Compliance February 2, 2012

DoL Issues Final Rule on Fee Disclosure

February 2, 2012 (PLANSPONSOR.com) – The U.S. Department of Labor’s (DoL) Employee Benefits Security Administration (EBSA) issued a final rule on 408(b)(2) fee disclosure Thursday. 
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The DoL also announced a three-month extension to the rule’s effective date, meaning service providers must be in compliance by July 1, 2012, for new and existing contracts or arrangements between Employee Retirement Income Security Act (ERISA)-covered plans and service providers.

“As President Obama has said, we’re at a make or break moment for the middle class and those trying to reach it,” said Secretary of Labor Hilda L. Solis. 

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“What’s at stake is the American value that hard work pays off. The common-sense rule that we are finalizing today will shed light on the true costs of 401(k) accounts and ultimately reward those working hard and saving for retirement,” added Solis. 

“This rule, and its companion participant-level fee disclosure rule, will greatly increase the level of transparency in retirement plans. When businesses that sponsor retirement plans, and the workers who participate in those plans, get better information on associated fees and expenses, they’ll be able to shop around and make informed decisions that will lead to cost savings and a larger nest egg at retirement.”

The DoL’s rule requires service providers to furnish information that will enable pension plan fiduciaries to determine both the reasonableness of compensation paid to the service providers and any conflicts of interest that may impact a service provider’s performance under a service contract or arrangement. It requires disclosures of direct and indirect compensation certain service providers receive in connection with the services they provide.

 

The rule applies to those service providers that expect to receive $1,000 or more in compensation and provide certain fiduciary or registered investment advisory services, make available plan investment options in connection with brokerage or recordkeeping services, or otherwise receive indirect compensation for providing certain services to a plan.

The DoL also announced that in the near future it intends to publish for public comment a separate proposal that would require service providers, in addition to providing the required fee and investment expense information, to furnish a guide or similar tool to assist plan fiduciaries in identifying and locating the potentially complex information that must be disclosed and which may be located in multiple documents.

The DoL said the three-month extension of the effective date of the final rule was provided to allow service providers sufficient time to prepare for compliance. Service providers not in compliance as of July 1, 2012 will be in violation of ERISA’s prohibited transaction rules and subject to penalties under the Internal Revenue Code. (See DoL Extends Applicability Dates for Fee Disclosure Rules).

The effective date of the final rule works in conjunction with the compliance date of the department’s participant-level disclosure regulation (29 CFR § 2550.404a-5), which requires plan administrators to give workers who direct their retirement accounts in 401(k)-type plans easy-to-understand information to comparison shop among the plan investment options available to them.  Due to the extension of the effective date of the final rule announced Thursday, plan administrators for calendar year plans now must make the initial annual disclosure of “plan-level” and “investment-level” information (including associated fees and expenses) to participants no later than August 30, 2012, and the first quarterly statement (for fees incurred July through September) must be furnished no later than November 14, 2012.

Plan sponsors and service providers with questions about the final rule can contact EBSA's Office of Regulations and Interpretations at 202-693-8500. 

A fact sheet on this regulation is also available on EBSA's website at http://www.dol.gov/ebsa/newsroom. 

Products February 2, 2012

Lincoln Financial Provides Predictions on Retirement Industry

February 2, 2012 (PLANSPONSOR.com) – Fee disclosure regulations, in-plan guarantees, target-date strategies and retirement planning optimism will significantly impact the retirement plans industry in 2012, predicts Chuck Cornelio, president of Lincoln Financial's Retirement Plan Services. 
 
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“As we enter 2012, we see greater interest in employer-sponsored retirement plan savings and investment options that offset volatility, include guarantees and offer flexibility,” said Cornelio. “In this new era of fee disclosure, plan providers are increasing their emphasis on demonstrating the value of their services. We are also finding that our optimistic approach to motivating savers to take actions that lead to better outcomes is appealing to plan sponsors and participants alike. People are tired of being scared or berated into saving and many are simply overwhelmed by the thought of even getting started.”

Fee Disclosure  

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According to Cornelio, fee disclosure regulation continues to be a topic at the forefront for the industry. Retirement plan providers and advisers need to clearly articulate the value they bring to participants and plan sponsors through proof points and quantitative measurements. By increasing transparency, fee disclosure provides another way for providers to help clients meet their fiduciary responsibilities.

“We believe that transparency is a good thing,” said Cornelio. “It’s one of the best ways to demystify the real and perceived costs associated with your plan. Education through disclosure can also help empower participants with additional information to motivate them to make better investment and saving decisions that will enhance retirement readiness.”

In-Plan Guarantees  

In-plan guarantees provide a compelling reason for consumers to consider options available in their employer-sponsored plans that offer financial protection coupled with growth potential. The combination of a prolonged economic crisis, market volatility, low–interest rate environment and increased dependency on defined contribution plans to provide retirement security has fostered an environment where guaranteed income, downside market protection and enhanced retirement readiness tools are increasingly essential offerings for retirement plan providers. 

“Insurance companies are uniquely proficient in managing risk,” said Cornelio, “and are now leveraging their expertise with these types of guarantees and turning them into viable and desirable solutions in the retirement plan landscape.” 

Guaranteed withdrawal benefits, lifetime income options and principal protection strategies will command more attention as sponsors and participants will look to these solutions to meet retirement planning goals.

 Target-Date Funds 

Because target-date funds are likely to remain the preferred Qualified Default Investment Alternative (QDIA) for many plan sponsors in 2012, investment managers and plan providers will likely step up their efforts to educate plan sponsors and participants about the funds’ features and benefits. 

“To realize the full value of target-date funds, the industry needs to acknowledge that the ‘set it and forget it’ approach currently associated with target-date funds needs to be supplemented with ongoing efforts to make sure asset allocations adapt to market volatility and provide the right level of diversification,” said Cornelio. “People are also beginning to use target-date funds for more than just getting ‘to’ retirement, but also to help them get ‘through’ retirement. Changing goals often require changing your investment strategy to match.”

Target-date funds will be one of the fastest growing asset classes in the retirement plans space, particularly if the industry champions their evolution.

Optimism in Retirement Planning 

Providers and financial advisers have the opportunity to set themselves apart by being proactive and positive through retirement planning communication and education for their clients. Offering clients support—either in-person, on the phone or online—that is designed to meet their needs and provide an optimistic view of the future can foster healthier retirement outcomes.

“Providers who help today’s savers view retirement planning in a more positive light are more likely to empower participants to reach their goals,” said Cornelio.  

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