Transcript Slide 1

James R. Griffin
Jackson Walker L.L.P.
[email protected] • 214-953-5827
FIDUCIARY REQUIREMENTS FOR
DISCLOSURE IN PARTICIPANT-DIRECTED
INDIVIDUAL ACCOUNT PLANS
September 5, 2008
• Proposed Regulations issued by U.S. Department of
Labor on July 23, 2008
• Written comment period ends September 8, 2008
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• 437,000 participant-directed individual account plans
• 65 million participants
• $2.3 trillion in assets
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DOL’S CONCERN
• Participants are making un-informed decisions in the
investment of their accounts:
 Employers are not providing enough information
 Employees are not considering the information that they receive
• Information related to:
 Account management
 Investment choices
 Fees & expenses
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DOL’S VIEW
• Fiduciary Duty
• Plan fiduciaries must take steps to ensure that
participants and beneficiaries are made aware of their
rights and responsibilities with respect to managing their
individual plan accounts and are provided sufficient
information regarding the plan, including its fees and
expenses, and designated investment alternatives,
including fees and expenses attendant thereto, to make
informed decisions about the management of their
individual accounts.
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• 404(c) is voluntary
• Not all employers are providing the necessary
information.
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GOAL OF NEW PROPOSED
REGULATIONS
• Provide access to basic plan and investment information
• Establish uniform, basic disclosures for participants and
beneficiaries
• Provide investment related information in a form that
encourages and facilitates a comparative review among
investment options
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DOL COMMENT LETTERS
• http://www.dol.gov/ebsa/regs/cmt-feedisclosures.html
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RELATED ACTIVITY
• SEC proposed regulations requiring a summary prospectus with
additional web-based disclosures
• 401(k) fee litigation
• Expanded disclosure on Schedule C to Form 5500 for plan years
beginning in 2009
• Possible Federal legislation
• DOL proposed regulation relating to disclosures by service providers
(December 13, 2007)
• DOL proposed regulation related to investment advice
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GENERAL RULE: 2550.404a-5(a)
• Fiduciaries must take steps to ensure that participants
and beneficiaries, on a regular and periodic basis, are
made aware of their rights and responsibilities with
respect to the investment of assets held in, or
contributed to, their accounts and are provided sufficient
information regarding the plan, including fees and
expenses, and regarding designated investment
alternatives, including fees and expenses attendant
thereto, to make informed decisions with regard to the
management of their individual accounts.
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• Plan-Related Information
• Investment-Related Information
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PLAN RELATED INFORMATION:
2550.404a-5(c)
• General plan information
• Administrative expense information
• Individual expense information
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General Plan Information
2550.404a-5(c)(1)
• On or before the date an individual is eligible to become a
participant or beneficiary, and at least annually thereafter:
 How participants and beneficiaries may give investment instructions
 Any specified limitations on such instructions, including any restrictions
on transfer to or from a designated investment alternative;
 The exercise of voting, tender and similar rights appurtenant to an
investment in a designated investment alternative as well as any
restrictions on such rights;
 The specific designated investment alternatives offered under the plan;
 Any designated investment managers to whom participants and
beneficiaries may give investment directions.
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General Plan Information
2550.404a-5(c)(1)
• Participants and beneficiaries must be furnished a
description of any material changes to the required
information not later than 30 days after the date of
adoption of such changes.
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Administrative Expense Information
2550.404a-5(c)(2)
• On or before the date an individual is eligible to become
a participant or beneficiary, and at least annually
thereafter:
 Participants and beneficiaries must be furnished an explanation
of any fees and expenses for plan administrative services (e.g.,
legal, accounting, recordkeeping) that may be charged against
their accounts and the basis on which such charges will be
allocated to, or affect the balance of, each individual account
(e.g., pro rata, per capita).
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Administrative Expense Information
2550.404a-5(c)(2)
• At least quarterly:
 Participants and beneficiaries must be furnished statements of
the dollar amounts actually charged during the preceding quarter
to the participants' or beneficiaries' accounts for administrative
services, and general descriptions of the services to which the
charges relate.
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Individual Expense Information
2550.404a-5(c)(3)
• On or before the date an individual is eligible to become
a participant or beneficiary, and at least annually
thereafter:
 Expenses that are assessed on an individual-by-individual,
rather than plan-wide, basis.
 Such expenses might be attendant to a qualified domestic
relations order, a participant loan, or investment advice services.
