New York Life Retirement Plan Services. A Guide to. Fiduciary Education

Transcription

1 New York Life Retirement Plan Services A Guide to A G U I D E T O F I D U C I A RY E D U C AT I O N Fiduciary Education

2 Introduction The purpose of this guide is to help you understand the roles and responsibilities associated with being a plan fiduciary. This is an important function that may carry significant legal liability. The proper understanding of your duties can help you reduce risks to both the plan and yourself. You can find additional guidelines from the U.S. Department of Labor online at under the title Meeting Your Fiduciary Responsibilities. The information contained herein is general in nature and is provided solely for educational and informational purposes. Neither New York Life Retirement Plan Services (New York Life) nor its affiliates provide legal, accounting or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting and tax advisors.

3 What is a Fiduciary? General definition A fiduciary is a person, company or association that holds assets, property or power in a trust for a beneficiary. In other words, it is someone entrusted with the duty to act for the benefit of someone else. ERISA definition Under ERISA, you are a fiduciary if you: Have discretionary authority or control over the management or administration of a plan, or Render investment advice to a plan or its participants for a fee You are a fiduciary if you: Appoint other plan fiduciaries Delegate responsibility to or allocate among other plan fiduciaries Select or monitor plan investment options Select and monitor third-party service providers Give investment advice to the plan for compensation Acquire or dispose of plan assets Exercise discretion under the plan You are not a fiduciary if you: Apply rules established by others to determine eligibility for participation or benefits Calculate service and compensation for benefit purposes Prepare employee communications material Maintain participants service and employment records Prepare reports required by government agencies Calculate benefits Explain the plan to new participants and advise participants of their rights and options under the plan Process claims Make recommendations to others for decisions with respect to plan administration ERISA DESCRIPTION PLAIN ENGLISH DESCRIPTION Management The person exercises any discretionary authority or discretionary control respecting management of the plan, or exercises any authority or control respecting management or the disposition of assets. Investment advice The person renders investment advice for a fee or other compensation, direct or indirect, with respect to any assets of the plan. Administration The person has any discretionary authority or discretionary responsibility in the administration of the plan. This includes the plan administrator and anyone else allocated discretionary authority or responsibility over the plan s administration. Management Any decision maker who helps to decide how the plan is administered and what investments are in it. Investment advice An advisor who may provide investment advice to a plan or its participants for direct or indirect compensation. Administration Any person who exercises discretion with respect to the day-to-day operations of the plan, including the Plan Administrator as designated in the Summary Plan Description (usually the plan sponsor or a designated retirement plan committee).

4 What are Your Responsibilities as a Fiduciary? The responsibilities of an ERISA fiduciary have been described as the highest known to the law. Donavan v. Bierwirth 680 F. 2d 963 (2ndCir. 1982) You have three primary duties as a fiduciary. DUTY ERISA REQUIREMENTS WHAT IT MEANS Administer the plan for the exclusive benefit of plan participants and beneficiaries. To satisfy the exclusive benefit requirement, a fiduciary must act solely in the interest of the plan s participants and beneficiaries, and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable administrative expenses of the plan. As fiduciary, you must always act in the best interests of the plan and its participants. Avoid personal and business conflicts of interest. Do not charge unallowable expenses, that is, so called settlor function expenses, i.e., establishment, termination, or design expenses, to the plan. Operate the plan according to the plan documents. A fiduciary must act in accordance with the documents governing the plan, to the extent the documents are consistent with ERISA. Ensure that all plan communications Summary Plan Description, forms, etc. are consistent with the plan document. If they are not, they must be corrected. To act prudently. ERISA s prudence standard is that of a prudent expert. But the test of prudence is one of conduct, not results. If a fiduciary does not have the expertise one must either prudently delegate or obtain independent expert advice. Even after appointing or obtaining an expert, you still need to carefully evaluate and monitor that expert s advice. The doctrine of procedural prudence focuses on the process by which a fiduciary decision was made not necessarily the result of the decision.

5 Fiduciary Liabilities EXAMPLES OF FIDUCIARY BREACH OF RESPONSIBILITY Bob is a fiduciary of the ABC Company Plan. He urges his fellow fiduciaries to select an investment product for the plan knowing his son will receive a commission. ABC Company makes paper clips. One of its biggest clients is the XYZ Fund Company. Bob thinks adding the XYZ Growth Fund to the Plan will help ensure a good relationship with the fund company. Alice is an administrative assistant for the ABC Company. She spends approximately one-third of her time working on the Plan. Her employer charges her full salary to the Plan. Fiduciary Bob discovers that the vesting schedule posted on the company s intranet site does not match the schedule in the SPD. He fails to correct it. The ABC Company plan document provides an annuity as a form of distribution. However, the annuity is not calculated and reflected on the plan s distribution forms. Direct liability ERISA makes a fiduciary personally liable for any breach of responsibility he or she commits, either by act or omission. Co-fiduciary liability ERISA makes a fiduciary liable for another fiduciary s breach under the following circumstances: 1. Knowing participation or concealment 2. Enabling a breach to occur 3. Failing to take reasonable steps to remedy another fiduciary s breach Deeper pockets rule Through co-fiduciary liability, a fiduciary with deeper pockets ultimately may be responsible for restoring the loss to the plan (or participant or beneficiary), rather than the fiduciary directly liable for the breach. Fiduciary Bob wants to select an annuity for his defined benefit plan solely on the basis of price. Bob selects a local bank to provide administrative services to his company s 401(k) plan.

