For Clerk’s Deferred Compensation PlansDarlene Malaney, Lisa Turner and John Burford

FCCC 2018 Winter Conference

What is a Fiduciary?

A person who owes a duty of care and trust to another and must act primarily for the benefit of the other in a

particular activity

• Duty of Loyalty – the interests of plan participants and beneficiaries come first

• Duty of Care – the responsibility to administer the plan efficiently and properly

• Duty of Prudence – A fiduciary should act as a reasonable or prudent person would act in a similar situation or in conducting his or her own affairs

The Roles of Governing Fiduciaries

– Set strategy and policy– Determine decision-making authority– Delegate day-to-day management of the plan

Best Practices

Plan DesignParticipant Services and Plan Features

• Hardship withdrawals – “immediate and heavy” financial need; early withdrawal penalty; detailed documentation required

• Medical• Purchasing residence• Education• Avoidance of foreclosure• Burial/funeral

• Emergency withdrawals – no penalty• Illness/accident• Casualty loss• Extraordinary emergencies

• Loans – interest; administrative fees possible • General purpose – 5 years• Home purchase – 15 years

• Rollovers – different types, accounting and tax implications

• Roth options – tax-free accumulation of after-tax contributions

• Automatic plan features –• Automatic enrollment • Default investment options – Target Date Funds• Auto-escalation

• Employer match• Higher contribution rates• More engagement• Employee retention

• Investment advice –• Managed accounts• Financial planners/call center• Field representatives

Best Practices

Best Practices - Governance Structure

• Plan Board/committee (plan administrator for smaller plans)

• Promoting benefits plan• Approving plan features• Overseeing delivery of services • Selecting and monitoring investments • Approving administrative and investment

policies• Establishing communication and education

plan• Procuring plan services; evaluating

performance of providers

• Plan Sponsor Education• Stay abreast• Ongoing (fiduciary ) training• Build peer network• Stay informed

• Outside expertise • Plan consultant• Investment advisor

• Supporting authorities• Legal counsel• Sub-committees – investment, education• Governing body

• By-laws or charter documents• Responsible parties• Outline composition of Board, frequency of

meetings, attendance requirements• Other issues plan sponsor considers critical to

plan oversight and operation

Best Practices - Governance Structure

• Plan document• Required under the Internal Revenue Code• Must specify that plan assets will be held in trust for participants• Must be kept up-to-date with current Code, Treasury regulations and plan provisions

• Records retention• Plan document revisions• Signed contracts with service providers• Communication to participants regarding plan changes• Selection process for committee members• Meeting minutes and notes• Educational outreach efforts to plan participants• Performance of investment line-up

• Policy manual• Operational guide for carrying out administrative responsibilities

Resources

A fiduciary is a person ho owes a duty of care and trust to another and must act primarily for the benefit of the other in a particular activity.

• National Association of Defined Contribution Administrators (NAGDA)

• Government Finance Officers Association (GFOA)• Florida Retirement System (FRS)• Ernst & Young • International Foundation for Retirement Education• IRS - Governmental Plans Updates• Web-sites - Dept. of Labor, Morningstar, PlanSponsor.com

Best Practices

Key Areas of Plan Compliance

IRC - Tax Regulatory Compliance

Legal ReviewAudit Plan

Best Practices

Investment Menu Design

• Investment quality• Fees• Appropriateness• Array of choices

Affected by participants with favorite funds,

marketing of proprietary funds, advocates of

greater choice

The Foundation – Investment Policy Statement (IPS)

Benefits – Performance benchmarks Fee benchmarks Restricting investments based upon risk tolerance Guidelines for investment managers Defining responsibilities Protection for plan fiduciaries – prudent process followed

Investment Menu Selection

Balancing Act

Investment Menu - Three Tier Approach

Risk-based, target date & balanced funds, managed account service

“Core funds”

Self-directed brokerage

Stable value

U.S. Equity

Foreign/International Equity

International developed large and mid-cap equities

Large and mid-cap emerging markets equities

Funds benchmarked to MSCI EAFE index for developed markets

Funds benchmarked to MSCIACW index for emerging markets

Fixed Income

• Diversification and counterbalance to equities• Intermediate as well as low-duration options• More conservative return goal • Low duration options may compete with stable value

Capital Preservation

Money Market• Most conservative• Highly regulated• Duration and credit quality restrictions• Lower returns

Stable Value• Different structures• Investment trusts, GICs, fixed annuities• IncomeAdvantage• Longer duration• Interest rate sensitivity• Insurance products smooth returns• Higher returns

Pre-diversified FundsRisk-based Funds Balanced Funds Target Date Funds

Single option offering fully diversified portfolio, automatic rebalancing, may be customized

Becoming primary destination for new investment – Significantly improves participant asset allocation

Self-directed Brokerage

Investment options not approved by plan fiduciaries – Freedom of choice – Possibly higher fees – minimum balance may apply

