1. Fiduciary Responsibility Presented by: First Western Trust Retirement Consulting Services January 2017

2. Increased Focus on Fiduciaries
Low retirement confidence*
Lack of retirement readiness
DOL enforcement activity - $696.3 M in recovery in 2015
Plan Fiduciary
Fiduciary litigation
National/Local law firms
DOL regulations
Fiduciary definition Regulation
*21% of American workers are very confident about having enough money for a comfortable retirement*
Source: 2016 Retirement Confidence Survey, Employee Benefit Research Institute and Greenwald & Associates.

3. Who Is Responsible for the Plan?
The Plan Sponsor (aka Fiduciary) is responsible for making sure the plan is being operated in accordance with ERISA, the Internal Revenue Code, and the plan documents.

4. Greatest impact: $3 trillion brokerage IRA market
DOL Fiduciary Rule
Updated the rule and related prohibited transaction exemptions – introduces the Best Interest Contract (BIC) Exemption – released April 6, 2016
Applies to recommendations to ERISA plan sponsors, plan participants and IRA holders
Significantly expands the communications considered fiduciary advice
Generally effective as of April 10, 2017
Huge impact on financial advisers and their firms
Greatest impact: $3 trillion brokerage IRA market

5. DOL Fiduciary Rule
Fiduciaries must live up to highest standards of care and prudence
Satisfy a professional standard of care when making investment recommendations – Prudent Advice
Put customer’s interest first – Loyal advice
Avoid misleading statements about conflicts of interest, fees and investments
Follow policies and procedures to adhere to the best interest standard – prohibiting incentives not in the best interest
Charge no more than reasonable
Disclose basic information about fees and conflicts of interest

6. How will Trump Presidency affect the DOL Fiduciary Rule?
Potential delay of fiduciary rule up to one-year
That time will be used to make “appropriate changes” to the law
Trump could instruct Department of Justice to stop defending law suits filed against the rule
Trump administration could refuse to fund and enforce the fiduciary rule thus rendering it pointless
No impact

7. IRS and DOL Interest
The DOL is focused on fiduciary violations of ERISA.
Are proper processes and procedures being followed to protect the participants?
The IRS focuses on whether plan sponsors are in compliance with the Internal Revenue Code.
Is the plan sponsor following all the rules?
1000 new auditors – over a billion dollars in restoration, fines and penalties

8. Race to the Courthouse Law Firm Interest
$204 million in attorney fees
$116 per participant awards
Schlitcher Bogard & Denton Class Action Roadmap
Lockheed Martin - $62M
Boeing - $57M
MassMutual - $30.9M
MIT – pending
Yale & 10 other
ERISA lawsuits are the 2nd most common lawsuits filed in federal courts

9. Fiduciaries Should Know:
Fiduciary is held to the highest standard of care
Fiduciaries Should Know:
How much everything in the plan costs
How that money is paid and to whom
Whether those expenses are in line with the expenses of comparable plans
A recent DOL advisory opinion stated that plan fiduciaries must understand the formula, methodology, and assumptions used to determine the fees generated from plan investments

10. Exclusive Benefit Rule:
Every decision made is in the best interest of the participant
Exclusive Benefit Rule:
Avoid any perceived or real conflict of interest
Hiring a service provider/investment advisor
How are they being compensated?
Are the fees reasonable?
Are they being unduly enriched?
Is the company receiving any direct benefit?

11. Tussey v ABB Landmark Court Case
Fidelity recordkeeper - ABB breached their responsibility to monitor costs
$37M settlement
Revenue sharing benefitted ABB
Failed to negotiate/leverage size of the plan
Did not follow IPS when making fund changes
Decreased the company out-of-pocket expense at the detriment of the participants

12. Landmark Court Case Tussey v ABB Breaches of Fiduciary Responsibility
Agreed to pay Fidelity an amount that exceeded market
The 401(k) participants subsidized payroll cost, health and pension recordkeeping expenses
Float on the Plan was credited inappropriately
Failed to follow the terms of the Investment Policy Statement (IPS)
Breaches of Fiduciary Responsibility

