deferred compensation - wild apricot committee … · rodney walton. rodney walton. account...
TRANSCRIPT
Deferred Compensation Committee Fiduciary DutiesDo You Have a
Committee?
Do You Know Your Duties?
Rodney WaltonRodney WaltonAccount [email protected]
Agenda
• Why DC Committees?• ERISA• Fiduciary• GFOA Best Practice• Pick Your Team • A Model• Policy Statement• Let The DC Committee Do It
What I am NOT trying to do
Provide all the answers
Create Sunshine Law
Violations
Give specific advice
ERISA - Not that girl you knew from high school
Signature
ERISA
Employee Retirement
Income Security Act
1974
Our courts have referred
to its high standards
ERISA itself does not give
much guidance
We focus on the
regulations that come from ERISA
Government does not need to
follow ERISA
Retirement plan best practices
Fiduciary Responsibility
Fiduciary Definition
• Required to act for the benefit of another person on all matters within the scope of their relationship
• One who owes to another the duties of good faith, trust, confidence, and candor
Plan Fiduciaries
Among Other Things, A Plan Fiduciary:
• Discretionary responsibility in administration of the plan• Responsible for choosing and terminating of plan providers• Establishes policies and procedures for plan
Plan Fiduciaries
• Its not whether want to be one or not• If you delegate monitoring or not, you still have to monitor• You don’t have to make the decisions, just have the authority to• Its more of a calling…….
Fiduciary Responsibility
• ERISA means not government, right?• State law governs Non-ERISA plans• Non-ERISA does NOT mean Non-Fiduciary• “Each retirement system or plan shall have one or more named
fiduciaries with authority to control and manage the administration and operation of the retirement system or plan.” Florida Statute 112.656
I Know You Are (A Fiduciary) But What Am I?
• 2017 Study by AllianceBernstein found:• 51% of Plan Sponsors think they are fiduciaries• 39% members of DC Committees think they are fiduciaries• Of those who think they are responsible, only 67% think they are fiduciaries
• Plan Administrators are fiduciaries, so the question is: Am I really one as a Plan Sponsor?
Court Cases
ESOP Excessive Fees
Self-Dealing
Revenue Sharing
Definitions
ESOP – Employee Stock Option Program•Over-valued/Under-valued
Excessive Fees –charging excessive fees in retirement plans above what is deemed reasonable•‘Self-Dealing’ and ‘Revenue Sharing’ can loosely fit in the ‘Excessive Fees’ category
Self-Dealing •They could have worked around ‘kickback’ and offered another share class
•Not the best version of their funds in their own companies 401k plan
Revenue Sharing•‘Kickbacks’ of fees paid for having the funds on a mutual fund platform
•Should have passed the fee revenue back to the employees
In summary, you ‘Self-Deal’ when you do not
‘Revenue Share’
Excessive Fees
• Excessive recordkeeping fees in a small plan• 2014 - $1466 per participant• 2015 - $1819 per participant• Charged plan 0.67% to 1.86% of net assets
Voya Financial
• Large retirement plan did not negotiate fees• This was particularly evident in stable value fund• Vanguard Funds cheaper with larger return
Prudential Guaranteed Income Fund
Self- Dealing
• Extra hidden fees that could have been avoided• Guaranteed Account offered in the plan was their own
Mutual of Omaha
• ‘Index’ Funds or ‘Passively’ Managed Funds that Putnum offered were high in fees
• Argument was made of these same type of funds made to mirror the market were much less offered by Vanguard
Putnam Funds Compared To Vanguard
Revenue Sharing
• Nationwide keeps fees for non-proprietary funds that it offers
• Plantiff said this should have been fees returned to the plans
Nationwide Settles 13 Year Suit
• By setting up the provider’s compensation package they became a ‘functional fiduciary’
Mass Mutual Agrees To Settle
GFOA - Best Practices DC Plan – Investment Policies for Retirement Plans
