Transcript Slide 1

Fiduciary Responsibilities For Employee
Retirement Plans
Kathy Lindahl, AVP Finance & Operations, Michigan State University
Anne N. Fish, Director of Benefits, Northwestern University
Kelley F. Snook AIF®, President – Consulting Group, StraightLine
Michael F. Bisaro AIF®, Vice President – Participant Services,
StraightLine
What Chief Business Officers Need To Know
 403(b) Plans and Fiduciary Liability?
 Fiduciary Liability lies with the Chief Business Officer….when it goes
wrong, we’re liable not the vendors!
 So what does that mean?
 We knew we needed some help to get it done efficiently…
 Independent, unbiased guidance combining Institution and
faculty/staff needs
 MSU went through a process of learning “we didn’t know what we
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didn’t know”
The Enlightenment Period!
 Opportunity to Optimize Plan Performance
 Plan Design – ‘Best of the Best’ for Institution & Participants
 Vendor Reduction, Optimal Investments, Cost Redirection
 Employees Confused - Product-Based Sales with Appropriate
Financial Advice
 Unbiased Employee Financial Advisement
 Enhanced Education, Technology, & Employee Tools
 Retirement Investment Advisory Committee (RIAC)
 Refocus RIAC Charter, Purpose, Controls and Oversight
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Keep The End Game In Mind
 The goal of every Retirement Plan, ERISA and NON- ERISA,
must be to quantifiably improve the retirement outcome of
every participant
 Time to put the “School” back into the Plan
 Independent Perspective vs. Vendor Perspective
 All of this driven by our Fiduciary Responsibility
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The Process For Plan Success
Plan
Services
Participant
Services
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The Process For Plan Success
Plan Services
Participant
Services
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The Evolution Of The 403(b)
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Who is a Fiduciary
 Exercise discretionary control/authority over plan
management or plan assets
 Have discretionary authority or responsibility for plan
administration
 Provide investment advice to a plan for compensation
or have authority or responsibility to do so
 e.g. Plan Trustees, Plan Administrators, Committee
Members
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What is a Fiduciary Process
 Know Standards, Laws and Document Provisions
 Select and Diversify Investments
 Use Prudent Experts
 Loyalty to Beneficiaries and Account for Plan Expenses
 Written Process; Documented Application
 Avoid Conflicts of Interest
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Know Standards, Laws, & Document Provisions
 Plan Document
 Investment Policy
Statement (IPS)
 Education Policy
Statement (EPS)
Aggregate Information
 Form 5500
Consolidation is Inevitable!
 Audit
 Compliance
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Select & Diversify Investments
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**The fund companies noted above represent only a small portion of available fund companies from which you may choose.
Use Prudent Experts
 ERISA section 404(a)(1)(B)
Act Prudently—fiduciaries must act “with the care, skill,
prudence and diligence under the circumstances then
prevailing 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.”
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Loyalty to Beneficiaries & Account For Plan
Expenses
 Duty of Loyalty and Reasonableness
Discharge duties with respect to a plan solely in the
interest of the participants and beneficiaries. Defray
reasonable expenses of administering the plan
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Duty of Reasonableness
“While fiduciaries have a duty to understand revenue-sharing, there is
no corresponding duty imposed on nonfiduciary service providers to
provide that information.”
“In effect, the law creates a curious circumstance where the people
with the least knowledge about a subject (i.e., plan sponsors) have the
legal responsibility to evaluate it, while the people who are most
knowledgeable about the same subject (i.e., 401(k) providers) have no
legal duty to disclose it.”*
C. Frederick Reish, Partner and ERISA Specialist
Drinker Biddle & Reath, LLP, Los Angeles
*2008 Article for Plan Sponsor Magazine
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Duty of Reasonableness
 Unbundle to Understand What You Are Paying
Recordkeeping
Technology
Services
Costs
Retirement
Plan
Investment
Management
Compliance
Employee
Communications
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Duty of Reasonableness
 Understand what is reasonable
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Duty of Reasonableness
 Understand How You Are Paying
12b-1 Fees
Investment
Management Fee
Shareholder
Servicing Fees
Sub-TA
(Agency
Transfer
Fees)
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Written Process; Documented Application
 Establish
 Follow
 Document
 Measure
 Repeat!
“Excellence is the gradual result
of always striving to do better”
- Pat Riley
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What is a Fiduciary Process
 Know Standards, Laws and Document Provisions
 Select and Diversify Investments
 Use Prudent Experts
 Loyalty to Beneficiaries and Account for Plan Expenses
 Written Process; Documented Application
 Avoid Conflicts of Interest
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The Process For Plan Success
Plan
Services
Participant
Services
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Higher Education Employee Study
 Concerns
Those employed in the higher education community are
growing more nervous about their ability to retire
comfortably, yet few are acting on their concerns
 Shocking Statistics
62% are less confident about living comfortably in retirement
36% have never calculated their retirement income needs
40% have never changed their retirement account allocation
Web-based survey commissioned by ING and conducted by Synovate via a national internet consumer panel between October 14 th and October 19th, 2009.
Respondents included 301 individuals in the U.S. currently employed in higher education who participate in their employer’s DC plan.
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Common Employee Behaviors
 Insufficient Diversification
 Inertia
 Fund Overlap
 Misuse of Target Date Funds
 Nonexistent or Infrequent Rebalancing
 Lack of Plan Understanding
 403(b) vs. 457, Roth Savings, etc.
 Insufficient Savings Rates
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Pitfalls With Current Participant Help
 Product Sales vs. Financial Literacy & Fiduciary Advice
 Lack of Objective Resources to Provide Desired
Education and Advice
 Inherent Conflicts of Interest
 Plan Providers NOT Fiduciaries
 No Opportunity for Professional, Ongoing Management
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Focus Efforts on the Real Challenges
 Employee Inattention
 Retirement Success = Income Replacement
 Enhanced Strategies
 Professional Management Options
 Impact More People
 Make It Easier
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Employee Adoption
Fee Methods & Adoption Rates
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“ERISA Bucket”
 Possibility For Fee Integration From Excess Revenue
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The Process For Plan Success
Plan
Services
Participant
Services
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Fiduciary Responsibilities with Employee
Retirement Plans
Every program and platform should be
designed to quantifiably improve each
participant’s chance at retirement success
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Questions?
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Contact Information
Kathy Lindahl
Anne N. Fish
AVP Finance & Operations
Michigan State University
[email protected]
(517) 355-5016
Director of Benefits
Northwestern University
[email protected]
(847) 491-8588
Kelley F. Snook Jr. AIF®
President – Consulting Group
StraightLine
[email protected]
(877) 338-4032
Michael F. Bisaro AIF®
Vice President – Participant Services
StraightLine
[email protected]
(877) 338-4032
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