The End of innocence: What to Do If You Didn’t Receive an ERISA 408(b)(2) Disclosure.

Plan sponsors need to address this issue now. The DOL is watching as well as Congress. If you rely on a service provider who has not agreed in writing to serve as a fiduciary you will be solely responsible.

DOL Sec of Labor Hilda Solis at VA Hospital in...
DOL Sec of Labor Hilda Solis at VA Hospital in Minneapolis MN (Photo credit: US Department of Labor)

Hopefully, you, the responsible plan fiduciary to an ERISA retirement plan, are happily ensconced in your office, reviewing thorough and compliant ERISA Section 408(b)(2) disclosuresfrom the plan’s covered service providers.  But what if you didn’t receive the disclosure, or if it is inadequate?The Department of Labor  (“DOL”) regulations provide that the plan fiduciary must request the missing information in writing from the service provider.  Guidance does not dictate a specific timeframe under which the fiduciary must make this request; it must be done “upon discovering” that the service provider failed to disclose.  Presumably this would be within a reasonable time after the fiduciary determined the disclosure had not been provided or was inadequate.  What constitutes a “reasonable” timeframe may depend on how many disclosures you have to review.  Of course, if no disclosure at all was provided, those requests should go out posthaste.

If, after the written request is made, the covered service provider fails to comply within 90 days, the fiduciary must notify the DOL of the service provider’s failure to disclose in order to protect the plan from a prohibited transaction.  The notice to the DOL must be filed not later than 30 days following the earlier of: (1) the service provider’s refusal to provide the information requested by the plan fiduciary; or (2) 90 days after the plan fiduciary’s written request is made.  The DOL has posted a model fee disclosure failure notice.  Currently, the notice may be mailed or emailed to the DOL, but last Monday, a direct final rule was published that announces a new online submission process for such notices.  As of the date of this post, the online system was still under development by the DOL.  Notices may still be mailed to the DOL even after the online system is up and running, and the DOL has provided a new dedicated mailing address in the direct final rule.  Because it is not clear whether that new dedicated mailing address should be used immediately or beginning with the effect date of the direct final rule (September 14, 2012), prudent fiduciaries will mail any such notices to both the old (as published in the February 3, 2012 final rule) and new mailing addresses.

Aside from notifying the DOL, a plan fiduciary who does not receive a disclosure or has only an inadequate disclosure will need to determine whether to terminate the arrangement with the covered service provider, in accordance with the ERISA fiduciary duty of prudence.  If the information that was requested by the plan fiduciary and was not provided relates to future services, the plan fiduciary must terminate the arrangement as soon as possible.

Plan sponsors will need to address this now or after their employees receive their statements with fees disclosed. In some cases I have read the fee disclosure requirements sent to sponsors with 42 pages of detail. Have you read and understand this document?

Please comment or call to discuss what it means to you and your participants.

Posted via email from Curated 401k Plan Content

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More Oversight for 401(k) Brokerage Windows

Many plan sponsors have indulged some of their employees by offering a brokerage window. Some sponsors believe that with the help of their broker they can beat the market with a brokerage window. This option like all others must be available to all with exclusivity allowed. This opens the plan sponsor to fidcuairy risks they may or may not be aware. The plan sponsor has a duty to monitor the accounts and avoid any imprudent investments.

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NEW YORK, NY - NOVEMBER 01: A man walks through the office building where MF Global Holdings Ltd have offices in Manhattan on November 1, 2011 in New York City. The brokerage firm, run by former New Jersey governor and Goldman Sachs boss Jon Corzine, has filed for bankruptcy in another developing financial scandal. (Image credit: Getty Images via @daylife)

The DOL’s recent guidance discussing brokerage windows also suggests that failing to designate a “manageable” number of alternatives may be imprudent and raises questions about the extent to which an employer must monitor window alternatives to fulfill its legal obligations. This has ignited a debate over whether employers must monitor only the availability of a brokerage window or some actual investment alternatives available through the window. For now, the DOL simply says, you can’t “set it and forget it.”Given the practical challenges of obtaining information about window alternatives, it’s questionable whether employers can continue to offer a brokerage window without substantial risk unless the DOL changes or clarifies its position. Until then, if you have a brokerage window it’s important to consult your ERISA counsel to determine how and when to start collecting fee information and to understand the fiduciary implications of continuing to offer the window.In many cases, it will be appropriate to start gathering information now and formulating a plan for the eventual additional disclosures required. If you’re contemplating adding a brokerage window arrangement, you may want to consider delaying that decision until the DOL position on these issues becomes more clear.

