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408b2 Disclosures


austin3515
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Perhaps, but do the benefits justify the cost. History is full of examples of good intentions bring about horrible unintended costs. Do you really believe that the costs to comply with what so far appears to be ridiculously complex rules and requirements, are justified? That old saying of don't throw the baby out with the bath water comes to mind. Were the complexities brought about by TRA 1986 worth the destruction of defined benefit plans for small employers? Keep in mind, I ask these questions from the position of not being someone who must provide these notices.

Certainly there are costs to comply - but (and that is a MAJOR "but") we've been talking about this for DECADES, and the industry has been building out infrastructure for DECADES without even considering attempting to include fee information in any meaningful way. In other words, to a great extent, the costs of complying are the fault of the resistence (and short sightedness) of the industry - and the regs became necessary because of the abuses of some that weren't rectified (and in some cases, actively hidden) by other players in the industry. Even now, in the face of imminent disclosure, I've seen a rather alarming amount of churn by those seeking to capture upfront fees before they have to disclose. I have no mercy for those, and for the rest of us, well, we've had years to figure it out, and haven't.

I've been in this industry since 1983 (and know what DEFRA, TEFRA and REA stand for...) and haven't seen much transparency until very recently.

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My first job (1985) was TEFRA, DEFRA and REA restatements. At that time I don't recall self-directed accounts being a material part of the industry. To the contrary, they were a true novelty. It wasn't until sometime after the utter destrcution of the small business defined benefit plan market by "well intentioned regs" did interest in this type of program start. Bad policy is bad policy no matter how you try to dress it up. Seriously, what benefit is really expected of the participant notices? I see only more paper thrown at participants, and an increase in underlying cost. The only end result of this requirement that I see is the move from private plans to government mandated plans. Make the private plan so unattractive by virtue of government imposed costs so that we will have one "choice" left -- the plan provided by the government. Well, we all know that government always provided the best for the public, with no waste or fraud. Sort of like the GSA! This is not to say that many departments and workers of the government aren't worth their weight in gold. Many are! However, a monopoly is a monopoly. Unbridled power is never good. Oh yeah, telling someone not to worry doesn't sound like a nanny state. It sounds like fraud. To catch fraud, should not we get the attention of the entity that can make a difference. Since most participants will not even read the material does it make sense to involve this party? Perhaps if you want to have those uninform people run to the government for salvation. No, I suggest that the Plan Sponsors be used as the engine of change and enforcement. They unlike the average participant can no only make informed decisions, but have the power to fire the crook.

PS: My role is not directly involved with participant notices. There is no solution for me to figure out. I just hate seeing an overreaching government once again overstep and destroy a valuable program.

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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Well, one outcome might be participant complaints about high fees. Some platforms might have what will appear to be high fees. Whether they truly are high or not will of course depend, but if you see expense ratios north of 2% I think that will give participants a legitimate gripe. So perhaps for the outliers it will have some positive impact.

Austin Powers, CPA, QPA, ERPA

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So, if we switch to an annual contract and will not receive $1,000 in indirect compensation during the year for any of our clients, the only clients that we would need to comply with the disclosure requirements would be those that would pay $1,000 or more of our admin fees from the plan's forfeiture account that year?

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On all direct billings to clients (who are invoiced at least once a year) a statement such as this has always been disclosed: "Compensation disclosure: Our TPA firm receives compensation from XYZ Mutual Fund Company to provide administrative services for your plan. For the quarter ended April 30, 2012 this amount was $ XXX.XX". I suppose this does not meet the 408b2 disclosure requirement??

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The ASPPA Journal's Winter 2011 Edition included an article "Impact of 408(b)(2) Regulations on TPAs" that I found very helpful. One suggestion was to send a disclosure to all clients. Several reasons were cited, but one I found very compelling is what if a Plan that was expect to not have reportable income for a year actually does, you are looking at a prohibited transaction. Provided that you can develop a simple mailing that meets the disclosure rules, and generation of that mailing can be done economically, perhaps "better safe than sorry" makes sense. To Beltane, my research would conclude that no it does not. Sorry.

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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The ASPPA Journal's Winter 2011 Edition included an article "Impact of 408(b)(2) Regulations on TPAs" that I found very helpful. One suggestion was to send a disclosure to all clients. Several reasons were cited, but one I found very compelling is what if a Plan that was expect to not have reportable income for a year actually does, you are looking at a prohibited transaction. Provided that you can develop a simple mailing that meets the disclosure rules, and generation of that mailing can be done economically, perhaps "better safe than sorry" makes sense. To Beltane, my research would conclude that no it does not. Sorry.

