112 th Annual Conference May 6-9, 2018 St. Louis, Missouri

Transcription

1 2:00 3:15 May 8, 2018 Room 230 Complex 112 th Annual Conference May 6-9, 2018 St. Louis, Missouri Moderator/Speakers: Debby Cherney Deputy General Manager, Eastern Municipal Water District, Perris, CA Rasch Cousineau Senior Consultant, The Hyas Group Tanja Fournier Treasury Manager and Assistant Treasurer, Irvine Ranch Water District Marcus Wu, Esq. Partner, Pillsbury Winthrop Shaw Pittman Defined Contribution Plan Design & Oversight #GFOA2018

2 DC Plan Design & Oversight Poll Questions

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4 DC Plan Design & Oversight Which department is responsible for managing your entity s deferred compensation program? a. Finance/Controller b. Treasury c. Human Resources d. Other e. I don t know!

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6 DC Plan Design & Oversight Does your entity have an active deferred compensation oversight committee? a. Yes b. No c. I m not sure

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8 DC Plan Design & Oversight How large is your entity s deferred compensation program (all plans, total assets)? a. Under $10 million b. Between $10 and $50 million c. Between $50 and $100 million d. More than $100 million e. I m not sure

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10 DC Plan Design & Oversight How many plan providers/recordkeepers are in your program? a. 1 b. 2 c. 3 d. 4 or more e. I m not sure

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12 DC Plan Design & Oversight How many investment options are offered to your plan participants? a. Less than 25 b. Between 25 and 50 c. Between 50 and 100 d. More than 100 e. I m not sure

13 DC Plan Design & Oversight Plan Overview

14 Defined Contribution Plans Account Balance Plans Defined contribution plans are account balance plans Participant s interest is based exclusively on employer/employee contributions plus forfeitures, adjusted for earnings/loss

15 Retirement Plan Types Defined Benefit Plans Pension plans Cash balance plans vs Defined Contribution Plans 457(b) plans 401(a) plans 403(b) plans 401(k) plans Retiree Health Savings Plans

16 Investment Structure of DC Plans Employer Directed Employer selects investments for participant assets vs Participant Directed Employer selects funds offered under plan s investment menu, including a default fund Menu may include self directed brokerage account Participants direct the investment of their plan account among funds on the menu If no participant direction, amount is allocated to default fund

17 DC Plan Design & Oversight Fiduciary Duties

18 Fiduciary Duties

19 ERISA Duties ERISA, a federal law governing employee benefit plans, applies to non governmental entities but not to public agencies Duty of Loyalty Duty of Prudence Duty of Diversification Duty to Follow Plan Documents Some states, such as California, impose fiduciary standards identical or similar to ERISA

20 Who is a Fiduciary? Settlor Functions Benefit design decisions Plan adoption Plan amendments vs Fiduciary Functions Exercises discretionary authority or control over plan management Exercises discretionary authority or control over plan assets Has discretionary authority or responsibility over plan administration Provides investment advice for compensation

21 What is Expected of a Fiduciary? Performance is not judged with 20/20 Hindsight Fiduciaries are judged on the prudence of the process when making decisions Take steps to gather relevant information (and may consult with third party experts) Analyze the information (and should consider using experts) Make a reasoned decision

22 Recent Lawsuits Wave of recent litigation involving non governmental 401(k) plans, and more recently seeped over into 403(b) plans: Allege employers violated fiduciary duties with respect to Plan Investments Plan Fees

23 Common Lawsuit Themes Allegations ABB Edison Lockheed Int l Paper Boeing Excessive recordkeeping costs ˣ ˣ ˣ ˣ Using retail or expensive share classes ˣ ˣ ˣ ˣ ˣ Failure to follow the plan s IPS when selecting or removing investments Improper investments ˣ ˣ ˣ ˣ Using plan assets to benefit the company ˣ ˣ Delayed deposits of participant salary deferrals ˣ ˣ

24 Recent DC Fiduciary Settlements Abbott v. Lockheed Martin $62 million Beesley v. International Paper: $30 million Spano v. The Boeing Company: $57 million

25 DC Plan Design & Oversight Plan Governance

26 Proper Plan Governance Strong Foundation Re evaluate goals RFP/Contracts Participant education Service providers Investment monitoring Fee monitoring/benchmarking Plan analysis/benchmarking Create policies Goals assessment Committee/Board structure/charter

