The New Retirement Plan Fiduciary Environment-Risk Management Strategi

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Presentation To Attorneys At University of Chicago Gleacher Center on August 28, 2012

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THE NEW RETIREMENT PLAN FIDUCIARY ENVIRONMENT Risk Management Strategies for Business Owners Presented By Mike Cavanaugh and Tim Webb Registered Investment Advisors at Know Your Options, Inc. Jerry Kalish President, National Benefit Services, Inc. Special Guest: Attorney Timothy M. McCutcheon General Manager, ftwilliam.com Wolters Kluwer Law & Business: 

THE NEW RETIREMENT PLAN FIDUCIARY ENVIRONMENT Risk Management Strategies for Business Owners Presented By Mike Cavanaugh and Tim Webb Registered Investment Advisors at Know Your Options, Inc. Jerry Kalish President, National Benefit Services, Inc . Special Guest: Attorney Timothy M. McCutcheon General Manager, ftwilliam.com Wolters Kluwer Law & Business

PowerPoint Presentation: 

IMPORTANT NOTE: This presentation is for general discussion purposes only and should not be considered tax or legal advice. Plan sponsors and other fiduciaries should discuss the application of ERISA law and regulations to their specific situation with their counsel.

Unbundled Service Model: 

Unbundled Service Model Employer National Benefit Services, Inc. Tim Webb & Mike Cavanaugh Registered Investment Advisors Investment Provider

PowerPoint Presentation: 

ERISA Fiduciary Responsibility - A Primer Timothy M. McCutcheon General Manager, ftwilliam.com Wolters Kluwer Law & Business 700 W. Virginia St., Suite 305 Milwaukee, WI 53204 414.226.2442 timothy.mccutcheon@wolterskluwer.com

Fiduciary Responsibility: 

4 Fiduciary Responsibility Written document and trust “Named Fiduciary” Generally the Plan Administrator May have additional fiduciaries (named or actual) Trustee Investment Fiduciary Investment Manager Trustee ‘Prudent Man’ standard Prohibited Transactions

‘Prudent Man’ Standard: 

5 ‘Prudent Man’ Standard ERISA section 404(a)(1)(A) & (B): A fiduciary shall discharge his duties with respect to a plan: (a) for the exclusive purpose of : (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan; (b) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims .

404a-5 Fee Disclosure Regulations: 

6 404a-5 Fee Disclosure Regulations Applies the ‘Prudent Man’ standard to individual account plans Part of ongoing DOL initiative to try to curb perceived high administrative/investment expenses First tried with enhanced Form 5500 fee disclosure Shine light on expenses fiduciaries/participants

Prohibited Transactions: 

7 Prohibited Transactions Prohibits certain transactions between a plan a ‘party in interest’ (corresponding Code language) ‘party in interest ’ is statutorily defined Strict liability for penalties (Code) Party in interest more broad than definition of fiduciary Numerous statutory and other exceptions ERISA section 408(b)(2) Contracting or making reasonable arrangements with a party in interest for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefore.

408b-2 Disclosure Regulations: 

8 408b-2 Disclosure Regulations Covered Plan Generally any non IRA-based ERISA Plan Covered Service provider – services: $1,000 or more with the plan As fiduciary or RIA Indirect compensation for other services (TPA, legal etc)

PowerPoint Presentation: 

Timothy M. McCutcheon General Manager, ftwilliam.com Wolters Kluwer Law & Business 700 W. Virginia St., Suite 305 Milwaukee, WI 53204 414.226.2442 timothy.mccutcheon@wolterskluwer.com

401(k) Fee Disclosure Inside The Black Box Presented by Jerry Kalish President, National Benefit Services, Inc.: 

401(k) Fee Disclosure Inside The Black Box Presented by Jerry Kalish President, National Benefit Services, Inc. Picture Credit: Mike Romano, Romano Creative

What Drives Retirement Readiness: 

What Drives Retirement Readiness Plan Activity Time Spent By Fiduciaries Relative Importance Fund Selection Most Least Asset Allocation More More Increasing Saving Rate Least Most

Inside The Black Box: 

Inside The Black Box The Beginning Service Provider Fee Disclosure: ERISA Section 408(b)(2) Employee Fee Disclosure: ERISA Section 404(a)(5)

The Beginnings: 

The Beginnings 2006: Beginning of class action law suits 2006: General Accounting Office 401(k) Report commissioned by Rep. George Miller (D-Calif.) 2007 : Rep. Miller chairs Hearings on 401(k) Fees 2008: Supreme Court decides LaRue vs. DeWolff, Boberg & Associates, Inc. 2010: Fee disclosure passed the House as part the American Jobs and Closing Tax Loopholes Act but eliminated by Senate 2012: Final Department of Labor regulations

