ERISA § 408(b)(2)

1. ERISA § 408(b)(2) New Department of Labor Regulations and Their Impact on Retirement Plan Sponsors Todd Kading, CFP®, ChFC®, RF™ LeafHouse Financial Advisors “The use of this seal is not an endorsement by HR Certification Institute of the quality of the program. It means that this program has met HR Certification Institute’s criteria to be pre-approved for recertification credit.”

2. Meet Our Speaker Todd Kading Managing Director LeafHouse Financial Advisors Prior to founding LeafHouse, Todd was a partner in Austin-based Weaver, Kading & Associates, one of the “Top 10 Most Dependable Wealth Managers,” according to Texas Monthly Magazine Served on the Texas State University Planned Giving Committee One of only six Texas-based Registered Fiduciaries™

3. Plan Sponsor Fee Disclosure Regulation • Service providers will be now required to disclose to plan fiduciaries detailed information about fees earned and services provided • Applies to new and existing contracts and arrangements • Effective July 1, 2012

4. Why is Regulation Needed? • DOL has described the market for retirement plan services as “characterized by acute information asymmetry” • ERISA Advisory Council found lack of transparency makes it “extremely difficult” for plan sponsors to determine absolute costs and flow of fees • GAO stated that hidden fees may mask conflicts of interest • SEC found that pension consultants typically do not disclose conflicts of interest • However, current ERISA rules hold plan sponsors, not vendors, accountable for evaluating cost and quality of plan services • Many defined contribution sponsors do not have a clear understanding of total administration costs

5. What is a “Covered Plan?” • ERISA covered defined contribution and defined benefit plans, e.g. 401(k), 403(b), profit-sharing, pensions • Does not apply to IRAs, SEPs or individual retirement annuities • Does not apply to government plans, e.g. 457, state pensions • Applies to welfare plans but they have separate compliance dates yet to be determined

6. Am I a Fiduciary? • Plan Fiduciaries are responsible for “acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them” • “Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan” • Examples of Fiduciaries include parties who: • Are plan sponsors & administrators (always fiduciaries) • Have control or discretion over the plan or its administration • Are members of the benefits or investment committee • Have influence in selecting committee members • Sign the DOL Form 5500

7. What Are My Fiduciary Duties? • Plan Sponsors & Administrators Should Regularly • Submit Requests For Proposal to service providers • Negotiate fees of providers • Draft/revise the Investment Policy Statement • Select & review investment choices • Monitor & coordinate education • Maintain a detailed compliance file • Stay informed on evolving regulations • Must always act in the best interests of the plan and its participants

8. Who is a “Covered Service Provider?” • A party who enters into an arrangement directly with the plan to receive at least $1,000 in compensation for services such as: • Recordkeeping or brokerage services provider to individual account plan, with one or more investment options • A Third Party Administrator or plan consultant • ERISA Fiduciary or Registered Investment Advisor (RIA) • Anyone on a list of services and receiving indirect compensation • Obligated to provide services to the plan, regardless of whether they have hired an affiliate or subcontractor to provide services on their behalf

9. Main Types of “Covered Service Providers” • Recordkeeper • Administrator • Broker/Advisor

10. Types of “Covered Service Providers” cont. • Recordkeeper • Tracks contributions, amounts, types, etc. • Provides custodial services and statement information • Coordinates deposits from payroll

11. Types of “Covered Service Providers” cont. • Administrator • Helps with daily admin functions • Loans, hardship withdrawals • Top heavy testing • Plan design

12. Types of “Covered Service Providers” cont. • Broker/Advisor • Matches employer with plan providers • Facilitates the sales process • Liaison between provider and sponsor

13. Obligations of a “Covered Service Provider” • Disclose certain information to “responsible plan fiduciary” • Required to disclose on behalf of affiliates and subcontractors providing services on behalf of the covered service provider

14. Form of Disclosure • In writing • No specific format • Different documents from different sources are allowed but they must contain all information

15. What Must Be Disclosed? • Specific description of services to be provided • Status as a fiduciary (If yes, what scope?) • Compensation • Direct (generally billed to company/organization) • Indirect (generally deducted from plan assets) • Payments among related parties

