|
The final part of the U.S. Department of Labor's (DOL's) three-part project to improve fee transparency in 401(k)-type plans is now complete. It is a regulation requiring plan sponsors to provide participants with a disclosure regarding plan fees and expenses.
The DOL's Employee Benefits Security Administration (EBSA) recently released a final rule that requires the disclosure of specific information regarding plan investments, fees, and expenses to participants and beneficiaries. The final rule is the long-awaited follow-up to a proposed rule published in 2008 and is applicable to 401(k)-type plans that have participant-directed individual accounts. Although theoretically effect¬ive when published on October 20, 2010, the rule is applicable for plan years beginning on or after November 1, 2011. Thus calendar-year plans will need to comply beginning January 1, 2012.
Islip + Company CPAs offer personalized service to help you with these issues. Since 1958, we have successfully worked with the IRS and the FTB helping our clients stay in compliance of the tax laws and pay the minimum amount due. With Offices in Sacramento and Auburn as well as internet we are able to deliver premium service nearly anywhere...without premium pricing. "It's not just about the numbers... it's what's behind the numbers that counts". Give us a call or send us an email 916-488-1900 Sacramento, 530-746-3020 Auburn or
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
.
Meaningful help
The new disclosure requirements will help ensure that participants and bene-ficiaries are given or have access to the information they need to make informed investment decisions. Investment-related information must be provided in a manner that allows individuals to compare a plan's investment options in a meaningful way.
The new requirements relating to fees and expenses are designed to provide more transparency regarding the true cost of a plan's investment options and plan-related expenses, both of which impact participant account balances. Another goal is to reduce the amount of time a participant must spend collecting the information necessary to properly compare plan investment options.
Once this final rule goes into effect, the following plan-related and investment- related information must be provided to participants and beneficiaries on or before the date they are first eligible to direct their investments, and on an annual basis thereafter.
Plan-related information
General plan information:
A current list of investment options,
An explanation of how individuals provide investment instructions under the plan, and
If applicable, descriptions of a broker¬age option and/or similar types of outside investments available under the plan.
Administrative expense information:
An explanation of fees and expenses that may be charged to or deducted from all individual accounts (e.g., plan audit fee, recordkeeping fee).
Individual expense information:
An explanation of fees and expenses that may be charged to or deducted from an individual's account based on his or her actions (e.g., loan origination fee, qualified domestic relations order (QDRO) fee, hardship withdrawal fee, distribution processing fee).
Investment-related information
Performance data:
One, five, and 10-year returns for all mutual funds and other plan invest¬ment options that do not have a fixed rate of return.
Annual rate of return and investment term for fixed-rate investments
Benchmark data:
One, five, and 10-year returns for appropriate benchmark indexes (to match plan investment performance data periods).
Example: A plan that offers a small-cap stock mutual fund as an investment option provides information about its performance over certain date ranges. It also lists the performance of the Russell 2000 Index (the benchmark index for small-cap stocks) for the same date ranges. This provides an individual with an "apples to apples" comparison of the rate of return of the plan's investment option and the performance of its appropriate benchmark.
Fee and expense information:
Non-fixed-rate investments: Total annual operating expenses expressed as a percentage and as a dollar amount per $1,000 invested. Any shareholder-type fees or restrictions on purchases or withdrawals must also be provided.
Fixed-rate investments: Any shareholder- type fees or restrictions on purchases or withdrawals.
Internet resources:
Addresses of websites that can provide additional detailed information about the investment options.
Glossary:
A general glossary of terms to assist participants and beneficiaries in under-standing the plan's investment options or the address of a website that can provide access to a glossary.
Additional quarterly disclosure
Individuals are to receive quarterly statements that report the dollar amount of any fee or expense deducted from their account along with a description of the services related to the fee or expense. This information will most likely be incorporated into quarterly participant statements.
DOL model chart
The DOL has issued a model chart to help satisfy the new requirement that plan investment options be provided in a comparative format. The chart is broken down into several tables that focus on comparing investment returns, fee and expense information, and annuity options.
Definition of compensation for 408(b)(2) disclosure
Plan sponsors have a fiduciary duty under ERISA to make informed decisions about the "reasonableness" of the fees the plan pays for services. The new DOL-required fee disclosure that service providers will be sending to plan sponsors is designed to simplify that task and enable them to more easily compare costs.
Under ERISA Section 408(b)(2), a covered service provider must provide the responsible plan fiduciary with a disclosure regarding the direct and indirect compensation it expects to receive for the services it provides. The following definitions will give sponsors helpful insight about the disclosures that are to come.
Compensation
Compensation is defined as anything of monetary value (e.g., money, gifts, awards, and trips). It excludes nonmonetary compensation valued at $250 or less received during the term of the contract or arrangement. The following five categories of compensation must be described in writing in the disclosure.
1) Direct compensation — compensation a covered service provider, an affiliate, or a subcontractor reasonably expects to receive directly from the covered plan. Direct compensation may be described either in the aggregate or by service.
2) Indirect compensation — compensation received from any source other than the plan, the plan sponsor, another covered service provider, an affiliate, or a sub¬contractor. The service provider must identify the services for which the indirect compensation will be received and the entity paying the indirect compensation. This is expected to have a strong impact on bundled providers, recordkeepers, and brokers.
3) Compensation paid among related parties — includes any compensation paid between the covered service provider, affiliate, or subcontractor in connection with the services provided. The disclosure must indicate whether compensation is determined on a transactional basis (e.g., commissions, soft dollars, finder's fees, or other similar incentive compensation) or is charged directly against, and reflected in the net value of, the plan's investment (e.g., Rule 12b-1 fees).
The services for which such compen-sation will be paid must be detailed and the identity of the payers and recipients disclosed, including the status of a payer or recipient as an affiliate or subcontractor (with the exception of compensation received by an employee for work performed).
4) Compensation for termination of contract or arrangement — compensation the covered service provider, affiliate, or subcontractor reasonably expects to receive in connection with the termination of the contract or arrangement, including a description of how any prepaid amounts will be calculated and refunded.
5) Recordkeeping services — all direct and indirect compensation the covered service provider, affiliate, or subcontractor reasonably expects to receive in connection with recordkeeping services. If recordkeeping services will be provided without explicit compensation for such services, or if compensation for recordkeeping services will be offset or rebated based on other compensation received, a reasonable and good faith estimate of the cost must be provided, including the methodology and assumptions used to prepare the estimate and a detailed explanation of services that will be provided. The estimate must take into account either the rates the service provider, affiliate, or subcontractor would charge to third parties or the prevailing market rates charged for similar services for a similar plan.
Payment
The disclosure must also include a description of the form of payment, including such details as whether the plan will be billed or if payment will be deducted directly from the covered plan's accounts or investments.
These sponsor-level fee disclosure rules become effective July 2011.
A service provider is covered if it reasonably expects to earn $1,000 or more in direct or indirect compensation for providing one or more covered services. The rule applies to services expected to be performed or compen¬sation received by the covered service provider, an affiliate, or a subcontractor.
Islip + Company CPAs are here with personalized service to help you with these issues. Since 1958, we have successfully worked with the DOL, ERISA, 401(k) IRS and the FTB helping our clients stay in compliance of the tax laws. With Offices in Sacramento and Auburn as well as internet we are able to deliver premium service nearly anywhere...without premium pricing. Give us a call or send us an email 916-488-1900 or
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
. |
