Fiduciary duties of trustees, directors, others |
Some 401(k) Breathing Room the Deadline Is Extended on DOL Regs Covering Employee Fee Disclosures.
The extension should be welcomed by plan sponsors, many of whom have yet to get up to speed themselves when it comes to plan fees and expenses ... [according to] a recent survey ... [a]bout one in eight plan sponsors doesn't know what types of administrative fees are applied to their companies' stock funds, while 20% that have funds with revenue sharing don't know what proportion of their funds pay revenue sharing. (CFOWorld)
Pension Plan Sponsors View Controlling Funded Status Volatility As the Top Priority for Their Organizations
Of the poll participants identifying this as a top focus for 2012, nearly three-quarters (70%) said it is at least a 'high priority,' with almost half (43%) of those saying it is an 'extremely high priority." (PLANSPONSOR.com)
CFTC's business conduct rules do not conflict with ERISA's fiduciary regulations, says Borzi
Final business conduct rules adopted by the Commodity Futures Trading Commission (CFTC) do not conflict with ERISA's fiduciary regulations and do not make swap dealers or major swap participants engage in fiduciary conduct, according to Phyllis Borzi. (Wolters Kluwer / CCH)
[Guidance Overview] Plan Fiduciaries Should 'Welcome' Final Regulations Regarding Service Provider Disclosures
[I]n the view of the DOL, plan fiduciaries need the information called for in the Final Regulations in order to satisfy the fiduciary standards of ERISA when selecting and monitoring service providers. (Verrill Dana, LLP)
[Guidance Overview] Investment Disclosures to ERISA Participants Deemed to Satisfy NASD Requirements
"The Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 12-02, which states that investment-related disclosures required under Section 404(a) of [ERISA] are generally deemed to satisfy the content and filing requirements of National Association of Securities Dealers (NASD) communications rules." (Practical Law Company)
[Guidance Overview] Compliance Deadlines Loom for Fee and Other Disclosures
"One set of rules requires each plan service provider to make certain disclosures to a responsible plan fiduciary (plan sponsor fiduciary/plan administrator with authority to contract with the service provider) and the other set of rules requires each plan administrator to make certain disclosures to plan participants." (jackson Lewis)
[Guidance Overview] Deadline Finally Set for New 408(b)(2) Fee Disclosure Rule Compliance
"[What To Do After The Deadline.] Be sure to: Go through the process again for each new arrangement, for any extension or renewal of an existing arrangement, and for any changes; If a disclosure failure is discovered, follow the steps in the prohibited transaction exemption that is part of the final regulations, to include notifying the DOL if appropriate, reporting the failure on Form 5500, and deciding whether to terminate the arrangement with the covered service provider." (Chang, Ruthenberg & Long PC)
CFTC's Business Conduct Rules Do Not Conflict with ERISA's Fiduciary Regs, Says Borzi
"Final business conduct rules adopted by the Commodity Futures Trading Commission (CFTC) do not conflict with ERISA's fiduciary regulations and do not make swap dealers or major swap participants engage in fiduciary conduct, according to Phyllis Borzi, Assistant Secretary for [EBSA]." (Wolters Kluwer Law & Business / CCH)
ERISA Investment Disclosures to Participants Will Satisfy NASD Rules
"The FINRA relief is similar to that issued earlier by the SEC. In an October 2011 No-Action letter, the SEC agreed to treat information provided by a plan administrator to participants that is 'required by and complies with' the ERISA ? 404(a) disclosure requirements as satisfying the requirements of Rule 482 under the 1933 Act. The ERISA ? 404(a) regulations include an optional Model Comparative Chart for making the required financial disclosures to plan participants." (Deloitte via BenefitsLink.com)
[Guidance Overview] EBSA's Long-Anticipated Final Rules on Retirement Plan Fee Disclosure
"The rules will be effective July 1 for both existing and new contracts between [ERISA] plans and their service providers." (Bloomberg BNA)
[Guidance Overview] DOL Issues Final, Final Service Provider Fee Regulations
"Previously, the DOL had issued interim final regulations. The newly released 'final final' regulations reconfirm many things we knew from the interim final regulations but there are a number of significant changes. [This discussion] focuses on the changes and clarifications in the preamble." (SunGard Relius)
Another 12 Basic Retirement Plan Concepts that Every Financial Advisor Should Understand
"[Financial advisors] should be aware of some very basic concepts on how the industry works in order to stand out among their competition as well as augmenting their client's overall retirement plan experience." (JD SUPRA)
