Retirement Plans: Managing Your Fiduciary Responsibility


Published on - Protecting the financial viability of a company is a heavy undertaking. As a trusted advisor to the business as an entity as well as your colleagues, you are expected to use your expertise to determine best practices to keep everyone’s profits and retirement plan savings afloat. It is important that you use a disciplined process to help manage your fiduciary responsibility.

This presentation covers a series of new and important information regarding your role as a fiduciary.

View the presentation to learn about:
-Plan Governance - what is it and why you should care.
-Fee Disclosure is here, now what? Understanding and determining reasonableness.
-Are your participants Retirement Ready?
-401K, IRS and Department of Labor (DOL) audit planning.

Published in: Economy & Finance, Business
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Retirement Plans: Managing Your Fiduciary Responsibility

  1. 1. Retirement Plans: Managing Your Fiduciary Responsibility
  2. 2. About PensionmarkPensionmark Retirement Group provides retirement plan consulting services toemployers throughout the nation, with a focus on delivering reliableretirement plan solutions and helping employees retire with dignity. Firm Statistics • Established in 1988 and currently serving approximately 650 corporate clients with over $5 billion in retirement plan assets • Over 71 team members across 21 offices throughout the United States • Recognized as one of the top retirement plan consulting firms in the nation1 1. PLANSPONSOR Magazine 2007-2012. Nominated by industry professionals andselected based on a quantitative evaluation of service levels and feedback fromemployer clients.
  3. 3. About AppFolio SecureDocsAppFolio SecureDocs is a virtual data room for sharingand storing sensitive documents both internally andwith outside parties.AppFolio, Inc. Company Basics• Founded by the team that created and launched GoToMyPC and GoToMeeting• Backed by leading technology companies and investors• Web-based business software for financial and legal professionals
  4. 4. About Devyn DuexDevyn Duex, MBA, AIF®, CRPS®Vice President, Client RelationsLPL Registered Administrative Associate• Mrs. Duex received her Master’s in Business Administration- Marketing (MBA/MKT) from the University of Phoenix and received her Bachelor of Arts degree in Theatre Arts, Magna Cum Laude, from Point Park University in Pittsburgh, PA.• She has been recognized as one of the nations most influential retirement plan advisors by 401kWire (2009, 2010). (Based on reader votes, input from distributors and statistics about advisor practice gathered directly from nominees.)• Mrs. Duex was recently recognized as one of the Top Women in Business in 2012 for the Tri-Counties by Pacific Coast Business Times.• Mrs. Duex also earned the AIF® (Accredited Investment Fiduciary™) professional designation awarded by the Center for Fiduciary Studies which is associated with the University of Pittsburgh and the CHARTERED RETIREMENT PLANS SPECIALISTSM (CRPS®) certification from the College of Financial Planning.
  5. 5. Key TopicsAfter today’s session you will have a better understanding of the following:• Plan Governance—What is it and why you should care.• 401(k), IRS and Department of Labor (DOL) Audit Planning• Fee Disclosure is here, now what? Understanding and determining reasonableness.• Are your participants ‘Retirement Ready’?
  6. 6. What is Plan Governance?It is more than just fiduciary responsibility: Plan governance encompasses all of the duties, responsibilities, and actions connected with the establishment and administration of the Plan and the management of Plan assets.
  7. 7. What Questions Should You Ask?• Are the right people involved?• Are duties clearly identified and communicated?• Are there formal processes and procedures in place and documented?• Are activities being routinely monitored?
  8. 8. What Questions Should You Ask? • Are the right people involved?
  9. 9. Who’s Involved?The following people may be involved:• Individuals authorized to act on behalf of the employer as Plan Sponsor• Fiduciaries• Employees of the Plan Sponsor who carry out ministerial duties• Service Providers• Financial Professionals
  10. 10. One Role At a TimeThe individual can act in only one capacity atany time and must understand which role heor she is in when fulfilling assigned duties.
  11. 11. Settlor FunctionsEmployer functions which are non-fiduciary in natureincluding:•Establishing and amending the retirement plan•Determining fiduciary structure•Determining who will appoint the named fiduciary•Putting risk strategies in place
