Fiduciary Education Fiduciary Basics. Pension Consultants, Inc. is registered with U.S. Securities and Exchange Commission as an investment adviser.

Transcription

1 Fiduciary Education Fiduciary Basics Pension Consultants, Inc. is registered with U.S. Securities and Exchange Commission as an investment adviser. Part 1 Origin of fiduciary status Fiduciary definitions What decisions are fiduciary in nature ERISA fiduciary standards Consequences of fiduciary duty breach Steps to satisfy ERISA/limit exposure 1

2 Settlor Plan Document Named Fiduciary/Plan Administrator Fiduciary Oversight Fiduciary Oversight Fiduciary Delegation & Oversight Internal Administration Service Providers Officers/ Managers/ Committees Where Fiduciary Responsibilities Begin Employer decides to sponsor a plan Business decision Employer may retain or allocate duties Fiduciary care 2

3 Plan Document Required by ERISA Must identify the named fiduciary Should define: Procedure for allocating responsibility for plan administration Funding policy Procedure for amending the plan Basis for benefit payments What is a Fiduciary? A fiduciary is a position of trust, acting for the benefit of others with a high duty of care and loyalty. 3

4 Settlor Functions Choosing type of plan/options Amending a plan Employee contributions Plan termination Who is a Fiduciary? Named in the Plan Management of Plan and Plan Assets Discretionary Oversight of Plan Administration Renders Investment Advice for a Fee 4

5 Co-fiduciary Liability May be liable as a Co-fiduciary if: Participate knowingly in act of omission Enable the other fiduciary Have knowledge of a breach without making efforts to remedy Trustees Required by ERISA Named in plan or appointed Manage and control assets Fiduciary liability limitations 5

6 Non-Discretionary or Directed Trustees Typically financial institutions Must follow proper direction In accordance with plan terms Not contrary to ERISA Not relieved of co-fiduciary responsibilities Liable if participate knowingly See slide 44 for case reference index Significance of Being a Fiduciary Subject to a heightened standard of conduct Noncompliance may lead to personal liability Joint and several liability 6

7 Loyalty Diversification Paying Reasonable Plan Expenses Prudence Fiduciary Duties Following Plan Documents Plan Should Designate a Trustee Trustee(s) should have authority to manage/control assets Exceptions: Authority has been delegated to investment manager ERISA 404(c) compliance - To be an ERISA 404(c) plan, a plan must be an individual account plan described in 3(34) and must: a. Provide an opportunity for a participant or beneficiary to exercise control over assets in his individual account; b. Provide a participant or beneficiary an opportunity to choose from a broad range of investment alternatives Trustee is custodial 7

8 Prohibited Transactions Conflicts of interest that violate ERISA fiduciary responsibilities Specifically prohibited: Transferring plan assets Selling or leasing property Lending money Extending credit Fiduciary self dealing Common Plan Mistakes Failure to update plan documents Delinquent contributions Plan operations plan document 8

9 Personal Liability ERISA 409(a) imposes personal liability on a fiduciary to reimburse the plan for: Losses Restore profits Provide equitable/remedial relief as deemed appropriate Consequences of Breach of Fiduciary Duty Civil penalties/excise tax ERISA 502(/)(1) IRC 4975 Claims for benefits due (LaRue v. Dewoff) Available remedies in DC Plans Not in DB Plans See slide 44 for case reference index 9

10 Limiting Liability: Procedural Prudence Establish a committee Establish written decision making procedures Document decisions and the processes Limiting Liability: Delegating Responsibilities Appointing fiduciaries: Delegation of responsibility to committee(s) Providing training Hiring service providers 10

11 Limiting Liability: Delegating Responsibilities Committee composition: Number of members Diversity Continuity and tenure Key employees and top management Limiting Liability Investment Policy Statement ( IPS ) Monitoring: Selecting and monitoring service providers Performance of investment funds 11

12 Limiting Liability: Plan Governance Avoid inconsistencies between plan terms and actual governance structure/decision making Clarify named fiduciary Plan document consistency Create and maintain updated Charter Consider using safe harbors Consider appropriate design changes Consider self audit Limiting Liability: Administration Develop and maintain good records and procedures Develop specific document retention policy Give non-fiduciary plan administrators a clear, useful framework 12

13 Limiting Liability: Indemnification/Bonding/Insurance ERISA voids plan-indemnification ERISA 412 requirements Fiduciary liability insurance Part 2 Structuring the Committee Oversight Subject Matter 13