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Individual Expense Information
2550.404a-5(c)(3)
• At least quarterly
 The dollar amount actually charged during the preceding quarter
to the participant's or beneficiary's account for individual
services,
 A description of the services provided to the participant or
beneficiary for such amount (e.g., fees attendant to processing
plan loans).
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INVESTMENT RELATED
INFORMATION:
2550.404a-5(d)
• Information to be provided automatically
• Format
• Information to be provided subsequent to investment
• Information to be provided upon request
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Information to be Provided
Automatically
2550.404a-5(d)(1)
• On or before the date an individual is eligible to become a participant
or beneficiary, and at least annually thereafter:
 Identifying Information
 Performance Data
 Benchmarks
 Fee and Expense Information
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Identifying Information
2550.404a-5(d)(1)(i)
• Name of the designated investment alternative;
• Internet Web site address with supplemental information regarding
the designated investment alternative, including:
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the name of the investment's issuer or provider,
the investment's principal strategies and attendant risks,
the assets comprising the investment's portfolio,
the investment's portfolio turnover,
the investment's performance and
related fees and expenses;
• Type or category of the investment (e.g., money market fund,
balanced (stocks and bonds) fund, large-cap fund);
• Type of management utilized by the investment (e.g., actively
managed, passively managed).
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Performance Data
2550.404a-5(d)(1)(ii)
• For fixed rate investments, both the fixed rate of return
and the term of the investment;
• For other investments, the average annual total return
(percentage) of the investment for the 1-year, 5-year,
and 10-year periods, measured as of the end of the
applicable calendar year;
• A statement that an investment's past performance is not
necessarily an indication of how the investment will
perform in the future.
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Benchmarks
2550.404a-5(d)(1)(iii)
• For designated investment alternatives with respect to
which the return is not fixed, the name and returns of an
appropriate broad-based securities market index over
the 1-year, 5-year, and 10-year periods comparable to
the performance data periods provided under paragraph
(d)(1)(ii) of this section, and which is not administered by
an affiliate of the investment provider, its investment
adviser, or a principal underwriter, unless the index is
widely recognized and used.
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Fee and Expense Information
2550.404a-5(d)(1)(iv)
• For fixed rate investments, the amount and a description of any
shareholder-type fees that may be applicable to a purchase, transfer
or withdrawal of the investment in whole or in part.
• For other investments:
 the amount and a description of each shareholder-type fee (i.e., fees
charged directly against a participant's or beneficiary's investment),
such as sales loads, sales charges, deferred sales charges, redemption
fees, surrender charges, exchange fees, account fees, purchase fees,
and mortality and expense fees;
 the total annual operating expenses of the investment expressed as a
percentage (e.g., expense ratio); and
 a statement indicating that fees and expenses are only one of several
factors that participants and beneficiaries should consider when making
investment decisions.
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Comparative Format
2550.404a-5(d)(2)
• Chart or similar format designed to facilitate a
comparison of information for each designated
investment alternative available under the plan, as well
as:
 a statement indicating the name, address, and telephone
number of the fiduciary (or a person or persons designated by
the fiduciary to act on its behalf) to contact for the provision of
the information required to be provided upon request, and
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 a statement that more current investment-related information
(e.g., fee and expense and performance information) may be
available at the listed Internet Web site addresses.
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Information to be Provided
Subsequent to Investment
2550.404a-5(d)(3)
• Any materials provided to the plan relating to the
exercise of voting, tender and similar rights related to
the investment to the extent that such rights are passed
through to the participant or beneficiary under the terms
of the plan.
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Information to be Provided Upon
Request
2550.404a-5(d)(4)
• Prospectuses, including short form or summary prospectus;
• Financial statements or reports, such as statements of additional
information and shareholder reports, and of any other similar
materials relating to the plan's designated investment alternatives,
to the extent such materials are provided to the plan;
• A statement of the value of a share or unit of each designated
investment alternative as well as the date of the valuation; and
• A list of the assets comprising the portfolio of each designated
investment alternative which constitute plan assets and the value of
each such asset (or the proportion of the investment which it
comprises).
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Method of Disclosure
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Summary Plan Descriptions
Benefit Statements
Model Disclosure
Electronic Disclosure
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Regulatory Impact Analysis
• DOL estimates that the aggregate cost of initial
compliance with the new proposed regulations for all
437,000 plans would be $24,690,000.
• Assumptions:
 ½ hour of lawyer’s time per plan
 In house rate of $113 per hour
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