1. Todd Kading, CFP®, ChFC®, RF™ LeafHouse Financial Advisors
ERISA § 408(b)(2)
New Department of Labor Regulations and Their Impact on Retirement Plan Sponsors
Todd Kading, CFP®, ChFC®, RF™
LeafHouse Financial Advisors
“The use of this seal is not an endorsement by HR Certification Institute of the quality of the program. It means that this program has met HR Certification Institute’s criteria to be pre-approved for recertification credit.”

2. Meet Our Speaker
Todd Kading Managing Director LeafHouse Financial Advisors
Prior to founding LeafHouse, Todd was a partner in Austin-based Weaver, Kading & Associates, one of the “Top 10 Most Dependable Wealth Managers,” according to Texas Monthly Magazine
Served on the Texas State University Planned Giving Committee
One of only six Texas-based Registered Fiduciaries™

3. Plan Sponsor Fee Disclosure Regulation
Service providers will be now required to disclose to plan fiduciaries detailed information about fees earned and services provided
Applies to new and existing contracts and arrangements
Effective July 1, 2012

4. Why is Regulation Needed?
DOL has described the market for retirement plan services as “characterized by acute information asymmetry”
ERISA Advisory Council found lack of transparency makes it “extremely difficult” for plan sponsors to determine absolute costs and flow of fees
GAO stated that hidden fees may mask conflicts of interest
SEC found that pension consultants typically do not disclose conflicts of interest
However, current ERISA rules hold plan sponsors, not vendors, accountable for evaluating cost and quality of plan services
Many defined contribution sponsors do not have a clear understanding of total administration costs
SEC – pension consultants typically do not disclose that they may receive compensation from the same money managers they recommend.
GAO – found that DB plans using consultants with SEC-identified undisclosed conflicts earned returns 130 basis points lower than others.
DC plan sponsors also do not receive clear explanation of normal fund operating expenses, or clear description of revenue sharing arrangements.

5. What is a “Covered Plan?”
ERISA covered defined contribution and defined benefit plans, e.g. 401(k), 403(b), profit-sharing, pensions
Does not apply to IRAs, SEPs or individual retirement annuities
Does not apply to government plans, e.g. 457, state pensions
Applies to welfare plans but they have separate compliance dates yet to be determined

6. Am I a Fiduciary?
Plan Fiduciaries are responsible for “acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them”
“Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan”
Examples of Fiduciaries include parties who:
Are plan sponsors & administrators (always fiduciaries)
Have control or discretion over the plan or its administration
Are members of the benefits or investment committee
Have influence in selecting committee members
Sign the DOL Form 5500

7. What Are My Fiduciary Duties?
Plan Sponsors & Administrators Should Regularly
Submit Requests For Proposal to service providers
Negotiate fees of providers
Draft/revise the Investment Policy Statement
Select & review investment choices
Monitor & coordinate education
Maintain a detailed compliance file
Stay informed on evolving regulations
Must always act in the best interests of the plan and its participants

8. Who is a “Covered Service Provider?”
A party who enters into an arrangement directly with the plan to receive at least $1,000 in compensation for services such as:
Recordkeeping or brokerage services provider to individual account plan, with one or more investment options
A Third Party Administrator or plan consultant
ERISA Fiduciary or Registered Investment Advisor (RIA)
Anyone on a list of services and receiving indirect compensation
Obligated to provide services to the plan, regardless of whether they have hired an affiliate or subcontractor to provide services on their behalf

9. Main Types of “Covered Service Providers”
Recordkeeper
Administrator
Broker/Advisor

10. Types of “Covered Service Providers” cont.
Recordkeeper
Tracks contributions, amounts, types, etc.
Provides custodial services and statement information
Coordinates deposits from payroll

11. Types of “Covered Service Providers” cont.
Administrator
Helps with daily admin functions
Loans, hardship withdrawals
Top heavy testing
Plan design

12. Types of “Covered Service Providers” cont.
Broker/Advisor
Matches employer with plan providers
Facilitates the sales process
Liaison between provider and sponsor

13. Obligations of a “Covered Service Provider”
Disclose certain information to “responsible plan fiduciary”
Required to disclose on behalf of affiliates and subcontractors providing services on behalf of the covered service provider

14. Form of Disclosure In writing No specific format
Different documents from different sources are allowed but they must contain all information
Note: The DOL has indicated that it may require covered service providers to furnish a summary disclosure statement with a road map describing where to find more details.

