Yet Another 404(a)(5) Thread for Recordkeepers

[Gadgetfreak]

2 questions:

1) Asset-Based Fees -

My impression was that we needed to include the asset based percentages for recordkeeping, custodial and advisory services on the ANNUAL notice. I know the actual dollars are reported on quarterly notices. So, if a Plan has a recordkeeping fee of 50 bps and a custodial fee of 10 bps and an advisory fee of 25 bps, this needed to be listed on the annual notice. And, if the fees were based on total plan assets (i.e. recordkeeping fee went down to 40 bps at $1 million of Plan asstets) we needed to add the whole chart. But the sample notices I am seeing from the big providers don't list anything other than an EXPLANATION that there are fees and a DESCRIPTION of what the fees represent. They are not saying the actual percentages or amounts. Does this seem OK?

2) Plan Provisions -

American Funds give Plan Provisions including vesting info, etc. Most others are giving the generic info about voting rights, etc. I didn't think we needed to add Plan Provisions to the 404a5 notices. Am I correct?

What does everyone think? Thanks!

[austin3515]

American Funds give Plan Provisions including vesting info, etc. Most others are giving the generic info about voting rights, etc. I didn't think we needed to add Plan Provisions to the 404a5 notices. Am I correct?

Yes, this was a mistake (in my opinion). The obvious issue is amendments for which American Fuinds was not kept in the loop. If it's not required, why include it????

1) Asset-Based Fees -

I believe you only have to indicate that the plan will pay recordkeeping fees and those fees will be allocated pro rata in the annual notice. The new rule requires that the AMOUNT of the fees (not a formula) be included in the quarterly statements. That's different than the expense ratios of the funds, which would have to be disclosed on the [edit: Annual] notice.

[Gadgetfreak]

Wow. Thanks for your reply. This certainly makes things much easier if I just tell everyone you may be charged fees of this and that which are for this and that (and not tell them how much).

I was concerned because I read in a ASCi Alert from 7/15:

"ASCi Insight – Administrative fee disclosures may be expressed in terms of a monetary amount, formula, percentage of assets or a per capita charge. If the fees are know at the time of the disclosure, the explanation must identify the service (e.g., recordkeeping), the cost of the services and the allocation method. If the fees are not known at the time of disclosure, an identification of the services that are expected to be performed and the allocation method ordinarily used is sufficient disclosure. If administrative fees are paid using plan forfeitures or general employer assets, no disclosure is necessary."

I understand about the fund information and expenses and I am including that.

Final question, do you think you need to list the FA by name? Does it change if the FA is a 3(38) Advisor?

[austin3515]

1) You're aware that the recordkeepers are preparing these (American Funds, Hancock, they all have one)? Or are you a recordkeeper just starting them now?

2) 3(38) advisors are extremely rare, at least in the small business world. I'm sure they're out there, but not that IO have seen. 3(38) means you assume complete responsiblity for the investmetns which most advisors don't like.

[austin3515]

1) You're aware that the recordkeepers are preparing these (American Funds, Hancock, they all have one)? Or are you a recordkeeper just starting them now?

2) 3(38) advisors are extremely rare, at least in the small business world. I'm sure they're out there, but not that IO have seen. 3(38) means you assume complete responsiblity for the investmetns which most advisors don't like.

[Gadgetfreak]

I am an independent recordkeeper using Relius but also a TPA with the big firms. Relius has a module that we licensed which easily spits out the fund information and glossary. We have standard fees for loans, distributions, etc. that are already built into the reports and we were going to add the fees that are not standard across all Plans (i.e. the asset-based fees). If I don't have to do that, I just saved a week of work. But how do you explain the discrepancy with ASC's explanation?

As for 3(38), I actually work with a few advisors who have that designation. I am asking because ExpertPlan has a line that either says:

The Plan does not have a Designated Investment Manager.

Or

The Plan's Designated Investment Manager is John Doe.

I wonder if this is a requirement. If not, I can go to the beach next week as that will save me another day .

