The New Rules of Retirement Planning

Presented By:John Friar, AIF®

Director of Corporate Retirement PlansHausmann-Johnson Bauch Financial

Today’s Agenda

Look at Why Retirement Plans Demand So Much Attention

Roles and Responsibilities Inside a Retirement Plan

What Areas are Being Scrutinized

Ultimately, What Can Plan Sponsors Do

What’s So Important About Retirement Plans

America’s Top Financial Concerns18 to 29 30 to 49 50 to 64 65+

Not having enough money for retirement 50% 70% 68% 37%

Not having enough money for kid’s college 46% 55% 23% 8%

Not being able to pay medical costs of serious illness or accident

52% 54% 58% 43%

Not being able to pay off debt 47% 45% 42% 20%

Not able to maintain standard of living you enjoy

52% 44% 52% 41%

Not able to pay normal monthly bills 35% 37% 46% 33%

Not able to pay for normal health care costs 40% 33% 38% 29%

Not able to pay rent, mortgage or other housing costs

40% 30% 31% 30%

Not able to make minimum payment on credit cards

14% 17% 18% 15%

Gallup, Economy and Personal Finance Survey, April 2014

Snapshot of 401(k) Plan Activity

Average Account Balance $72,383

Median Account Balance $18,433

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 as of

12/31/13

Only 20% of participants had account balances >$100,000 Only 10% of participants had account balances > $200,000

Source: Employee Benefit Research Institute

Retirement Income Concerns

Approximately 10,000 baby boomers are now

retiring every day*

Retirement Income Concerns

Participants lack knowledge of life expectancy and sustainable withdrawal rates

RealityBelief

20 yrs. 30 yrs.

7-10% annual draw

down

4% annual draw down

Defining What Your Role Is

Definitions

Investment Fiduciary – Someone who is managing the assets of another person and stands in a special relationship of trust, confidence, and/or legal responsibility.

Investment Fiduciaries - Stewards

Stewards – Manage the investment decision making process (trustees, investment committee members, plan sponsors)

The Investment Steward Cont…

More than 5 million men and women serve as:• Members of investment committees of

retirement plans, foundations, and endowments

• Trustees of private trustsStewards manage more than 80% of the

nation’s liquid investable wealth, yet few have received formal training for their role.

Investment Fiduciaries - Advisors

Advisors – Provide comprehensive and continuous investment advice (wealth managers, financial advisors, trust officers, financial consultants, investment consultants, financial planners)

Investment Fiduciaries – Advisors Cont…

• 3-21 Fiduciary

• 3-38 Fiduciary

Investment Fiduciaries – Advisors Cont…

Most Stewards share their fiduciary responsibilities with Investment Advisors.

Even so, Investment Advisors:• Often have a limited understanding of the

fiduciary code of conduct, and• Have no uniform advanced education

requirements.Therefore, effective due diligence in

selecting Investment Advisors is critical.

Investment Fiduciaries – Investment Managers

Managers – Make investment decisions, and select the individual securities to implement a specific investment

Investment Fiduciaries – Investment Managers Cont…

Investment Managers make investment decisions. They select the individual securities to implement a specific investment mandate (such as large cap growth).

The Steward and Advisor have a fiduciary duty to demonstrate that Investment Managers have been prudently selected and monitored.

Responsibility vs. Liability

Fiduciary responsibilities can be shared but not abdicated.

Liability exposures exist where there are unfulfilled responsibilities.

Fiduciaries can reduce liability by identifying and filling gaps in their practices.

We Haven’t Had to Worry About This Before!

President’s budget proposalMandatory autoIRA for employer with more than 10 EEs w/ 3 yr. $500 tax creditLimit the total accrual of tax-favored retirement benefits (basically the 415(b) limit)Require plans to allow EEs with 3 yrs of 500 hrs. to defer into 401(k) planExempt accounts of $100,000 or less from RMD rulesEncourage state retirement savings initiatives

DOL 2013 Enforcement Results

DOL Guidance Definition of “Fiduciary”

•The proposal significantly expands the definition of fiduciary investment advice•Level-fee advisors generally not affected, except with respect to rollovers•Recommending an IRA rollover becomes a fiduciary act requiring level fees; BIC exemption•Educating participants not considered a fiduciary act

ERISA Litigation - fee litigationTibble v. Edison International (9th Cir. 2013, Supreme Ct. May 18, 2015)

SC considered whether a fiduciary’s allegedly imprudent retention of an investment is an ‘action’ or ‘omission’ that triggers the running of the 6-year limitations period

SC ruled that basically each review of (or failure to review) the plan’s investment options starts a new six-year clock running for a potential claim of a fiduciary breach with respect to those investments

ERISA Litigation Tibble v. Edison International (cont.)

Key takeaways:•A fiduciary’s duty to monitor investments is separate from the duty to prudently select the investment•“Trustee must ‘systematically consider all the investments of the trust at regular intervals’ to ensure they are appropriate” •A “fiduciary is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances” •A fiduciary has a “duty to monitor investments and remove imprudent ones”

A Word About IRA Rollovers

Great opportunity to discuss rollovers from qualified plans to IRAs Regulatory scrutiny on advice concerning these transactions

DOL definition “Conflict of Interest Rule – Investment Advice”FINRA regulatory Notice 13-45

Remember: leaving assets in the plan should always be discussed

TDF Glide Paths – “to or through”

“To” retirement - for participants who expect to withdraw most of their money at the target date.

•They typically maintain their allocations once they reach the target date.

“Through” retirement - for participants who plan to gradually withdraw from their accounts after the target date.

•They continue adjusting the allocation for 20 to 30 years after the target date.

TDF Glide Paths – “to or through”

Example of equity range in two funds2010 Fund 2050 Fund

LowEquity 20%

OtherLow

Equity 38%

Other

HighEquity 70%

OtherHighEquity 95%

Other

What To Do?

1. Know standards, laws, and trust provisions2. Diversify assets to specific risk/return profile of client3. Prepare investment policy statement4. Use “prudent experts” and document due diligence5. Control and account for investment expenses6. Monitor the activities of “prudent experts”7. Avoid conflicts of interest and prohibited transactions8. Work with an advisor who is committed to the 401(k)

industry

8 Fiduciary Precepts

“The greatest enemy of a good plan is the dream of a perfect plan.”Carl von Clausewitz – Prussian General

Thank you!

For More Information Contact:

John Friar, AIF®

Financial Consultant/ Director of Corporate Retirement Plans Jfriar@hjbfinancial.com Direct: 608-252-9634

Webinar CE Credit

SHRM Activity ID:

15-3P5431 hour

HRCI Program ID:

2520851.0 HR (General)

recertification hour

*The use of this seal is not an endorsement by the HR Certification Institute of the quality of the activity. It means that this activity has met the HR Certification Institute’s criteria to be pre-approved for recertification credit.