The Relevant Dates: 

The Relevant Dates Applicable Dates Calendar Year Plans Non-Calendar Year Plans Effective Date for Participant Disclosures January 1, 2012 January 1, 2012 Effective Date for Service Provider Disclosures July 1, 2012 July 1, 2012 Deadline for First Annua l Participant Disclosures August 30, 2012 August 30, 2012, or if later, 60 days after the first day of the plan year beginning after November 1, 2011 Deadline for First Quarterly Participant Disclosures November 14, 2012 45 days after the end of the third quarter in which disclosure was required

PART I Service Provider Fee Disclosures ERISA Section 408(b)(2) : 

PART I Service Provider Fee Disclosures ERISA Section 408(b)(2) The Old Provides exemption for “reasonable” contracts and arrangements for plan services that would otherwise be prohibited transactions The New Contract or arrangement with “covered service provider” not reasonable unless required disclosures furnished Fiduciary breach and possibly prohibited transaction if plan sponsor fails to take actions prescribed by regulation July 1, 2012 deadline

Service Provider Fee Disclosures “Who Is A Covered Service Provider”: 

Service Provider Fee Disclosures “Who Is A Covered Service Provider” Services provided as a fiduciary Recordkeeping and brokerage services Service provider receives “indirect compensation”

Service Provider Fee Disclosures What The Disclosures Must Include: 

Service Provider Fee Disclosures What The Disclosures Must Include Description of the services provided Information regarding the source of the covered service provider’s compensation, i.e., from the plan, or indirectly from a source other than the plan or employer Whether the covered service provider is an ERISA fiduciary and/or an RIA for the plan

PART II Employee Fee Disclosures: Plan Information Required Annually: 

PART II Employee Fee Disclosures: Plan Information Required Annually General information about how the plan works Investments and fees How to give investment instructions Current list of plan’s options Description of any brokerage window Upcoming administrative expenses not related to plan expenses that may be allocated Individual expenses that may be charged to individual participant accounts Quarterly : administrative and individual expenses actually allocated in the preceding quarter to participant accounts including amounts attributable to revenue sharing

Employee Fee Disclosures Investment Information Required Quarterly: 

Employee Fee Disclosures Investment Information Required Quarterly Historical investment information over a 1-, 5-, and 10-year time period for investments that do not provide a fixed return Fund benchmark information Investment fee and expense information for each fund expressed as a percentage of assets for each $1,000 invested for each investments that do not provide a fixed return, and any restrictions on participant’s ability to buy or withdraw from fund Internet address where participants can get current fee information Glossary of financial and other terms Annually : Comparative chart of investment information about designated investment alternatives (DIAs)

Service Provider Fee Disclosures Now What? Presented by Tim Webb Registered Investment Advisor: 

Service Provider Fee Disclosures Now What? Presented by Tim Webb Registered Investment Advisor

Now What?: 

Now What? Nothing was sent or it was inadequate “Something” was sent Is the arrangement “ reasonable”?

Nothing Was Sent or Disclosure Was Inadequate: 

Nothing Was Sent or Disclosure Was Inadequate Request in writing that service provider fully comply as soon as possible or explain why it believes it is not required to do so Notify the Department of Labor within earlier of 90 days of the written request or, if earlier, within 30 days of the date the service provider communicates its refusal to comply Model Fee Disclosure Failure Notice New online submission process Determine whether to terminate the arrangement

“Something” Was Sent: 

“Something” Was Sent Have all disclosures from service providers been received? Are the disclosures complete? * Is the arrangement “reasonable”? Should the arrangement be continued, modified, or terminated? Has the process been documented? * If disclosures are incomplete, same procedure as if no disclosures were provided.

Is The Arrangement “Reasonable”? More Than Just A Number: 

Is The Arrangement “Reasonable”? More Than Just A Number What does the employer want to accomplish? What services are being provided? What is the value being received? What is the assessed value, i.e., benchmarking?

PowerPoint Presentation: 

IMPORTANT NOTE: This presentation is for general discussion purposes only and should not be considered tax or legal advice. Plan sponsors and other fiduciaries should discuss the application of ERISA law and regulations to their specific situation with their counsel.

For Further Information Contact : 

For Further Information Contact Tim Webb – Know Your Options Inc. 773.904.8787 twebb@brokersxpress.com Mike Cavanaugh – Know Your Options, Inc. 312.583.9621 mikec@knowyouroptionsinc.com Jerry Kalish – National Benefit Services, Inc. 312-419-9080 jerry@nationalbenefit.com www.retirementplanblog.com