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408b2 Disclosures


austin3515
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" if they should continue to retain you. "

My clients LOVE me :)

Famous (last) words..... I know some people who would "love" to know who your clients are! :rolleyes:

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Well. the American Funds service agreement that I know is maybe 8 pages. JH's is, I suppose, longer, as they are more expensive and try to create a cloud of confusion over the whole thing.

Anyway, I decided to take it head-on and wrote a letter that I had them sign, if I or my firm was receiving any indirect compensation.

Back to your question: if your clients signed something that included a description of what you are receiving from an investment provider, then I suppose that is adequate.

Ed Snyder

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What I struggled with, Bird, is the fact that I as a service provider am required to tell my clients what I'm getting paid (at least as I read the rules).

So what I've decided on is to provide a short 30,000 foot explanation of what we receive and reference them back to the services contract with John Hancock. So my JH disclosure for example, would state "we receive 5bps of plan assets per year." [i know there is another installation piece which I'll also mention]. I think that is enough disclosure to tell them what I am getting paid.

Does anyone disagree that this strategy would not meet the spirit of the disclosure? I should think the DOL would actually like this straightforward approach cosndiering their contemplation of a summary requirement, whicn in my hear tI believe is due to the 6 page disclosures which might dilute the crux of the disclosure.

Austin Powers, CPA, QPA, ERPA

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I think that's what I'm saying/doing too. I thought you meant you were going to say "The DOL says we have to disclose compensation received from your plan - it's in the contract; go look at it if you want to."

Ed Snyder

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Well yes, that is exactly what I originally hoped I culd say, but I'm just not sure that that = me disclosing my compensation. Are you suggesting that a complete and total cross-reference might actually work?

I guess it might just be too gray to hang my hat on.

Austin Powers, CPA, QPA, ERPA

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Bird, this language is straight from the regs. What is the basis for saying that we can even cross-reference as you suggest? It seems to me that as a covered service provider I need to be the one providing the disclosure. I really really like your answer, but can you point to the basis for the conclusion please?

(iv) Initial disclosure requirements. The covered service provider must disclose the following information to a responsible plan fiduciary, in writing

(2) Indirect compensation. A description of all indirect compensation (as defined in paragraph ©(1)(viii)(B)(2) of this section) that the covered service provider, an affiliate, or a subcontractor reasonably expects to receive in connection with the services described pursuant to paragraph ©(1)(iv)(A) of this section; including identification of the services for which the indirect compensation will be received and identification of the payer of the indirect compensation.

Austin Powers, CPA, QPA, ERPA

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You've got me confused as to what you are thinking and even what I'm thinking, but I guess I would summarize my position as: I chose to take it head-on and write a letter clearly, I think, disclosing my or my firm's compensation. But if you had a contract that already covered everything, albeit taking many pages to do it, that should be adequate, I'd think. I imagine the bigger the firm, the more lawyered-up they'll be, and their disclosures will look more and more like a contract anyway (and less and less clear).

Ed Snyder

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Bird, I think we are saying almost the exact same thing. The improtant thing I guess is that we're making disclosures.

I came across something else that I was totally shocked by. Am I correct that if we get NO indirect compensation as the TPA, then we have NO disclosure requirements, even if some of our fees are paid from plan assets? Take for example an FBO account plan.

Austin Powers, CPA, QPA, ERPA

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Bird, I think we are saying almost the exact same thing. The improtant thing I guess is that we're making disclosures.

I came across something else that I was totally shocked by. Am I correct that if we get NO indirect compensation as the TPA, then we have NO disclosure requirements, even if some of our fees are paid from plan assets? Take for example an FBO account plan.

You have to disclose if you are getting direct or indirect compensation, assuming you'll meet the minimum requirement ($1,000?). So if they are paying your fees from the trust that has to be disclosed.

If the client is paying 100% of the fees outside plan assets (or from forfeitures - which I thought was an odd exception), then you don't need a disclosure.

If the client "can" pay expenses from the trust but doesn't do so, then you don't need to disclose as the DOL said that would be confusing but if they later decided to actuially charge then a disclosure would be required at that time.

That's my uderstanding but if I'm wrong I'd like to know.

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I think you are correct. Plan sponsors already know how much they pay you themselves and from the plan. The disclosures are to let us know your other sources of revenue related to the Plan.

Now, if you don't get any indirect and don't have to send a disclosure, let me suggest that you send a form letter to that effect to the plan sponsors. It will give the sponsor a document showing that you know what's going on, and it could save you some telephone time trying to explain why you didn't send the sponsor a fee disclosure. Just a thought.

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Just curious, but does anyone else find these disclosures as "regulations gone wild", especially, the 404(a) participant notices. Since this thread is directed at the "b" notices, let me first say something there.