16. Compensation Paid Among Related Parties • Compensation set on a transaction basis • commissions, soft dollars, finder’s fees • similar incentive compensation based on business placed or retained • Compensation charged directly against the plan’s investment and reflected in the net value of the investment (e.g. 12b-1 fees) • Identify specific services for which compensation will be received • Identify payer and recipient of compensation, including the status of each as an affiliate or a subcontractor

17. Fund Choice and Fee Transparency Many plans use retail share classes that simply have one all-encompassing fee. This makes benchmarking difficult and negotiation impossible. XYZ Large Cap Fund A 12b-1 Fees 12b-1 Fees Brokerage Administration Sub-Transfer Agent Fees Recordkeeping Fund Management XYZ Large Cap Fund Institutional Brokerage Recordkeeping Admin Fund Management Institutionally priced shares make fee disclosure easier and allow plan sponsors to negotiate lower costs.

18. Timing of Disclosure • Initial disclosure • Before the contract or arrangement is entered into • For changes to information in initial disclosure, timing is variable but generally must be: • As soon as practicable • No later than 60 days

19. Reasonableness • After obtaining all fee data, fiduciaries must determine whether or not fees are “reasonable” • The best way to do this is to benchmark your plan to others of similar size and features • A regular Request For Proposal process can continually assure that fees are in line with the marketplace

20. Prohibited Transactions • ERISA prohibits certain transactions between a plan and third parties who may be “parties-in-interest” • Can result in both DOL fines and IRS taxes and penalties • Fiduciaries can be liable for making the plan whole • Common situations when a plan sponsor may be engaging in a prohibited transaction: • Discounts in payroll services in exchange for plan business • Utilizing service providers who may be customers • Using a relative or close friend as a service provider

21. Department of Labor Enforcement • The Department of Labor enforces the fiduciary duty provisions of ERISA • Focus is on the process used by fiduciaries, not necessarily the ultimate decision made • Fiduciaries should • Be aware of their roles • Meet regularly • Document meetings (i.e. dates, agendas) • The DOL has been proactive in enforcing ERISA fiduciary duty rules

22. Headlines 401(k) Pays Retail Court Rules 401(k) Plan May Have Holes Settles 401(k) Fee Lawsuit employees suing Fidelity over 401(k) fees agrees to pay $37.5 million to settle lawsuit over employee 401(k) 401(k) Excess Fee Suit Plaintiffs Allowed to Add Charges Settles 401(k) Fee Case for $18.5M

23. 404 (a)(5) Disclosure to Participants • Fees must be disclosed to participants in hard dollar figures on a per-account basis • Will be the first time that participants find out how much they are paying every quarter • Compliance date 60 days after July 1st

24. Opportunities Created • Gives the current Plan Sponsor and all Fiduciaries the impetus to fully assess the reasonableness of costs and benefits provided by all vendors • Reinforces the fiduciary responsibility standard to Plan Sponsors and other decision makers such as: • Benefits committees • Executive committees • Human resource managers • HR and benefits administrators • CFOs

25. What is a Third Party Fiduciary? • Third Party Fiduciary • Performs RFP of service providers • Negotiates fees of providers • Drafts Investment Policy Statement • Picks investment choices • Conducts & coordinates education • Continually stays abreast of evolving regulations • Must always act in the best interests of the plan and its participants

26. Brokers vs. Fiduciaries Third Party Fiduciary Broker

27. Who’s on your side?

28. What LeafHouse Offers • At no cost LeafHouse Financial will: • Perform an RFP by collecting bids from numerous service providers • Calculate your total plan costs, including hidden fees • Evaluate the quality of your plan structure and design • This can be accomplished by you with only a single email • Hiring a third party fiduciary can: • Lower your costs • Increase the level of service you receive • Provide fiduciary protection from DOL audits & lawsuits • Decrease your workload

29. Don’t be that guy.

30. Questions? You may contact Todd Kading directly at: tkading@lhadv.com (512) 879-1505

31. Valuable Resources LeafHouse Financial Fiduciary Center http://www.leafhousefinancial.com/Fiduciary-Center.16.htm Department of Labor Interim Regulation Fact Sheet http://www.dol.gov/ebsa/newsroom/fsimprovedfeedisclosure.html Department of Labor Fiduciary Handbook http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html DOL: A Look at 401(k) Plan Fees http://www.dol.gov/ebsa/publications/401k_employee.html