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Mutual of Omaha Questions and Answers
Plan Sponsor Fee Disclosure Requirements under ERISA § 408(b)(2)
General Background - Regulatory Requirements:
1)
Q:
What is the objective of the plan sponsor fee disclosure requirements?
A:
The Department of Labor (DOL) finalized the regulation under ERISA §
408(b)(2) to assist plan fiduciaries in analyzing the reasonableness of the service
arrangements the plan has with service providers. The disclosure is meant to assist
plan fiduciaries in reviewing the services provided to the plan, the compensation
paid in exchange for those services and the potential for any conflicts of interest
by the service providers.
Q:
What are the general requirements and effective dates for service provider
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disclosures to be provided to plan sponsors?
A:
Effective July 1, 2012, all covered service providers must make written disclosure
of the services provided and the compensation received for those services to the
responsible plan fiduciary (usually the plan sponsor or a plan committee) of a
covered plan.
For existing service arrangements, the disclosure must be made by July 1, 2012.
For new arrangements entered into on or after July 1, 2012, the disclosure must be
made reasonably in advance of the date the contract or arrangement for services is
entered into agreement.
3)
Q:
Who is a “covered service provider”?
A:
A covered service provider is someone who enters into a contract or arrangement
with a covered plan to provide services, and under that contract or arrangement,
reasonably expects to receive $1,000 or more in compensation during the term of
the relationship.
The rules apply to those parties who provide (a) services as a fiduciary under
ERISA or the 1940 Advisers Act, (b) recordkeeping or brokerage services, or (c)
accounting, auditing, actuarial, appraisal, banking, consulting, custodial,
insurance, investment advisory, legal, recordkeeping securities or investment
brokerage, third party administration, or valuation services for indirect
compensation.
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Accordingly, the requirements apply to recordkeepers, RIAs, broker-dealers and
insurance brokers and TPAs (among others) who enter into a service arrangement
with a covered plan and expect to receive $1,000 of compensation over the course
of the relationship.
4)
Q:
Which retirement plans are considered “covered plans”?
A:
Covered plans include all ERISA-governed plans, other than SIMPLE-IRAs, SEP
IRAs, I(k)s and 457(b)s. The following are “covered plans”: 401(k) plans,
ERISA-governed 403(b) plans, DB pension plans and non-participant directed
profit sharing plans.
Q:
What information must be disclosed?
A:
A covered service provider must disclose (a) a description of the services it will
provide to the plan; (b) whether it will provide any services to the plan as an
ERISA fiduciary or investment advisor; (c) the compensation it will receive
(including direct and indirect compensation, and compensation paid among
related parties); (d) a description of how it will receive those payments; and (e)
compensation it will receive when the contract or arrangement is terminated.
5)
If the covered service provider is a recordkeeper, it must additionally disclose
various investment information.
6)
Q:
What compensation must be disclosed?
A:
Covered service providers must disclose all direct and indirect compensation.
Q:
Should a plan expect to receive fee disclosure notices from entities other
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than Mutual of Omaha?
A:
Yes. If the plan has engaged other service providers, including an advisor or
TPA, then the plan should receive a separate disclosure document from each
service provider.
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Plan Sponsor Background - Regulatory Requirements:
8)
Q:
What should plan sponsors do with the disclosures?
A:
The regulation places affirmative duties on plan sponsors. Plan sponsors should,
at a minimum, comply with the following in order to perform their fiduciary
responsibilities to their plans:
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Designate their “Responsible Plan Fiduciary” and educate the designated
person regarding the service provider fee disclosure requirements.
Determine a list of all of the covered service providers to the plan.
Confirm receipt of a fee disclosure notice from each covered service provider
by the compliance deadline of July 1, 2012.
o If the disclosures are not received by the deadline, the plan sponsor must
send written notice of the failure to the covered service provider and
request the information be disclosed as soon as possible, but no later than
90 days after the request.
o If the disclosures are not made or are deficient after the 90-day request,
then the plan sponsor must notify the DOL of the failure. Best practices
also suggest that the agreement with the applicable covered service
provider be terminated as soon as reasonably practicable.
Analyze the disclosed information for reasonableness and conflicts of interest,
including, but not limited to:
o Understand the disclosed information, or seek clarification where
confusion exists.
o Periodically benchmark the services and fees against other service
providers. Note, however, the regulation does not state that “reasonable”
fees equate to the “lowest” fees.
o Document the analysis of the disclosures and the plan sponsor’s
conclusions regarding the reasonableness of services and fees for each
covered service provider.
If a current covered service provider’s costs are determined to be
unreasonable for the services provided, the plan sponsor should consider
renegotiating fees or looking for alternative service providers.
