The Middle Atlantic Actuaries Club Annual Meeting – October 7, 2010 Session 3A Recent EBSA DB/DC Initiatives

1. The Middle Atlantic Actuaries Club Annual Meeting – October 7, 2010Session 3A Recent EBSA DB/DC Initiatives Presented by Zenaida Samaniego Disclaimer: Any views expressed do not reflect those of my employer or other government agency, rather these are my own understanding and interpretation of the published guidance.

2. Role of EBSA • EBSA is responsible for administering, regulating and enforcing the fiduciary, reporting, and disclosure provisions of Title I of ERISA • EBSA oversees approximately 708,000 private pension plans, including 483,000 participant-directed individual account plans (401(k)), and millions of private health and welfare plans subject to ERISA • As of 2007, over ½ of private sector employees participated in DC plans that allow participant direction, covering over 60M active participants and holding about $3 trillion in assets

3. DC plans in current environment • Among full time workers, pension coverage has dropped substantially from 62% in 1979 to just 49% in 2006 • In 2007, the number of private DC plans was over 650,000 while DB plans were less than 50,000, compared to over 100,000 and 200,000 in 1975 respectively. • During 2008 the S&P 500 index fell by over 33%, the largest single year drop since 1974 • With the rise of DC plans and the bulk of retirement assets invested in equities, the average 401(k) account fell 24.3 % in 2008

4. Policy issues • Pension coverage is eroding and workers are bearing more responsibility for their own retirement security • Consistent with its mission EBSA continues to explore ways to help workers and retirees protect their retirement savings, secure their retirement income and provide educational tools for retirement planning • Recent initiatives and rulemaking activities have focused on these goals

5. DB/DC Regulations & Initiatives • Protection of retirement savings • Provision of investment advice • Participant fee disclosure • Fiduciary fee disclosure • QDIA target date disclosure • Fiduciary definition • Prohibited exemption procedures • Plan notices and reporting • Annual funding notice • Pension benefit statements • Form 5500 electronic filing requirement • Securing retirement income • Lifetime income options

6. DB/DC Regulations & Initiatives • Chart I lists these pension-related initiatives – as excerpted from EBSA unified entries in the DOL Spring 2010 semi-annual regulatory agenda, and recent activities (shaded yellow area) • There are various stages of rulemaking (pre-rule/RFI, proposed rule, interim final, or final rule) and other forms of guidance (FAB, FAQS) • Completed actions shown (shaded gray area) occur with issuance of final rule in the Federal Register, or on rare occasion withdrawn

7. CHART I

8. Protecting Retirement Savings - Investment advice • Workers can benefit from quality investment advice – that is affordable and unbiased • Providing investment advice to plan participants by existing plan vendors or their affiliates can result in financial conflicts of interest which violate fiduciary rules under ERISA, thus limiting the types of investment advice arrangements available to participants in 401(k) plans and IRAs • In 2006, Congress created a statutory exemption allowing advice to be provided by potentially “conflicted” advisors as long as safeguards were in place • EBSA has proposed a rule implementing the statutory exemption under PPA that would allow investment advice to be given in two ways through: • use of a computer model certified as unbiased, or • an adviser compensated on a level-fee basis (i.e., fees do not vary based on investments selected by the participant)

9. Protecting retirement savings – Disclosure to plan fiduciaries • Plan sponsors need to make prudent, informed decisions to fulfill their fiduciary requirements under ERISA when they select service providers and 401(k) options • Clarifying and improving the information that service providers must furnish to plan sponsors allow is necessary. • Fiduciary fee disclosure will allow plan sponsors and fiduciaries to make more informed decisions about plan services, cost of those services, and potential conflicts of interest of service providers • EBSA has issued regulations that require full disclosure of all forms of direct and indirect compensation by service providers

10. Protecting retirement savings – Disclosure to plan participants • Improving fee transparency is critical in an environment where the plan’s participants bear the plan’s administration and investment-related expenses • Section 404(c) of ERISA requires disclosure of information to participants about their plans and designated investment options, including associated fees and expenses • But compliance with section 404(c) is voluntary so disclosure requirements do not extend to all participant-directed plans • Workers in participant-directed plans need access to basic plan and investment information in a useful format for making informed decisions to manage their own retirement accounts • Disclosure must be simple, relevant, timely and delivered in a user friendly format