Posted via email from Curated 401k Plan Content

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DOL fiduciary crackdown on retirement advisors underway

Far too many financial advisors have sold 401(k)s as a lead generation tool. The 401(k) is a by product of their ability to sell high commissioned products to plan participants. Plan sponsors should be aware that allowing this action is another way of endorsing it. This could result in fiduciary liability. The 401(k) is far too important of an employee benefit to allow this. It is a benefit that must stand on it’s own.

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So far this year, the Department of Labor’s Employee Benefits Security Administration has significantly raised its enforcement efforts in what Andy Larson, director of the Retirement Learning Center, said should serve as a wakeup call to advisors who advise retirement plansand plan sponsors.In 2011, EBSA said it had closed 3,472 civil cases and obtained monetary results of nearly $1.39 billion. EBSA also closed 302 criminal cases that resulted in 129 individuals being indicted and 75 cases being closed with guilty pleas and/or convictions. DOL also wants to increase the number of its enforcement personnel from 913 to 1,003 this year.

Larson called those EBSA enforcement numbers “astonishing,” and warned that many advisors are surprisingly still unaware that the DOL has jurisdiction over them.

Most plan sponsors and retirement advisers are unaware of the focus by the DOL. As stated in this article most advisers are unaware that the DOL has jurisdiction over retirement plans. As the retirement crisis becomes more evident more focus will result in more audits and consequently more fines.

Please comment or call to discuss how this affect you and your company.

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Why things just got a lot tougher for 401(k) plan sponsors

The big question is..Why have service provders been fighting fee disclosure so diligently? Do they have something to hide? from plan sponsors or participants or both? Should participants pay for all the cost in their 401(k)? The 401(k) is the sole source of retirement for most Americans and must be treated as an employee benefit. When these regulations become effective many plan participants will ask many questions. Are You, the plan sponsor, prepared?

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Here’s where things start to go south. What happens if a service provider fails to disclose its feesor only discloses a portion of them? Will plan sponsors get by merely through offering their best efforts to obtain this fee information? Probably not, if you read between the lines of the DOL comments. Borzi’s actual comment to the press indicated the 401(k) plan sponsor must fire any service provider that fails to properly disclosure its fees.So, in addition to knowing all the ins and outs of their specific plans, and the ERISA laws that govern them, plan sponsors have now been summarily deputized by the DOL to enforce compliance on service providers.

If you think about it, it’s a smart move by the DOL. It’s also in keeping with the whole self-policing philosophy that pervades this Internet generation. What better way to protect the masses if the masses have the authority to unilaterally punish wrongdoers (albeit, it’s only by firing them). If the DOL is really inventive, it can create a disclosure site where plan sponsors can report their compliance related lack-of-disclosure firings.

This would help other plan sponsors become aware of potential non-compliance liabilities resulting from hiring these vendors. In turn, a public disclosure file, similar to the on-line “complaints” log the SEC provides to investors, might just provide an incentive for service vendors to comply.

In the end, this just might make things a lot easier for 401(k) plan sponsors.

The new fee disclosure regulations will make both the plan sponsors and plan participants on the fees they pay and why. The plan participants will benefit because lower expenses results in higher return. Remember an extra 1% in fees over 40 years of saving makes a huge difference.

Please comment or call to discuss how your plan will be affected by the new fee disclosure regulations.