[Guidance Overview] Paying Employee Benefit Plan Expenses (PDF)
"This article describes the types of expenses that may and may not be paid from the assets of an employee benefit plan. It also explains the requirements that must be met before expenses can be paid from plan assets, the methods for allocating expenses between plans and among plan participants and the consequences of paying improper expenses from plan assets." (Practical Law Company via Groom Law Group)
[Guidance Overview] Paying Employee Benefit Plan Expenses Chart (PDF)
"This Chart is a guide for employers to use in determining which types of expenses can be paid from the assets of an employee benefit plan governed by [ERISA] and the Internal Revenue Code of 1986 (IRC)." (Practical Law Company via Groom Law Group)
[Guidance Overview] Fiduciary-Level 401(k) Fee Disclosure Deadlines Extended Three Months; Indirectly Extends Participant-Level Fee Disclosure Deadlines
"The three-month extension of the plan-level fee disclosure rule triggers an equal extension of the participant-level fee disclosure rules under ERISA Section 404(a)(2). Technically plan sponsors (employers) must make these disclosures to plan participants, but for practical purposes institutional investment providers will provide most of the content. The deadline to distribute the initial written disclosure has moved from May 31, 2012 to August 30, 2012, and the deadline to distribute the first quarterly statement under the rule has moved from August 14, 2012 to November 14, 2012." (E is for ERISA)
[Guidance Overview] EBSA Issues Final Regulations on Required Fee Disclosure to Plan Fiduciaries (PDF)
"Under the final rule, a plan fiduciary seeking relief under the class exemption must determine whether to terminate or continue its service arrangement with a CSP if the plan fiduciary has requested information andthat information is not disclosed within 90 days of written request. If the request relates to future services and the CSP fails to disclose promptly after the 90-day period, the fiduciary must terminate the service arrangement 'as expeditiously as possible.' The EBSA believes the change highlights the importance of prompt decisionmaking by a plan fiduciary regarding the termination of a contract with a CSP when disclosure failures have occurred." (Ascensus, Inc.)
[Guidance Overview] 408(b)(2) Disclosure Regulations Delayed to July 1, 2012
"The rule, was previously slated to go into effect on April 1, 2012, requires service providers to disclose to plan sponsors information about:(1) the services to be performed; and (2) the fees and compensation to be received for performing those services." (Cambridge Investment Research, Inc.)
Are Custom Target Date Funds Right for Your Plan? (PDF)
"Currently, a large percentage of plan sponsors use TDFs that are pre-packaged vendor products, commonly offered by an investment management firm that may also serve as the plan recordkeeper in bundled situations. These products typically use the vendor's proprietary funds as their component investment options. There is often little overlap between the funds underlying the target date fund and those in the plan's core lineup." (Aon Corporation)
[Guidance Overview] DOL's Final Fiduciary Disclosure Regulations and Extension of Effective Date
"The [DOL] has published the highly anticipated, and slightly overdue, final regulation imposing new obligations for fiduciaries of retirement plans subject to [ERISA]. The obligations pertain to the collection and evaluation of disclosure information from plan service providers and include several minor modifications." (Ballard Spahr LLP)
[Guidance Overview] Deadline for New 401(k) Plan Disclosures Postponed to August 30 (PDF)
"The new effective date is a direct result of the Department's issuance of revised regulations under ERISA Section 408(b)(2) requiring service providers to provide more detailed disclosures concerning their fees to qualified retirement plans . . . ." (Seyfarth Shaw LLP)
The ROI of a 408(b)(2) Audit (PDF)
"This paper will discuss the benefits of the 408(b)(2) audit, and utilize a real-world case study to illustrate how the 408(b)(2) audit represents a true return on investment for plan sponsors." (Roland I Criss)
Industry Players Mostly Pleased with Final Rule on 408(b)(2)
"Larry Goldbrum, general counsel for the SPARK Institute, told PLANSPONSOR that given the delay in the release, he thinks most recordkeepers already moved forward in January with their planned compliance approach and must adjust it now. 'I think service providers still need to evaluate if they'll be able to adjust their compliance plans in time for [the July 1] deadline,' he said." (PLANSPONSOR.COM)
[Guidance Overview] Final Service Provider Fee Disclosure Regulation: The 408(b)(2) Regulation (PDF)
