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Tackling the DOL’s New Rules in 2012 What You Need to Know to Stay Tackling the DOL’s New Rules in 2012 What You Need to Know to Stay Ahead December 1, 2011 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public.

Panelists Alison Cooke Mintzer (moderator) Editor-in-Chief PLANADVISER Joseph Lee Director, Head of DC Advisor-Sold Panelists Alison Cooke Mintzer (moderator) Editor-in-Chief PLANADVISER Joseph Lee Director, Head of DC Advisor-Sold Distribution Black. Rock Marcia Wagner Principal The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 2

The changing DC landscape • DC market is growing – Currently $4. 0 T, The changing DC landscape • DC market is growing – Currently $4. 0 T, expected to grow to $5. 5 T by 2015 – Advisor opportunity expected to grow to $2. 4 T by 2015* • Role of DC plan has changed – Supplementary retirement savings program perhaps THE retirement savings program • Regulation/legislation is driving decisions – Fee transparency – Role of fiduciary – QDIA • Plan Sponsors will rely on experts to deliver better participant outcomes – Looking to understand execute their fiduciary responsibility to mitigate their risk – Require expertise on all aspects of plan design – not just investments – Must be able to demonstrate value for the fee * Source: Combination of BLK & 3 rd party data sources FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 3

Transforming the Retirement System • Regulatory landscape is changing • DOL is rolling out Transforming the Retirement System • Regulatory landscape is changing • DOL is rolling out new rules for 2012 – Fee disclosures for plan sponsors – Participant-level fee disclosures – Broader “fiduciary” definition • Proposed rulemaking • DOL interaction with White House – Working with White House’s middle class task force – Coordinated actions to improve retirement security Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 4

401(k) fiduciary toolkit • Plan sponsors need to understand their current and new fiduciary 401(k) fiduciary toolkit • Plan sponsors need to understand their current and new fiduciary responsibilities • Advisors can help plan clients navigate the changing regulatory landscape • Topics covered by fiduciary toolkit – Plan fees – Fiduciary status – Fiduciary liability – Rollover assets – Investment duties – Investment menu – Due diligence Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 5

I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment education vs. advice V. Strategy and fiduciary pointers VI. Partnering with Black. Rock Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 6

DOL finalizes participant fee disclosure regulations • DOL issues final regulations on October 14, DOL finalizes participant fee disclosure regulations • DOL issues final regulations on October 14, 2010 – DOL press release explained that existing law did not require plans to provide necessary information – New rule requires comparison of plan’s investments • Types of plans covered – New regulations apply to DC plans with participant-directed investments – Covers plan even if not designed to comply with ERISA Section 404(c) • Coverage of participants – New regulations apply to all eligible employees Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 7

Annual and quarterly disclosure of plan-related information • Must disclose general info about plan Annual and quarterly disclosure of plan-related information • Must disclose general info about plan – Must include explanation of general admin. service fees and individual expenses on annual basis – Must disclose dollar amount of fees / expenses charged to participant accounts on quarterly basis • Disclosure only required for fees / expenses not embedded in expenses of investments – If service provider only receives indirect compensation from investments, provider’s fees are not subject to this disclosure requirement – But must disclose that a portion of general admin. service fees is paid from expenses of investments Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 8

Annual disclosure of investment-related information • Must disclose fee and performance-related info for plan’s Annual disclosure of investment-related information • Must disclose fee and performance-related info for plan’s investment alternatives – This disclosure must be in comparative format – Must be provided on annual basis • Required information for disclosure in comparative format includes – Name and type of investment option – Investment performance data – Benchmark performance data – Total annual operating expenses for each investment and any extra shareholder-type fees – Internet website address Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 9

Other requirements • Info that must be available upon request – Prospectuses, shareholder reports Other requirements • Info that must be available upon request – Prospectuses, shareholder reports and financial statements provided to plan • Form of disclosure – Must be understood by average participant • Impact on sponsor’s other fiduciary duties – No relief for duty to prudently select / monitor plan’s providers and investments – New regulations modify ERISA 404(c) disclosures • Effective date – Plan years beginning on or after November 1, 2011 – Initial disclosures due May 31, 2012 for calendar year plans Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 10

