Fiduciary Fundamentals

Transcription

1 Fiduciary Fundamentals Darrell Alford, CLU, ChFC For Plan Sponsor Use Only. Not for Use with Participants or the General Public. This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations Retirement Benefits Group Advisors are registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Independent Financial Partners (IFP), a registered investment advisor. Retirement Benefits Group and Independent Financial Partners are separate entities from LPL Financial

2 The RBG Experience Documented, Defendable & Repeatable Measurable Results Simplify Retirement Optimal Features Retirement Readiness

3 YOUR RBG TEAM Our team approach provides access to professionals with expertise in multiple retirement plan areas. Darrell Alford, ChFC RBG Founder / Principal Retirement Plan Consultant dalford@rbgnrp.com Lourdes Vontsolos Client Service Specialist Client Services lvontsolos@rbgnrp.com Alison Gallion Client Service Assistant Tom Alford, CFA Investment Analyst Client Services agallion@rbgnrp.com Investment Due Diligence talford@rbgnrp.com

4 TEAM DEMOGRAPHICS Your RBG team is matched to your plan based on their experience with plans similar to yours. Provide consulting for 35 corporations Experienced Team Client assets ranging from 5M 4B Average client tenure is 12 years Consult on over 6 Billion in institutional retirement plan assets

5 NATIONAL INDUSTRY RECOGNITION

6 DC plan lawsuits: Recent actions

7 Fiduciary Fundamentals BALANCING ROLES, RESPONSIBILITIES AND RISK Presented By Retirement Benefits Group For Plan Sponsor Use Only Not for Use with Participants or the General Public This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

8 What we do for you Fiduciary Services Investment Consulting Plan Design Plan Administration & Compliance Assistance Provider Search & Management Fiduciary reviews Fiduciary process Trustee reporting Policy development Fund menu design Select and replace fund managers Monitor performance Retirement income adequacy study Plan provisions Nonqualified plan design DB and DC plans Technical support Compliance assistance Audit support Administrative reviews Vendor selection Contract negotiation Conversion 2 2

9 UNDERSTAND YOUR ROLE AS A FIDUCIARY Who is a Fiduciary? Fiduciary duties Consequences of Fiduciary breach ERISA Bond and Fiduciary coverage requirements 10 steps Fiduciaries can take to manage responsibilities and risks

10 Who is a Fiduciary? ERISA says a person is a Fiduciary with respect to a plan to the extent that he/she: (i) exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets; (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority of such plan, or has any authority or responsibility to do so or, (iii) has any discretionary authority or discretionary responsibility in the administration of such a plan. 4

11 Types of Fiduciaries Anyone who exercises discretion or control with regard to the plan may be a Fiduciary: Plan sponsors Investment committees Investment consultants, if they render investment advice Investment managers, if they have the control over the management and disposition of the assets Each plan must have a named Fiduciary identified in the plan document 5

12 ERISA Fiduciary duties Act in the best interest of participants Discharge your plan duties solely in the interest of the participants and beneficiaries And for the exclusive purpose of Providing benefits to participants and their beneficiaries Defraying reasonable expenses of administering the plan Act with care, skill, prudence and diligence 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 6

13 ERISA Fiduciary duties Avoid prohibited transactions and be free from conflict You must refrain from specific prohibited transactions including Furnishing of goods, services or facilities between the plan and an interested party An interested party includes any plan fiduciary and any person providing services to the plan You can t deal with the assets of the plan for your own account Or receive compensation from any party dealing with the plan in a transaction involving plan assets Diversify the investment options to help manage the risk of large losses The only exception is if, under the circumstances, it is clearly prudent not to do so And the burden of proof as to whether it is clearly prudent is on you, the Fiduciary 7

14 ERISA Fiduciary duties Follow the plan documents and instruments governing the plan Insofar as they re consistent with ERISA But not if following the documents would be imprudent 8

15 Consequences of Fiduciary breach You re personally liable to the plan to make good any losses resulting from the breach And to restore any profits you might have made by improperly using plan assets You may also be subject to other penalties a court may impose Such as an excise tax of 15% of the amount per year until correction And an additional 100% on uncorrected transactions And to a potential additional penalty of 20% if the Department of Labor is involved in the case Co-fiduciary liability for participating in, concealing or not stopping the breach of another Fiduciary 9

16 ERISA Fiduciary Bond and Errors & Omissions (E&O) insurance coverage A fiduciary bond provides insurance protection against the possibility of fraud or embezzlement by a fiduciary ERISA requires that every fiduciary of, and every person who handles funds or other property of, an employee benefit plan, be bonded For ERISA purposes the fiduciary bond is limited to 10% of plan assets at the beginning of the calendar year, up to 500,000 (up to 1,000,000 if employer securities are a plan option) So if the loss is greater than 500,000, all the fiduciaries of the plan may have co-fiduciary liability for the loss Every fiduciary of an ERISA plan should consider having additional fiduciary liability insurance 10