"[The most important changes include the following:] The extension of the compliance date from April 1, 2012 to July 1, 2012; The fact that service providers are not required to provide a summary of the disclosures, though the DOL provided a sample 'guide' that is not mandatory; The addition of the requirement to describe the arrangement between the service provider and the payer of indirect compensation; Limited relief for disclosures for brokerage accounts and similar arrangements." (Drinker Biddle & Reath LLP)
[Guidance Overview] DOL and IRS Retirement Security Measures, Including Final Fiduciary-Level Fee Disclosure Regs and Proposed Guidance on Lifetime Income
"In a coordinated effort, the DOL and IRS have announced agency actions that are intended to enhance retirement security. The DOL has announced the release of final fiduciary-level fee disclosure regulations, with an extended effective date of July 1, 2012." (Thomson Reuters/EBIA)
Managing Volatility in Defined Benefit Plans
12 pages. '[The paper explains why] (1) interest rates directly impact plan funding levels/contribution volatility, and (2) a declining-rate/low-rate environment can quickly lead to funding level shortfalls for plans utilizing a traditional total-return investment strategy; and [discusses] how liability-driven investing (LDI) works and why, for many DB plans, it may be a better approach than a total-return strategy." (Principal Financial Group)
[Guidance Overview] Final Fee Disclosure Regs Contain Important Relief for 403(b) Plans
"As with everything 403(b), there are going to be complications, as it is not a totally carte blanche of pre-2009 'frozen' contracts. There will be odd circumstances, like where vendors who insist on employer approval on loans and distributions from those contracts (but the price of that insistence will be 408(b)(2) disclosure)." (Business of Benefits, Robert J. Toth Jr.)
Multiple Employer Plans Offer Retirement Security Advantages
"Some of those advantages are: 1. Cost reductions through plan aggregation, creating volume discounting. 2. Fiduciary risk transfer to the MEP sponsor and its named fiduciary. 3. Elimination of document maintenance by adopting employers. 4. Elimination of Form 5500 filings by adopting employers. 5. For larger adopting employers, elimination of expensive individual ERISA audits." (Employee Benefit News)
Deloitte's 2011 401(k) Benchmarking Survey (PDF)
68 pages. 'While plan sponsors and fiduciaries are generally aware of the fees charged for the administration of their plans, the possibility exists that many will be surprised by the sum total of costs." (Deloitte)
[Opinion] A Closer Look at the Braden v. Wal-Mart Case: How Not to Run a 401(k) Plan
"The Wal-Mart case is the poster child for the way in which a 401(k) plan should not be run: plan investment options bearing excessive and entirely unnecessary costs, undisclosed conflicts of interest, lack of meaningful disclosure of costs to plan participants (which was actually part of the agreement between plan fiduciaries), and, I'd argue, an apparent absence of any serious fiduciary mindset on the part of the plan sponsor fiduciary and the trustee fiduciary." (Morningstar Advisor)
[Guidance Overview] DOL Finalizes, Delays 401(k) Fee Disclosure Rules
"The final regulations 'strongly encourage' service providers to offer plan fiduciaries a 'guide' or summary of their disclosures. The DOL included a sample guide as an appendix to the final rule. Debate about whether to require such a summary disclosure is rumored to have delayed the release of the final rules. For now, the summary is voluntary, but the DOL strongly hinted that it may make the summary mandatory in future regulations." (Benefits in Brief)
[Guidance Overview] Final ERISA Section 408(b)(2) Regulations Include Significant Differences from Interim Rules
"These regulations make several significant changes . . . including: [1] Excluding certain frozen IRC Section 403(b) plans issued before January 1, 2009 from coverage under the regulations; [2] Enhancing the information relating to 'indirect compensation' required to be disclosed; [3] Adding certain investment-related disclosures to facilitate compliance with DOL regulations under ERISA Section 404(a); [4] Extending the effective date to July 1, 2012. This has the effect of delaying the effective date of most participant-level disclosures under ERISA Section 404(a) to August 30, 2012." (Practical Law Company)
Treasury Eases Rules on Annuities in Retirement Plans
"Employers have been reluctant to adopt annuities in retirement plans they sponsor because of concern that fees are too high and that they would be held liable for their choice of insurers. Americans have resisted buying the insurance because they don't want to lock up their assets." (Bloomberg)
Who's on The Hook for Decisions Made in Your 401(k)?