Fee disclosures to participants practical implications • Automatic delivery of fund prospectuses will no Fee disclosures to participants practical implications • Automatic delivery of fund prospectuses will no longer be required under ERISA 404(c) • Participant education – New rules become effective May 31, 2012 for calendar year plans – Participants should be educated before then – Participants are likely to scrutinize plan’s investments and fees • Advisers can help sponsors prepare – Complete the investment portion of comparative table (e. g. investment and benchmark performance data) – Discuss with plan’s recordkeeper the impact of the new rules on existing fee disclosures – Meet with participants and review investment and fee information through educational sessions – If plan sponsor has fee-related concerns, remind plan sponsor that its fiduciary review process can be enhanced Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 11

I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment education vs. advice V. Strategy and fiduciary pointers VI. Partnering with Black. Rock Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 12

When are service providers conflicted? • Plan sponsor is looking for provider of administrative When are service providers conflicted? • Plan sponsor is looking for provider of administrative services • Provider offers 2 options – Services ordered a la carte: $10, 000. 00 – Pre-packaged services and menu: $4, 000. 00 • Plan sponsor may incorrectly conclude pre-packaged option is best for participants – Doesn’t realize that provider receives “hidden” compensation from funds and fund managers – Full compensation may be more than $10, 000 – Hidden cost is actually shifted to participants • Provider has incentive to steer uninformed clients to more profitable option Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 13

Retirement security initiative • Improving transparency of 401(k) fees – Administration’s goal is to Retirement security initiative • Improving transparency of 401(k) fees – Administration’s goal is to make sure workers and plan sponsors are getting services at a fair price – Pushing to “finalize” interim final regulations this year • Rationale for interim 408(b)(2) regulations – DOL efforts to educate plan sponsors about 401(k) plan fees started with November 1997 hearing – Plan sponsors still not asking the right questions – DOL will now require providers to furnish the fee info sponsors should be requesting Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 14

Covered providers and disclosures • Covered service providers – Fiduciaries (including ERISA fiduciary or Covered providers and disclosures • Covered service providers – Fiduciaries (including ERISA fiduciary or RIA) – Providers of recordkeeping and brokerage services – Providers of accounting, actuarial, legal and other professional services if they receive indirect fees • Required to disclose compensation in writing – Must be provided before entering into contract – Formal contract not required – Indirect compensation requires more detailed disclosure – Service-by-service disclosure of fees is generally not required Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 15

Disclosure of compensation • Format and manner of disclosure – Dollar amount, formula, percentage Disclosure of compensation • Format and manner of disclosure – Dollar amount, formula, percentage of plan assets, per capita charge, or any other reasonable method – Whether fees will be billed or deducted any other manner of receipt must be disclosed • Compensation shared among related parties – Generally, compensation paid to affiliates or subcontractors does not have to be disclosed – But must disclose if payment flows to related party on transactional basis (e. g. , commissions, 12 b-1 fees) • Special rules for platform providers – Must provide fee info for each investment alternative – Requirement can be met by passing through fund prospectuses Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 16

Timing for 408(b)(2) disclosures • Required deadlines – Disclosure must be made reasonably in Timing for 408(b)(2) disclosures • Required deadlines – Disclosure must be made reasonably in advance of starting or renewing services – Changes to info must be made no later than 60 days after provider becomes aware of change – Erroneous info will not result in violation if provider has acted in good faith and with diligence – Errors and omissions must be disclosed within 30 days after coming to light Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 17

Prohibited transactions and interim 408(b)(2) regulations • If provider fails to make disclosure, plan’s Prohibited transactions and interim 408(b)(2) regulations • If provider fails to make disclosure, plan’s payment of fees is a prohibited transaction – Disclosure failures can be cured – Plan must make written request for information, and provider must respond within 90 days – Refusal or inability to comply with request requires plan fiduciary to notify DOL • No fiduciary conflicts permitted – 408(b)(2) disclosure does not cure self-dealing violations • Outlook – Effective date delayed from July 16, 2011 to April 1, 2012 Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 18

408(b)(2) disclosures practical implications • Providers must furnish detailed fee disclosures by April 1, 408(b)(2) disclosures practical implications • Providers must furnish detailed fee disclosures by April 1, 2012 • Vendors, including platform providers, are responding in different ways – Some are bundling all services (e. g. RIA and B-D) – Some are merely disclosing their own fees, without reference to other providers – Some providers are subcontracting this disclosure responsibility – The FA should determine who is responsible for disclosure and who is making which disclosures • Financial advisors can add value by “quarterbacking” to make sure all providers know and make disclosures, and keep their plan sponsors informed as to what they will be receiving and from whom • Plan sponsors have duty to ensure plan’s fees are reasonable under ERISA • Plans sponsors are likely to need assistance in light of complexity of plan arrangements • Advisors can assist with – Prudent evaluation of fees – Negotiating lower fees and / or expanded services, and – Search for alternative arrangements, if necessary Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 19

