Fiduciary Responsibility

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TOPICS

• Fiduciary Responsibility
• Fee Disclosure to Plan Sponsors
• Participant-Level Fee Disclosure

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Employee Benefits Security Administration
What do we do?

• EBSAs Mission
• Detect and correct violations of ERISA and other
  relevant statutes.
• Develop policies and regulations that simplify
  compliance and encourage the growth and
  preservation of employment based benefits.
• Assist workers in getting information they need
  to protect their pension rights.
• Assist Plan Officials in understanding
  requirements of relevant statutes in order to
  meet their legal responsibilities.

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How Do We Do It?

• EBSAs Organizational Structure
• About 900 employees nationwide 650 in the field
• 10 Regional Offices, 5 District Offices
• Boston Regional Office is responsible for all of
  New England and Upstate New York
• Each regional office staffed by a mix of
  Investigators and Benefit Advisors

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Jurisdiction

• ERISA covers employee benefit plans established
  or maintained by private-sector employers
• Employee benefit plans excluded from our
  jurisdiction governmental plans, church plans

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Fiduciary Responsibility - Overview

• What is a fiduciary?
• In general position of trust, acting for the
  benefit of others with a high duty of care and
  loyalty
• ERISA any person who exercises discretionary
  authority or control over plan assets or
  administration, or gives investment advice

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Basic Fiduciary Duties

• Acting solely in the interests of the
  participants and their beneficiaries
• Being prudent
• Paying only reasonable and necessary expenses of
  the plan
• Following the terms of the plan

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Solely in the interest of means -

• Decisions made exclusively on the basis of what
  is good for the plan and its participants and
  beneficiaries

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Prudence If you need help, get it!

• Fiduciary must act with the care, skill, prudence
  and diligence that a prudent person acting in a
  like capacity and familiar with such matters
  would use.

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Reasonable expenses means -

• Expenses are reasonable only if they are
  necessary for the operation of the plan, and are
  not excessive for the service received.
• For example

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Following terms of the plan means -

• Follow the terms of the plan do not exercise
  personal discretion when terms of plan are clear
• For Example -

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Co-fiduciary liability

• A fiduciary will be liable for another
• fiduciarys violation if the fiduciary
• participates in or acts to conceal a violation
• permits the other fiduciary to commit a violation
• has knowledge of another fiduciarys violation
  and fails to take reasonable steps to remedy

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Steps to avoid common problems

1. Understand your plan and your responsibilities
2. Carefully select service providers
3. Make timely contributions
4. Avoid prohibited transactions
5. Make timely reports to government and
   disclosures to participants.

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PROHIBITED TRANSACTIONS

• (AKA What not to do with the Plans money
  and/or assets and who not to do it with)

OFF LIMITS
Stock Certificate
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Example
Plan Fiduciary
XYZ Co. Inc. 401(k) Plan
Fiduciary hires Plans Custodian to provide
additional services to the Plan
XYZ Company, Inc.
Plan Custodian
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ERISA 408(b)(2)Service Provider Disclosure to
Pension Plan Fiduciaries

• Interim Final Regulation
• Published July 16, 2010
• Employee Benefits Security Administration, DOL

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Goal of Regulation

• To ensure that plan fiduciaries have the
  information they need to
• Assess reasonableness of total comp.
• Identify potential conflicts of interest
• Satisfy reporting disclosure requirements under
  Title I of ERISA

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Scope Which service providers are covered?

• A covered service provider is
• An ERISA fiduciary providing services directly to
  a covered plan or to a plan asset investment
  vehicle
• An investment adviser registered under Federal or
  state law
• A record-keeper or broker who makes designated
  investment alternatives available to a covered DC
  plan (e.g., a platform provider) or

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Scope -- Which service providers are covered?