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DOL Cracks Down on Retirement Plan Advisors for Fiduciary Negligence

Most retirement plan advisors in the small to mid market use the 401(k) as a lead generation tool. Once sold to the employer the broker sells high commissioned products to plan participants. Most of these advisers are unaware of their fiduciary responsibilities. This will change will new regulations. The 401(k0 model must change to more of a employee benefit, striving to rreplace the participants income at retirement. This measurement has been largely ignored.

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Columbia Management Learning Center warned plan sponsors in a recent white paper that they have a “fiduciary responsibilityto keep their plan in compliance with DOL rules and regulations at all times.”Because of the increased number of DOL enforcement staff, “the chance that the DOL could audit your plan is increasing,” the white paper warns. “There is every indication the DOL is escalating audits of small plans,” the paper says.

The paper also notes that during 2010, the DOL audited more than 3,100 plans and found that:

  • More than 73% of the plans were required to restore losses to the plan or take another type of corrective action to correct plan deficiencies.
  • 96 individuals (e.g., plan officials, corporate officers and service providers) were indicted for offenses related to their plans.
  • From the audits, we can conclude that a very small percentage of plans have true “bad guy situations”; the majority of violations generally come from oversight, errors and omissions by plan sponsors.

Many advisers and plan sponsors are unaware that the Department of Labor has jurisdiction over them. When the new fiduciary standard is implemented very soon those advisers affiliated with broker dealers may cease to advise plan participants. The need for advisers following the fiduciary standard will grow dramatically.

Please comment or call to discuss how this affects you and your company sponsored retirement plan.

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DOL & IRS Ramping Up Enforcement

The DOL & IRS are ramping up enforcement efforts for retirement plan compliance.

The Obama administration has been increasing the IRS and DOL staff to combat the large number of retirement plans that it says are not compliant with retirement planning rules and regulations.

The DOL says 77% of 401(k) plans are non-compliant in some form.

At a recent conference John Carl president of the Retirement Learning Center discussed the increased enforcement efforts.   While 2009 was a bad year for the economy, Carl said, it wasn’t so bad for DOL — it added 997 employees that year — with 70% of those employees added to its enforcement division. The department’s Employee Benefits Security Administration (EBSA), for instance, saw a 28% budget increase in 2009, and EBSA added 29 enforcement personnel.

The targets for the IRS are U.S. companies owned by foreign entities; 403(b) plans; and small business owners.

The IRS is coming.

Please comment or call to discuss how this could affect you and your organization.

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Fee disclosure facts every plan sponsor should know

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The new fee disclosure regulations will take center stage early in 2012. Plan sponsors are required to know and understand the fees in their compnay sponsored retirement plan. If plan sponsors do not address this, their employees will bring it to their attention very soon.

6. All plan sponsors will have greater fiduciary liabilities – they’re now responsible for collecting and presenting – this data. The DOL has a specific suggestion for how to present this data. The DOL wants fees to be openly disclosed because it’s worried too many people believe their 401(k)is free. Many participants, and unfortunately many plan sponsors, will experience “sticker shock” when they see the fees they’ve been paying.7. All vendors will have greater liabilities – they can’t hide fees anymore. You might think this will worry those vendors, and you’re right. What you might not think, and what they might not think either, is that this disclosure should worry plan sponsors, too.

8. Performance data reporting requirements may actually mislead 401(k) investors. It’s important plan sponsors understand the limitations of the DOL’s sample Model Comparative Chart and how it might cause investors to make damaging decisions. Fortunately, plan sponsors are not required to use this sample and, instead, can rely on a better report.

Fees that do not add value to the retirement plan must be eliminated. These fees reduce returns and delay the ability to retire.

Please comment or call to discuss how this affects your company.

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What ‘Fee Disclosure’ Rules Really Mean for Plan Sponsors

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Your employees will be aware of how much they are paying for the retirement plan you offer. Your responsibility is to verify that the costs are reasonable and justified. The end result is a better retirement plan for yourself and your employees.

