Getting The Most Out Of Your 401K/Corporate Retirement Plan-

Transcription

1 Getting The Most Out Of Your 401K/Corporate Retirement Plan- How to Leverage Your Provider's Time and Resources So That You Can Easily Manage Your Responsibilities as a Plan Sponsor/Administrator Kevin Myers, Morgan Stanley Smith Barney

2 Agenda How do you know if your plan is working? What are your responsibilities as a plan sponsor/administrator? How are others protecting themselves?

3 Is your plan working? Why do we have a corporate retirement plan? Goals from corporate Goals for participants

4 Is your plan working? Areas to measure: Participation Deferral Amount/Income replacement 2/3 Replacing 75% of income? Investment performance Fees Employee Turnover How do you and how often are you measuring?

5 Is your plan working? Where do my providers fit in? Plan design Participant education Benchmarking Communication

6 What really is a fiduciary? ERISA and the DOL 404 (c): Education and Communication 408(B)(2) Brightscope is being used by DOL Hired 28 new auditors

7 Kasey R. Price, QPA, ERPA

8 Participant Fee Disclosure Regulations- ERISA 404(a)(5) Background How regulations affect fiduciary protection General Plan Disclosure Investment Disclosure Method of Delivery and Effective Date

9 Background of the regulations Purpose Reason Due Date for application What Plans do the new regulations apply to? How will this effect Human Resources

10 Yes Qualified Defined Contribution Plans / Defined Benefit Plans 403(b) if subject to ERISA with exceptions Applies to: No IRAs, SEPs, Simple IRA Church Plans Government 457(b) Plans

11 Fiduciary Protection Under 404(c) In a Participant directed plan, what are the fiduciary responsibilities under the new regs? What fiduciary protection comes with complying with new participant disclosure regs?

12 General Plan Disclosure To Employees Three Broad Categories: 1. Annual General Plan Information 2. Annual & Quarterly Administrative Expenses 3. Annual Investment Related Information

13 General Plan Information Explanation of how participants and beneficiaries may give investment directions Any limitations on such instructions. Any plan provisions relating to the exercise of voting, tender, and similar rights attached to an investment in a DIA.

14 General Plan Information Identification of all Designated Investment Alternative(DIA) offered under the plan. Any designated investment managers Any broker windows, self-directed brokerage accounts, or similar arrangements that enable the selection of investments beyond those designated by the plan.

15 Expenses: Two Categories Administrative Individual

16 Administrative Expenses Explanation of any fee and expenses for general plan administration services: 1. Legal 2. Accounting 3. Recordkeeping - charged to a participant s accounts and not reflected in total annual operating expenses of any DIA.

17 Administrative Expenses Describe basis how the expenses will be allocated pro-rata or per capita Aggregate disclosure not required to disclose fees service by service

18 Administrative Expenses Must provide explanation of any fees and expenses that may be charged on an individual basis: 1. Loans 2. Distributions 3. QDRO 4. Investment advice 5. Broker windows 6. Commissions, redemption fees, transfer fees, etc. No Aggregation must identify each individual expense Specific descriptions of plan charges and the amount (e.g., Loans $75 setup etc.)

19 Quarterly Fee Notice Provided on quarterly Participant Statements Dollar amount of the plan-related fees and expenses actually charged to the participant s account, during preceding quarter. (whether administrative or individual ) Description of the service to which the charges relate. Explanation: some of the plan s administrative expenses for the preceding quarter were paid from the total annual pertaining expenses of one or more of the plans DIA s, such as through revenue sharing arrangements, Rule 12b-1 fees, or sub-transfer agent fees.

20 Investment Disclosures Generally fall under six categories 1. Identifying Information 2. Performance Data 3. Benchmark Information 4. Fee and Expense information 5. Internet Web Site Addresses 6. Glossary of terms

21 Identifying Information Name of each DIA Type/category of investment (e.g., balance fund) Restrictions applicable to purchase or sale

22 Performance Data If not fixed rate of return: furnish average annual return for 1yr, 5 yr, and 10 yr periods or life if shorter Include statement: Investments past performance is not necessarily an indication on how the investment will perform in the future. If fixed rate of return: disclose annual rate, expenses and terms of investment. If issue can adjust the fixed or stated rate of return, provide current rate of return, minimum guaranteed, and statement that advises participant and beneficiary that issuer may adjust minimum rate.

23 Fee and Expense Information The following statement: Fees and expenses are only one of several factors that participants and beneficiaries should consider when making investment decisions. The following statement: The cumulative effect of fees and expenses can substantially reduce the growth of a participant s or beneficiary s retirement account. Participants can visit the Department of Labor s Employee Benefit Security Administration Web Site for an example of demonstrating the long-term effect of fees and expenses.

24 Fee and Expense Information DIA with a fixed return State the amount and description of any shareholder-type fees. Any restrictions or limitations on a participant s ability to purchase, transfer, or withdrawal the investment.

25 Internet Web Site Address Website that will provide additional information about the DIA. Name of the DIA s issuer. DIA s objectives or goals. DIA s principle strategies and risks. DIA s portfolio turnover rate. DIA s performance data, updated at least quarterly.

26 Glossary of Terms General terms to assist Participant Understanding of DIAs, etc.

27 Comparative Format Regulations require presentation in the form of a chart Chart must show the following: Name, address, telephone number of plan administrator to contact to request additional info. Statement that additional investment-related information is available on the listed website. Statement that explains how to request and obtain, free of charge, paper copies of the information provided on the website.

28 Additional Information Alternative Investments with Special Rules Annuity Contracts Employer Securities QDIA Investments Target Date funds

29 Timing of Notice On or before the date the participant first can direct his/her investments and At least annually thereafter

30 PLAN ADMINISTRATOR TO PROVIDE UPON REQUEST Prospectuses Unit Values Asset Listings Financial Statements

31 Method of Delivery and Effective Date Annual Disclosures Part of a Summary Plan Description (SPD) would require annual delivery of SPD Attach to Participant Benefit Statement Attach to Summary Annual Report ** must make annual disclosures at least once in any 12-month period

32 Method of Delivery and Effective Date Quarterly Disclosures Attach to Participant Benefit Statement ** must make quarterly disclosures at least once in any 3-month period Delivery Types Print May rely on the DOL s electronic media

33 Effective Date Plan years beginning after October 31, 2011 Calendar plan years beginning 2012 Transition Rules for initial annual notice due 60 days after the later of Effective dates of the 408(b)(2) July 1, 2012 or the date the regulation apply Calendar plan year current effective date is August 30, 2012 Quarterly Statements to Include fees by November 14, 2012

34 In Conclusion... When you consider the fees in your 401(k) plan and their impact on your retirement income, remember that all services have costs. If your employer has selected a bundled program of services and investments, compare all services received with the total cost. Remember, too, that higher investment management fees do not necessarily mean better performance. Nor is cheaper necessarily better. Compare the net returns relative to the risks among available investment options. And, finally, don t consider fees in a vacuum. They are only one part of the bigger picture including investment risk and returns and the extent and quality of services provided.

35 How are others protecting themselves? What are some strategies I can use? QDIA Auto-enroll Investment and Education Policy Process, process, process Additional Trends

36 How are others protecting themselves? How can my provider help? Education Participants Fiduciary Consulting Technology

37 Conclusion New regulation is coming into effect The DOL is stepping up enforcement Congress is focused on protecting/educating participants Plan sponsors are expected to do more Your service providers should be expected to do more

38 Questions???

39 Valuable Websites: United States Department of Labor Employee Benefits Security Administration Relius Benefit Planning and Recordkeeping Solutions American Society of Pension Professionals and Actuaries