14 Structuring the Fiduciary Committee Plan document provisions What does plan say? Apportioning fiduciary roles among: Board of directors Committees Third parties/service providers Plan document provisions and charter Committee Oversight Subject Matter ERISA Investment Education Vendor Compliant plan administration Select & monitor Help meet retirement goals Select & monitor service providers 14

15 Committee Oversight Subject Matter: ERISA Plan documents Basic rules regarding participation, vesting, distributions, and discrimination Fiduciary obligations Reporting & disclosure ERISA: Plan Documents Allocate responsibility for plan administration Must designate the plan s named fiduciary Funding policy Plan assets must be held in trust, so often times there will be a separate trustee agreement A procedure for amending the plan A basis for benefit payments 15

16 ERISA: Basic Rules Participation, vesting & accrual Funding Nondiscrimination ERISA: Fiduciary Obligations Prudence Act solely in the interest of participants Diversification Plan documents 16

17 ERISA: Reporting & Disclosure Document Due Within Of Summary Plan Description 120 Days Plan Effective Date Summary Plan Description Every 5 years Plan Effective Date Summary of Material Modifications Form 5500 Schedule C 210 Days Annually End of the year in which the change occurs Summary Annual Report 270 Days End of the Plan Year Source: Committee Oversight Subject Matter: Investment Fiduciary responsibility IPS Minimum substantive knowledge Understanding asset classes Mutual fund basics Other investments Special issues with employer securities 17

18 Investments: Fiduciary Responsibility Duties as standards in investment oversight Investment advisers and managers 3(21)(A)(ii) Investment Advisers 3(38) Investment Managers Fees and expenses an overlapping vendor issue Investments: Investment Policy Statement (IPS) What? Why? Benefits 18

19 Investments: Investment Policy Statement (IPS) Establishing an IPS: Harmony with ERISA and plan document 404(c) & other safe harbors Documentation Formalizing the process Investments: Basic Literacy Asset Classes Equity (stocks) Cash Debt (bonds) Growth v. Value Market cap Types of borrowers/issuers Maturities 19

20 Investments: Mutual Funds What is a mutual fund? Management style Categories Fund families Advantages Diversification Investments: Other Investments Brokerage accounts Managed accounts Collective trusts ETFs Insurance company products 20

21 Committee Oversight Subject Matter: Education Corporate citizenship Fiduciary implications: 404(c)/DOL Interpretive Bulletin ( IB ) 96-1 Investment advice/3(21)(a)(ii) & eligible advice programs -- Pension Protection Act (PPA) of 2006 (408(g)) Prohibited transactions Committee Oversight Subject Matter: Vendor Understanding needs of the plan: Plan s record keeping needs v. plan s size How much investment advice needed? Legal, accounting & compliance consulting needs Retaining service providers: Extent to which plan assets are used to pay fees 21

22 Questions? Index of Reference Cases Skilling v. United States (2010) [Enron] (slide 11) LaRue v. Dewolff, Boberg & Assoc., Inc. (2007) (slide 18) 22

23 Disclosures An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. The information provided in this document is not intended to be legal advice. Neither Pension Consultants, Inc. nor any of its employees engage in the practice of law. If assistance is needed in making legal determinations, counsel in the appropriate jurisdiction should be retained, and Pension Consultants may continue to provide consulting services, if needed. PCI retains individuals on its staff who are separately licensed as attorneys, however, PCI is not a law firm. As is defined by the bodies governing law practice within the states in which PCI does business, PCI does not engage in the unauthorized practice of law; PCI does not provide legal services; and PCI does not provide the protections that would be allotted to persons engaged in an attorney-client relationship. If assistance is needed in making legal determinations, counsel in the appropriate jurisdiction should be retained, and Pension Consultants may continue to provide consulting services, if needed. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling Pension Consultants, Inc. at Please read it carefully before investing. Pension Consultants, Inc. is registered with U.S. Securities and Exchange Commission as an investment adviser. 300 South Campbell Avenue Springfield, Missouri Pension Consultants, Inc. is registered with U.S. Securities and Exchange Commission as an investment adviser Pension Consultants, Inc. To be eligible to be considered for a finalist for PLANSPONSOR 2017 Retirement Plan Adviser of the Year, advisers had to meet the following minimum criteria: having a majority of business revenue derived from employer-sponsored retirement plans, serving as a fiduciary, being committed to fee-based compensation and using outcome-based metrics of plan success with clients. 23