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Fee Disclosure Regulations and Recent Plan Litigation


LESSON #1 –Read and follow the plan documents, and the Investment PolicyStatement

  • General guidelines may be better than detailed

  • Refer to the plan/IPSduring meetings

  • Refer to plan/IPS in minutes

  • First thing to do after this seminar–go read your plan/IPS!

Tussey v. ABB,Inc.

  • — Employer liable for $37,000,000 verdict

  • — Why did the court find liability in this case?

  1. Failure to follow Investment Policy Statement

  2. Lack of fee oversight

  3. Conflict of Interest–use of plan assets to benefit the employer

LESSON #2 –Know Your Fees

  • New DOL fee disclosure regulations will help

  • Knowing is not enough –Benchmark

  • Benchmarking not enough –replace or renegotiate if prudent to do so

  • The larger the plan, the higher the risk

LESSON #3: Avoid transactions for the Plan that benefit you as the Employer at the Plan’s expense.

In Tussey V. ABB, why was the Employer liable?

  • —Fidelity provided services to Plan sponsor as well.

  • The Employer negotiated better rates for other of its plans and itself based on revenue generated from the 401(k) plan.

  • The Employer had been warned in writing about this!

LESSON #3 –Undivided loyalty

3 Take steps to avoid conflicts:

a) Disclose conflict and Recuse self

b) Committee structure

c) Use independent consultants/fiduciaries

Participant Disclosure Regulation

For Participant‐directed Individual Account Plans

The Policy

Provide participants and beneficiaries with sufficient information” to make informed investments. About 72 million people are participants in plans where they direct their own investments.

The Rule

What to Disclose:

1) Administrative fees—e.g., is there revenue sharing?

2) Performance and fees of plan investment options.

How to Disclose:

1) in Chart Format for Ease of Comparison—if multiple vendors and charts,must disclose all at once.

When to Disclose: Initially, by August 30 Quarterly, Annually

Plan‐level Disclosures

  • The names of the designated investment alternatives (“DIAs”)

  • — Designated Investment Manager (“DIM”), if any

  • — Rules for participant’s investment instructions

  • — Administrative fees charged to individual accounts and basis for fees.

  • — Expenses charged on an individual basis (e.g., loan or QDRO fees, brokerage windows, commissions, redemption fees, etc.)

  • — Quarterly statement of actual fees charged to participant’s account.

Designated Investment Alternatives (DIA) Disclosures

  • — Name, type, restrictions on purchase or sale

  • — Performance and benchmark info.

  • — Fees charged directly to individual account.

  • — Total annual operating expense expressed as a percentage and a dollar amount on a $1,000

  • — Website and additional info upon request investment.

Model Fee Comparison Form

  • — Designed to facilitate comparisons among investment options

  • — Not required to use the model form but a table format is required.

  • — The Appendix to the DOL regulations contains a model disclosure form.


  • — Initially and for New Participants: initially by August 30, 2012; afterwards, on or before the date first eligible to invest.

  • — Annually: can be with other annual notices

  • — Updates: at least 30 days but nmt 90 days in advance of the effective date of the change.

  • — Quarterly: actual dollara mount of the administrative and individual investment expenses actually charged during the preceding quarter.


  • Upon request: supplemental information regarding investment alternatives, such as prospectuses, financial statements, etc.

  • — Website: must be identified in documents for each designated investment alternative and must provide more detailed and up‐to‐date information about the alternative’s investment strategy, portfolio turnover rate and performance data.

FAQs: Format of Disclosures

Must the disclosures required under the regulation be furnished as stand‐alone documents?

No. While plan administrators have the discretion to furnish the required disclosures as stand‐alone documents, they also have the discretion to furnish the required disclosures along with, or as part of, other documents... [excerpt of FAQ A:26 from FAB 2012‐02.]

FAQs: Performance Data

The Model Comparative Chart…includes “since inception” performance and benchmark information for all designated investment alternatives. Is a plan administrator required to include “since inception” information for all of a covered individual account plan’s designated investment alternatives?

No. A plan administrator is only required to furnish “since inception” performance data (including benchmarks) for designated investment alternatives that have been in existence for less than 10 years….[excerpt from FAB 2012‐02 A:24]

FAQ: Website requirement

Q‐17: Are there alternatives to creating a plan Web site that a plan administrator may use to comply with the Web site address requirement?