6 How New York Life Can Help Put our processes and expertise to work for you. We have ample resources to help you satisfy your fiduciary requirements. Administration We can help you fulfill your fiduciary obligations to administer your plan(s) for the exclusive benefit of plan participants and beneficiaries by providing the following services. Assisting in the preparation of plan communication materials Coordinating communications materials delivered to participants Providing prospectus delivery Offering participants online access to plan information so they can view their information and make transactions, if applicable Performing audits of plan procedures Operation We can help you operate your plan according to plan documents by providing the following services. Performing periodic reviews of plan documents Maintaining a SAS 70 audited procedure Offering Client Access online plan management tools Furnishing an Administration Manual so you can understand plan procedures Outsourcing certain plan transactions, such as hardships and QDROs Offering New Client Orientation and periodic fiduciary education training / audits Investment selection We can help you in your investment selections by providing the following services. Assisting in the preparation of an Investment Policy Statement Offering a diverse range of investments suitable for retirement plans including options intending to qualify as qualified default investment alternatives Performing asset-liability modeling for defined benefit plans Offering New York Life Investments Portfolio Complete program, under which Morningstar Associates, LLC functions as a fiduciary by offering advice in the selection and monitoring of your plan s investment options Providing detailed information about investment options through Morningstar Online SM and offering access to Portfolios Asset Allocation Program* Offering the ability for you to self monitor via reports on Client Access * Morningstar Retirement Manager SM is offered by and is the property of Morningstar Associates, LLC, a registered investment advisor and subsidiary of Morningstar, Inc., and is intended for citizens or legal residents of the United States or its territories. The Morningstar name and logo are registered marks of Morningstar, Inc.

7 S t e p s t o R e d u c e Risk As a fiduciary, you can never eliminate risk. But you can reduce and manage risk by taking the following steps. 1 Ask an expert 2 Document, document, document Your first step in reducing risk as a plan fiduciary is to understand your obligations. Your New York Life ERISA Consultant can assist you in understanding your obligations. As ERISA s test of prudence is one of conduct (i.e., the process followed in making a fiduciary decision), it makes sense to keep accurate, comprehensive records. M ake sure you have established consistent operational policies. Keep minutes of any meetings. F ollow claims procedures as outlined in your Summary Plan Description and plan documents. Document compliance with claims procedures Document investment selection process. D ocument communications process for fund selections/changes. E nsure timely execution of plan documents (such as amendments, service agreements, and trust agreements). 3 Delegate and monitor Fiduciary duties may be allocated among named fiduciaries and delegated to persons other than named fiduciaries, as long as the plan expressly provides prudent procedures for such allocation or delegations. By delegating, a fiduciary can shift the responsibility for discharging certain obligations under ERISA. However a fiduciary has a duty to monitor the actions of those individuals to whom fiduciary responsibilities have been delegated 4 Comply with 404(c) 5 Obtain fiduciary liability insurance A fiduciary is relieved from responsibility for a participant-directed investment only if the plan satisfies the conditions of Section 404(c) of ERISA. There are over 20 requirements to fully comply with 404(c). New York Life s 404(c) Guide can assist you in complying. Just as you wouldn t drive a car without having automobile insurance, you shouldn t assume fiduciary responsibilities without having fiduciary liability insurance. Due to the complexities of federal regulations, it is entirely possible that a fiduciary can be found to have breached a fiduciary duty even if he or she acted in good faith and with the sole intention of furthering the interests of the plan, its participants and beneficiaries. Do not confuse fiduciary liability insurance with a fidelity bond. A fidelity bond protects the plan in case of theft or fraud. If you are a fiduciary, fiduciary liability insurance may protect you in the event of a general fiduciary breach.

8 The information contained herein is general in nature and is provided solely for educational or informational purposes. Neither New York Life Investments nor its affiliates provide legal, accounting or tax advice. You should obtain advice specific to your own circumstances from your own legal, accounting and tax advisors New York Life Retirement Plan Services, a division of New York Life Investment Management LLC, 690 Canton Street, Westwood, MA New York Life Investments is a service mark used by New York Life Investment Management Holdings and its subsidiary, New York Life Investment Management LLC. Securities are distributed by NYLIFE Distributors LLC,169 Lackawanna Avenue Parsippany, NJ RPSFIDEDB-0910 First Use: 09/10 NYLIM-A02190