8/13/2014. Steve Gordon Executive Director, Retirement Solutions The Bogdahn Group

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1 Continuing Education Credits Be sure to sign the Sign In/Sign Out sheet outside of the room when applying for Continuing Education Credits for the following certifications. (Check the appropriate certification) CFP CPE You do not have to sign in and out for InFRE credits InFRE tracking forms were included in conference registration materials. 1 How to Understand Fiduciary Responsibility for Governmental Employers Moderator: Ray Pool, State of Oklahoma Panelists: Rod Crane, TIAA CREF; Steve Gordon, The Bogdahn Group; Richard Turner, VALIC 2 Steve Gordon Executive Director, Retirement Solutions The Bogdahn Group 3 1

2 History of government DC plan vendors CITY HALL 4 What are my DC plan responsibilities? A Plan Fiduciary as anyone who:. Exercises authority or control over the management or administration of the Plan Exercises ANY authority or control over Plan assets Can you authorize a fund change? Can you authorize distributions? Can you negotiate with a vendor? Could you seek to hire/fire vendors? 5 Am I REALLY a fiduciary?! I ve been told I have immunity. Do you understand Statutory and other applicable laws that define your responsibilities? Do you understand the caveats in any potential immunity protections? Are you protected if the Plan participants or the State Attorney General sues you? Will immunity be provided if the issue becomes a public scandal? 6 2

3 Fiduciary (and moral) responsibilities Paternalistic Legal and Regulatory Moral obligation to help employees retire with dignity vs. simply attracting and retaining employees at the most efficient price. Carry out their duties prudently Select and monitor plan investments Pay only reasonable plan expenses 7 Richard Turner Deputy General Counsel and Vice President AIG Life and Retirement 8 Are all plans alike, when it comes to the question of fiduciary duties? Short answer: No. Generally, more likely for 401(a) and 457(b) plans, less so for 403(b) plans. Longer answer: See the handout article 9 3

4 History: some state laws actually protect public 403(b) plan sponsors For other states: fiduciary rules less likely to apply to local plan sponsors than state plans. However: in either case protections might be forfeited by actions they undertake Example: likely no protection for such things as holding on to, or misusing, employee deferrals (b) plans generally are not trusteed, so state rules governing trustees generally do not apply. Per the Code, public employer 403(b) plans funded solely with annuities, custodial accounts However: state plans (vs. local plans) may take on role more akin to trusts, often through plan governing boards, and assume additional liabilities 11 Does that mean all 403(b) sponsors are off the hook, for the question of fiduciary duties? NO. While ERISA fiduciary rules do not apply, state laws fiduciary rules can plan sponsors need to know the differences, and if/when they apply Additional undertakings can invoke additional duties. Example: selection of a single provider. Good news: these are state law issues, a key focus for sponsors local counsel Also a good resource to discuss voluntary assumption of additional responsibilities 12 4

5 Roderick Crane, JD Managing Director, Government Market TIAA CREF 13 Fiduciary Best Practices Effective Plan Governance Poor governance can put you and your plan at risk Personal liability for fiduciary breaches Fines and penalties Legal action Plan or contract disqualification Increased audit scrutiny Higher operating expenses Helps avoid negative events In March of 2012, a federal court levied a $35 million judgment against the fiduciaries of a 401(k) plan for excessive and unnecessary fees. The appellate court upheld damages of $13 million on excessive fees, and directed a second trial on the prudence of investment choices. The case is a wake up call to all plan sponsors about the need to have, and observe, a formal governance process Fiduciary Best Practices Understand your Plan s Fiduciary Governance Structure and your role in it Boards and Committees are the most common form of plan governance Size varies Members By virtue of their position, e.g., finance, HR Representatives of departments, employee groups or retirees Industry experts 15 5

6 Fiduciary Best Practices Use experts when needed 16 Fiduciary Best Practices: Be an active participant in the governance of the plan Attend meetings Ask questions Review plan activity and financial reports Seek fiduciary and retirement plan education opportunities Plan background and history Retirement and DC plan basics Plan administration and operations Compliance and financial Investments Trends, new developments and continuing education 17 Fiduciary Best Practices: Create and maintain plan documents Governing laws, plan documents, trust documents, custodial accounts, insurance contracts Governance policies Mission statement Board and committee bylaws/charter and operational rules: Meetings, minutes, delegations, subcommittees, audit, administration, trustee education, strategic planning Conflicts of Interest and Ethics law compliance Investment policy statement (IPS) Participant communication and education 18 6

7 Fiduciary Best Practices: Document, document, document Demonstrates exercise of due diligence Serves as permanent record Helps ensure assigned tasks are carried out properly Helps ensure plan objectives are met and fiduciaries have acknowledged their roles Process, not outcomes Documentation is your best first defense against claims of fiduciary breaches. Courts will look to see if a prudent process was used regardless of the outcome, when determining if a breach occurred. 19 Questions? 20 7