"If you are a business owner, on the Board of Directors or serve on the Plan Investment Committee, follow the line of questions from a 'hypothetical deposition' directed to you and picture how you would answer the questions." (Forbes)
[Official Guidance] Text of Final 408(b)(2) Regs on Fee Disclosures to Plan Fiduciaries by Covered Service Providers (PDF)
109 pages. 'This document contains a final regulation under the Employee Retirement Income Security Act of 1974 (ERISA or the Act) requiring that certain service providers to pension plans disclose information about the service providers' compensation and potential conflicts of interest. These disclosure requirements are established as part of a statutory exemption from ERISA's prohibited transaction provisions. This regulation will affect pension plan sponsors and fiduciaries and certain service providers to such plans." (U.S. Employee Benefits Security Administration)
[Guidance Overview] Second DOL 'Fact Sheet'; Description of Major Changes to Final Fee Disclosure Rule
"The final rule's effective date has been extended to July 1, 2012, to allow additional time for compliance." (U.S. Employee Benefits Security Administration)
[Official Guidance] DOL 'Fact Sheet' on Final Regs on Service Provider Disclosures Under ERISA Section 408(b)(2)
"The final rule reflects a number of technical and other changes . . . including the following: . . . Expansion of the information that must be disclosed concerning a [Covered Service Provider's] receipt of indirect compensation to include a description of the arrangement between the payer and the CSP pursuant to which indirect compensation will be paid; Conformance of investment-related disclosures for covered plans' designated investment alternatives to the requirements of the Department's participant-level disclosure regulation; and A separate provision for the disclosure of changes to investment-related information, which must be updated at least annually." (U.S. Employee Benefits Security Administration)
[Guidance Overview] DOL Publishes Final 408(b)(2) Fee Disclosure Regs; Treasury Publishes Regs on 'Lifetime Income' Options
"[T]he U.S. Departments of Labor and the Treasury today announced two executive actions designed to help enhance security for millions of Americans saving for retirement. The measures will expand transparency in the 401(k) plan marketplace and broaden the availability of retirement plan options so that Americans can maximize their ability to save responsibly and securely." (U.S. Employee Benefits Security Administration)
Interview With Prof. Ron Rhoades on Revenue Sharing
"I would advise plan sponsors to avoid any revenue-sharing arrangements, of any type, between the advisors and other vendors of the plan. This includes not only payment for shelf space, but also soft dollar compensation and other 'back-channel' payments. Establish the compensation of the investment adviser in advance -- before any investment recommendations are made -- either as a flat fee, hourly fee, or percentage of assets (or some combination thereof)." (Fiduciary News)
403(b) Model Disclosure Form (Jan. 2012)
"This form is designed to provide [you, a 403(b) plan participant,] with the ability to easily compare detailed information regarding the investment options available to you. It is designed to provide you with a snapshot of the critical information needed when selecting an investment, including the services to be provided to the participant, the fees to be charged to the participant, investment information, the commissions payable to the persons who provide services to the plan, and other payments to third parties." (ASBO, NEA & NTSAA Joint 403(b) Taskforce)
Kodak Employee Sues Company Directors Over Stock
"[The plaintiff, an Eastman Kodak employee,] said in the lawsuit, which seeks class-action status, that the directors and officials did not disclose to stock-plan participants complete information about Kodak's dire financial condition and kept its investments in the company's equity when it was no longer prudent." (Reuters via the New York Times; free registration required)
Guide to the 404a5 Opportunity for Retirement Advisors, Part I: Counseling Plan Participants
"Mark down May 31, 2012 in your calendar. That's the date by which 483,000 U.S. retirement plans must send to their participants the initial disclosures required by new Department of Labor rules under Section 404a5 of ERISA. . . . DOL estimates that the rule will affect 72 million active participants who hold $3 trillion of plan assets. . . . It is your job, and opportunity, to help them anticipate, interpret and act on information contained in 404a5 disclosures." (Benefits Pro)
Record High Pension Assets Hit By Rising Liabilities
"Global pension assets hit a record high at the end of last year, but burgeoning liabilities meant funding ratios were in a worse state than 12 months earlier, a survey has shown. . . . [L]ower interest rates and changes to other accounting measures around the world's major economies meant liabilities also hit record highs compared to a benchmark date at the end of 1998, Towers Watson said." (aiCIO)
[Guidance Overview] What Is a Fiduciary (and Why Should We Care)?
