Fiduciary Responsibilities For Employee Retirement Plans Kathy Lindahl, AVP Finance & Operations,...
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Transcript of Fiduciary Responsibilities For Employee Retirement Plans Kathy Lindahl, AVP Finance & Operations,...
Fiduciary Responsibilities For Employee Retirement Plans
Kathy Lindahl, AVP Finance & Operations, Michigan State University
Anne N. Fish, Director of Benefits, Northwestern University
Kelley F. Snook AIF®, President – Consulting Group, StraightLine
Michael F. Bisaro AIF®, Vice President – Participant Services, StraightLine
403(b) Plans and Fiduciary Liability?
Fiduciary Liability lies with the Chief Business Officer….when it goes wrong, we’re liable not the vendors!
So what does that mean?
We knew we needed some help to get it done efficiently…
Independent, unbiased guidance combining Institution and faculty/staff needs
MSU went through a process of learning “we didn’t know what we didn’t know”
What Chief Business Officers Need To Know
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Opportunity to Optimize Plan Performance Plan Design – ‘Best of the Best’ for Institution & Participants Vendor Reduction, Optimal Investments, Cost Redirection
Employees Confused - Product-Based Sales with Appropriate Financial Advice
Unbiased Employee Financial Advisement Enhanced Education, Technology, & Employee Tools
Retirement Investment Advisory Committee (RIAC) Refocus RIAC Charter, Purpose, Controls and Oversight
The Enlightenment Period!
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The goal of every Retirement Plan, ERISA and NON- ERISA, must be to quantifiably improve the retirement outcome of every participant
Time to put the “School” back into the Plan
Independent Perspective vs. Vendor Perspective
All of this driven by our Fiduciary Responsibility
Keep The End Game In Mind
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Participant Services
Plan Services
The Process For Plan Success
5
OVE
R SIG
HT
FIDUCI
ARY
FIDUCIARY
OVERSIGHT
Participant ServicesPlan Services
The Process For Plan Success
6
OVE
RS I
GHT
FIDUCI
ARY
FIDUCIARY
OVERSIGHT
The Evolution Of The 403(b)
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Exercise discretionary control/authority over plan
management or plan assets
Have discretionary authority or responsibility for plan
administration
Provide investment advice to a plan for compensation
or have authority or responsibility to do so
e.g. Plan Trustees, Plan Administrators, Committee
Members
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Who is a Fiduciary
Know Standards, Laws and Document Provisions
Select and Diversify Investments
Use Prudent Experts
Loyalty to Beneficiaries and Account for Plan Expenses
Written Process; Documented Application
Avoid Conflicts of Interest
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What is a Fiduciary Process
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Plan Document
Investment Policy Statement (IPS)
Education Policy Statement (EPS)
Aggregate Information Form 5500
Audit
Compliance
Know Standards, Laws, & Document Provisions
Consolidation is Inevitable!
**The fund companies noted above represent only a small portion of available fund companies from which you may choose.
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Select & Diversify Investments
ERISA section 404(a)(1)(B)
Act Prudently—fiduciaries must act “with the
care, skill, prudence and diligence under the
circumstances then prevailing that a prudent [person]
acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like
character and with like aims.”
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Use Prudent Experts
Duty of Loyalty and Reasonableness
Discharge duties with respect to a plan solely in the
interest of the participants and beneficiaries. Defray
reasonable expenses of administering the plan
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Loyalty to Beneficiaries & Account For Plan Expenses
“While fiduciaries have a duty to understand revenue-sharing, there is no corresponding duty imposed on nonfiduciary service providers to provide that information.”
“In effect, the law creates a curious circumstance where the people with the least knowledge about a subject (i.e., plan sponsors) have the legal responsibility to evaluate it, while the people who are most knowledgeable about the same subject (i.e., 401(k) providers) have no legal duty to disclose it.”*
C. Frederick Reish, Partner and ERISA SpecialistDrinker Biddle & Reath, LLP, Los Angeles*2008 Article for Plan Sponsor Magazine
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Duty of Reasonableness
Unbundle to Understand What You Are Paying
Costs
Investment Management
Record-keeping
TechnologyServices
Compliance
Employee Communication
s
Retirement Plan
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Duty of Reasonableness
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Understand what is reasonable
Duty of Reasonableness
Investment Management Fee
12b-1 Fees
Shareholder Servicing Fees
Sub-TA (Agency Transfer Fees)
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Duty of Reasonableness
Understand How You Are Paying
Written Process; Documented Application
Establish
Follow
Document
Measure
Repeat!
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“Excellence is the gradual result
of always striving to do better”
- Pat Riley
Know Standards, Laws and Document Provisions
Select and Diversify Investments
Use Prudent Experts
Loyalty to Beneficiaries and Account for Plan Expenses
Written Process; Documented Application
Avoid Conflicts of Interest
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What is a Fiduciary Process
Participant Services
Plan Services
The Process For Plan Success
20
OVE
R SIG
HT
FIDUCI
ARY
OVERSIGHT
F IDUCIA
RY
ConcernsThose employed in the higher education community are growing more nervous about their ability to retire comfortably, yet few are acting on their concerns
62% are less confident about living comfortably in retirement
36% have never calculated their retirement income needs
40% have never changed their retirement account allocation
Shocking Statistics
Web-based survey commissioned by ING and conducted by Synovate via a national internet consumer panel between October 14 th and October 19th, 2009. Respondents included 301 individuals in the U.S. currently employed in higher education who participate in their employer’s DC plan.
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Higher Education Employee Study
Insufficient Diversification
Inertia
Fund Overlap Misuse of Target Date Funds
Nonexistent or Infrequent Rebalancing
Lack of Plan Understanding 403(b) vs. 457, Roth Savings, etc.
Insufficient Savings Rates22
Common Employee Behaviors
Product Sales vs. Financial Literacy & Fiduciary Advice
Lack of Objective Resources to Provide Desired Education and Advice
Inherent Conflicts of Interest
Plan Providers NOT Fiduciaries
No Opportunity for Professional, Ongoing Management
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Pitfalls With Current Participant Help
Employee Inattention
Retirement Success = Income Replacement
Enhanced Strategies
Professional Management Options
Impact More People
Make It Easier24
Focus Efforts on the Real Challenges
Participant PaidOut of Pocket
Participant PaidOut of Account
Integrated Fee(ERISA Bucket) University-Paid Benefit
Empl
oyee
Ado
ption
Fee Methods & Adoption Rates
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“ERISA Bucket”
Possibility For Fee Integration From Excess Revenue
Participant Services
Plan Services
The Process For Plan Success
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OVE
R SIG
HT
FIDUCI
ARY
FIDUCIARY
OVERSIGHT
Every program and platform should be designed to quantifiably improve each
participant’s chance at retirement success
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Fiduciary Responsibilities with Employee Retirement Plans
I didn’t know what
I didn’t know!
Questions?
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Kathy LindahlAVP Finance & OperationsMichigan State University
[email protected](517) 355-5016
Kelley F. Snook Jr. AIF®
President – Consulting GroupStraightLine
[email protected](877) 338-4032
Michael F. Bisaro AIF®
Vice President – Participant ServicesStraightLine
[email protected](877) 338-4032
Anne N. FishDirector of Benefits
Northwestern [email protected]
(847) 491-8588
Contact Information
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