17 10 steps Fiduciaries can take to manage their responsibilities and risks Understand your role and responsibilities as a Fiduciary, delegating responsibilities where appropriate Establish a formal Fiduciary governance process Document the investment process in a formal Investment Policy Statement (IPS) Conduct regular reviews of the plan s investments Take advantage of 404(c) protection and follow the rules to comply; consider advisor managed models Maintain written records of plan documents and procedures, delegating responsibilities where appropriate Educate participants to help them make informed decisions Monitor provider fees and services for reasonableness Comply with government reporting requirements Have adequate insurance coverage 111

18 MANAGE YOUR COMMITTEE MEETINGS, PROCESS AND BYLAWS Committee meeting roles Setting the committee meeting agenda

19 A formal committee structure & meeting process are essential to Fiduciary governance Consultant Role in Committee Oversight Prepare the agenda Facilitate the meeting Document the minutes Communicate outstanding items Role of the Committee Members Review the minutes Follow the guidelines specified in the Investment Policy Statement Make decisions regarding investments in the plan Monitor the performance of service providers 13

20 Customize the meeting agenda Based on your goals And topics of interest to each committee member A typical meeting covers the following topics Review minutes of previous meeting Provide an update on the economy and markets Review the performance of plan investments including funds on the watch list Present plan trends And the following topics once per year in the annual review Review of the plan s IPS Review of service provider fees and services Committee governance process review Fiduciary training and education 14

21 INVESTMENT MONITORING AND OVERSIGHT PROCESS Investment Policy Statement (IPS) Investment fund menu design and selection Ongoing investment monitoring process Monitoring fees for reasonableness

22 The Investment Policy Statement WHAT IT DOES & WHY IT S IMPORTANT Outlines the process that a plan s sponsor intend to use in selecting and monitoring investments within the company s retirement plan Outlines the issues and criteria used in creating a prudent investment philosophy Serves as a benchmark for a plan sponsor in overseeing the investment policy on an ongoing basis Provides objective criteria for removing a fund, which takes the emotion out of the decision and makes it truly objective By continually comparing the plan to the original goals and assumptions laid out within the IPS, the plan sponsor can be assured that the goals of the plan are guiding investment decisions 16

23 The elements of an effective IPS Statement of purpose and rules for amending Roles, responsibilities and procedures <ABC Company IPS inserted here> Plan investment philosophy Select and monitor investment options Select and monitor performance of service providers Coordinate with plan documents 17

24 The ongoing investment monitoring process for your plan The decision to offer particular funds as investment alternatives is a fiduciary decision Fiduciaries can use several options in monitoring funds Fiduciaries must monitor the various investments and investigate any issues raised relating to those investments 18

25 Our proprietary investment monitoring tools 19

26 Monitoring fees for reasonableness In order to exist, 401(k) plans require a variety of services to be performed by Plan administrators Recordkeepers Custodians Investment advisers Consultants Broker-dealers In general, in order to be reasonable, fees must match the services provided and must not be duplicative or excessive To an unknown extent the dynamic marketplace helps ensure that fees are reasonable 20

27 Monitoring fees for reasonableness Department of Labor disclosure requirements help with fee transparency And the DOL website includes a detailed worksheet that enables plan sponsors to evaluate and compare fees of 401(k) vendors So a Fiduciary has an ongoing duty to monitor fees to ensure they remain reasonable and to provide plan participants with sufficient information about fees to enable them to make informed investment decisions 21

28 Monitoring fees for reasonableness ERISA permits plan assets to be used for payment of reasonable expenses of administering the plan Determining whether fees and expenses can be paid from plan assets is a fiduciary function Before approving plan payments, fiduciaries should ask: Does the plan document permit such a payment? Was the expense for a settlor function such as a decision on establishing, designing or terminating a plan or for administrative expenses of implementing a settlor decision? Is the expense reasonable in amount? Is the expense for a service performed under a reasonable contract or arrangement? Does the service relate to the particular plan that will be paying? 22

29 Recap 23

30 What we covered today Setting Fiduciary goals for the coming year Understanding your role as a Fiduciary Acting in the best interest of plan participants Acting with care, skill, prudence and diligence Avoiding prohibited transactions Diversifying plan investment options to help manage the risk of large losses Following plan documents and instruments governing the plan Understanding the consequence of and penalties for Fiduciary breach Understanding the necessity and varieties of insurance coverage Managing committee meetings, including agendas and minutes Monitoring investments Creating an IPS Choosing asset classes and funds to be offered by the plan Creating an investment monitoring process Monitoring fees for reasonableness 24