The plan sponsor should consult with an ERISA attorney for further guidance
regarding their fiduciary duties in regard to fee disclosure.
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Mutual of Omaha’s Retirement Plan Fee Disclosure Notice - Overview
9)
Q:
When will Mutual of Omaha begin providing the Retirement Plan Fee
Disclosure Notice to plan sponsors?
A:
The Notice will be incorporated into the proposal process for prospective plan
sponsors beginning June 1, 2012.
Current plan sponsors will receive a Retirement Plan Fee Disclosure Notice
applicable to their plan prior to July 1, 2012.
After July 1, 2012, if a change is made to a previously disclosed fee, then Mutual
of Omaha will provide an updated Retirement Plan Fee Disclosure Notice to the
plan.
10)
Q:
Will there be a Retirement Plan Fee Disclosure Notice version for I(k)s and
457(b) plans?
A.
Mutual of Omaha will not distribute a Retirement Plan Fee Disclosure Notice to
existing I(k) and 457(b) plans, because these plans are not “covered plans” under
the 408(b)(2) regulation.
However, Mutual of Omaha will include a Retirement Plan Fee Disclosure Notice
as part of the I(k) and 457(b) plan proposal process, as the Retirement Plan Fee
Disclosure Notice is replacing the prior Fee Summary in the proposal document.
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Q:
Is the Retirement Plan Fee Disclosure Notice required for existing plans or
just new plans?
A:
The disclosures are required for new and existing plans by July 1, 2012.
Q:
How will this Notice evolve from the time a plan is proposed until the time
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the plan completes installation?
A:
The Retirement Plan Fee Disclosure Notice will incorporate the plan assumptions
provided at the time the proposal is requested, and therefore, the requested
services and fees will be highlighted within the proposal. At the time of sale, the
plan assumptions will be verified in the Retirement Plan Fee Disclosure Notice,
which may require updates with final plan and service selections, including
specific investment selections.
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Mutual of Omaha’s Retirement Plan Fee Disclosure Notice – Sample Document
Section: Estimated Annual Fees (Refer to Sample: Page 2)
13)
Q:
Who pays the fees illustrated in the “Estimated Annual Fees” Section?
A:
All the fees illustrated in this Section – Net Administrative Fees, Advisor
Compensation, Investment Fees and Recordkeeping Fees – are paid by the plan
sponsor and/or the plan. The plan sponsor may choose to pay the fees or the fees
may be netted from the investment returns. Each case will differ.
Q:
What is the “Administrative Fee” and how is it calculated?
A:
The fee is based upon the amount of Plan Assets invested in the Contract. Each
year, the plan’s actual Administrative Fee may differ from the illustrated dollar
amount in the Retirement Plan Fee Disclosure Notice, as Plan Asset levels change
during the term of the Contract.
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Administrative Fee = (Assets + (1/2 * Annual Deposits)) * Administrative Fee
Rate
Net Administrative Fee = Administrative Fee - Advisor Compensation * If Net
Administrative Fee is negative than the negative amount becomes the pricing
credit.
Total Cost as a percentage = Total Cost / (Assets + (1/2 * Annual Deposits)
Total Average Cost per Participant =Total Cost / Number of Participants with an
Account Balance
For more information about the Plan’s Administrative Fee, see the Administrative
Fee Summary of the Notice (Refer to Sample: Page 3).
The Administrative Fee in the Retirement Plan Fee Disclosure Notice is equal to
the Administrative Fee stated in Section 5.01 of the Contract.
15)
Q:
A:
Who pays the “Advisor Compensation”?
The plan pays the Advisor Compensation. Mutual of Omaha facilitates the
payment at the direction of the plan.
If the advisor is a registered representative, Mutual of Omaha pays the Advisor
Compensation directly to the advisor’s broker-dealer.
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16)
Q:
Is Advisor Compensation a recurring or a one time fee?
A:
The Advisor Compensation illustrated on the Sample: Page 2 is a recurring Asset
Based Fee. In addition to this amount, the advisor in the sample is paid 67 basis
points on the Deposits made to the Plan Contract in the first 12 months (refer to
the Sample: Page 2 – third paragraph).
Q:
How is the “Average Investment Fee” calculated?
A:
For the Retirement Plan Fee Disclosure Notice sent with a proposal (i.e., before
the plan sponsor has made investment selections for the plan), the “Average
Investment Fee” is a simple average, based upon the assumption of equal
investment of plan assets in each Investment Option illustrated in the document.
A plan’s actual “Average Investment Fee” will differ depending on the
Investment Options selected by the plan during the installation process, as well as
the assets invested in each Investment Option.