13. Lessons Learned Review Revenue Sharing – who is receiving and how much
Determine Administrative Costs in absence of revenue sharing
Benchmark compared to similar size plans
Utilize lowest share class
Negotiate on behalf of your participants
Continuously monitor
Document

15. Banner Health 401(k) 2014 Form 5500

16. Banner Health 401(k) 2015 Form 5500

17. Additional Court Cases
Hecker v Deere – 404(c)
White v Chevron– excessive fee/SV vs MMKT
Renfro v Unisys – excessive fees
Johnson v. Fuijitsu – challenged custom TD funds

18. Personal injury attorneys are joining in
Is it only BIG Plans?
No!!!
Personal injury attorneys are joining in

19. Personal Injury Attorney

21. Trends in ERISA Litigation
Legal challenges are being filed to “protect the interest of plan participants”, but there is a source of revenue for the plaintiffs’ bar
Settlements are fueling the fire
Plaintiffs’ bar outreach includes ads in local papers, TV, and trolling on Facebook

22. Trends in ERISA Litigation
Plaintiffs’ attorneys are trying to make law
What is the nature of fiduciary responsibility?
Did you do your job well enough?
Is the plan being administered prudently?
What is the quality of the fiduciary process?

23. What can I do to protect myself?

24. Lessons from ERISA Litigation
Monitor Investment Management Fees
Benchmark to ensure administrative fees are reasonable
Choose plan investments prudently
Periodically take Plan through competitive bidding process
Understand revenue sharing and who is getting paid what

25. Lessons from ERISA Litigation
Create and follow an Investment Policy Statement
Delegate Investment fiduciary decisions to a Prudent Expert
Create a Fiduciary File
Document meetings and decisions with Minutes
Be “Audit Ready all the Time”

26. What current proposals are being considered?

27. #1 Concern for American Families
RETIREMENT SECURITY!!
Will we ever be able to retire?

28. America’s Retirement Coverage Challenge
Participation rates for workers earning between $30,000 - $50,000 per year
IRA vs. Employer Plan
4.6% of workers save through an IRA
71.5% save through their Employer Sponsored 401(k) or 403(b) plan

29. Coverage Gap
Over 20 million private sector workers earning between $30k - $100k do not have access to a retirement plan at work.

30. # 1 Concern of the Government
Having enough revenue to pay for all its commitments.
Will we ever have a balanced budget?

31. So, what is being considered?

32. Camp Tax Reform Proposal
Eliminate new SEPs and SIMPLE 401(k) Plans
Freeze existing 401(k) plan limit until 2024
Currently $18,000 and $6,000 catch-up
10% additional taxes on pre-tax contributions to retirement plan for taxpayers in highest bracket
Plan Sponsors with more than 100 employees - Only 50% of employee deferrals can be made pre-tax; the balance would have to be Roth.

33. Brady Blueprint Proposal
Universal Savings Accounts (“USA”)
Contribute up to $5,500 per year (indexed) on after-tax basis
Distributions exempt from income tax
Individuals can take a distribution for any purpose
An unintended consequence - business owners would be able to save up to $12,000 per year between USA and IRA on a tax deferred basis without having to make any contributions for employees.
Why sponsor a retirement plan?

34. State Initiatives

35. Three Approaches State-sponsored ERISA plan Non-ERISA state plans
Subject to limits contained in ERISA
Employers would have fiduciary obligation
Non-ERISA state plans
No employer contributions
Employer involvement is minimal; limited to providing information to employees
Employee participation is completely voluntary
Work within the voluntary employer-based system
State conducts education campaigns and connects employers with providers who can help establish a retirement plan – creating an exchange

36. What changes will be enacted?

37. 2017 and beyond More ERISA litigation
Clarification on how the DOL fiduciary rule will proceed
Tax reform which will impact qualified retirement plans

38. Thank you Paula Hendrickson Senior Vice President/
Director Retirement Consulting Services
First Western Trust