[goldtpa]

Funny. I was just going to post a question about this topic. The notices under 408b2 are more of an explanation that fees exist not the amounts of the fees. I believe that there is an annual notice requirement under 404a-5 which seems to list the fees including the asset based fees, TPA fees, accounting fees, etc. Then there is also the requirement that the qrtly statements have the fee listed. Some financial institutions are listing the dollar amount on the statement while some I hear are listing an amount per thousand.

John Hancock is making people logon to their website and download the notice. Then the sponsor has to add all of the fees that they pay to the notice. The form seems to suggest that all fees should be listed whether the plan pays for them or not. The form's language suggests that the sponsor has the right to pay for the admin fees or have them deducted from the assets. Thus since the sponsor has the right to pay it or have the plan pay it, it seems that JH is suggesting that all the fees be listed.

However I have a question about the bene's. Does this refer to all of the bene's in the plan? Or does this only apply to those ee's who have passed away and their bene's have to receive the 404a-5 notice?

Thanks.

[Gadgetfreak]

In "board" talk, people will say you just "hijacked" my post . That's OK. I don't hold a grudge. Your first paragraph seems to say the opposite of what has been stated here. 408b2 gave the actual basis point fees. 404a5 seems to be more generic.

As for JH, they seem to be the worst of the bunch, though none are great. IMHO, recordkeepers shouldn't be passing on any work to the sponsors except for distribution of the notices. THEY have the fund info and know all the fees being deducted. And they DEFINITELY shouldn't be suggesting to the Sponsors to contact their TPA for help (since they should do it themselves).

[goldtpa]

RPG. Sorry to hijack your post. Regarding 408b2, I should have been more specific. I was trying to say that 408b2 gave the basis point fees. However according to the JH notice it seems to suggest the fees be listed.

Section 2 of the JH notice says,

"Your Plan incurs certain administrative and operating expenses each year. These expenses are for the following services:

• Recordkeeping fee $

• Auditor Fee $

• Third Party Administration Fee$

The cost for these services fluctuates each year based on a variety of factors.

Plan Sponso , at its own discretion, may elect to pay some or all of these Plan administrative expenses. To the extent these expenses are not paid by plan sponsor, the Plan may charge these expenses against your account on a [pro-rata] or [per participant] basis. These expenses would then be deducted directly from your account on a quarterly basis and will appear on your quarterly statement"

Section 3 of the notice says,

"Your Plan imposes additional charges if you elect to use certain services/features. These charges are imposed specifically against your account, and are not imposed on a plan-wide basis.

As of August 03, 2012 the fees listed below apply if you use any of the services or features below:

Fee type Amount

Loan Fee $2.00 per loan, per month

Guaranteed Income Feature Fee 0.35% of account (annualized)

Detailed Statement Fee $1 per statement per quarter"

Thus while some institutions are being more generic, it appears that JH is being more specific. And yes JH is not very good when it comes to this stuff.

[Gadgetfreak]

So now you have me totally confused. JH is giving the specific fees. Others are not. Austin says it is not required. But the ASC Notice seems to say otherwise. My emotions are on a roller coaster. The only good thing about this is the DOL's "best-efforts" comments. Though I hope that is not what everyone else is relying on to do a half-a** job with 404a5.

[austin3515]

"Your Plan incurs certain administrative and operating expenses each year. These expenses are for the following services:

• Recordkeeping fee $

• Auditor Fee $

• Third Party Administration Fee$

Our version of thje jhj notice did not have dollar amounts in this seciton, it just listed the types of expenses.

[Gadgetfreak]

"Your Plan incurs certain administrative and operating expenses each year. These expenses are for the following services:

• Recordkeeping fee $

• Auditor Fee $

• Third Party Administration Fee$

Our version of thje jhj notice did not have dollar amounts in this seciton, it just listed the types of expenses.

Austin, you sure you aren't supposed to fill in the amounts on the JH notice?