31 Total Plan Fee Detail Fiduciary Benchmarks Independent Comprehensive Informa ve Summarize Fees Fiduciary Benchmarks thinks the first cri cal step in assessing Fee Reasonableness is to make sure we are gathering the fees being paid to the service providers shown in the Table of Contents. In that regard, this sec on summarizes the Fees, Payments and Credits being made to those Service Providers. The amounts received by each service provider can then be tracked to their individual chapter thus evalua ng whether fees are reasonable AT THE SERVICE PROVIDER LEVEL as required under ERISA sec ons 404(a)(1)(a) and 408(b)(2) and the regula ons thereunder. Total Plan Fee Summary Plan Fees by Service Provider Source of Fees Alloca on of Fees Descrip on Amount (%) Total Fund Expense Ra o Other Fees Received* Total Credits to Plan* 34, , % 0.537% - Total Credits to Par cipants* (1,224.50) (0.020%) Total Plan Fee 66, % Total Money Manager Fee Total Recordkeeper Fee Total TPA Fee Total Advisor/Consultant Fee 21, , , , % 0.439% 0.117% 0.160% Total Fee to Others - - Total Plan Fee 66, % Your Plan Custom BMG ² FeePoint ¹ ³ 0.347% 0.439% 1.063% 0.566% 0.459% 0.248% 0.566% 0.459% 0.248% Fund Manager Recordkeeper Advisor/Consultant TPA 1.394% 1.394% Fund Mgr RK Advisor TPA Total Your Plan 0.347% 0.439% 0.160% 0.117% 1.063% Custom Bmg ² 0.566% 0.459% 0.248% 0.121% 1.394% FeePoint ¹ ³ 0.566% 0.459% 0.248% 0.121% 1.394% *Other Fees, Payments and Credits Service Provider Category Descrip on Type Amount How is Fee Paid? Recordkeeper Recordkeeper Recordkeeper Recordkeeper Recordkeeper Recordkeeper TPA TPA TPA TPA Advisor/Consultant Primary Fee Primary Fee Primary Fee Primary Fee Payment to Other Payment to Other Primary Fee Primary Fee Primary Fee Credit - Par cipants Primary Fee Per Par cipant Fee Na onwide Single Sum Fee Na onwide Printed Statement Fee Weighted Asset Management Charge TPA Payment Advisor Cost of Compensa on Base Fee Per Par cipant Fee TPA Payment TPA Payment Offset Advisor Cost of Compensa on 4.00 x 154 ppt/acts amount 0.75 x 154 ppt/acts amount 0.040% on plan 0.160% on plan amount x 154 ppt/acts 0.040% on plan amount 0.160% on plan , (2,493.77) (9,975.07) 1, , , (1,224.50) 9, Plan Assets Plan Assets Plan Assets Plan Assets Recordkeeper Recordkeeper Plan Sponsor Plan Sponsor Recordkeeper TPA Recordkeeper 1. Since services can vary greatly from plan to plan, FBi Developed FBi FeePoint Calcula on. FBi FeePoint Calcula on is an es mated fee for each service provider based on a mathema cal model that consists of a base fee (such as the median fee) plus market-based extra credit for fiduciary status, extra mee ngs, extra work or extra communica ons. 2. Custom Benchmark Group which consists of the following: Median Fee of each Fund Manager and Your Asset Alloca on - plus the Median Fee of each plan Service Provider. 3. FBi FeePoint Calcula on which consists of the following : Median Fee of each Fund Manager and Your Asset Alloca on - plus the FBi FeePoint Calcula on¹ of each Service Provider Fiduciary Benchmarks Insights, LLC. All rights reserved. Plan # Report # July 11, 2018 Page 3 of 41

