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105 W. Adams Street, Suite 2175 | Chicago, IL 60603 | 312.701.1100 Securities offered through Cambridge Investment Research, Inc., a Registered Broker/Dealer,

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Presentation on theme: "105 W. Adams Street, Suite 2175 | Chicago, IL 60603 | 312.701.1100 Securities offered through Cambridge Investment Research, Inc., a Registered Broker/Dealer,"— Presentation transcript:

1 105 W. Adams Street, Suite 2175 | Chicago, IL | Securities offered through Cambridge Investment Research, Inc., a Registered Broker/Dealer, Member FINRA/SIPC Investment Advisory Services offered through Retirement Plan Advisors, LLC, a Federally Registered Investment Advisor Cambridge Investment Research and Retirement Plan Advisors, LLC, are not affiliated. BEST PRACTICES FOR GOVERNMENTAL 457(B) PLAN ADMINISTRATION AND FIDUCIARY RESPONSIBILITIES

2 Ken Mergen, Vice President Zach Karas, Principal April 10, 2015

3 TODAY’S AGENDA >Fiduciary Responsibilities –ERISA vs. Non-ERISA –3(21), 3(38) Investment Fiduciary –3(16) Administrative Fiduciary –Plan Document >Plan Administration –Eligibility and Enrollment –Beneficiaries –Hardship withdrawals –Distributions (loans/withdrawals) –Qualified Domestic Relation Orders (QDRO’s) 3

4 GENERAL REGULATORY GOVERNANCE FOR RETIREMENT PLANS 4 >The Rule Maker & Enforcer –US Department of Labor –NJ Rules & Regs – Dept. of Community Affairs Only allow approved vendors >The Rules & Regulations –Employee Retirement Income Act of 1974 (ERISA) –Pension Protection Act of 2006 (PPA) –Other miscellaneous acts and regulations at both the federal and state level >Footnote –Financial Industry Regulatory Authority (FINRA) –Securities and Exchange Commission (SEC)

5 ERISA VS. NON-ERISA >Private sector plans are subject to the Employee Retirement Income Security Act of 1974 (ERISA) >Governmental retirement plans are not subject to ERISA >DON’T confuse not being subject to ERISA with financial liability or due diligence responsibilities >As Plan Trustees you are responsible. 5

6 6 6 A Plan’s fiduciaries will ordinarily include: >The Trustee >Investment advisors >All individuals exercising discretion in the administration of the Plan (including, but not limited to): − Elected officials − Employees − Board members − All members of a plan’s administrative committee − Those who select committee officials Source: US Department of Labor, Employee Benefits Security Administration The key factor in determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the Plan. WHO IS A FIDUCIARY?

7 DEFINITION OF A FIDUCIARY 1.Know the standards, laws, and trust provisions that impact the investment process of the portfolio 2.Prudently diversify the portfolio to a specific risk/return profile (or in the case if a participant-directed retirement plan, to make sufficient asset classes available so that a participant can prudently diversify his or her portfolio 3.Prepare, execute, and maintain an investment policy statement 4.Have investment decisions made by prudent experts 5.Control and account for all investment-related expenses 6.Monitor the activities of all investment-related service vendors 7.Avoid conflicts of interest and prohibited transactions 7

8 FIDUCIARY RESPONSIBILITY SIZE MATTERS >Plan under $10m – smaller plans with little customization >$10m-$30m – a few more bells and whistles >$30m-$60m - now we’re talking! >Over $60m – you should get what you want! >The larger your plan, the more services available through your recordkeeper >Larger plans can support the use of an RIA (Federally Registered Investment Advisor) to assist the plan >As a sponsor, you’re shooting to follow Best Practices in the industry. 8

