General plan information– Administrative expenses±
– Individual expenses±
±The dollar amount of the fees and expenses deducted from participant’s account and actually charged during the preceding quarter must be disclosed quarterly.
• Investment-related that includes:– Identifying information– Performance– Benchmark– Fees and expenses– Website– Glossary
What does plan-related information include?
Type of information ExampleInvestment Instructions and limitations
•Enrollment and investment direction•Participant website & toll free services•Short term trading policy•Redemptions fees
Investment Alternatives Fund options available under plan
Administrative fees/expenses Legal, accounting, recordkeeping services
Individual fees/expenses Participant-initiated transaction fees, such as loan and withdrawal fees
What is investment-related information?
Type of information Example
Identifying information Name and category of the investment (e.g., money market or balanced fund)
Performance data •1,5 and10-year (or since inception) returns for variable return investments•Term and rate of return for fixed return investments
Benchmark data Compare investment 1, 5, 10-year returns to a recognized, major market index
Fee & Expense information
•The Total Annual Operating Expenses (i.e., Expense Ratio) of each investment option •For each $1,000 invested, reflect fund expenses as $ amount•Shareholder fees and fund restrictions
Glossary of terms Helps assist in understanding plan’s investment options
Website address To access additional information about each investment option
Sample of the §404a-5 model chart
DOL’s model chart: www.dol.gov/ebsa/ participantfeerulemodelchart.doc
When does the initial ERISA §404a-5 notice apply?• §404a-5 is effective for plan years beginning on or after November 1, 2011
• As a result of a transition rule:–The initial notice is not required to be delivered until the later of:
Timing of Initial notice
Application
i. 60 days after the effective date of §408(b)(2)
ii. 60 days after the plan year beginning on or after November 1, 2011
For plans with a calendar year plan year
August 30, 2012
When do quarterly disclosure requirements under ERISA §404a-5 go into effect?
• The first required quarterly information must be provided within 45 days following the end of the quarter in which the initial disclosure was required to be provided.
Timing of first quarterly disclosure
For plans with a calendar year plan year
By November 14, 2012
How often should plan sponsors provide the required §404a-5 information?
FrequencyInformation
disclosedInitially Annually Quarterly 30-90 days in
advance of a change
Plan-related X X XInvestment-related^
X X
Actual administrative and individual charges
X
^There is an ongoing obligation to provide and update certain investment-related information via the Web, and to provide additional information upon request.
DOL’s interim enforcement policy for electronic distribution of §404a-5 disclosures
Plan and investment-related information can be furnished electronically, if certain conditions are met, including:
•Initial Notice to participant and beneficiary, if they voluntarily provide an email address to receive such information
•Annual Notice, thereafter, if evidence of electronic interaction with plan exists
•Plan can ensure electronic delivery protocols, including:– Return receipt– Bounce back monitoring
What is the Plan’s fiduciary responsibility?
• Non-compliance with §404a-5 is a fiduciary breach
• However, plan administrators will not be held liable for any deficiencies in the information furnished by their provider that they reasonably and in good faith relied on.
How to get ready for §404a-5?
Familiarize yourself with the DOL’s Model Comparative Chart
Find out what support you will receive from your service provider
Validate your data source for all eligible employees and beneficiaries
Budget for possible costs associated with delivering the required disclosures
Find out if you can satisfy the conditions for electronic delivery of the required disclosures
Why §404a-5? A recap …
To give eligible employees information about the services and fees associated with their plan to help them better understand their options and make more informed decisions about the management and investment of their retirement account.
Your team is here to support you
Participant-related tools and resources from Vantage Benefits Administrators:Enrollment materials (Bilingual Available)
Quarterly participant statements with fee information (updated to reflect 404a-5 quarterly disclosure requirement)Participant website that includes access to investment information and retirement toolsAccess to experienced, bilingual Customer Service Representatives
§404a-5 resources available to plan sponsors from Vantage Benefits
Important Plan Information (IPI) Template– Can be used to assist with the disclosure of plan-related information
Investment Comparative Chart (ICC)– Can be used to assist with the disclosure of investment-related information
HR website – Will house IPI, ICC and other support materials
Participant Fee Disclosures for Brokerage Windows Final Rules – DOL Reg. § 2550.404a-5
General Plan Information – Initial/Annual Disclosure: Description of any brokerage window that enables participants to select investments other than DIAs. [§ 2550.404a-5(c)(1)(i)(F)] Individual Expenses – Initial/Annual Disclosure: Explanation of any fees and expenses that may be charged against a participant’s account on an individual basis and that are not reflected in total annual operating expenses of DIAs. [§ 2550.404a-5(c)(3)(i)(A)] Individual Expenses – Quarterly Disclosure: Quarterly disclosure if fees and/or expenses are actually charged to account. A description of the services to which the charges relate.
[§ 2550.404a-5(c)(3)(ii)]