15. What Must Be Disclosed?
Specific description of services to be provided
Status as a fiduciary (If yes, what scope?)
Compensation
Direct (generally billed to company/organization)
Indirect (generally deducted from plan assets)
Payments among related parties

16. Compensation Paid Among Related Parties
Compensation set on a transaction basis
commissions, soft dollars, finder’s fees
similar incentive compensation based on business placed or retained
Compensation charged directly against the plan’s investment and reflected in the net value of the investment (e.g. 12b-1 fees)
Identify specific services for which compensation will be received
Identify payer and recipient of compensation, including the status of each as an affiliate or a subcontractor

17. Fund Choice and Fee Transparency
Many plans use retail share classes that simply have one all-encompassing fee. This makes benchmarking difficult and negotiation impossible.
XYZ Large Cap Fund A
Sub-Transfer Agent Fees
Fund Management
Recordkeeping
Administration
Brokerage
12b-1 Fees
12b-1 Fees
XYZ Large Cap Fund
Institutional
Recordkeeping
Admin
Brokerage
Fund Management
Institutionally priced shares make fee disclosure easier and allow plan sponsors to negotiate lower costs.

18. Timing of Disclosure Initial disclosure
Before the contract or arrangement is entered into
For changes to information in initial disclosure, timing is variable but generally must be:
As soon as practicable
No later than 60 days

19. Reasonableness
After obtaining all fee data, fiduciaries must determine whether or not fees are “reasonable”
The best way to do this is to benchmark your plan to others of similar size and features
A regular Request For Proposal process can continually assure that fees are in line with the marketplace

20. Prohibited Transactions
ERISA prohibits certain transactions between a plan and third parties who may be “parties-in-interest”
Can result in both DOL fines and IRS taxes and penalties
Fiduciaries can be liable for making the plan whole
Common situations when a plan sponsor may be engaging in a prohibited transaction:
Discounts in payroll services in exchange for plan business
Utilizing service providers who may be customers
Using a relative or close friend as a service provider

21. Department of Labor Enforcement
The Department of Labor enforces the fiduciary duty provisions of ERISA
Focus is on the process used by fiduciaries, not necessarily the ultimate decision made
Fiduciaries should
Be aware of their roles
Meet regularly
Document meetings (i.e. dates, agendas)
The DOL has been proactive in enforcing ERISA fiduciary duty rules

22. Headlines 401(k) Pays Retail Court Rules 401(k) Plan May Have Holes
employees suing Fidelity over 401(k) fees
Settles 401(k) Fee Lawsuit
agrees to pay $37.5 million to settle lawsuit over employee 401(k)
401(k) Excess Fee Suit Plaintiffs Allowed to Add Charges
Settles 401(k) Fee Case for $18.5M

23. 404 (a)(5) Disclosure to Participants
Fees must be disclosed to participants in hard dollar figures on a per-account basis
Will be the first time that participants find out how much they are paying every quarter
Compliance date 60 days after July 1st

24. Opportunities Created
Gives the current Plan Sponsor and all Fiduciaries the impetus to fully assess the reasonableness of costs and benefits provided by all vendors
Reinforces the fiduciary responsibility standard to Plan Sponsors and other decision makers such as:
Benefits committees
Executive committees
Human resource managers
HR and benefits administrators
CFOs

25. What is a Third Party Fiduciary?
Performs RFP of service providers
Negotiates fees of providers
Drafts Investment Policy Statement
Picks investment choices
Conducts & coordinates education
Continually stays abreast of evolving regulations
Must always act in the best interests of the plan and its participants
Todd

26. Brokers vs. Fiduciaries
Third Party Fiduciary
Broker
Who do they work for?
Plan participants
Broker-Dealer
How do they make money?
Delineated fee
Commissions, finders fees, 12b-1 & Sub-TA fees, sales incentive trips
Who regulates them?
Government (SEC, State Securities Board)
Self regulatory agencies (FINRA, SIPC)
Who can they work with?
Whole Universe
Only pay-to-play providers
What standard are they
held to?
Sole best interest of client
Suitability

27. Who’s on your side?

28. What LeafHouse Offers At no cost LeafHouse Financial will:
Perform an RFP by collecting bids from numerous service providers
Calculate your total plan costs, including hidden fees
Evaluate the quality of your plan structure and design
This can be accomplished by you with only a single
Hiring a third party fiduciary can:
Lower your costs
Increase the level of service you receive
Provide fiduciary protection from DOL audits & lawsuits
Decrease your workload
Todd

29. Don’t be that guy.

30. You may contact Todd Kading directly at:
Questions?
You may contact Todd Kading directly at:
(512)

31. Valuable Resources LeafHouse Financial Fiduciary Center
Department of Labor Interim Regulation Fact Sheet
Department of Labor Fiduciary Handbook
DOL: A Look at 401(k) Plan Fees