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For existing plans, the “Average Investment Fee” disclosed in the specific
Retirement Plan Fee Disclosure Notice for the plan will be based upon the plan’s
Investment Options as of May 14, 2012, as well as the assets invested within
those Investment Options as of May 14, 2012. Fluctuations will occur and may
result in a different “Average Investment Fee” for the plan each day.
18)
Q:
What does the “Participant Recordkeeping Fee” include?
A:
It’s a flat fee used to pay for participant-related recordkeeping services, such as
participant statements and customer service; this fee is based upon the number of
participants with an account balance in the plan and will differ as the number of
participants change.
Q:
What are examples of “Supplemental Services Fees?”
A:
Supplemental Services are optional features and services for which additional fees
are charged. Examples include self-directed brokerage fees and corporate trustee
fees.
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20)
Q:
Is the “Total Dollar Cost to Plan” an annual amount?
A:
Yes. It’s an estimated annual amount based on current plan demographics and
will vary as Plan Assets and the number of participants with account balances
change.
Q:
How is the “Total Average Cost Per Participant” calculated? Is this paid by
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each participant or the plan?
A:
This figure is calculated by taking the Total Dollar Cost to the plan divided by the
Number of Participants with an account balance. This figure is an estimate and
illustrates how much the plan sponsor and/or the plan is paying on behalf of each
participant. These fees may be paid by the plan sponsor and/or the plan, the
participants or a combination of both.
Section: Administrative Fee Summary (Refer to Sample: Page 3)
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Q:
What is the “Initial Administrative Fee?”
A:
It’s the fee charged for providing administrative services to the plan. It’s
determined based on Contract (Plan) Asset ranges found within the
Administrative Fee Schedule on the Sample: Page 3. For proposal purposes, the
initial Administrative Fee is based on the plan demographics received in the
request for proposal. It’s important to note that Plan Assets are subject to one rate.
The Administrative Fee associated with those assets is not step-rated.
Q:
Is the “Administrative Fee Schedule” consistent with Mutual of Omaha’s
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standard pricing methods?
A:
Yes, we use a standard schedule to calculate the Administrative Fee applicable to
a plan. However, some custom pricing may apply depending on the plan.
In the Sample document, the Plan’s Administrative Fee may be adjusted
according to this schedule once within the first 12 months of the Contract term to
reflect the actual total amount of Transferred Assets into the plan.
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The Plan’s Administrative Fee may also be reviewed annually. The exact terms
are disclosed in the Plan’s Contract and will also appear in this section of the
Retirement Plan Fee Disclosure Notice.
Section: Investment Fee Summary (Refer to Sample: Pages 3-7)
25)
Q:
Why is the “Total Investment Fee” for the Guaranteed Account and Lifetime
Guaranteed Income Account Investment Options 0%?
A:
An interest rate is declared monthly for these Investment Options and the rate that
is declared is net of all fees. There is neither an additional Management Fee nor
an additional Product Charge associated with these Investment Options.
Q:
Does the “Investment Fee Summary” table match the Plan Contract?
A:
Yes. The fees found in the Investment Fee Summary table are consistent with
Table B of the Contract.
Q:
What is a “Shareholder Service Fee”?
A:
A type of fee paid for administrative services provided on an investment option’s
behalf representing a portion of the administrative fees that would otherwise be
incurred by the investment option, including maintenance of individual plan and
participant accounts. This definition can also be found in the Glossary of Terms
(refer to the Sample: Page 17).
Q:
Who receives the proceeds of the “Shareholder Service Fees”?
A:
Shareholder Service Fees are paid by Investment Managers to Mutual of Omaha
and/or Matrix Settlement and Clearing Services. These fees may be used to
reduce Mutual of Omaha product charges in certain situations.
Q:
Does Mutual of Omaha receive indirect compensation from Investment
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Managers?
A:
Yes. Mutual of Omaha receives indirect compensation from Investment
Managers. All indirect compensation is disclosed in the Retirement Plan Fee
Disclosure Notice.
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30)
Q:
The underlying investments of the “Professional Investment Portfolios” and
“Risk Based Portfolios” don’t equal the Portfolios’ total Management Fee
and Product Charge. Why?
A:
In regard to the Management Fee, the underlying investments’ Management Fees
are based upon a weighted average of the target allocations within the portfolio
and are rounded to the nearest one-thousandth. The total may not add up, due to
rounding.
In regard to the Product Charge, the underlying investments’ Product Charges are
for illustrative purposes only and are based upon a weighted average of the target
allocations within the portfolio. However, the actual Product Charge which
applies to the portfolio is the total percentage stated in the row for the named
Investment Option; the underlying investments’ Product Charges are not added to
get to a total Product Charge for the Investment Option.