[austin3515]

The only amounts we had to fill in were for participantinitiated transactions.

I recently did a training in our office wherein to prepare Iwnet through the regs in detail. For plan level expenses, the only time amountcomes into play is in the quarterly statement. The annual notice only needs todisclose the possiblity of the plan paying certain types of expenses. HEre'sthe reg:

http://ecfr.gpoaccess.gov/cgi/t/text/text-...0.8&idno=29

(2) Administrative expenses. (i)(A) On or before the date onwhich a participant or beneficiary can first direct his or her investments andat least annually thereafter, an explanation of any fees and expenses forgeneral plan administrative services (e.g., legal, accounting, recordkeeping),which may be charged against the individual accounts of participants andbeneficiaries and are not reflected in the total annual operating expenses ofany designated investment alternative, as well as the basis on which such chargeswill be allocated (e.g., pro rata, per capita) to, or affect the balance of,each individual account.

(B) If there is a change to the information described inparagraph ©(2)(i)(A) of this section, each participant and beneficiary mustbe furnished a description of such change at least 30 days, but not more than90 days, in advance of the effective date of such change, unless the inabilityto provide such advance notice is due to events that were unforeseeable orcircumstances beyond the control of the plan administrator, in which casenotice of such change must be furnished as soon as reasonably practicable.

(ii) At least quarterly, a statement that includes:

(A) The dollar amount of the fees and expenses described inparagraph ©(2)(i)(A) of this section that are actually charged (whether byliquidating shares or deducting dollars) during the preceding quarter to theparticipant's or beneficiary's account for such services;

(B) A description of the services to which the chargesrelate (e.g., plan administration, including recordkeeping, legal, accountingservices); and

© If applicable, an explanation that, in addition to thefees and expenses disclosed pursuant to paragraph ©(2)(ii) of this section,some of the plan's administrative expenses for the preceding quarter were paidfrom the total annual operating expenses of one or more of the plan'sdesignated investment alternatives (e.g., through revenue sharing arrangements,Rule 12b–1 fees, sub-transfer agent fees).

[austin3515]

Edited big time. I realized I just copied and pasted the same thing from John Hancock's notice that somoene else did. The confusion above is that the template from JH does NOT include dollars gins in the list of types of services. I'm not sure why you have dollar signs above.

As I said before the only dollar amounts disclosed in the annual notice (excluding investment related expenses, such as the expense ratio of the funds) is participant initated transactions.

And the mention about how some are expressing the expenses incurred on $1,000, that is a required disclosure regarding the investment expense ratio of the fund.

Executive Summary

Admin Expense Disclosure (recordkeeping, legal TPA)

Annually - disclose their existence, and how they would be allocated IF they are incurred at all

Quarterly - disclose the actual dollar amounts of the expenses charged that quarter, and specifically identify what the charge is for (i.e., Recordkeeping: $175, or TPA Fees: $325)

Investment Expense Disclosure

Annually - the expense ratio and other things (lots of other things)

Quarterly - None.

[cpc0506]

Edited big time. I realized I just copied and pasted the same thing from John Hancock's notice that somoene else did. The confusion above is that the template from JH does NOT include dollars gins in the list of types of services. I'm not sure why you have dollar signs above.

As I said before the only dollar amounts disclosed in the annual notice (excluding investment related expenses, such as the expense ratio of the funds) is participant initated transactions.

And the mention about how some are expressing the expenses incurred on $1,000, that is a required disclosure regarding the investment expense ratio of the fund.

Executive Summary

Admin Expense Disclosure (recordkeeping, legal TPA)

Annually - disclose their existence, and how they would be allocated IF they are incurred at all

Quarterly - disclose the actual dollar amounts of the expenses charged that quarter, and specifically identify what the charge is for (i.e., Recordkeeping: $175, or TPA Fees: $325)

Investment Expense Disclosure

Annually - the expense ratio and other things (lots of other things)

Quarterly - None.