32 Fund Manager: Evaluate Fees Fiduciary Benchmarks Independent Comprehensive Informa ve Evaluate Fees THE FIFTH STEP is to evaluate the fees associated with each of your investment op ons. In order to ensure an apples-to-apples comparison, FBi considers each fund s characteris cs (asset class, ac ve/passive status, and if it pays revenue sharing) when determining which comparison set of funds within the benchmark group to use. The fee informa on given below should be considered in concert with the Value Delivered from each of your plan investments and not on a stand-alone basis. Benchmark Group Treatment of Indirect Compensa on Total Expense Ra o by Cost Quar le Money Manager Fee by Cost Quar le 52% % 2% 3% 1% Retained by Svc Provider(s) Credited to Plan Rebated to Par cipants Mul ple Approaches No Indirect Compensa on Lowest (0-25th) Low (26-50th) Upper-Middle (51-75th) Highest (76-100th) Op on(s) with No Cost Lowest (0-25th) Low (26-50th) Upper-Middle (51-75th) Highest (76-100th) Op on(s) with No Cost Fund Name Your Plan CORE OPTIONS Benchmark Group Asset Class Asset Class BMG % Offering Rev. Share Applies? This Choice Tot. Exp. Ra o Comparison of Total Expense of Benchmark Group Percen les (bps)^ 25th 50th 75th Diff. from 50th Money Mgr. Fee Comparison of Money Manager Fee of Benchmark Group Percen les (bps)^ 25th 50th 75th Na onwide Government Money Market R6 ** Money Market-Taxable 35% Yes 0.44% 0.39% 0.48% 0.65% -0.04% 0.19% 0.15% 0.30% 0.40% -0.11% Na onwide Fixed Account * General Account - Yes 0.60% DFA Short-Term Government I Short Government 9% No 0.19% 0.14% 0.20% 0.20% -0.01% 0.19% 0.14% 0.20% 0.20% -0.01% Vanguard GNMA Inv Intermediate Government 23% No 0.21% 0.20% 0.21% 0.76% % 0.20% 0.21% 0.76% - Virtus Seix Total Return Bond I Intermediate-Term Bond 90% Yes 0.46% 0.66% 0.80% 0.85% -0.34% 0.26% 0.35% 0.45% 0.61% -0.19% PIMCO Real Return Instl Infla on-protected Bond 34% No 0.45% 0.13% 0.20% 0.45% 0.25% 0.45% 0.13% 0.20% 0.45% 0.25% Virtus Ceredex Large-Cap Value Equity I Large Value 95% Yes 0.97% 0.76% 0.97% 1.06% % 0.46% 0.57% 0.75% -0.10% MFS Blended Research Core Equity R4 Large Blend 100% Yes 0.49% 0.75% 0.95% 1.12% -0.46% 0.39% 0.42% 0.57% 0.79% -0.18% Na onwide Funds Window Large Blend 100% Yes 0.80% 0.75% 0.95% 1.12% -0.15% 0.52% 0.42% 0.57% 0.79% -0.05% Na onwide S&P 500 Index R6 ** Large Blend 100% No 0.17% 0.05% 0.06% 0.17% 0.11% 0.17% 0.05% 0.06% 0.17% 0.11% Vanguard 500 Index Admiral Large Blend 100% No 0.04% 0.05% 0.06% 0.17% -0.02% 0.04% 0.05% 0.06% 0.17% -0.02% Vanguard Total Stock Mkt Idx Adm Large Blend 100% No 0.04% 0.05% 0.06% 0.17% -0.02% 0.04% 0.05% 0.06% 0.17% -0.02% Alger Capital Apprecia on Instl I Large Growth 93% Yes 1.14% 0.76% 0.98% 1.14% 0.16% 0.64% 0.46% 0.61% 0.81% 0.03% ^ Comparison illustrates range of expense for investments having the same asset category and revenue sharing characteris cs as the plan fund in ques on. * This fund may be subject to a market value adjustment upon termina on. If due to its structure, this investment does not report an explicit expense ra o and or fee credit, a market based average may be applied. The market based average is established by Fiduciary Benchmarks based on the reported levels of expense and fee offsets for similar vehicles across similar benchmark groups. The resul ng combined total expense ra o will be used for benchmarking. The characteris cs and associated value of Guaranteed Rate investments varies based on such things as the current guaranteed rate, the minimum guaranteed rate, the terms and condi ons of rate resets, the credit quality of the guarantor and other accruing benefits associated with investment. Accordingly, cost should always be considered in conjunc on with an investment's overall value characteris cs. ** A proprietary fund is defined as "Investments that are managed by the Recordkeeper or its affiliates and excludes choices where a sub-advisor has been hired". The amount of assets or number of funds that are managed by the Recordkeeper should not be the determining factor of the plan's final investment lineup. Ul mately, each op on must be able to withstand the normal fiduciary due diligence of people, process, performance, cost, and other factors. This plan's alloca on to proprietary choices is 23% of plan assets. The Benchmark Group average amount of assets in proprietary choices (where applicable) is 41% Diff. from 50th 2018 Fiduciary Benchmarks Insights, LLC. All rights reserved. Plan # Report # July 11, 2018 Page 10 of 41

33 F/L Peer Comparison Model Client Total Limits (Millions) - 10 Peers Primary Limits (Millions) - 10 Peers Max 80.0 Min 10.0 Client Max 20.0 Min 10.0 Client Marsh Peer Comparison Corporate Retention (Millions) - 10 Peers Max Min Client 0.250

34 Thank you! Retirement Benefits Group is a registered trademark of Retirement Benefits Group, LLC. All rights reserved. Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Retirement Benefits Group, a Registered Investment Advisor and separate entity from LPL Financial. Tracking #