A‐17: Yes. Plan administrators have multiple ways to satisfy their obligation to provide a Web site address under paragraph (d)(1)(v)…. [excerpt from FAB 2012‐ 02]‐‐‐‐page on employer’s website,

‐contract with TPA or record keeper

‐DIA’s website

Electronic Delivery

ERISA requires Employer to take “measures reasonably calculated to ensure actual receipt of the material [furnished under Title I of ERISA].”

How does this rule apply to electronic delivery of the participant fee disclosures?


— General Safe Harbor –only if conditions are met


— Alternate Safe Harbor (temporary and just for fee disclosures)


General Safe Harbor


— Use of electronic communication is integral to the participant’s duties


— The participant/beneficiary affirmatively consents to receive communication


* The safe harbor is described fully at §2520.104b‐1(c) of the DOL Regulations.

Alternate Safe Harbor

Pending further guidance, a plan administrator may furnish the disclosures through electronic media (including a continuous access Web site) if:

1. Voluntary Provision of E‐mail Address(upon a request delivered by other means)

2. Initial Notice (incl. instructions and opt‐out provision)

3. Annual Notice (on paper or by email if email already on file)

4. Delivery (confirmation of)

5. Confidentiality

6. Calculated To Be Understood.

Special Transition Provision

For participants who already have an email in use with the plan,steps 1 and 2 of last slide can be met by sending a Transition Group Initial Notice:

No earlier than 90 nor later than 30 days prior to August 30, 2012, the date the initial disclosures are required.

NB: There are more details to this!

Website Delivery

If you already provide a secure, continuous website to furnish benefit statements, you can just add the new quarterly investment performance disclosures to that website.

But plan‐related information that’s NOT part of a benefit statement (i.e., the annual disclosure of fees charged to each account) cannot be provided on a website, unless the Alternate Safe Harbor is met.

Example of Paper & Electronic Disclosure

ABC Company has 120 employees eligible to participate in the plan.

  • — 50 have computer access as an integral part of their duties.

  • — 30 of those remaining have requested electronic delivery.

Is the general safe harbor met, and for whom? What happens for the other 40 participants?


ABC must provide all disclosures to every eligible employee (even to employees who are not actually participating!).

The General Safe Harbor is available for the 80 employees who either have regular access as part of their duties or who have affirmatively consented to it.

So, is only paper allowed for the other40?

No,you can use the Alternate Safe Harbor for the other 40 eligible employees, for the fee disclosure communications only.

Prepare for Compliance

Action Items for Sponsors and Providers to Prepare for Participant Disclosures

Compliance Action Items

  • — Ask plan record keeper and other providers how well their systems can accommodate new regulations, including website maintenance and content.

  • — Identify all designated investment alternatives (DIAs) under the plan

  • — Determine quality and timing of existing disclosure procedures.

  • — Work with service providers to identify appropriate benchmarks for each DIA.

  • If the plan committee is considering changes to plan investment alternatives or plan service providers, it may be a good idea to make those changes in advance of July 1,2012 in order to minimize change notices.

Plan “Housekeeping”

  • —How will the plan deal with a potential flood of participant questions starting after August 30, 2012?

  • — How adequate are the plan’s general procedures for communicating with participants?

For General Information:

Department of Labor website for ERISA compliance—

One More Thing

New requirements for Schedule C of Form 5500


What can a prudent plan fiduciary do to minimize risks of liability?



Accountability of every person involved in Plan Communication of all facts to Plan committee Insurance/Indemnities


Fiduciary Insurance

  • A number of the cases that settledwere settled based on policy limits.

  • Insurance will not cover prior acts –need to purchasebefore needed

  • Be sure to report‘facts and circumstances.

Best Practices for Claims

  • Know if it is a claim (vs. inquiry)

  • Know your plans claims procedures

  • Follow them

  • Assume that the only info a judge will see is in the administrative record


DOL has the authority to audit your plan and operations.

Best Practices for DOL Contact

‐Know if it is an investigation or inquiry

‐Assess possible breaches/prohibited transactions and fix immediately

‐20% penalty appliesto DOL enforced fixes

‐Consider VFCP if merely inquiry

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