Outsourcing Fiduciary Responsibility

Transcription

1 Outsourcing Fiduciary Responsibility Robert M. Kaplan, APA, CFP, CPC, QPA, Vice President, National Training Consultant, Voya Financial Services Christopher Swanson, J.D., Supervisory Investigator, U.S. Department of Labor, Employee Benefits Security Administration

2 Robert M. Kaplan, APA, CFP, CPC, QPA Vice President, National Training Consultant, Voya Financial Services Bob Kaplan is the VP, National Training Consultant for Voya. His responsibilities include web cast and live training for members of the TPA and Financial Services community as well as Voya personnel. He is currently a Co-Chair of the American Society of Pension Professionals and Actuaries (ASPPA s) Government Affairs Committee. Bob is a member of ASPPA s Leadership Counsel. He previously served as a member of the Board of Managers of the American Institute of Retirement Education (AIRE) as well as the Board of Directors of the National Institute of Pension Administrators (NIPA). In 2009, Bob was presented with NIPA s Lifetime Achievement Award for his contributions to the retirement plan industry.

3 Robert M. Kaplan, APA, CFP, CPC, QPA Vice President, National Training Consultant, Voya Financial Services Bob is a frequent speaker at industry events. He has provided testimony before the Treasury department on 401(k) issues and other retirement plan issues. Bob has more than 35 years of experience in retirement plan services, including plan design, administration, sales and consulting. Bob is also a former high school basketball coach. He is a graduate of the State University at Albany, NY and has a graduate degree from William Paterson University in New Jersey.

4 Christopher Swanson, J.D., Supervisory Investigator, U.S. Department of Labor, Employee Benefits Security Administration Christopher has worked for the U.S. Department of Labor, Employee Benefits Security Administration for going on 10 years. He started as intern in 2005 while attending law school, and worked as Investigator and currently a Supervisory Investigator in the San Francisco Regional Office. He holds a J.D. from Golden Gate University School of Law and is licensed to practice law in California. Christopher also has a BA in Political Science from University of California, Santa Cruz.

5 Agenda The Basics Plan Administrator ERISA 3(16) Fiduciary ERISA 3(21) Investment Manager ERISA 3(38) Questions

6 The Times They Are A Changing But Not Quite Yet The DoL re-proposed new regulations for fiduciaries Want all advisors and brokers making recommendations on assets to be a fiduciary Even if not on a regular basis and Whether to plan as a whole or one participant Recommendations to rollover or take a distribution to an IRA will be a fiduciary function Some exemptions for non-level compensation products - Best Interest Contract Exemption

7 The Times They Are A Changing But Not Yet SEC is considering changing the rule for advisors to change from suitability to fiduciary This is separate from the DoL proposal

8 The Basics Who Is A Fiduciary Discretion over management of plan Investment advice for a fee (subject to new proposed regulations) Discretion over administration This is a functional test it is what you do not what you are called or titled

9 The Basics What Must A Fiduciary Do Act solely in the best interest of the plan s participants For purpose of providing retirement benefits to participants and their beneficiaries Must act will care, skill, prudence and diligence that a prudent person would

10 The Basics What Must A Fiduciary Do If a plan sponsor fiduciary does not have sufficient knowledge to evaluate an issue, must get expert advice Cannot blindly rely on advice; must make its own decision using that advice Must acquire enough information to make a well informed decision

11 Discovered by.. DoL Investigation The Basics What If A Fiduciary Fails To Do The Right Thing Legal complaint by participant or beneficiary Civil Penalty or Criminal Punishment Liability to plan Civil penalty of up to 20% of plan assets involved in breach Restore plan assets Excise taxes Paying expenses of correction Fine up to $500,000; up to 10 years imprisonment

12 The Basics Fiduciary Functions Allocation of fiduciary responsibilities Control operation and administration of plan Evaluate appointed people and remove if necessary Hire investment managers Determine investment menu Develop funding policy and investment policy statements Adopt plan procedures Determine plan eligibility Review benefit claims Maintain records Interpret plan provisions Prepare and furnish disclosure documents Evaluate 408(b)(2) fee disclosures

13 Mitigate vs. Eliminate The Basics The Market Place Most offerings in the market will mitigate but not totally eliminate the plan sponsor s fiduciary functions

14 Definition Plan Administrator ERISA 3(16) (1) the person specifically so designated by the terms of the instrument under which the plan is operated (2) if an administrator is not so designated, the plan sponsor ;or In the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe

15 Plan Administrator ERISA 3(16) Person responsible operation and administration of plan Identified in the plan document Plan designates: By name By reference to the person holding the position (example the employer) By reference to a procedure (example by committee) Persons charged with specific responsibilities

16 Plan Administrator ERISA 3(16) If not designated, the plan sponsor is the plan administrator (per ERISA) If no plan sponsor persons actually responsible for control, disposition or management of the amounts contributed to the plan

17 ERISA 405(c)(1): Plan Administrator ERISA 3(16) Right to Delegate (1) The instrument under which a plan is maintained may expressly provide for procedures... (B) for named fiduciaries to designate persons other than named fiduciaries to carry out fiduciary responsibilities..... (2)... [if] pursuant to such procedure any fiduciary responsibility of a named fiduciary is allocated to any person... then such named fiduciary shall not be liable for an act or omission of such person [

18 Typical Functions Plan Administrator ERISA 3(16) Disclosures Filings Hires service providers Testing and compliance Directs trustee to make distributions

19 Personal observation Plan Administrator ERISA 3(16) The Market Place Expansion of offering by TPAs and select vendors The key what specific services are being offered It is not an all or nothing arrangement Must check contract and agreement carefully Be careful not to be An Accidental Fiduciary

20 Fiduciary ERISA 3(21)(A) (A) Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan to the extent (i) he 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) he 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 authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan

21 Fiduciary ERISA 3(21)(A) DoL Five Point Test Make recommendations on investments On a regular basis Mutual understanding between advisor and client Recommendations are the primary basis for investment decisions Information is specific to the plan (not general education) Can you fall into this category and be an accidental fiduciary?

22 Fiduciary ERISA 3(21)(A) Named vs. Limited Scope Limited Scope Acknowledges a fiduciary role Does not take discretion over investments Provides investment advice, but Leaves ultimate decision to plan sponsor

23 Fiduciary ERISA 3(21)(A) Named vs. Limited Scope Named or Full Scope Fiduciary Acknowledges a fiduciary role Works directly for Plan Administrator ERISA 3(16) Hires, fires, manages Limited Scope Exercises any discretionary authority or discretion or control over plan assets Renders investment advice for a fee, direct or indirect May have discretionary authority in the administration of the plan

24 Fiduciary ERISA 3(21)(A) The Market Place Fiduciary warranty Fiduciary certification Co-Fiduciary Plan Sponsor must read agreement very carefully what protection are they really getting?

25 Investment Manager ERISA 3(38) (1) Any fiduciary who has the power to manage, acquire, or dispose of any asset under the plan; (2) who (i) is registered as an investment adviser under 1940 act (ii) is registered under state law (iii) is a bank (iv) is an insurance company (3) has acknowledged in writing that he is a fiduciary with respect to plan

26 Investment Manager ERISA 3(38) Typical functions Selection and monitoring of plan investment options (including replacement) Mapping Selection and monitoring of plan s default investment option (if applicable) Develop and maintain plan s investment policy statement

27 Investment Manager ERISA 3(38) The Market Place Offerings growing Look for increased interest due to new definition of Investment Manager Fiduciary regulation How it generally works Employer provides profile of employee base (and updates this as necessary) see next slide Investment manager selects menu Investment manager monitors Investment manager provides reports so employer has a complete file

28 Investment Manager ERISA 3(38) The Market Place Profile of employee base Demographics Education levels Investment sophistication Participation rates Options available currently Current allocations Level of sponsor offered education These are only some of the criteria that may be looked at

29 Investment Manager ERISA 3(38) The Market Place Profile of employee base Demographics Education levels Investment sophistication Participation rates Options available currently Current allocations Level of sponsor offered education These are only some of the criteria that may be looked at

30 ERISA 3(21) and (38) The difference 3(21) Advice Programs 3(38) Investment Manager 3(21) Advisor recommends multiple investments for the plan sponsor to chose from 3(21) Advisor monitors investments and suggests replacements as appropriate. Employer is responsible for investment decisions 3(21) Advisor has no discretion for investment decisions Investment Manager selects individual investments for employer Investment Manager monitors investments and executes replacements as appropriate. 3(38) Investment Manager is responsible for investment decisions 3(38) Investment Manager has discretion for investment decisions 30

31 Questions I will be happy to answer any of your questions regarding Fiduciary Outsourcing