9 3(21) VS. 3(38) ADVISOR > ERISA 3(21) Investment Fiduciary Services Fund Selection and Monitoring –Monitor your provider(s) –Create Investment Policy Statement –Recommend funds to be used by plan –Monitor funds for continued compliance with Investment Policy Statement –Report fund performance and give advice on change – but not given discretion –Advising on Plan design, legislative changes and document review –Monitor and negotiate fees > ERISA 3(38) Investment Fiduciary Services –All the services listed above for a 3(21) advisor –The difference: a 3(38) advisor is given discretion over their plan duties –Determine when it is necessary to replace a fund used by plan –Select replacement fund(s) for Plan and notify the Sponsor and employees of the changes 9

10 CURRENT TRENDS IN MANAGING FIDUCIARY LIABILITY >A retirement plan advisor can serve in either a 3(21) or 3(38) fiduciary capacity, and in some cases, both. >The needs and desires of the Plan Sponsor typically dictate the specific arrangement, which is predicated upon the subject of risk mitigation. >Some Plan Sponsors want assistance with their fiduciary responsibilities but still want to maintain discretion and control of their Plan’s investment menus. >Others want to shift the fiduciary responsibilities to a third party to further reduce their liability. 10

11 INVESTMENT POLICY STATEMENT >Establish benchmarks for fund evaluations including: –Peer ranking –Risk-adjusted returns –Volatility –Style Drift >Establish procedures for adding, deleting, and mapping investment options: –Watch list –Probation –Deselection 11

12 INVESTMENT POLICY STATEMENT >Apply the criteria established in the IPS to all investment options in the plan >Review industry best practices relative to menu design, asset class representation and investment offerings >Provide a written report documenting the findings >Make specific fund recommendations for changes to line-up >All of it done within the parameters outlined in the IPS 12 Document a consistent, repeatable process!

13 PLAN DOCUMENT >Is your Plan document current with all required IRS amendments and updates? >Is your Plan being administered in accordance with your Plan document(s)? Loan provisions, Hardship requests, in-service withdrawals, etc. >Make sure you and the record-keeper are following it! >Keep it up to date with regulatory changes (PPA) >You should have only one plan document (even if you have 3 providers) – it’s a single plan! 13

14 3(16) ADMINISTRATIVE FIDUCIARY >Now offered by record-keepers >Provides fiduciary coverage for administrative functions >Yes, the administrative functions you hate! 14

15 ENROLLMENT & ELIGIBILITY >Are you sharing census data? >If you do, most record-keepers can track and determine eligibility. >Some Plan Sponsors don’t share this data for privacy reasons. >If you don’t share the data, more responsibility falls on you! 15

16 BENEFICIARIES >Best practice: keep them current. >Record-keeper can track but usually will not assume responsibility for it. >Confirm the record-keeper keeps copies of all forms. >Have your representative promote the need for updated, current beneficiaries. >Perhaps do a mailer, from you, once per year reminding employees to update their beneficiaries on ALL their benefits. 16

17 HARDSHIP WITHDRAWALS Record-keepers have three levels of service: 1.They provide forms, participants bring them to you, and you make the decision. 2.They provide forms, they review and give you a recommendation, you make the decision. 3.They provide forms, review, make determination and report back to you! Remember, size matters! 17

18 LOANS & DISTRIBUTIONS >Loans –Remember they are optional!! –Watch for defaults –Have record-keeper run delinquent report regularly –Best way to stay compliant: loan repayment only via payroll deductions. >Distributions –You need to confirm separation from service to the vendor to have them happen. 18

19 QUALIFIED DOMESTIC RELATIONS ORDERS (QDROs) >Much like Hardships – different levels of service >The vendors are getting better, but plan size dictates how far they will go >Vendors cannot give legal advice – they can simply administer to the letter of the law (State/Federal regs and your Plan document) 19

20 SUMMARY >Be a good custodian of your plans >Exercise due diligence based on the prudent person rule >Continue to implement a Best Practices approach >Focus on participant retirement outcomes 20

21 NEXT STEPS >Stay informed >Ask questions >Focus on industry trends IT’S YOUR PLAN! 21


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