Presenting a live 110 ‐ minute webinar with interactive Q&A New ERISA 408(b)(2) Regulations Mastering Detailed Requirements for Service Provider Fee Disclosures WEDNESDAY, JANUARY 26, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Susan Serota Partner Pillsbury Winthrop Shaw Pittman New York Susan Serota, Partner, Pillsbury Winthrop Shaw Pittman , New York Marianne Yudes, Attorney, Morgan Lewis , Philadelphia Sarah Lowe, Partner, Kilpatrick Townsend , Atlanta C. Todd Lacey, President, The (k)larity Group , Athens, Ga. C. Todd Lacey, President, The (k)larity Group , Athens, Ga. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .
Continuing Education Credits FOR LIVE EVENT ONLY Attendees must listen to the audio over the telephone . Attendees can still view the presentation slides online but there is no online audio for this program. Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 . at 1 800 926 7926 ext. 10 .
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N New ERISA 408(b)(2) Regulations ERISA 8(b)( ) R l ti Webinar Jan. 26, 2011 Sarah Lowe, Kilpatrick Townsend Marianne Yudes, Morgan Lewis slowe@kilpatricktownsend.com myudes@morganlewis.com Susan Serota, Pillsbury Winthrop Shaw Pittman C. Todd Lacey, The (k)Larity Group susan.serota@pillsburylaw.com todd@theklaritygroup.com
Today’s Program 408(b)(2) Background Slide 6 – Slide 11 [S arah Lowe] Interim Final Regulations Slide 12 – Slide 34 [Marianne Y des and S [Marianne Y udes and S arah Lo e] arah Lowe] Preparing For Your Next Schedule C Slide 35 – Slide 43 [Marianne Y udes] Preparing For Fee-Disclosure Rules: Slide 44 Slide 51 Slide 44 – Slide 51 Plan Sponsors And Fiduciaries [S usan S erot a] Preparatory Steps For Plan Sponsors Slide 52 – Slide 56 [C Todd Lacey] [C. Todd Lacey] Impact On Broker-Advisor Sector Slide 57 – Slide 58 [C. Todd Lacey]
Sarah Lowe, Kilpatrick Townsend 408(B)(2) BACKGROUND 408(B)(2) BACKGROUND
B Background: Rationale For 408(b)(2) k d R i l F 8(b)( ) ERISA Sect. 406(a)(1)(c) prohibits the furnishing of goods, services or ERISA Sect 406(a)(1)(c) prohibits the “furnishing of goods services or • • facilities between a plan and a party in interest.” However even at its inception ERISA provided a statutory exemption However, even at its inception, ERISA provided a statutory exemption • to this prohibition if: ― The service arrangement is reasonable, ― The services are necessary for the establishment and operation h f h bl h d of the plan, and ― No more than reasonable compensation is paid for the services. Congress recognized plans would be better served by allowing parties • in interest to provide services and goods to plans, provided that certain safeguards were in place. 7
R Rationale For 408(b)(2), Cont. i l F 8(b)( ) C Until now, there has been little guidance on what constitutes a • “reasonable” contract or arrangement. In 1977, the Department of Labor (DOL) issued a regulation • that provided a reasonable contract be terminable upon reasonably short notice without penalty. bl h t ti ith t lt ― Reasonable termination charges for loss to the service provider are not considered a penalty. Burden has been on the plan fiduciary to determine that the • arrangement falls within the exemption arrangement falls within the exemption. 8
Th P The Perfect Storm f S Shift from defined benefit plans to defined contribution plans p p • ― Risk shifted from corporate sectors to individuals ― Retirement income dependant on investment performance ― Small changes in 401(k) fund fees can have huge effect on nest Small changes in 401(k) fund fees can have huge effect on nest egg over time. Participants were responsible for investing 401(k) appropriately. • Plan fiduciaries (often sponsors) were responsible for designing Pl fid i i ( f ) ibl f d i i • maximum retirement savings. Hidden fees made it difficult to determine how and what service • providers were compensated and to identify conflict of interests that id d d id if fli f i h might affect their performance. ― Revenue-sharing ― “No cost” recordkeeping services 9
Th P The Perfect Storm (Cont.) f S (C ) Rise in fee litigation • ― Against plan fiduciaries ― By plan fiduciaries against service providers y p g p Increased scrutiny by government regulators • ― Department of Labor ― ― Securities and Exchange Commission Securities and Exchange Commission ― Memorandum of understanding (2008) between DOL and SEC to share information on retirement and investments in what they said was a bid to protect the $5 8 trillion in retirement assets of said was a bid to protect the $5.8 trillion in retirement assets of American workers, retirees and their families held in employee benefit plan' “no cost” recordkeeping services. Increased attention from Congress Increased attention from Congress • • 10
The DOL Initiative: A Three ‐ Part Initiative To Increase Transparency Of Fees p y And Expose Conflicts Of Interest Form 5500, Schedule C , • ― In 2007, the DOL finalized changes, effective for 2009 plan year ― Requires increased reporting of fees paid directly or indirectly by large plans large plans ERISA Sect. 408(b)(2) • ― In 2007, the DOL proposed new regulations under ERISA Sect. 408(b)(2) 408(b)(2) ― In July 2010, the interim final regulations under 408(b)(2) were issued, effective July 16,2011. Participant-disclosure regulations issued in 2010 P ti i t di l l ti i d i 2010 • ― Mandate fee disclosures for participant-directed plans ― Applicable for plan years beginning after Nov. 1, 2011 ― Some fee disclosures are required to receive protection under ERISA section 404(c), but compliance is optional. 11
M Marianne Yudes, Morgan Lewis i Y d M L i Sarah Lowe, Kilpatrick Stockton INTERIM FINAL REGULATIONS INTERIM FINAL REGULATIONS
A Agenda For This Section d F Thi S i When are the new rules effective? • Which plans are covered? • Standards for covered service providers Standards for covered service providers • • Which services must be disclosed, and when? • Standards for direct and indirect provider compensation • Bundled service arrangements • Recordkeeping services • Potential non compliance penalties Potential non-compliance penalties • • Other significant terms • 13
Eff Effective Date i D Certain service providers to employee benefit plans will be required • to disclose detailed information to independent plan fiduciaries t di l d t il d i f ti t i d d t l fid i i regarding services, and the direct and indirect compensation they receive in connection with those services. Effective July 16, 2011 (comment period closed 8/30/10) • ― Applies to all covered service contracts or arrangements as of this date date ― For pre-existing contracts or arrangements, the disclosures must be furnished no later than this date. DOL has indicated that it will not issue new guidance until it issues • the final rule expected in April 2011 (maybe); department has said it will be “sensitive” to need for time to adjust to any changes in the will be sensitive to need for time to adjust to any changes in the final rule before the effective date. 14
C Covered Plans d Pl Requirements apply only to ERISA-governed pension plans (DB • and DC), with a separate subsection reserved to deal with d DC) ith t b ti d t d l ith welfare plans in future guidance. Does not apply to IRAs, IRA annuities, SEPs or SIMPLEs • 15
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