Our fees just went up! (didn't think so, thanks.)

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UR welcome. Perhaps this annual mailing creates a good time to review the fees charges each client. Is an increase merited given the need to send 8 data requests to get the data for 2011? By the way, the fact that information was sent piecemeal and the census was provided as a hardcopy spreadsheet (would not send as Excel File for some unexplained reason) that was not sorted, and used 6 point font for 375 people... Well, there you have it! A bright side to everything! My Mom did tell me that you can find a postive feature if you look hard enough! :lol:

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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UR welcome. Perhaps this annual mailing creates a good time to review the fees charges each client.

Remember that 408(b)(2) isn't an annual mailing. Unless something changes for a client (and we know it will), no further disclosures are required.

Now we might change our business model to do this annually, but I don't think the requirement is there.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070
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My position is to assume the worst case. We use a service contract that is automatically renewed each year. It could be interpreted that the annual renewal requires the mailing. While I assume that almost no one will read the mailing, it may have a value; especially if I male it an email that has almost no actual cost.

Don't get me wrong, I would rather not have this as another issue to address. Unfortuantely, it is here so might as well make the best of it to solidify client relations. That is done with content -- provide something positive.

Good luck.

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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  • 3 weeks later...

New question but closely related...is anyone else getting, and looking at, 408(b)(2) disclosures from brokerage firms? What do you think?

For commission schedules, Merrill* just references an SEC website. If the info is there, I sure as heck couldn't find it. Scottrade references their own website for fees. Our discussion here says these are inadequate, yet I'm sure 7 layers of lawyers have reviewed their stuff. I'm not sure yet how much I will get involved but considering that sponsors are supposed to make sure they get this stuff, and if not, rat out the providers to the DOL and consider terminating their services, I am thinking we have to at least say something.

*Amusing side note...if you're wondering why I have this at all, it's because the client has self-directed brokerage accounts, and I wrote to the broker about the participant fee disclosure problems arising from FAB 2012-02. And said (from experience) "I know you're going to hear "disclosure" and want to give me your 408(b)(2) fiduciary fee disclosure documentation, but please explain to your compliance people that this is something different." Of course he writes back and proudly says "We're on it; here it is." And of course it is the 408(b)(2) stuff.

Ed Snyder

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Let's ignore the DOL's last minute FAB for a moment. If there are no DIA's, what would go in the 404a5 disclosure besides fees related to participant initiated transactions and a general statement that certain other expenses might be paid from plan assets?

I'm not answering a question with a question, I'm actually asking a question :). Are you referring to any account maintenance fees? The RIA fees?

Austin Powers, CPA, QPA, ERPA

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Let's ignore the DOL's last minute FAB for a moment. If there are no DIA's, what would go in the 404a5 disclosure besides fees related to participant initiated transactions and a general statement that certain other expenses might be paid from plan assets?

I'm not answering a question with a question, I'm actually asking a question smile.gif. Are you referring to any account maintenance fees? The RIA fees?

I don't know how you can ignore the FAB, and my post was about 408(b)(2) anyway, but I'll try to go along...

yeah, I think you'd need some kind of a brokerage fee schedule and general statement. I originally thought that it would be safe to assume that everyone had received such a schedule at some point, but now I think I will spit out the Ft. Wm. notice and tell the client and/or broker to attach a fee schedule (snickering at the idea of that actually happening). I'm still working it out in my head, to be honest.

Ed Snyder

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To not ignore the FAB for "good faith compliance" would mean that Plans wherein the advisor is using the same funds for participants within FBO accounts would need to provide all the fund performance data. There simply does not exist an infrastructure set to accomplish that. It is impossible to comply with.

So for example, let's say the advisor pushes a set of Target Date funds in the brokerage accounts. According to the FAB those funds would be DIA's and require all the disclosures. But there is no mechanism to generate these disclosures, as there is for John Hancock/American Funds.

That's what I was referring to. What are your thoughts on that particular aspect of 404a5?

Austin Powers, CPA, QPA, ERPA

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Well, as I said, I can spit out an annual notice from Ft. Wm. that regurgitates fees that are in the SPD, e.g. for loans. And I can tell them to get a fee schedule from the broker and attach it (chortle), understanding and noting that the other stuff now "required" under the FAB won't be there. I'm not quite sure if I will do that. I am trying to have conversations about it, starting with the brokers (as a courtesy), and am running into a brick wall.

Ed Snyder

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