I listened to a John Hancock webinar and they indicated that the TPA were going to have to add the specific fee information to the John Hancock template. They are providing a Block of Business Report (excel file) which now has the fee information and the TPA needs to add for this first annual notice. The subsequent notice, John Hancock will include the information. More work for us TPAs.

Also, we have learned that the American Funds notice has incorrect plan related information for about 75% of our clients and the notice is not editable. We are telling our clients to include a cover letter telling the participants as much and asking them to refer to their SPD for up-to-date plan specifications.

[austin3515]

I listened to a John Hancock webinar and they indicated that the TPA were going

to have to add the specific fee information to the John Hancock template.

Can you clarify that you are referring to the participant initiated transaction charges and not the plan level/recordkeeping charges?

[cpc0506]

I listened to a John Hancock webinar and they indicated that the TPA were going

to have to add the specific fee information to the John Hancock template.

Can you clarify that you are referring to the participant initiated transaction charges and not the plan level/recordkeeping charges?

Both. John Hancock did not include some plan level numbers that now have to be included as well as TPA fees for participant initiated transaction charges if John Hancock is not aware of these fees.

[austin3515]

John Hancock did not include some plan level numbers that now have to be included

What would those be? I just looked at the download the other day (Friday) and saw no reference to plan level fees in terms of dollars. What am I missing??

[goldtpa]

austin-I got from John Hancock the template notice. I called and asked whether the fees had to be added. They said yes and then, just like Kathy, they sent me all of my plans with the fees. So now I am confused. I would rather not have to do all of this work. I would rather just give them the notice which tells them the existence of the fees. I just gave everyone a new TPA agreement with a 408 notice and now John Hancock seems to think that I have to disclose my fees again. I just don't know anymore.

[Gadgetfreak]

I am at the Relius Summit in FL now and will be attending some sessions on this and see if I can get more information.

I think we all agree that you need to include participant-initiated transaction fees and their actual costs (I.e. loan initiation, distribution, etc.). What remains to be clarified is whether you need to give the actual percentage or dollars of asset-based recordkeeping fees and other actual dollar amounts/percentages OR if you just have to explain that the fees exist and explain what they are for.

Expertplan did NOT give their asset-based fees on their 404a5 annual notice. It seems to be mixed what the other big firms are doing.

And, I am still trying to find out what General Plan Info means for these notices. Is it actual Plan provisions or just generic info about voting rights, etc.

I will let you know what I find out.

[austin3515]

Somoene needs to tell me where in the regs this ANNUAL disclosure is required. I don't see it anywhere. I see lots and lots of required annual disclosures, and I see a requirement to disclose the actual charge (with an adequate description) on the quarterly statement. But that is all I see.

A customer service rep at John Hancock is not authoritative. I note again that their template downloadable at this very minute does NOT request an dollar amount or a percntage next to recordkeeper.

[Gadgetfreak]

As promised, I am reporting back from the Relius Summit in FL. I attended an "Ask the ERISA Experts" session today with Robert Richter (president of ASPPA) and Stephen Forbes. They said that the actual regulations state that you just need to give a description of the fees without the actual asset-based percentage. HOWEVER, FAB 2012-02 Q5 says that, if you know the amount (or percentage), you need to supply it.

Many providers are relying on the "good faith effort" clause to simply follow the regs and not the FAB (possibly because their systems were already designed before May when the original FAB was issued). But everyone believes that systems need to be updated for next year to actually put in the percentage.

On that note, I also confirmed that the NEXT 404a5 annual notice needs to go out no later than 12 months after the first. That means you could do it by 8/31/13 or earlier if you want to incorporate it with other processes in your office. For example, I am considering sending the same exact ones out again in November 2012 when I send out QDIA and SH notices so that all notices can be together.

Finally, they confirmed that Plan specs do NOT need to be included in the annual notice. American Funds seems to be adding it to make their notices look "pretty".

I hope this helps.

[austin3515]

It was extremely helpful. So the DOL essentially amended the regs through it's FAB. Classic federal government stuff. Reminds me of something from the IRS's play book of late.

