Understanding Plan Fees
and Expenses
Today’s Agenda
Review the components that may go into a plan’s “all in” cost
Discuss where you can go to see your CUNA Mutual retirement plan fees
Learn about upcoming fee disclosure regulations
Answer your fee questions
Susan Reynolds, QPA, QKA
Senior Retirement Markets Advisor 800.356.2644, ext. 6368
Understanding Fees, Is Understanding the Players
Administrator Record-keeper Compliance Sales Inve stm ent Man agerUnlocking the Puzzle of a Plan’s “All In” Cost
Investment Based
Expenses
¾These are the costs that hit the participant
¾Usually expressed as a percentage
¾May contain different components
¾Most often misunderstood
Billed Fees
¾May be paid by the plan sponsor – OR - deducted from the participants’
account
¾Usually expressed as a dollar amount
¾May be annual or
What’s Included – Investment Based Expenses
¾
Front- or Back-end Sales Loads
•
A fee taken out upon purchasing or selling the fund
¾
Investment Management Expense or “Fund Expense”
•
This is essentially the “cost” of each fund in your plan
•
It is the amount a fund manager charges for administering that
particular fund
•
The same mutual fund may be offered in different share classes with
different pricing structures
•
This fund expense amount may incorporate certain fee components
• 12b-1 fees used to pay distribution expenses (for an advisor or sales person)
• Sub-TA or “revenue sharing” amounts that the fund company pays back to the retirement provider to cover their administration expenses
• These types of fees are not built into every fund--if they are, they will already be incorporated in the total fund expense quoted
What’s Included – Investment Based Expenses (cont.)
¾
Asset Administration or “Wrap” Fee
• This type of fee is used to cover plan administration and recordkeeping expenses of the retirement plan provider
• This type of fee is NOT included in the fund expense quoted, it is “wrapped” around the cost of the fund
• Fee may be deducted from participants account (mutual funds) or interest credited will be net of the wrap fee (group annuity)
“Wrap” is NOT a four letter word!
It’s a way some providers cover their costs to administer the plan instead of incorporating it in the investment expense and getting it back in the
What’s Included – Billed Fees
•
Ongoing Fees
– Base administration fee
– Per participant or per eligible employee fee
– These fees may be billed on a regular basis (usually annual or quarterly)
– Some plan sponsors may decide to pass these fees on to their participants
• May be a problem for low account balance participants
•
Periodic or Transactional Fees
– Loan fees
– Benefit distribution fees
– A la carte menu items (consulting fees, correction programs, 5500s, restatements, etc.
– These fees are usually billed at the time the service is performed, or deducted from the participant’s account (i.e. loans or benefit payments)
When Do Plan Fees Change?
¾
Some providers establish a fee structure when you start the plan, and it
only get’s adjusted when:
• The provider changes their administration pricing structure
• You renegotiate a new price with that provider
• You substitute different funds or share classes in your fund lineup
¾
This may require you to regularly go through the expense of putting your
plan out to bid to make sure it stays competitively priced
¾
As a CUNA Mutual client, we can provide benchmarking for your 401(k)
plan fees to industry averages
How Does CUNA Mutual Price Their Plans?
We make it easy to understand, easy to see, and keep it competitive
We divide the costs between the plan sponsor and the participant by using a billed and wrap fee structure
We decrease both the billed and wrap fees as your plan grows
Billed fees are reflected on your service agreement and your annual billing
Wrap fees are reflected on the participant’s statement
Investment expenses can be found on each fund fact sheet
- No front or back end load fees are included in our fund options
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Getting Some Help
From the Regulators
Upcoming DOL Fee Disclosure Regulations
¾
Currently effective as of 1/1/2012
¾
Requires certain plan providers and fiduciaries to more clearly disclose
all their fees and what services are provided
¾
The goal is to help you meet your obligation as a plan sponsor to assure
the plan services you receive are appropriate and the cost you pay for
them is reasonable
What Plans Are Covered By The Regulations?
¾
Defined benefit and defined contribution plans
• Includes 401(k) plans
¾
ERISA 403(b) plans
Doesn’t currently apply to the following types of plans:
¾ IRAs
¾SEP and SIMPLE plans
¾Sole-proprietor HR-10 plans ¾Governmental plans
¾Church plans
¾Non-ERISA 403(b) plans ¾Welfare plans
Who Has To Disclose Fees Under These New Rules?
•
“Covered service providers” that enter into a contract expecting to receive
$1000 or more in direct or indirect compensation from the plan for their
services
– Doesn’t include compensation that the plan sponsor pays directly
•
So who’s a “covered service provider”?
– Financial professionals who are compensated through payments from investment options or by other services providers
• Example: An advisor who receives 12b-1 fees
– Registered Investment Advisors (RIAs) or Fiduciaries (not including plan sponsor fiduciaries) who provide services directly to the plan
• Example: An RIA who selects and monitors funds for a plan
– Other service providers to the plan that receive indirect compensation
• Example: A plan provider that receives revenue sharing from a fund to help cover plan administration or recordkeeping fees
What Do They Have to Disclose?
• A description of the services being provided
• If applicable, a statement whether the service provider will be acting as a fiduciary or an RIA
• A description of the compensation—direct or indirect—that the provider expects to receive for their plan services
• If a recordkeeping services are being provided, how much of the amount being paid is attributable just to recordkeeping services
• The manner in which the compensation will be paid (i.e. billed or deducted from the plan’s investment accounts)
• A description of compensation that will be charged against investments
– For the interest or sale (i.e. sales loads, redemption fees, surrender charges) – Annual operating expense (the expense ratio)
– Statement if the return is not fixed
– Ongoing expenses (i.e. wrap fees or mortality and expense fees)
• A description of compensation to be paid upon termination of the service arrangement and how refunds of prepaid amounts will be made
When Do Disclosures Have to Be Made?
• In advance of the date a service contract is entered into, extended or renewed
• No later than 60 days of the date any information on the original contract is changed (sooner if possible)
• When new plan investment options are added