Recent articles addressing the U.S. Department of Labor’s (DOL) fee disclosure regulations taking effect in 2012 under the Employee Retirement Income Security Act‘s (ERISA) section 408(b)(2), for fee disclosures from service providers to plan sponsors, and section 404(a)(5), for participant-level fee disclosures, have largely emphasized the impact these rules will have on retirement plan vendors—how they must structure their fees, how and what types of disclosures they will provide, and how their accountability will be altered.Retirement plan sponsors, however, will also experience a sea change in their fiduciary role and responsibilities. The DOL rules will impact plan sponsors equally, if not more, than their service providers and will require an overhaul of the plan sponsor’s approach to many formerly rote fiduciary activities.

The emphasis made in commentaries by vendors’ associations on the implications of the rules for their members has inadvertently diminished the focus on plan sponsors’ new duties under these regulations. Plan sponsors, for example, will have a responsibility to examine and audit the adequacy of their vendors’ fees. The government’s use of the word “disclosure” as the keyword in the rules serves to disguise the urgency that the rules dictate for plan sponsors and their roles.

Plan sponsors now have a responsibility
to examine and audit the adequacy
of their vendors’ fees.

As a plan sponsor your fiduciary responsibilities have increased with the new DOL regulations. The end result will be a better plan for your employees.

Please comment or call to discuss how this affects you and your company retirement plan.

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Who Are Your Fiduciaries?

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Many plan sponsors take their fiduciary responsibilities far too lightly. Many believe their service provider is taking care of this for them. This is a mistake because most service providers will do anything not to act as fiduciary to your plan. Be ceratin everyone involved understands their roles and responsibilities. Get this in writing.

According to the Department of Labor, “Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement planand their beneficiaries.”The DOL is enforcing a 1974 law called the Employee Retirement Income Security Act, which has been updated through the years. For the average retirement plan investor, the result of the ERISA standards is that plan fiduciaries have some level of legal liability for your retirement plan. That doesn’t mean you can successfully sue them if your investments don’t perform exactly as you’d wished. Rather, you can monitor them to ensure they’re doing everything the DOL says they should.

There are three basic categories of retirement plan fiduciaries. Here is a simplified breakdown of the definitions:

1) There are named fiduciaries whose job title is specifically mentioned in plan documents as a fiduciary role. These often include plan trustees, company officers, and plan administrators.

2) There are named fiduciaries whose role is implicitly associated with the functions of the plan, even though it isn’t specifically spelled out in plan documents.

3) There are unnamed fiduciaries who assume a fiduciary role by providing advice or affecting the investment choices available in a plan. With this proposed definition, many people become unnamed fiduciaries and begin to assume some level of liability for the advice they provide to plan sponsors and/or plan participants.

Employers who sponsor a qualified retirement plan for their employees are fiduciaries to the plan. This fiduciary responsibility is critical to the successful retirement of themselves and their employees. Please do not take this responsibility lightly.

Please comment or call to discuss how you can minimize your fiduciary responsiblities.

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DOL investigations of Retirement Plan Financial Advisors

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This industry is changing because the 401(k) plan has become the sole source of retirement for most Americans. It’s original intent was to be a supplemental retirement vehicle to pension plans. This current 401(k) model must change to look more like the pension fund.

There was a great article written by Fred Reish and his staff regarding Department of Labor (DOL)investigations into broker dealers and registered investment advisors and their relationships with their retirement plan clients. I recommend everyone in the industry to read it.As far as the investigations as to what the DOL called the Consultant/advisor project (CAP), it comes as no surprise. The DOL over the last few years has made it their goal to improve the role of retirement plan advisors whether its requiring them to disclose fees, abide to a fiduciary standard (to be decided), and to finally offer investment advice.

Having been in the business for over 13 years, you see a lot of things that are quite good in the industry and some things that are not so good.  Whether it’s the plan provider who receives extra compensation that is not disclosed by having their client switch 401(k) platforms or those who can get an extra trail for pushing a specific share class of a mutual fund or stable value fund, there are enough abuses with the financial community to warrant these investigations.

The retirement plan business will continue to improve by establishing a clear fiduciary standard and clarity. The retirement plans for employees must give them the best opportunity to successfully retire.

Please comment or call to discuss how this affects your and your organization.

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