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

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 didn’t know”

What Chief Business Officers Need To Know

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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

The Enlightenment Period!

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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

Keep The End Game In Mind

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Participant Services

Plan Services

The Process For Plan Success

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OVERSIGHT

Participant ServicesPlan Services

The Process For Plan Success

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The Evolution Of The 403(b)

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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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Who is a Fiduciary

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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What is a Fiduciary Process

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Plan Document

Investment Policy Statement (IPS)

Education Policy Statement (EPS)

Aggregate Information Form 5500

Audit

Compliance

Know Standards, Laws, & Document Provisions

Consolidation is Inevitable!

**The fund companies noted above represent only a small portion of available fund companies from which you may choose.

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Select & Diversify Investments

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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Use Prudent Experts

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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Loyalty to Beneficiaries & Account For Plan Expenses

“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 SpecialistDrinker 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

Costs

Investment Management

Record-keeping

TechnologyServices

Compliance

Employee Communication

s

Retirement Plan

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Duty of Reasonableness

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Understand what is reasonable

Duty of Reasonableness

Investment Management Fee

12b-1 Fees

Shareholder Servicing Fees

Sub-TA (Agency Transfer Fees)

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Duty of Reasonableness

Understand How You Are Paying

Written Process; Documented Application

Establish

Follow

Document

Measure

Repeat!

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“Excellence is the gradual result

of always striving to do better”

- Pat Riley

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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What is a Fiduciary Process

Participant Services

Plan Services

The Process For Plan Success

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R SIG

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FIDUCI

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OVERSIGHT

F IDUCIA

RY

ConcernsThose employed in the higher education community are growing more nervous about their ability to retire comfortably, yet few are acting on their concerns

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

Shocking Statistics

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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Higher Education Employee Study

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 Rates22

Common Employee Behaviors

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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Pitfalls With Current Participant Help

Employee Inattention

Retirement Success = Income Replacement

Enhanced Strategies

Professional Management Options

Impact More People

Make It Easier24

Focus Efforts on the Real Challenges

Participant PaidOut of Pocket

Participant PaidOut of Account

Integrated Fee(ERISA Bucket) University-Paid Benefit

Empl

oyee

Ado

ption

Fee Methods & Adoption Rates

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“ERISA Bucket”

Possibility For Fee Integration From Excess Revenue

Participant Services

Plan Services

The Process For Plan Success

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OVERSIGHT

Every program and platform should be designed to quantifiably improve each

participant’s chance at retirement success

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Fiduciary Responsibilities with Employee Retirement Plans

I didn’t know what

I didn’t know!

Questions?

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Kathy LindahlAVP Finance & OperationsMichigan State University

lindahl@vpfo.msu.edu(517) 355-5016

Kelley F. Snook Jr. AIF®

President – Consulting GroupStraightLine

ksnook@myrplan.com(877) 338-4032

Michael F. Bisaro AIF®

Vice President – Participant ServicesStraightLine

mbisaro@myrplan.com(877) 338-4032

Anne N. FishDirector of Benefits

Northwestern Universitya-fish@northwestern.edu

(847) 491-8588

Contact Information

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