You have questions. We have answers. RETIREMENT PLAN PANEL DISCUSSION Moderator Anthony J. Kolenic, Jr. Presenter: John H. McKendry, Jr. Presenter: Justin W. Stemple 2015 Warner Norcross & Judd LLP. All rights reserved. WNJ.com Governance Best Practices ERISA is a process statute Internal controls Audit risk 2015 Warner Norcross & Judd LLP. All rights reserved. Page 2 Governance Best Practices Who has a retirement/investment committee? Who knows if that committee was formally approved by the Board? Who relies almost exclusively on one individual for retirement plan administration? Who has engaged a fiduciary investment advisor/investment manager? Who has an ERISA attorney you can consult with? 2015 Warner Norcross & Judd LLP. All rights reserved. Page 3 2015 Warner Norcross & Judd LLP. All rights reserved. 1
Measuring Plan Success Participation Economic Prudence fee minimization Retirement Income Sufficiency Utilization of Advice Liability Minimization 2015 Warner Norcross & Judd LLP. All rights reserved. Page 4 Measuring Plan Success Participation Measures Percentage of employees participating Auto enrollment Average deferral percentage and rate Economic Prudence Full Transparency Investments institutional shares, alternative types low basis points Investment advice basis points or flat, capped Participant education flat fee Recordkeeping per head, capped 2015 Warner Norcross & Judd LLP. All rights reserved. Page 5 Measuring Plan Success Retirement Income Sufficiency Leakage reduction Duration of income Post-retirement asset allocation Liability Minimization Provider standards of conduct Third-party fiduciary liability Monitoring processes 2015 Warner Norcross & Judd LLP. All rights reserved. Page 6 2015 Warner Norcross & Judd LLP. All rights reserved. 2
Measuring Plan Success Investment Success Utilization of advice Reduced safe fund usage Increased use of managed options Exceeding benchmark returns Personalized vs Online Education 2015 Warner Norcross & Judd LLP. All rights reserved. Page 7 Measuring Plan Success Questions Who has formalized and annually monitors plan success measures? How many measure on more than three common factors participation rate, deferral rate, overall participant satisfaction? 2015 Warner Norcross & Judd LLP. All rights reserved. Page 8 Special Features Safe Harbor Contributions Automatic enrollment Automatic escalation Roth contributions/conversion 2015 Warner Norcross & Judd LLP. All rights reserved. Page 9 2015 Warner Norcross & Judd LLP. All rights reserved. 3
Special Features Who has considered Roth? Who has added Roth? Auto-enrollment? Auto-escalation? Deferral rate? TDFs as QDIA? 2015 Warner Norcross & Judd LLP. All rights reserved. Page 10 Reducing Retirement Plan Leakage Sources of Leakage Loans In-service withdrawals Cash outs Lump sum/direct transfer only Third-Party annuitization 2015 Warner Norcross & Judd LLP. All rights reserved. Page 11 Reducing Retirement Plan Leakage How many have considered eliminating loans? Increasing loan restrictions? Why has monitored use of in-service withdrawals, lump sum/cash outs? How many offer third-party annuity options? and have carefully vetted their costs and returns security and features? 2015 Warner Norcross & Judd LLP. All rights reserved. Page 12 2015 Warner Norcross & Judd LLP. All rights reserved. 4
Fiduciary Definition Rule October 2010 Proposed Rule Political Fight September 2011 Withdrawn Political Fight Re-proposal expected in 2013 Political Fight April 14, 2015 Re-proposed Rule Political Fight? 2015 Warner Norcross & Judd LLP. All rights reserved. Page 13 Fiduciary Definition Rule Who wants investment advice that is fee neutral and based on the plan s best interests? Who wants a remedy against an advisor who gives self-interested advice? 2015 Warner Norcross & Judd LLP. All rights reserved. Page 14 Alternative Core Investment Sources Current Concentrations- Mutual funds Target date/lifestyle funds Mutual Fund Issues Inappropriate share class High expense structure Conflicted compensation mechanisms 2015 Warner Norcross & Judd LLP. All rights reserved. Page 15 2015 Warner Norcross & Judd LLP. All rights reserved. 5
Alternative Core Investment Sources Target Date Fund Issues Provider additional expense layer Inadequate benchmarking return, glide path Investor ignorance Underlying fund deficiencies unseasonal/new, higher expenses 2015 Warner Norcross & Judd LLP. All rights reserved. Page 16 Alternative Core Investment Sources Alternatives Collective, pooled investment trusts Custom target date/risk portfolios Exchange traded funds Variable annuity products 2015 Warner Norcross & Judd LLP. All rights reserved. Page 17 Alternative Core Investment Sources How many of you offer: primarily, exclusively mutual funds? target date funds? How many use the following alternatives in menu custom target date, if style, risk-model portfolios? CITS or PITS? ETFS? Variable Annuities? 2015 Warner Norcross & Judd LLP. All rights reserved. Page 18 2015 Warner Norcross & Judd LLP. All rights reserved. 6
Questions & Answers Thank you! John H. McKendry, Jr. Warner Norcross & Judd LLP 700 Terrace Point Road, Suite 350 Muskegon, Michigan 49440 jmckendry@wnj.com Justin W. Stemple Warner Norcross & Judd LLP 900 Fifth Third Center 111 Lyon Street, N.W. Grand Rapids, MI 49503-2487 jstemple@wnj.com These materials are for educational use only. This is not legal advice and does not create an attorney-client relationship. #12602515 2015 Warner Norcross & Judd LLP. All rights reserved. Page 19 2015 Warner Norcross & Judd LLP. All rights reserved. 7