"Advisers, as fiduciaries, have a legal mandate to place client interests first. Advisors, on the other hand, must only provide 'suitable' investments to clients while placing their firm's interests first. This means a lot of those 'self-dealing' types of transactions." (BenefitsPro)
Is Your Retirement Plan Due for an RFP In 2012?
"No law specifically requires plan fiduciaries to solicit bids through a request for proposal (RFP) process at the expiration of a service contract. However, the rising trend of 401(k) fee litigation underscores the belief among many practitioners that engaging in such an RFP process every 3-5 years constitutes 'best practices' and should be undertaken by prudent plan fiduciaries." (McKenna Long & Aldridge LLP)
[Guidance Overview] Final 'Business Conduct Rules' for Swap Dealers Include Safe Harbor for ERISA Plans
"The Commodity Futures Trading Commission (CFTC) included a safe-harbor for ERISA plans under the 'business conduct standards' for swap dealers under the Dodd-Frank Act . . . . In a letter to the CFTC, [DOL] affirmed that the final rule will not require swap dealers to engage in conduct that will cause them to become ERISA fiduciaries." (Deloitte via BenefitsLink.com)
401(k) Plans Step into the Sunshine with New DOL Rules Requiring Fee Disclosures
"Analysts and companies in the industry say the increased disclosure will allow companies to negotiate better deals and employees to request more cost-efficient plans. Already, the prospect 'is putting downward pressure on fees,' said [the] leader of consulting firm Callan Associates Inc.'s defined-contribution practice." (The Wall Street Journal)
A Retirement Plan Sponsor's Guide to Choosing a Third Party Administration Firm
"With fee disclosure regulations to be effective on April 1, 2012, many retirement plan sponsors like you may be on the lookout for hiring a new third party administrator (TPA) after they find out [that] the fees they are actually paying to the old one are unreasonable. Even if you are not looking for a new TPA, as a plan fiduciary, you need to shop around your plan to other TPAs in order to make sure you are exercising your fiduciary responsibility prudently by confirming that the fees you pay to the TPA are reasonable for the services provided." (The Rosenbaum Law Firm P.C. via JD Supra, LLC)
[Guidance Overview] Practitioners' Forum Discussion: Loomis v. Exelon Corp.
"[T]he Seventh Circuit affirmed a lower court's holding that the plan fiduciary did not breach its duties under ERISA . . . by offering retail mutual funds as part of the investment options in a participant-directed defined contribution plan." (Compensation Planning Journal via The Bureau of National Affairs, Inc.)
