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An “Institutional Investor” means any:

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  • person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million;
  • governmental entity or subdivision thereof;
  • employee benefit plan, or multiple employee benefit plans offered to employees of the same employer, that meet the requirements of Section 403(b) or Section 457 of the Internal Revenue Code and in the aggregate have at least 100 participants, but does not include any participant of such plans;
  • qualified plan, as defined in Section 3(a)(12)(C) of the Exchange Act, or multiple qualified plans offered to employees of the same employer, that in the aggregate have at least 100 participants, but does not include any participant of such plans;
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Knowledge is power

As a financial advisor, you are likely familiar with jargon and abbreviations. Our industry can be complex and confounding, which is precisely why it’s our responsibility to make sense of potentially confusing information and present it to clients in a digestible way. 

Regarding retirement plans, clear communication with plan sponsors and plan participants is paramount to success and ERISA 404a-5 regulations, which are designed to protect plan participants, provide advisors with a key opportunity to educate participants and help them make informed decisions. 

The overarching goal, of course, is to help participants reach better retirement outcomes. 

Here is an overview of ERISA’s plan participant disclosure requirements: 

What is participant disclosure?

Under the ERISA 404a-5 regulations, if a retirement plan delegates investment responsibility to plan participants, the plan must inform participants of their rights and responsibilities for selecting plan investments. The plan must also explain how plan administration and investment expenses are paid. 

Who must receive fee disclosure?

All eligible employees and all plan participants in plans subject to the disclosure regulations must receive the participant-level fee disclosures. Recipients include: 

- Current plan participants
- Employees who meet the eligibility requirements but have not yet enrolled in the plan, or have chosen to opt out of participating in the plan
- Former employees who have an account balance in the plan
- Beneficiaries of deceased participants

What needs to be disclosed?

Participants must receive disclosures that fall into two buckets: plan-related disclosures and investment information disclosures. Those disclosures must be received before the date they can first direct their investments, and at least annually thereafter. 

Plan-related information

The disclosure must include “general plan information” to explain how the plan operates. This includes a list of investments available under the plan, identifying any designated investment alternatives and designated investment managers; instructions on how to make an investment election; information on the exercise of voting, tender, and other shareholder rights; and a description of any “brokerage window” available within the plan. 

The disclosure must also explain fees and expenses for plan administration, such as record keeping fees, legal expenses, and accounting expenses. The disclosure must explain how the fees are assessed (for example, as a flat dollar amount for all participants or pro rata based on a participant’s percentage of overall assets in the plan).

In addition to the administrative fees that cover services common to all participants in the plan, the disclosure must list other fees that might be charged to a specific participant’s plan account, rather than allocated across all plan participants’ accounts. These fees relate to optional services that the participant selects or specific transactions the participant initiates. Common examples include fees for taking a loan or a distribution, using investment advice services, submitting a qualified domestic relations order, or accessing a brokerage window.

Investment information

Investment-related information also must be included in the annual fee disclosures to participants. Participants must receive this information in a comparative format, such as a chart, listing each designated investment alternative offered under the plan. Most participant fee disclosures are designed to incorporate the DOL Model Comparative Chart that was included in the fee regulations. 

If all of this sounds overwhelming, don’t fret. It isn’t uncommon for plan sponsors to rely on record keepers or other service providers to help compile the fee information and deliver the disclosures to participants. 

Nonetheless, this is good information to review, as plan sponsors and ERISA plan administrators have a fiduciary responsibility to ensure that plan participants receive the information required under the participant-level fee disclosure requirements. 

Victory Capital Management, Inc. is a Registered Investment Advisor. The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Not to be used as legal or tax advice.

This material is for information and illustrative purposes only and is not intended to be viewed or construed as a recommendation or suggestion that you take a particular course of action with regard to investments. In providing this material, we are not undertaking to give advice in a fiduciary capacity, to you, or to any retirement account(s) for which you act as a fiduciary. 

©2018 Victory Capital Management Inc.
Consider the investment objectives, risks, charges and expenses of the funds carefully before investing. Download a prospectus or summary prospectus, if available, containing this and other important information for USAA mutual funds from, for Victory mutual funds from, or for VictoryShares and VictoryShares USAA ETFs from Read it carefully before investing.

Investments involve risk including possible loss of principal. The value of the equity securities in which the fund invest may decline in response to developments affecting individual companies and/or general economic conditions. Dividends are never guaranteed. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty, and greater volatility. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. You may lose money by investing. There are no guarantees the funds will achieve their investment objectives and strategies may be unsuccessful.

Investments in bank loans may at times become difficult to value and highly illiquid; they are subject to credit risk such as nonpayment of principal or interest, and risks of bankruptcy and insolvency. Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.

ETFs have the same risks as the underlying securities traded on the exchange throughout the day. Redemptions are limited and often commissions are charged on each trade, and ETFs may trade at a premium or discount to their net asset value. There can be no assurance that an active trading market for shares of an ETFs will develop or be maintained. The ETFs are not actively managed and may be affected by a general decline in market segments related to the Indexes. The ETFs invest in securities included in, the Index, regardless of their investment merits. The performance of the ETFs may diverge from that of the Indexes. 

Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.

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This material does not constitute a distribution, offer, invitation, recommendation, or solicitation to sell or buy any securities; it does not constitute investment advice and should not be relied upon as such.  Investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Victory Capital means Victory Capital Management Inc., the investment manager of the USAA Mutual Funds and VictoryShares USAA ETFs. Victory Mutual Funds and USAA Mutual Funds are distributed by Victory Capital Advisers, Inc. (VCA). VictoryShares ETFs and VictoryShares USAA ETFs are distributed by Foreside Fund Services, LLC (Foreside). VCA and Foreside are members of FINRA and SIPC. Victory Capital Management Inc. (VCM) is the investment adviser to the Victory Mutual Funds, USAA Mutual Funds, VictoryShares ETFs, and VictoryShares USAA ETFs. VCA and VCM are not affiliated with Foreside. USAA is not affiliated with Foreside, VCM, or VCA. USAA and the USAA logos are registered trademarks and the USAA Mutual Funds and USAA Investments logos are trademarks of United Services Automobile Association and are being used by Victory Capital and its affiliates under license.

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For specific questions about your account or other customer-service related inquiries, please contact Victory Capital directly.