27 Best Ways to Structure a Committee 1 Establish Purpose 2 Develop Guidelines 3 Determine Membership 4 Adopt Process 5 Document Everything

28 Investment Policy Statement Elements Serves as a road map in managing the Plan Outlines the Plan Fiduciaries for the Plan Lists the types of investments that will be available in the Plan Provides guidelines on adding or removing investments from the Plan

29 DC Plan Design & Oversight Investment Fund Line up

30 Investment Menu Design It doesn t need to be this difficult

31 Investment Menu Structures: Example Typical Less Lesser Asset Class Broad Menu Core Menu Condensed Menu Stable Value 1 Active 1 Active 1 Active Intermediate Term Bond 1 Index/1 Active 1 Index/1 Active 1 Index/1 Active Large Cap Value 1 Active Large Cap Blend 1 Index 1 Index/1 Active 1 Index/1 Active Large Cap Growth 1 Active Mid Cap Value 1 Active Mid Cap Blend 1 Index 1 Index/1 Active Mid Cap Growth 1 Active 1 Index Smid/ Small Cap Value 1 Active 1 Active Smid Small Cap Blend 1 Index 1 Index/1 Active Small Cap Growth 1 Active International Value 1 Active International Blend 1 Index 1 Index/1 Active 1 Index/1 Active International Growth 1 Active Target Date Asset Allocation 1 Family 1 Family 1 Family Self Directed Brokerage Total

32 IRWD in the Spotlight: Investment Line up Active Mgmt Int l Blend Small Cap Growth Small Cap Value Mid Cap Growth Mid Cap Value Large Cap Growth Large Cap Value Bond Fund Keep it simple! Passive Mgmt Int l Index Small Cap Index Mid Cap Index Large Cap Index Stable Value Asset Allocation Profile Funds: Conservative, Moderate, Aggressive (Primarily Actively Managed Funds) Target Date Funds Passively Managed Funds Participant Controlled Brokerage

33 DC Plan Design & Oversight Recordkeeping Fees

34 Fee Structures: Pricing Methods The Good Small balance participants pay less for recordkeeping Better model for slow growing, low average balance plans Administration fees as a percentage of assets goes down as asset increase Equalizes costs; no subsidization There are none % Asset Based $ Hard Dollar % Revenue Share The Bad Total expenses in terms of dollars increase as assets increase Higher balance participants subsidize lower balance participants Smaller balance participants pay a higher percentage of fees relative to assets Most recordkeepers do not advocate for this model of pricing Different funds pay different amounts Participants subsidizing other participants Tends to be higher cost Model is under high scrutiny

35 Benchmarking Your Plan(s) You can t manage what you can t measure Plan Analysis Participant Analysis Cost Analysis Investment Analysis RFP Analysis Ruler of Successful Outcomes U.S.A.

36 DC Plan Design & Oversight Participant Education

37 IRWD in the Spotlight: Education Keep it interesting maybe add some fun! Reach out to New Employees One on One Meetings Quarterly Presentations Illustrate what matters to the employee Basis Investing Terms Interactive Games & Prizes

38 Investment Investment Risk Deferred Comp Beginner Deferred Comp Advanced Jeopardy! IRWD

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40 DC Plan Design & Oversight DC Plan Best Practices

41 Ask the Experts: Lightning Round Auto Enrollment & Auto Escalation Liquidity and Put Provisions Target Date Funds, Annuity Funds, Brokerage Options

42 DC Plan Design & Oversight Resources

43 GFOA Best Practices NAGDCA Suggested Resources Pension and Investments DC East (Florida), DC West (California) 457 Answer Book Daily/weekly s Investopedia Themorningpulse.com (Jeffrey H. Snyder) Pension & Investment Daily Alerts

44 When a Plan Consultant Can Help Consultant 1. Good consultants are on your side must acknowledge fiduciary status; must have E&O insurance 2. Can help you navigate your fiduciary duties 3. Hire experience, hire trust 4. Consultants should be able to demonstrate their value quickly can be one of your best ROIs

45 Speaker Contact Information: Debby Cherney Rasch Cousineau Tanja Fournier Marcus Wu, Esq th Annual Conference May 6-9, 2018 St. Louis, Missouri Questions: Speakers will take questions and comments. This session is being recorded, please utilize the microphone in the aisle to ask all questions. Provide Feedback: Please take a few minutes to provide your feedback at Discuss/Comment: Join the discussion at #GFOA2018 Contact GFOA: To contact GFOA about session topics please research@gfoa.org #GFOA2018