Section: Value of Recordkeeping Services (Refer to Sample: Page 8)
31)
Q:
Are the “Value of Recordkeeping Services” reflected in the “Estimated
Annual Fees” found on the Sample: Page 2?
A:
Yes. The Plan Recordkeeping Fee which is highlighted at $0 cost on the Sample:
Page 2 reflects the Recordkeeping Services shown on the Sample: Page 8 that the
plan receives at no additional charge.
In this example, Mutual of Omaha has agreed to pay the Plan Recordkeeping Fee
annually from the Administrative Fee Mutual of Omaha receives. The plan
sponsor and/or plan is only responsible for paying the Participant Recordkeeping
Fees reflected on the Sample: Page 2.
For sample purposes, the Value of Recordkeeping Services includes the below
services and their full values which are being 100 percent subsidized by Mutual of
Omaha:
Plan Recordkeeping Fee**
Installation and/or conversion fee
Recordkeeping Fee Subsidy – per participant
$1,800
$1,500
$19
**Each year, the Recordkeeping Fees will be the greater of $3,000 or the total of
the Plan Recordkeeping Fee plus the total Participant Recordkeeping Fees.
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32)
Q:
Who pays for these Recordkeeping Services if not the plan?
A:
The amounts listed within the Value of Recordkeeping Services table are paid by
Mutual of Omaha and/or the plan to the subcontracted recordkeeper for the
recordkeeping services provided to the plan. Mutual of Omaha pays its portion of
these fees out of the compensation in receives from the plan.
Section: Optional and Transaction Based Fees (Refer to Sample: Page 9)
33)
Q:
Does Mutual of Omaha disclose transaction based fees, such as participant
loan processing?
A:
Yes. This type of fee may be found under “Optional and Transaction Based Fees”.
Other transaction based fees could include distribution processing fees and plan or
service termination fees (among others).
Section: Fees Charged Upon Termination of Services (Refer to Sample: Page 9)
34)
Q:
Is the $750 plan or service termination fee the full amount charged to a plan
when the plan terminates its relationships with Mutual of Omaha?
A:
No. If a plan terminates its relationships with Mutual of Omaha, the following
fees may apply:
1) Recordkeeping Charge – a Transaction Based Fee of $750 for the transfer
of plan and participant records to a new provider or for terminating the
plan.
2) Liquidation Charge – a Transaction Based Fee that may be imposed if the
plan sponsor and/or plan terminates the Contract under certain conditions,
such as if there are plan assets invested in the Guaranteed Account.
3) Surrender Fee – a Transaction Based Fee that may be imposed if the plan
terminates the Contract prior to the time indicated in the schedule. The fee
only applies if Mutual of Omaha paid a prior provider charge when the
plan transferred to Mutual of Omaha.
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Section: Services Provided to the Plan (Refer to Sample: Pages 10-11)
35)
Q:
If a plan selects Mesirow Financial Investment Management, Inc.’s ERISA
3(38) investment manager service, would it be reflected under the Services
Provided to the plan?
A:
Yes. This Mesirow service option, for an additional 5 basis points, would be
described under “Services Provided to the Plan”. The charge for this service
would be illustrated in “Fees Paid by United of Omaha” (Refer to Sample: Page
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If Mesirow’s ERISA 3(38) investment manager service is not selected by the
plan, then Mesirow’s ERISA 3(21) co-fiduciary service will be highlighted as
stated in the Sample: Page 10.
Section: Investment Performance and Fees and Expenses (Refer to Sample: Pages 12-16)
36)
Q:
Where may the plan obtain updated performance and expense information
about the investment options the plan has selected?
A:
Please visit the plan’s distinct performance and expense web link contained in
your plan’s specific fee disclosure notice for current information about an
investment option’s performance, issuer, objectives or goals, principal strategies,
principal risks and portfolio turnover rate, as well as the most current performance
information. The appropriate web link will be included in the plan’s Retirement
Plan Fee Disclosure Notice.
For sample purposes, we have provided this link as an example:
http://www.getretirementright.com/funds/30
All investment options available in the product are included on the website. If a
plan uses outside investments, these will not be included on the Mutual of Omaha
website.
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Q:
Who may an advisor, TPA or Plan Sponsor contact with questions regarding
Mutual of Omaha’s Retirement Plan Fee Disclosure Notice?
A:
Plan Sponsors may contact the plan’s Mutual of Omaha relationship manager.
Advisors and TPAs may contact their Mutual of Omaha wholesaler or internal
wholesaler with any questions.
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