I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment education vs. advice V. Strategy and fiduciary pointers VI. Partnering with Black. Rock Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 20

DOL’s campaign to expose conflicts • DOL strategy – Roll out new fee disclosure DOL’s campaign to expose conflicts • DOL strategy – Roll out new fee disclosure rules – Impose fiduciary status on more providers – Force non-fiduciary advisors to make disclaimers • DOL releases proposed regulations on October 21, 2010 – Broadens “investment advice fiduciary” definition – Withdrawn on September 19, 2011 – To be re-proposed with more input from public Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 21

Overview of existing definition • If you provide investment advice, you are automatically deemed Overview of existing definition • If you provide investment advice, you are automatically deemed a fiduciary • DOL’s current definition for investment advice is based on 5 -factor test – Advice on value or advisability of investments – that is provided on a regular basis – pursuant to a mutual agreement or understanding – that such services will serve as a primary basis for investment decisions, and – that individualized advice will be based on the particular needs of the plan Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 22

Overview of DOL’s initial proposal • Existing definition – Advice may be investment advice Overview of DOL’s initial proposal • Existing definition – Advice may be investment advice if it is primary basis for plan decisions and given on regular basis • DOL’s initial proposal – Include any advice that may be considered by plan – May include casual advice or one-time advice – Non-fiduciary advisors must make disclaimer 1. advisor is acting as seller of securities 2. advisor’s interests are adverse to client 3. advice is not impartial Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 23

Broader “Fiduciary” definition potential implications • Non-fiduciary advisors – Would need to change service Broader “Fiduciary” definition potential implications • Non-fiduciary advisors – Would need to change service model – Must disclose they are not providing impartial advice – Or they could accept fiduciary status under ERISA • Re-proposed rule in 2012 – New definition to include individualized advice only – Will be similar in approach to DOL’s initial proposal – DOL is coordinating with SEC Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 24

I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment education vs. advice V. Strategy and fiduciary pointers VI. Partnering with Black. Rock Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 25

Investment education vs. advice • How should investment assistance be provided to plan participants? Investment education vs. advice • How should investment assistance be provided to plan participants? – Education to help them make informed decisions? – Advices that tells participants exactly how to invest • A new way to think about participant education – Education only – Education and advice Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 26

Education only or education and advice • Advice program should be in addition to Education only or education and advice • Advice program should be in addition to education program • 3 basic choices for plan sponsors – Education only (with no advice) – Education and non-discretionary advice – Education and discretionary advice Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 27

Investment education • Plan menu disclosures required by – Old 404(c) regulations – New Investment education • Plan menu disclosures required by – Old 404(c) regulations – New participant-level disclosure rules • Investment concepts education – Must be understood by “average” plan participant • Similar to SPD readability standard – Pegged to typical participant’s financial literacy • Allocation decision support – Can replace poor decision making by participants – Can be incorporated into broader programs Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 28

Non-fiduciary nature of investment education • Provider of “investment education” is not a plan Non-fiduciary nature of investment education • Provider of “investment education” is not a plan fiduciary • DOL interpretive bulletin 96 -1 has 4 safe harbors for non-fiduciary education – Plan information (e. g. plan terms, menu information) – Investment information (e. g. financial concepts, risk tolerance) – Asset allocation models – Interactive materials (e. g. worksheets) Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 29

Potential liability for providing investment advice • ERISA does not require plan sponsors to Potential liability for providing investment advice • ERISA does not require plan sponsors to offer advice – But if any advice is offered, fiduciary standards apply – Co-fiduciary liability if plan sponsor imprudently reflects advice provider • DOL’s existing proposal would broaden “investment advice” definition Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 30

Investment education vs. advice practical implications • Every plan needs investment education • Advisors Investment education vs. advice practical implications • Every plan needs investment education • Advisors are well positioned to provide or facilitate investment education with no fiduciary risk • Investment advice is an opportunity for advisors willing and able to assume fiduciary responsibility – Level fee generally required – Variable fees possible under participant investment advice regulations with • Computer model, or • Level fees for RIA / B-D and advisors; variable fee for affiliates Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 31

I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment education vs. advice V. Strategy and fiduciary pointers VI. Partnering with Black. Rock Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 32