Fund Line-up and ReviewFund Name Ticker Grade

Fidelity Contrafund FCNTX GoodVanguard 500 Index Admiral VFIAX GoodVanguard Extended Market Idx Adm VEXAX GoodVanguard Mid Cap Index Adm VIMAX GoodVanguard Small Cap Index Adm VSMAX GoodVanguard Total Stock Mkt Idx Adm VTSAX GoodVanguard Dividend Growth Inv VDIGX GoodT. Rowe Price Capital Appreciation Fund PRWCX GoodVanguard International Growth Inv VWIGX GoodDodge & Cox International Stock DODFX GoodHarbor Bond Institutional HABDX WatchVanguard Short-Term Bond Index Adm VBIRX GoodVanguard Total Bond Market Index Adm VBTLX GoodIvy High Income Y WHIYX GoodVanguard Balanced Index Adm VBIAX GoodVanguard Target Retirement 2010 Inv VTENX GoodVanguard Target Retirement 2015 Inv VTXVX GoodVanguard Target Retirement 2020 Inv VTWNX GoodVanguard Target Retirement 2025 Inv VTTVX GoodVanguard Target Retirement 2030 Inv VTHRX GoodVanguard Target Retirement 2035 Inv VTTHX GoodVanguard Target Retirement 2040 Inv VFORX GoodVanguard Target Retirement 2045 Inv VTIVX GoodVanguard Target Retirement 2050 Inv VFIFX GoodVanguard Target Retirement 2055 Inv VFFVX GoodVanguard Target Retirement 2060 Inv VTTSX Good

Vanguard Target Retirement Income Inv VTINX Good

Vanguard Prime Money Market Inv VMMXX Good

Fees and Compensation

UnderstandReview and document

CommunicateVerify annually

Reasonable?

Fund management fees

Managed account fees

Administrative fees

12-b 1 fees

Revenue sharing Spread revenue

Best Practices

Plan Administration

• A partnership performed by the recordkeeping provider, Human Resources and Payroll

• Maintains plan documents – Human Resources• Manages distributions from plan – Human Resources and Provider• Manages hardship withdrawals – Human Resources and Provider• Performs compliance services – Human Resources, Finance and Provider• Processing payroll files – Payroll and Human Resources

Best Practices

Human Resources’ Role

Day-to-Day administration / responding to employee questionsHardship Withdrawal rulesLoan rulesResources available – intranet, flyers, etc.

Orientate new Clerk employees to our “savings culture” Invite to sign up on day 1

Participate on the 457b Plan Advisory Committee Evaluate funds offered Evaluate provider periodically

Introduce periodic employee education materials and seminars Offer training resources for employees – Lunch ‘n Learns and one-on-

one investment appointments with provider Regular review of 457b Plan Document to ensure compliance In conjunction with Finance, regularly re-evaluates provider

How Clerk & Comptroller, PBC Introduced and Educated Employees on Investing

• Partnership between Finance and Human Resources Staff• All employees strongly encouraged to attend information meeting

Presented by Finance Director Educating employees on “Planning for Retirement and Investing 101”

• Provided employees with real-world, meaningful responses to day-to-day frequently asked questions (FAQs) about “how can I afford to save which I’m living paycheck to paycheck”

• Provided an incentive to each employee who signed up for the first time or increased their contribution percentage

• Included regular education materials in Clerk’s weekly “Employee Update”• Offered regular lunch ‘n learns so employees continue to grow their

investment knowledge• Added valuable and current information about “saving for retirement” to our

intranet - ClerkNet

Participant Education

Complexity

Simplicity

Two-Minute Drill

Provide for your financial future Pre-tax or after-tax savings Contribution limits Contribute as much as you can afford Why starting early matters Take advantage of employer match Diversify to manage risk Minimize emergency withdrawals Minimize loans Avoid early distributions – tax penalty may

apply Beneficiaries – keep up to date

Participant Education

Social Security Defined Contribution Plan

Defined Benefit Plan

A. New employee B. Sample Pension retiree

Age 35, retires after 30 years

Age 62, employed at Clerk & Comptroller15 years

$32,000 salary*assumes 2.4% annual salary increase ($64,000 final salary)

$42,000 final salary

Estimated Social Security benefit$14,196 per year

Estimated Social Security benefit$14,640 per year

Estimated FRS benefit$30,720 per year

Estimated FRS benefit$10,080 per year

Annual deficit$19,084

Annual deficit$17,280

How can a 457b savings plan help you?

Social Security FRS 457b

Third-party Administrator Communication Channels

Group Education & Individual Appointments

Counseling

Web

Call Center

Social Media

Newsletters

Why Participate?

Pension and Social Security benefits may go a long way…but are unlikely to be enough….

You may need to supplement your income for..

1. Living expenses2. Health care3. Major purchases4. Travel

Help keep pace with inflationSocial Security FRS 457b

Example: Increasing Your Contributions Over Time

* For illustrative purposes only. Actual returns may be higher or lower. Assumes initial $10,000 account value and $50 bi-weekly contributions at age 40 and effective 6% average annual return, compounded biweekly.

$268,295

$81,258

A $25 BI-WEEKLY BOOST each year leads to over $187,000in additional savings!

Account value20 years later:

Employee Education Example

If you make $50,000,invest 5% annually

and are charged 1% less in fees,

you could save an additional$89,000 over 30 years.

Lower Fees + Better Performing Funds =

You can control your costs but not the rate of return

Ok, I’ll open a 457(b) account but I don’t know anything about investments. What do I do now?

• Use the resources available to you

• Don’t put all of your eggs in one basket

• Consider putting some money in growth funds

QUESTIONS?