DOL FIDUCIARY RULE & REAL LIFE IMPACTS TO YOUR PRACTICE GRP ADVISOR ALLIANCE NATIONAL CONFERENCE DOL FIDUCIARY RULE & REAL LIFE IMPACTS TO YOUR PRACTICE Marcia S. Wagner, Esq. .

Topics Impacting the Retirement Plan Industry Today I. The Fiduciary Rule II. Court Cases - The recent spike in retirement plan litigation III. Upcoming Legislation – Its impact on the retirement plan industry

I. FIDUCIARY RULE So What Should You Do Now? Depends on where you sit.

IARs vs. Registered Reps. IARs are accustomed to being ERISA fiduciaries, but they need to understand that the ERISA requirements are applicable as of 4/10/17 to their IRA clients. Real issue will be with registered reps. and commissionable sales. Training & Rollout.

Anticipated Trends in B/D Industry Strategic Courses of Action Levelizing commissions and structuring revenue sharing as flat dollar payments More RRs migrating to advisory service model Promoting advisory programs featuring institutional mutual funds and variable annuities Support for Smaller Retirement Accounts Reducing minimums for advisory programs Relying on Computer Model Exemption (robo-advice) to earn commissions General Fee Compression Increased Margin Compression

BD Firm/BIC Officer Responsibilities re: Best Interest Create reasonable payout grids and monitor compliance therewith. Monitor reps. so that they do not skew advice to highest paying products. Educate and train registered reps. re: holistic financial planning and fiduciary responsibility Modifications and potential winnowing down the investment line-up. 

Financial Advisors - Strategic Use of Financial Plans Consider using financial plans to ensure recommendations are in “Best Interest” of client Quality financial plans by their nature can help demonstrate prudent advice BIC compliance policies must address conflicts and variable compensation issues Requiring financial plans (before investments are recommended) can help mitigate conflicts

Product Manufacturers - Be A Thought Leader and Innovator Now Is The Time to Increase Your Footprint Consider publishing white papers Consider providing toolkits for rollovers, BICE, templates, compliance policies. Consider having a help desk. Make life for BIC officer and CCO easier, they will be overwhelmed. Consider opinion of counsel regarding best interest standards and how your product fits in. Consider assisting with education and training of broker-dealers, financial advisors (not selected based on assets with you!) regarding the new fiduciary rule. Wholesalers – be careful not to become fiduciaries.

II. COURT CASES – The recent spike in retirement plan litigation

Tibble v. Edison International Beneficiaries claimed that Edison violated its fiduciary duties when it imprudently offered six higher priced mutual funds when materially identical lower priced mutual funds were available. The Supreme Court found that a fiduciary has “a continuing duty to monitor trust investments and remove imprudent ones,” in addition to his/her duty to exercise prudence in selecting investments. Fiduciaries need to carefully monitor investment and document their findings. A gap analysis should be performed periodically to ensure that investment are properly monitored.

White v. Chevron Corporation Plaintiffs’ allegations included: selecting a money market fund as a capital preservation fund, rather than a stable value fund providing “retail” investment options rather than the lower cost “institutional versions” of the same investment options providing mutual funds, rather than other lower cost investment options such as collective trusts or separate accounts failing to put plan administrative services out for competitive bidding on a regular basis, and as a result paying excessive recordkeeping fees through revenue sharing retaining a particular fund as an investment option despite its underperformance prepared to its benchmark, peer-group, and lower cost investment alternatives failing to monitor its appointees’ performance and fiduciary process failing to ensure that the appointees had a fiduciary process in place failing to remove appointees whose performance was inadequate

Tussey v. ABB Failure to monitor recordkeeping costs and negotiate rebates Plan fiduciaries: made no effort to determine if fees were reasonable Replaced one fund with an alternative fund because decision benefitted plan sponsor, not participants

Government Audits The following government agencies routinely audit retirement plans, and plan sponsors should be prepared. DOL IRS PBGC

III. UPCOMING LEGISLATION – Its impact on the retirement plan industry

How Retirement Plans Affect the Deficit Impact of retirement plans on federal deficit DC / 401(k) $61 billion (2015) $414 billion (2015 – 2019) DB $42 billion (2015) $235 (2015 – 2019)

Affect of Limiting Contributions 2017 Plan limitations that can be reduced to limit deficit: Annual additions from all sources - $54,000 Elective deferrals - $18,000 Plan sponsor deductions – 25% participant compensation Compensation limit to determine benefits/contributions - $270,000

Affect of Limiting Contributions (cont’d) Limits proposed by Tax Reform Act of 2014 Freezes DC limits until 2024 $63.4 billion revenue gain over 10 years Additional $144 billion from treating half of 401(k) deferrals as Roth

State Proposals State-managed plans for private-sector workers Intended to expand access to retirement savings States would manage investments DOL clarifies preemption issue in regulation California Secure Choice Mandatory auto-IRA Pooled investments managed by state and guaranteed returns

DOL FIDUCIARY RULE & REAL LIFE IMPACTS TO YOUR PRACTICE GRP ADVISOR ALLIANCE NATIONAL CONFERENCE DOL FIDUCIARY RULE & REAL LIFE IMPACTS TO YOUR PRACTICE Marcia S. Wagner, Esq. A0259678