As stated earlier in the thread, clients do (or should) know what we as TPAs are being paid. Sending them a notice on this effect is not likely to inform a client on what I am being paid. Why? Do your clients carefully read everything you send them. I find that most clients have no desire to get anything else from me that they need to read. They just want me to take care of what needs to be done with the least amount of effort on their part. My sending this disclosure is not going to make clients think about whether my fees are competitive. Instead, this will be something they will simply "round file".

As a TPA who rarely accepts revenue sharing (I often have my share given to the broker), my clients universally know what I am being paid. Why? They write the check, that's how. I also have every client sign a service agreement on "day one" which clear staes fees and services.

The "a" notices are just nuts. Getting the typical participant to read an election form is a feat! Does anyone really think participants are going to read these detailed notices, reviewing the comparative charts, reaching informed choices? Who believes in the tooth fairy?

Perhaps fees should be more transparent. I can see that, but these notices to participants will not have that effect. I see them as simply something that will intimidate the average participant, and most definitely raise the cost of servicing plans. Is that what is desired? By most observations, TRA 1986 hurt defined benefit plans. Those rules made sponsorship by a small firm to become too costly in many cases. Is that the intent of the 404(a) participant notices? Make plans with self directed accounts disappear?

Well, that was my annual venting. Thanks for listening. :P

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

ERPA, QPA, QKA

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We decided to disclose on all plans. In the long run, safer and, arguably, easier than explaining to clients why you DON'T have to disclose.

The issue of whether a TPA falls under the category 2 "platform recordkeeper" for example, can sometimes be murky at best. And I wouldn't count on the DOL giving the benefit of the doubt.

Additionally, I think it could be a competitive issue. If you aren't doing the disclosure, even if it is not required, for an ERISA plan potentially subject to disclosure, then you open the door for someone to go in and scare your client, "Your current TPA isn't disclosing? That's terrible. You should move your administration to us - look at the package we prepare. We believe in full disclosure and not hiding anything." etc., etc...

However, believe me, I'm not faulting anyone who doesn't do a disclosure if they are not required to!

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Just curious, but does anyone else find these disclosures as "regulations gone wild", especially, the 404(a) participant notices. Since this thread is directed at the "b" notices, let me first say something there.

As stated earlier in the thread, clients do (or should) know what we as TPAs are being paid. Sending them a notice on this effect is not likely to inform a client on what I am being paid. Why? Do your clients carefully read everything you send them. I find that most clients have no desire to get anything else from me that they need to read. They just want me to take care of what needs to be done with the least amount of effort on their part. My sending this disclosure is not going to make clients think about whether my fees are competitive. Instead, this will be something they will simply "round file".

As a TPA who rarely accepts revenue sharing (I often have my share given to the broker), my clients universally know what I am being paid. Why? They write the check, that's how. I also have every client sign a service agreement on "day one" which clear staes fees and services.

The "a" notices are just nuts. Getting the typical participant to read an election form is a feat! Does anyone really think participants are going to read these detailed notices, reviewing the comparative charts, reaching informed choices? Who believes in the tooth fairy?

Perhaps fees should be more transparent. I can see that, but these notices to participants will not have that effect. I see them as simply something that will intimidate the average participant, and most definitely raise the cost of servicing plans. Is that what is desired? By most observations, TRA 1986 hurt defined benefit plans. Those rules made sponsorship by a small firm to become too costly in many cases. Is that the intent of the 404(a) participant notices? Make plans with self directed accounts disappear?

Well, that was my annual venting. Thanks for listening. :P

Regulations gone wild? Maybe. Maybe not. I'm always amazed at how much compensation "some" receive, and how little they do for it (anual meetings and a few one on ones with "some" (read, VIP) participants), for 50bps. Keep in mind, though, if your clients write you a check from corporate coffers, you have no obligation to disclose anything. These regs are ONLY about comp paid BY THE PLAN.

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"The issue of whether a TPA falls under the category 2 "platform recordkeeper" for example, can sometimes be murky at best. And I wouldn't count on the DOL giving the benefit of the doubt."

Where would it get murky? FBO Accounts? Except for the DOL's recent shoot-from-the-hip commentary regarding FBO's including DIA's when many participants use the same funds, I thought it was pretty well agreed upon that FBO accounts by definition do not have DIA's (and therefore could not be recordkeeping).

I was thinking of sending the disclosures to everyone for exactly the reason you mentioned. EVeryone and the mother is emailing all their clients to tell them to make sure they get their disclosures. Just not sure if we're going to do it before 7/1, but I think we probably will eventually. Might include it as an attachment to our year-end letter or something.

Austin Powers, CPA, QPA, ERPA

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