[Guidance Overview] Effective Date of DOL's Fee Disclosure Regulations Near: Plan Sponsors Should Not Procrastinate
"Plan sponsors should ensure that service providers are complying with their regulatory disclosure requirements. The steps to follow are (in some respects) similar to the participant fee disclosure steps . . . ." (Ice Miller LLP)
[Opinion] Comments to DOL on Disclosure of Compensation Arrangements to Plan Fiduciaries by Broker-Dealers (PDF)
"[I]f broker-dealers feel the need to disclose every potential compensation arrangement for a brokerage account, plan fiduciaries will likely be overwhelmed by such information, rendering it virtually useless. . . . One possible way to eliminate this burdensome disclosure is to limit the 408b-2 compensation disclosures for brokerage accounts to the disclosures required under applicable securities laws." (Drinkle Biddle & Reath)
Low-Cost Entries Shake Up Small Retirement Plan Market
"If you own a small business, the time to comparison-shop for 401k plans has never been better. Low-cost plans are cropping up, as new federal regulations kicking in this year call for greater disclosure of feeinformation to plan participants and sponsors." (Thomson Reuters)
[Guidance Overview] Court Finds No Proof of Benefits Interference by Duke Energy
"The 6th U.S. Circuit Court of Appeals has found no proof that Duke Energy interfered with the early retirement benefits of a laid off employee. In affirming a lower court's summary judgment ruling, the appellate court found [the] claim under [ERISA] fails because he did not made a prima facie showing of 'the existence of (1) prohibited employer conduct (2) taken for the purpose of interfering (3) with the attainment of any right to which the employee may become entitled.'" (PLANSPONSOR.COM)
ERISA Claim Based on Wal-Mart Gender Discrimination Dismissed
"A federal court dismissed a claim that Wal-Mart Stores breached its fiduciary duties in underpaying retirement plan contributions based on wages that were discriminatory against women." (PLANSPONSOR.COM)
DOL's Lehman Brothers Amicus Brief, in Support of Plaintiffs-Appellants Requesting Reversal
"'ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans.' . . . . The statute promotes these interests primarily by imposing several stringent duties on plan fiduciaries, including a duty of care grounded in trust law's prudent man standard. . . . Although the Secretary has authority to enforce these standards, participants and beneficiaries play a primary role in policing ERISA plan fiduciaries. Thus, ERISA gives participants standing to bring private actions to remedy losses caused by fiduciary breaches and to obtain appropriate equitable relief." (U.S. Department of Labor)
[Guidance Overview] A Look at Case Law for Important Plan Documentation Reminders
"Two important cases provide good reminders to plan fiduciaries about (1) the importance of documentation of fiduciary processes, and (2) accurate communication of plan design changes to participants and beneficiaries." (Ice Miller LLP)
Shielding Plan Fiduciaries from Participants' Investment Losses
"2012 is the year of a regulatory tsunami affecting plan sponsors at many different levels. As the dust settles, plan sponsors and consultants should refocus on the main issues at hand regarding defined contribution retirement plans: process and protection." (The Agbay Group)
Are 401k Plan Sponsors Making the Fiduciary Grade?
"It makes sense for 401k plan sponsors to . . . grade their plan on each of the Five Areas of Fiduciary Liability: 1) Regulatory Compliance ? State and Federal; 2) Independence of Providers ? Service Vendors Conflicts of Interest; 3) Integrated Investment Policy Statement; 4) Documented Investment Due Diligence; and, 5) Trustee and Participant Education." (Fiduciary News)
Fiduciary Duty and Employee Education in Defined Contribution Plans (PDF)
"Since fiduciaries must act for the exclusive purposes of providing benefits to participants and their beneficiaries, a fiduciary should consider providing participants with every reasonable opportunity to maximize their benefits, which would include education on the plan's provisions and investment options." (Conrad Siegel Actuaries)
[Guidance Overview] The DOL's Position on 'Capturing' Rollovers (PDF)
"This article examines statements made by [DOL] regarding distributions and rollovers from qualified plans to IRAs. We are advising RIA and broker-dealer clients on how to structure their rollover programs in light of this guidance, and it is important for advisers to understand the DOL's views on this significant issue." (Drinker Biddle & Reath LLP)
6 Critical Trends for Retirement Plans in 2012
"The six megatrends Lincoln Trust sees in 2012: New 401(k) Fee Disclosure Rules by DOL . . . 'C Suite' Sticker Shock' . . . A Refined Fiduciary Standard . . . Models vs. Target-Date Funds . . . The Rise of 401(k) Evaluation Services . . . A Call for Investment Expense Transparency." (AdvisorOne)
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