11. Protecting retirement savings – Target date funds (TDFS) • Asset allocation is one of the most important decisions for investors • The market has come up with TDFS as a product solution • A TDF provides a “glide path” where investments automatically move to a more conservative mix as the “target date” approaches • In 2008, 75 percent of 401(k) plans offered TDFS • Among participants offered TDFS, 42 percent held some portion of their plan account in a TDF • In the market downturn in 2008, participants in 2010 and 2015 target date funds lost about a quarter of their value - significant differences noted in equity and fixed income allocations in TDFS with the same target date • Issues with definitions of “glide path” and “target date” • The DOL and SEC issued recent guidance on TDFS that describe some basic features, including the investment mix of such funds, the associated risks, ways that the target date operates and ways to evaluate TDFS

12. Securing retirement income – Lifetime income streams • The trend toward DC plans has resulted in greater number of workers receiving their retirement benefits in lump sum distributions • Too many workers underestimate their retirement savings needs, thus increasing their risk of inadequate income at retirement or outliving their assets • DOL/EBSA jointly with the Department of the Treasury published an RFI on a broad range of topics designed to build a public record to help policymakers assess the magnitude of the problem and determine what (if any) actions might be taken to address the problem • Public hearings were held on September 14-15, 2010 • Key concerns about a government mandate to DC in-plan offering of income annuity options, perceived obstacles to annuitization in general, fiduciary liability and need for effective safe harbors, desirability of disclosure of account balances as income streams, financial education regarding retirement product choices and personal considerations in retirement income distributions

13. Reporting – Annual Funding Notices • New requirement under PPA applicable for plan years beginning after December 31, 2007 • Pending rulemaking, EBSA issued on February 10, 2009 a Field Assistant Bulletin • FAQS concerning good faith compliance with (reasonable interpretation of) the new AFN requirements under PPA • Two model notices (for single-employer plans and multi employer plans) • Proposed rulemaking currently under OMB review

14. Reporting – Form 5500 EFAST2 • The Form 5500 series must be filed each year by employee benefit plans to satisfy annual reporting requirements under ERISA and the Internal Revenue Code. • EFAST2 is a system designed by the DOL, IRS and PBGC to simplify and expedite the submission, receipt, and processing of the Form 5500 (and small plan Form 5500-SF) • Forms 5500/5500-SF must now be electronically completed, signed and submitted via the Internet to EFAST2 for processing • For a limited exception for filing 2008 plan year returns/reports prior to October 15, 2010 • DOL issued guidance (FAQS) regarding required E-signature credentials for signers of Form 5500/5500-SF, as well as plan service providers authorized as submitters by the plan administrators • EFAST2 does not require E-signature credentials other than for filing and submitting Form 5500/5500-SF • If Schedule MB or Schedule SB is required, an electronic image of the completed Schedule with the actuary’s signature must be attached to the annual report

15. Reporting – Form 5500 Related • Schedule C • For Form 5500 annual returns/reports filed for plan years beginning on or after January 1, 2009 new requirements apply for reporting service provider fee and compensation information • EBSA has issued guidance (FAQS) to help plan administrators and service providers comply, including alternative option for eligible indirect compensation, electronic disclosure of fee information by service providers, fee reporting for brokerage window options in participant directed plans, and non-monetary compensations (e.g. gifts, entertainment) • 403(b) plans • Like 401(k) plans, 403(b) must now file basic financial and other compliance information annually on the Form 5500/5500-SF • EBSA has issued FAB 2009-02 which provides transitional relief with respect to certain tax-sheltered annuity contracts and custodial account agreements prior to January 1, 2009 • With the change to the EFAST2 filing system applicable to these plans, EBSA has issued FAB 2010-01 with FAQS on the new reporting requirements

16. Educating workers and retirees – Defining adequate income • EBSA is active in its education outreach efforts nationwide, which include retirement savings education campaign, workshops and publications targeted at individual workers and retirees, usually in partnership with other agencies and research organizations • Retirement campaigns begun in 1995 focus on women, minorities and small businesses • Taking the Mystery out of Retirement Planning is available in hard copy and online to help users assess their retirement readiness and access tips to close their savings gap and make savings last a lifetime • A Hispanic version has recently been developed