We'll get them next year. Presumably, the vendors will have incorporated this into their systems next year...

[goldtpa]

I just got off the phone with the Dept of Labor. They said that the annual notice under 404a-5 needs to be supplied to the participants by Aug 31 and then annually thereafter. The DOL rep said that the annual notice needs to be sent out every 12 months. I asked her if that meant I had to have the notices sent out every Aug 31. She said NO. She said just do it every year. She suggested after the end of the plan year.

I then asked her about the John Hancock Notice and whether or not the specific fees have to be listed on the annual 404a-5 notice. She said NO. She said only the existence of the fees have to be disclosed on the annual notice. She said that the actual fees should be listed on the qrtly statements.

Finally she answered my question about the bene's. The annual notice only needs to go to those bene's who spouse or family member has passed away and the bene is entitled to a payout.

I hope this helps everyone.

[austin3515]

Consider the source

She's just incorrect about the "once a year" piece of it. It clearly needs to be delivered once every 12 months.

then asked her about the John Hancock Notice and whether or not the specific fees have to be listed on the annual 404a-5 notice. She said NO. She said only the existence of the fees have to be disclosed on the annual notice. She said that the actual fees should be listed on the qrtly statements.

I think she read the regs correctly, but she must not have read the "amended regulations" set forth in the FAB that RPG pointed out.

[52626]

What is so frustrating about all of this, is the vendors all say something different.

According to JH the FAB issued in May states You MUST disclose the actual amounts. They were not going to redo their templates for the 8/30 deadline, however by November they plan on including the actual fees in under the general admin section.

[Peter Gulia]

Given the difficulties and frustrations that several posters have described, another step that a TPA might consider to protect itself is to make sure that its service agreement with the plan or its administrator does not obligate the TPA to furnish anything beyond what the TPA has received from the insurers and investment funds.

It's not a wholly satisfactory solution. (We recognize that, no matter how clearly and loudly a TPA warns an employer and plan administrator about what services are not included, it's impossible to control what a plan's administrator wants.) But when a client or customer is upset about what didn't get done, it's still better to start that conversation without worrying about the TPA's contract responsibility or other liability.

[Zoey]

In "board" talk, people will say you just "hijacked" my post . That's OK. I don't hold a grudge. Your first paragraph seems to say the opposite of what has been stated here. 408b2 gave the actual basis point fees. 404a5 seems to be more generic.

As for JH, they seem to be the worst of the bunch, though none are great. IMHO, recordkeepers shouldn't be passing on any work to the sponsors except for distribution of the notices. THEY have the fund info and know all the fees being deducted. And they DEFINITELY shouldn't be suggesting to the Sponsors to contact their TPA for help (since they should do it themselves).

I agree with you 100%. But that's exactly what John Hancock is doing! I have gotten several emails from clients stating that John Hancock has called them, advising them to contact me (their TPA) about the notice and scaring them with the 8/31 deadline...as if it's MY responsibility to provide THEIR notice. So I'm getting emails from my JH clients asking if I will be "handling" their disclosure notices. I haven't the slightest idea what JH is charging my clients. I'm not in the investment business, I am in the TPA business, yet I am having to take on the task of figuring out how to disclose THEIR fees. What really irritates me is, I don't have any plans that I receive compensation from the plan, either directly or indirectly, so although I don't have to provide a disclosure of my fees (although I do through an engagement letter), I now have to do JH's job for them, as if they aren't getting paid enough to do their own flippin' disclosures!

[Gadgetfreak]

You are going to get upset even more when you see what the disclosures look like. I just reviewed Hartford's. They aren't "disclosing" anything. 15 pages of pure rubbish. No 12b-1 fees being disclosed. It seems they are relying on the original regs for this year and aren't even disclosing the wrap fees - only the existence of them.

As a recordkeeper, I was hoping these disclosures would level the playing field. I am sad to report that it is just getting everyone upset and not doing much else. Hang in there everyone.