RETIREMENT PLAN REVIEW FREQUENTLY ASKED QUESTIONS

Transcription

1 RETIREMENT PLAN REVIEW FREQUENTLY ASKED QUESTIONS 1. Why are changes in the retirement program being recommended? In July 2007, the Internal Revenue Service (IRS) and the U.S. Treasury Department released finalized regulations under Section 403(b) of the Internal Revenue Code. The new final regulations, which replaced the original regulations in 1964, became effective on January 1,2009. At the same time the final regulations were issued, the Department of Labor issued a Field Assistance Bulletin addressing how the regulations might affect the ERISA 403(b) plans. The new regulations lessened some of the differences that existed between the rules that apply to 403(b) plans and those that apply to 401(k) plans. 2. What changes were required for us to comply with the new regulations? The final regulations include major changes that require Plan Sponsors to take ownership of these programs for the first time and take an active role in managing them. Specifically, we are now required to: Assume fiduciary responsibility for selecting and monitoring plan investments; Ensure that plan fees are reasonable; Monitor loans, distributions, and contribution limits; Consolidate recordkeeping by having one fund provider manage administration for multiple providers or move to a sole administrator; and Provide for an annual plan audit by a CPA. 3. What did the University do to comply with the new regulations? The University established a Retirement Committee chartered by the Human Resource Committee of the Board of Trustees. The Retirement Committee is made up of Phil Hawkey, Executive Vice- President, Lori Gordien-Case, Associate Vice-President, Finance, and Susan Henry, Interim Human Resources Officer. The Human Resource Committee established Charters and Rules of the Human Resource Committee of the Board and the University Retirement Committee, a Statement of Investment Policies and Objectives for University of La Verne Defined Contribution Retirement Plan, and an Accountability Chart Governance Structure. Copies of these documents are available at To comply with the DOL Compliance, a plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan s operation. Key Elements of Fiduciary Responsibility:

2 Duty of loyalty to plan participants and beneficiaries Duty of prudence in variety of areas, such as investments, administration of the plan, fees Duty to diversify investments to help minimize the risk of large investment losses to the plan Duty to follow plan document to the extent that they comply with applicable laws 4. What did the Retirement Committee do to comply with the new regulations? The Retirement Committee: Conducted a Request for Proposal (RFP)in January 2010 to review whether the University of La Verne should continue using the current service providers or look for replacements. Performing periodic due diligence, such as RFP s, is a critical part of fulfilling the fiduciary duty. Engaged Capital Research and Consulting, an independent retirement plan investment consultant Developed the Investment Policy Statement Held Investment Review meetings with Capital Research and Consulting to examine plan investments Conducted an RFP for an independent auditor and selected Moss Adams in December What was the process in evaluating the responses to the RFP? The Retirement Committee hired BENEFITT Consulting to assist with the RFP process. January 2010 the RFP was sent out to 12 vendors including TIAA CREF, Legend and MetLife, our current vendors. March responses to the RFP were received and the responses were reviewed based on Background Information, Administrative Services, Participant Services, Employee Communications Services, Investment Management Services, and Administrative Fees. The top four were: TIAA-CREF, VALIC, Fidelity and Diversified April 2010 The top four were invited to present for the Retirement Committee and were narrowed down to the top three: TIAA-CREF, Fidelity and Diversified May 2010 The top three were invited to present to the Human Resources Department June 2010 References were checked for the top three July 2010 Representatives from each employee group (Faculty, A/P and Classified) were invited to a Retirement Committee meeting and were informed on the RFP process and purpose August 2010 The top three were invited to present to the Retirement Committee and employee representatives (Faculty, Classified) 6. Who was included in the RFP process other than the Retirement Committee members? Richard Simpson, President of the Faculty Senate, Carrie Lewis Hasse, A/P Committee Member, and Alvaro Alvarez, Chair of the Classified Committee were selected by their respective committees to participate in the Retirement Committee meetings. They were encouraged to communicate with their committee members as the deliberations progressed. Frank Montalvo attended the Faculty Senate, A/P and Classified Committee meetings in April of 2010 to brief them on the issues and the process.

3 7. What were the criteria for evaluating the vendors? Experience and adequate size as a provider of 403(b) plans; Competitive administrative fees; Strong communication programs including a state-of-the-art website; Ability to adhere to the University s retirement plan rules; Ability to administratively handle a wide range of investment funds. 8. Why was only one vendor selected? The Committee learned from other plan sponsors that having multiple vendors is confusing to participants. IRS requires that reporting be consolidated if there is more than one vendor. Coordination between all on-going record keepers, making it more difficult for University of La Verne to comply with IRS requirements with two record keepers. Fees are lower if business is consolidated with one vendor. Having one vendor will allow the Retirement Committee to effectively meet its fiduciary responsibilities such as reviewing the vendor s performance and fees. 9. Why was Diversified selected by the Retirement Committee as their finalist? Diversified has over 50 years of experience in administering retirement plans. They have an excellent, user friendly website that can consolidate investments from other companies in one place. Their fees are very low. They have a large staff of advisors/counselors to provide one-on-one sessions with our employees on and off campus. They can handle the diverse line-up of funds selected by the Retirement Committee. Diversified is not an investment manager and therefore has no restrictions on the funds it can offer, providing University of La Verne the flexibility to offer best in class funds in each fund category. They can adhere to our plan rules and provide good administrative services. Diversified was the only vendor who did not own any of the funds in our selected line-up which eliminated any chance for conflict of interest. 10. What poor service was considered in the deliberations regarding the current vendors? Examples of unacceptable actions on the part of the vendors are: Allowing withdrawal of retirement funds by an active employee in violation of our plan rules. Allowing loans from retirement accounts in excess of those allowed by our plan rules. Excessive delay in investing employee contributions in designated funds. Vendor had to make retroactive adjustments to accounts.

