Crediting shareholder servicing payments back to participants

In response to feedback from our recordkeeper and advisor clients when preparing to comply with the ERISA 404(a)(5) Participant Fee Disclosure regulation which requires that plan fiduciaries disclose fee and investment information to all eligible plan participants, Schwab Retirement Technologies® (Schwab RT) recently introduced features to help enhance the transparency of fee processing activity on behalf of our clients' plan sponsors and participants.

Traditionally, an accepted method for allocating fees takes place in a single step when plan expenses are offset from a pool of shareholder servicing payments generated from participants invested in various mutual funds with the net expense amount allocated to participants' accounts. Schwab RT has enhanced its systems with an alternate process that allows recordkeepers to allocate the shareholder servicing payments generated by participants invested in those funds and credit the amounts back to their accounts. A subsequent process to allocate the gross plan expenses affords plan sponsors and participants a clear view into the fee allocation process. The overall objective of this two-step process results in a more equitable allocation of expenses.

To support this alternate process, new options allow the recordkeeper to determine how to allocate the shareholder servicing payments back to both current participants and to participants without a balance. In addition, a new file import option allows recordkeepers to process the Shareholder Servicing Payment file with multiple investments and plans available on the Schwab Retirement Center website in a single step, eliminating the need for manual processing.

New ways to calculate investment portfolio model performance

For advisors who have created Investment Portfolio Models which may be considered Designated Investment Alternatives (DIAs) by the Department of Labor, Schwab RT has enhanced its systems to calculate blended values at the model level on the following data points:

• Performance rates over various time periods
• Operating expenses
• Portfolio turnover

Advisors working with Schwab RT recordkeepers have the option to display these values at the model level. The calculations are performed using the data reported by each underlying 40 Act mutual fund and weighted based on each model's allocation percentages assigned by the advisor at month-end. The system also takes into account when advisors change the allocations of the underlying funds or change the fund line-up in the model over time. This benefits the recordkeeper and advisor by allowing them to display information for the model to the plan sponsor and participants on the retirement plan website and in regulatory reports in a manner equivalent to the display of core mutual funds. Operating expenses and portfolio turnover are calculated monthly based on current data available for underlying funds. Performance returns are based on historical data.

The 404(a)(5) participant fee disclosure regulation signifies a new era in transparency for recordkeepers, advisors, plan fiduciaries, and the participants we all serve. That's why Schwab RT has developed tools to help you make the necessary changes to address the requirements and better serve your clients. To take advantage of these new enhancements, contact Schwab Retirement Technologies at 800-752-9029.