Peter Gulia Posted October 21, 2015 Share Posted October 21, 2015 For an individual-account retirement plan, an SEC-registered investment adviser is provided to all participants, without any incremental charge. (The employer/administrator approves an arrangement in which the recordkeeper pays the investment adviser. The recordkeeper gets its money as indirect compensation paid by investment funds' distributors, transfer agents, and managers. Assume everyone involved has done thorough 408b-2 disclosures.) The investment adviser's fee thus is not a charge against a participant's account that is not reflected in the total annual operating expenses of an investment fund. What, if anything, should a participant-level 404a-5 disclosure say about the arrangement for the investment adviser's services? Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com Link to comment Share on other sites More sharing options...
Bird Posted October 21, 2015 Share Posted October 21, 2015 What, if anything, should a participant-level 404a-5 disclosure say about the arrangement for the investment adviser's services? Nothing. 404a-5 is about telling participants what they are paying (covered in the fund expenses). 408b-2 is about telling fiduciaries what others are earning. Ed Snyder Link to comment Share on other sites More sharing options...
Peter Gulia Posted October 21, 2015 Author Share Posted October 21, 2015 Thank you, Bird. Any different views? Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com Link to comment Share on other sites More sharing options...
QDROphile Posted October 21, 2015 Share Posted October 21, 2015 There should be some discussion of the fiduciary issues -- the plan administrator (fiduciary) has engaged (a fiduciary act) an investment adviser (a fiduciary) available to the participants. Who has what responsibility/liability; what are the consequences of participant use of the investment adviser; what are the options of the participants with respect to investing. Without appropriate discussion and cautions, the plan administrator has effectively, as a fiduciary, recommended the investment adviser to the participants -- a pretty serious responsibility. Link to comment Share on other sites More sharing options...
Bird Posted October 21, 2015 Share Posted October 21, 2015 Peter, will you be telling us why you asked the question, since you probably knew the answer...? Ed Snyder Link to comment Share on other sites More sharing options...
Peter Gulia Posted October 21, 2015 Author Share Posted October 21, 2015 It really is an open inquiry, to help me learn about the experiences and perspectives of other practitioners. If one limits the inquiry to whether the text of the 404a-5 rule calls for a particular disclosure, that answer is No. And that answer is logically sensible if one assumes that the purpose of a 404a-5 is to enable a participant to evaluate the consequences of directing her account's investment to one or another investment alternative within the plan's menu of investment alternatives. But some practitioners consider that some participants might not perceive a 404a-5 disclosure as limited to that use. And some employers worry that a follow-the-rule-only 404a-5 disclosure could make the investments look more expensive than is necessary or appropriate, if the text does not include a description of the services provided by using indirect compensation. These and other concerns are among the consequences of a regime that assumes a participant won't read one comprehensive disclosure, and so supplements it with several provisions and rules for limited-focus disclosures. Some practitioners have started editing the "cookbook" 404a-5 disclosure to meet these concerns. I'd be glad to learn more about what other practitioners are doing. Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com Link to comment Share on other sites More sharing options...
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