• Statement of purpose• Fiduciary standards• Scope of investment options• Qualified Default Investment Alternative(s)• Monitoring procedures• Liquidity requirements• Participant education and outreach• Target-date or target-risk funds*• Retirement income features or annuity funds*• Brokerage options*
GFOA - Best Practices DC Plan
Participant Education Guidance
for Defined Contribution Plans
Defined Contribution
Retirement Plan Design
Investment Fee Policies for
Retirement Systems
Monitoring and Disclosure of Fees for Defined Contribution
Plans
Your ‘DC’ Committee – Picking Your Team
Best Practices for picking your team
• Again, this is not advice• DC Committee - not the council or commission
• This is an oversight committee
• Different backgrounds/skills of different employees• Example: Human Resources, Risk Management, Finance• Think about different opinions from different departments• Example: Fire could have a different opinion than Public Works
• Share interest in making plan better• Low, odd number of people (small for voting)
Best Practices for your team continued
• Some background knowledge of investments even if it is self-taught• You can always get training from your vendors• Ask good questions
One Possible Model
Council/Commission
DC Committee
Plan Provider(s)
Adopting A Charter/DC Committee Policy Statement
Foundation for establishment
Ongoing governance
Fiduciary Responsibility
Structure
Objectives
Frequency of meeting
Plan Sponsorship
Responsibilities
Investment Best Practice
Organize
Formalize
ImplementMonitor
Why not leave this to the experts?
• How many have gone to RFP? What happened?
Why not leave this to the experts?
Fiduciary Duties In The Public Sector
• Hold Regular Meetings• Establish policies and procedures to monitor co-fiduciaries• Document any decision making processes• Document actions they take to monitor delegates and service providers
and address any service issues• Establish and follow up a conflicts-of-interest policy and document
compliance with it
Why not leave this to the experts?: Your Options
• Consultants could: Do one time search for a fund when the fund breaks the ongoing governance rules
• Join a collective pool• Interlocal agreement• Independent
A Place To Start = Fees
Average Asset-Weighted Investment Expense Ratio2017 Study
<25bps>100bps
75bps-100bps
50bps-75bps 25bps-50bps
A Place To Start = Fees
Average Asset-Based Fees2014 Study
• Average Plan 0.97%• Average Participant 0.55%• Average Dollar 0.39%
A Place To Start = Fees
Worst Case Scenario For Small Plans Under 200 Employees
Investment Expense + Plan Administration = Total Fee
0.75% + 0.97% = 1.72%
1.72% Annual Total Fee!
Let The DC Committee Do It
Unforeseeable emergencies
Mutual Fund Options
Allocation into those funds
Education
Fees and return
Plan Administration
Multiple plans
Begin/Develop RFPs
Questions???????
Resources and References
• https://www.ici.org/pdf/ppr_16_dcplan_profile_401k.pdf
• https://www.plansponsor.com/research/2017-dc-survey-plan-benchmarking/2
• Benefits Magazine, Volume 52, No 4, April 2015, pages 34-39
• https://www.plansponsor.com/magazine/structuring-a-plan-committee
• http://www.gfoa.org/investment-policies-tax-deferred-retirement-savings-plans
• https://www.plansponsor.com/nearly-half-sponsors-fail-realize-fiduciaries
• https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/history-of-ebsa-and-erisa
• https://www.plansponsor.com/voya-sued-charging-excessive-fees-small-retirement-plan/
• https://www.plansponsor.com/participant-says-large-plan-failed-negotiate-better-fees/
• https://www.plansponsor.com/nationwide-settles-13-year-old-revenue-sharing-suit/
• https://www.plansponsor.com/massmutual-agrees-to-settle-revenue-sharing-lawsuit/
• https://www.plansponsor.com/self-dealing-suit-filed-mutual-omaha/
• https://www.plansponsor.com/judge-deals-blow-to-vanguard-fund-comparison-in-self-dealing-case/