4 11. How was the technology of the vendors evaluated? The final 3 vendors were invited to present technology demonstrations of their websites showing the ease with which typical transactions could be performed. 12. How were the fees of the vendors evaluated? Terry Dunn of Benefitt Consulting, an expert in evaluating vendors and their fees, gathered information from the vendors. Diversified and Fidelity submitted final fees of 19 basis points and TIAA-CREF offered a rate for future administration of 30 basis points. The Legend Group charges fees of 200 basis points. 13. How were the references checked? The top three vendors provided contact information for reference checks to Terry Dunn of Benefitt Consulting. The reference checks focused on Purpose of Review, Selection Factors, Transition Experience, and Participant Reaction. 14. What is the relationship between Diversified and Aegon and do we need to worry about Aegon s financial stability? Aegon, a Dutch company, is the parent company of Diversified. No retirement funds are ever sent to Aegon. Diversified Investment Advisors is a recordkeeper only. All retirement funds are sent to the mutual funds selected by employees and they are not subject to the general creditors of Diversified. This should not be a concern. It is important to understand that the University of La Verne s exposure to AEGON, or Diversified for that matter, is very limited. Mutual fund investments and Diversified s broker/dealer are overseen and heavily regulated by the SEC and have no credit exposure to AEGON. Stable funds likewise have protections that are based on their structure as separate accounts being managed by independent organizations. As a retirement plan recordkeeper, Diversified's role is to make sure that participant contributions are directed to the investments that are selected by the plan sponsor and that the participant account records are accurate. Diversified s role is to provide the plan administration and education services. Diversified does not manage or hold the funds in participant accounts. At all times, assets are held in the name of the plan custodian/trustee (typically State Street Bank & Trust Co.) directly with the applicable mutual fund or other investment option. In the event that Diversified or its parent company were to experience significant financial distress, mutual fund shares held in participant accounts would remain registered as accounts held by the Plan custodian/trustee, for the benefit of various retirement plans, and would be segregated from any other accounts or assets of Diversified or its parent company. A creditor of Diversified or its parent company would have no claim against the assets held for the benefit of the various retirement plans. Financial information on AEGON is available at:

5 15. Would I have to move my retirement funds in TIAA-CREF to Diversified (if Diversified is selected as the new retirement vendor)? No, any funds in TIAA-CREF could remain there as long as you wish. Only new contributions (mandatory and supplemental) made after January 1, 2012 would go through Diversified to the new mutual funds you select. 16. Have any other colleges/universities chosen Diversified? Yes, Pepperdine, Loyola Marymount, Cal Arts, and Soka have selected Diversified as their sole retirement vendor. 17. Would there be any changes to the contributions made by the University or by me? No, the University contribution would remain at 10% of salary and the contribution from employees would remain at 5%. 18. What happens if I don t select any funds for my contributions after 1/1/12? A default fund would be set up for any employee who does not select funds to receive his/her contribution. 19. Can I get help in selecting funds? Yes, counselors will be available for one-on-one meetings with every employee. In addition, there will be groups of funds available if an employee would like to select a specific type of portfolio (i.e. conservative, moderate, or aggressive) without having to pick individual funds. 20. Where can I review more details about the plan such as the line-up of funds? The line-up of funds is available at Informational meetings will be held during the month of April and May. Funds to be included in the lineup must meet criteria set forth in the Investment Policy Statement 21. How can I find out my current contribution? Your paycheck stub has the calendar year-to-date contributions. 22. Is the fee charged by Diversified the only fee that I will be charged? No, each investment fund has its own fee that is in addition to the fee charged by Diversified.

6 23. Can I transfer the retirement contributions that I make into in the new Investment funds into TIAA-CREF when I retire? Yes 24. Is there a transaction fee to buy or sell mutual funds within our Diversified account? Part of the benefit of participating in a company retirement plan of our size is that there are no additional transaction fees on buying and selling mutual funds included in the investment lineup. 25. How does Diversified compare to TIAA-CREF in size? Diversified provides administrative services for 2,358 defined contribution plans, 858 of which are 403(b) plans. Approximately 80 of these plans are similar in size to theuniversity of La Verne Diversified manages total assets of $60 billion. TIAA-CREF has 13, (b) clients, 55 of which have assets and 39 of these clients had participant counts similar to the University of La Verne. TIAA-CREF manages total assets of $453 billion 26. How does the performance of the current investment lineup (TIAA-CREF) compare to the performance of the prospective lineup (Diversified)? The performance report comparing the two lineups is available on What happens to my loan with TIAA-CREF or Legend? You will continue to pay your loan as you do now until it is paid off. 28. Can Diversified Investment Advisors be offered as a plan vendor in addition to TIAA-CREF? No Diversified is not able to serve as a Plan administrator for employers with multiple vendors. Companies like Fidelity, Vanguard and Valic offer investment funds of their own from which they earn fees in addition to their administrative fees. Since Diversified owns no funds, they require that they be the sole vendor in an institution to keep their fees low. 29. Can CREF Mutual Funds be offered as options through Diversified Investment Advisors? Yes, but they must meet the criteria set forth in the Investment Policy Statement.