• A provider that receives indirect comp.
• i.e., comp. from parties other than plan or
  plan sponsor (e.g. third parties or affiliates)
  -- for providing any of the following services
• accounting, auditing, actuarial, banking,
  consulting, custodial, insurance, investment
  advisory, legal, recordkeeping, securities
  brokerage, third party administration, or
  valuation.

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Initial Disclosure Requirements

• If a covered service provider will provide
  services to a covered plan, the covered service
  provider must disclose specified information to
  the responsible plan fiduciary.
• In writing.
• Reasonably in advance of entering into the
  service contract or arrangement.
• CSP must disclose information on behalf of its
  affiliates and subcontractors, if applicable.

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Initial Disclosure Requirements

• Compensation. All compensation that will be
  received by the covered service provider, its
  affiliates, or subcontractors.
• Direct compensation. Received directly from the
  covered plan.
• Indirect compensation. Received from third
  parties (sources other than the covered plan, the
  plan sponsor, the covered service provider and
  its affiliates or subcontractors).

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Initial Disclosure Requirements

• Manner of Receipt.
• Describe how compensation will be received
• i.e., billed to plan, deducted from plan
  accounts, etc.

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Disclosure Errors Failures

• Good faith error or omission?
• No prohibited transaction if covered service
  provider, acting in good faith and with
  reasonable diligence, makes a disclosure error or
  omission, if that error or omission is corrected.
• Must disclose the correct or omitted information
  as soon as possible, but no later than 30 days
  after discovering the error or omission.

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Disclosure Errors Failures

• Covered service provider fails to comply.
  Prohibited transactions will occur if the covered
  service provider fails to disclose required
  information.
• Covered service provider will be responsible for
  Internal Revenue Code 4975 excise tax on amount
  involved in prohibited transaction.
• Prohibited transaction must be reported.

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Disclosure Errors Failures

• Class Exemption for an Innocent Plan Fiduciary
• Responsible plan fiduciary will not be liable
  for prohibited transaction if conditions of the
  class exemption, contained in the IFR, are
  satisfied.

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Miscellaneous

• Welfare plan disclosure.
• Rule reserves a new paragraph for future
  guidance concerning disclosure requirements for
  service providers to welfare benefit plans.
• Separate fee disclosure reg. initiative has
  begun Public hearing was held on Dec. 7, 2010.

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Participant-level Fee Disclosure

• 29 CFR 2550.404a-5
• Fiduciary Requirements for Disclosure in
  Participant-Directed Individual Account Plans

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Background

• RFI published April 25, 2007. Over 100 comments
  reviewed
• Notice of Proposed Rulemaking published July 23,
  2008. Over 90 comments reviewed
• ERISA Advisory Council, GAO, and SEC reports and
  initiatives
• Focus group studies of comparative chart

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For the First Time, Workers will Receive

• Core information about their plan and its
  investment options, in format that helps them
  comparison shop.
• Investment information that is uniform across
  different types of investments, allowing for
  apples-to-apples comparisons.
• A quarterly statement showing the dollar amount
  of fees actually deducted from their account
  during preceding quarter.

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Plan-related Information

• General plan operational and identification
  information
• Explanation of administrative expenses (e.g.,
  legal, accounting, recordkeeping)
• Explanation of individual expenses (e.g., fees
  for processing loans or QDROs)

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Investment-related Information

• Investment-related information must be in
  comparative chart or similar format that
  facilitates comparisons
• Model comparative chart in appendix
• Regulation includes special rules for employer
  security, annuity and fixed return investments to
  assure comparability and relevance

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Comparative Chart

• Performance data (1-, 5-, 10-year)
• A benchmark over comparable periods
• Fee and expense information
• TAOE
• Shareholder-type fees
• Glossary or website address for a glossary

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Effective and Applicability Dates

• Final rule published Oct. 20, 2010 at 75 FR 64910
  
• Effective date Dec. 20, 2010
• Delayed applicability date First day of plan
  year that begins on or after Nov. 1, 2011
• For calendar year plans, applicability date will
  be Jan. 1, 2012