Additional fiduciary pointers • Investment duties under ERISA are procedural, so be sure to Additional fiduciary pointers • Investment duties under ERISA are procedural, so be sure to follow a deliberate process • Develop separate fee policy statement for fiduciary review of investment and administrative fees – Benchmark fees annually – Put plan out to bid every three years • Be proactive in reviewing plan’s menu (including investment fees) quarterly • Encourage plan sponsors and fiduciaries to investigate their liability protection (bonding, indemnity) • Determine whether and for what purposes the advisor will be a fiduciary (e. g. nondiscretionary 3(21) vs. discretionary 3(38)) • Use 401(k) fiduciary toolkit Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 33

I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment I. Fee disclosures to participants II. 408(b)(2) disclosures III. Broader “Fiduciary” definition IV. Investment education vs. advice V. Strategy and fiduciary pointers VI. Partnering with Black. Rock Content provided by The Wagner Law Group FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 34

Black. Rock: providing you with the toolkit to stay ahead To help you stay Black. Rock: providing you with the toolkit to stay ahead To help you stay ahead, we partnered with Marcia Wagner to develop the Black. Rock 401(k) Fiduciary Toolkit, providing you with insights, best practices and strategy tips on key fiduciary topics: - Plan fees - Rollover assets - Fiduciary status - Investment menu - Fiduciary liability - Due diligence - Investment duties Fiduciary Checklist 401(k) Fiduciary Toolkit Online Resource Center www. blackrock. com/fiduciarytoolkit FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 35

More resources to help you start conversations and support your position Thought Leadership Advisor More resources to help you start conversations and support your position Thought Leadership Advisor Resources Investment Support • • • DCfocus magazine White papers / research Practice management Plan sponsor “door openers” Analytics and tools Product brochures FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 36

Black. Rock DC at your fingertips www. blackrock. com/dc Introducing Black. Rock's new DC Black. Rock DC at your fingertips www. blackrock. com/dc Introducing Black. Rock's new DC website, a dedicated site for plan sponsors and retirement plan advisors Practice Management and Value Add Tools and Analytics Thought Leadership, Research and Insight Timely Updates on DC Trends (Follow us on Twitter @blackrockusdc) FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 37

Black. Rock: An extension of your team Black. Rock is committed to supporting your Black. Rock: An extension of your team Black. Rock is committed to supporting your business and we look forward to helping you enhance your practice. • NH • WA • MT • VT • ND • MN • OR • ID Contact your Black. Rock DC Advisor Consultant or call 877 -99 -BLKDC (877 -992 -5532). • WY • WI • SD • IA • NE • NV • UT • CA • AZ • CO • KS • MO • OK • NM • TX • AK • AR • LA • ME • NY • MI • PA • IL • IN • OH • WV • VA • KY • NC • TN • MA • RI • CT • NJ • DE • MD • SC • MS • AL • GA • FL • HI Joe Lee Head of USDC Advisor – Sold Distribution DC Advisor Consultant Territory 609 -282 -2220 Phone Number joseph. [email protected] com Email Address Internal DC Advisor Consultant Chris Mango Northeast 617 -960 -6442 christian. [email protected] com Michael Murray 609 -282 -4853 michael. [email protected] com Mitch Horan NY / NJ Metro 201 -803 -1718 mitchell. [email protected] com Joe Rosenthal 609 -282 -4728 joseph. [email protected] com David Quester Mid-Atlantic 610 -930 -6616 david. [email protected] com Eben Wheeler Southeast 704 -292 -5437 eben. [email protected] com Jeff Stevens Midwest 763 -232 -6790 jeff. [email protected] com TBD Pacific Northwest Matthew Stebner 609 -282 -4883 matthew. [email protected] com Robert J. Cruz South Central 469 -585 -6375 robert. [email protected] com Art Villar Southwest 562 -354 -6077 art. [email protected] com Don Allen 609 -282 -4882 don. [email protected] com Allison Rumpp 609 -282 -4854 allison. [email protected] com FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 38

Important Notes This material is provided to you for informational purposes only. Opinions expressed Important Notes This material is provided to you for informational purposes only. Opinions expressed are current opinions as of the date appearing in this material only. Black. Rock, Inc. and its subsidiaries (together, "Black. Rock") do not provide investment advice regarding any security, manager or market. This material is provided as an educational tool and should not be considered investment advice. Black. Rock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Black. Rock is not engaged in rendering any legal, tax or accounting advice. Please consult with a qualified professional for this type of advice. Copyright 2011 Black. Rock, Inc. All rights reserved. 11 -1192 (A 0065897) FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be distributed to the general public. 39