  12. 12. Who is a Fiduciary?A Fiduciary is any individual who:Uses discretion in administering and managing a Plan or controlling the Plan’sassets makes that person a fiduciary to the extent of that discretion or control.A Plan must have at least one fiduciary (a person or entity) named in thewritten Plan as the Named Fiduciary (for some Plans, it may be anadministrative committee or a company’s board of directors).Must act in the best interest of Plan participants and beneficiaries, held to ERISAstandard of care:• Follow the prudent person rule• Follow the diversification rule• Follow the exclusive benefit rule• Act in accordance with the plan documents• Provide information to plan participants.
  13. 13. Ministerial DutiesThese functions are non-discretionary in nature andare necessary to carry out the day-to-day operation ofthe Plan: • Enrolling employees in the retirement Plan as a part new employee orientation • Processing employee deferrals through payroll • Conducting employee meetings emphasizing the importance of planning for retirement
  14. 14. Accidental FiduciaryFollowing a process is one thing; making a decision orinterpreting how a process should be done is another• An employee or other individual who exercises discretionaryauthority over the Plan and becomes a fiduciary, even if notappointed.
  15. 15. Service Providers & Financial ProfessionalsImportant to establish, understand, and monitor yourprocess around organizations providing services to thePlan.
  16. 16. What Questions Should You Ask?• Are the right people involved?• Are duties clearly identified and communicated?
  17. 17. Roles & Responsibilities• Communication of roles and responsibilities—and an understanding of those roles and responsibilities by the individuals assigned—are keys to successful Plan governance• Document, Document, Document!
  18. 18. What Questions Should You Ask?• Are the right people involved?• Are duties clearly identified and communicated?• Are there formal processes and procedures in place and documented?
  19. 19. Processes and ProceduresCritical in helping both fiduciaries and non-fiduciariescarry out their responsibilities, assisting in keepingyour plan in compliance, and will result in greaterefficiency and preparedness in the event of an IRS orDOL plan audit.
  20. 20. Manage Your Risk by Using a Disciplined ProcessClear and deliberate methodology is keyHow you arrived at a decision can be more important than thedecision itself.Common processes to address:• Selecting and monitoring investments• Administering loan program• Qualification process of DROs• Determining claims for benefits• Required disclosures to participants• Determining Eligibility• Plan compliance testing• Contribution timing• Participant withdrawal transactions and distributions
  21. 21. Document……Document, Document.
  22. 22. What Questions Should You Ask?• Are the right people involved?• Are duties clearly identified and communicated?• Are there formal processes and procedures in place and documented?• Are activities being routinely monitored?
  23. 23. It doesn’t end at the set-up…Routinely monitor both fiduciary and non-fiduciaryactivities, and make changes as needed.
  24. 24. ERISA Compliance is ImportantERISA compliance is important. Failure can result inserious penalties.• Bear personal liability for breaches• Subject to fines of 5% to 100% of the amount of losses incurred, as well as excise taxes, and civil or criminal sanctions• The plan may be disqualified
  25. 25. Poll 1Have you already established Plan governanceregarding your Retirement benefit(s)?• YES• NO• A Process is in place, but not officially documented
  26. 26. Audit Planning• 401k Required Independent Audit• IRS Audit• DOL Investigation
  27. 27. 401(k) Required Audit• Over 100 participants as of the first day of the Plan Year • Participant definition: Any individual eligible to make elective contributions under a Plan, Nonvested individuals who are earning or retaining credited service, and current and former employees and beneficiaries eligible for or receiving benefits• 80/120 Participant Rule; small Plan filer exception• Independent Qualified Public Accountant
  28. 28. Poll 2Is your Plan currently under random selection for anaudit/investigation by the IRS or DOL?• YES, currently in process• YES, a letter was received but the process has not yet started• YES, a previous Plan year, not currently.• No, never been through this process
  29. 29. IRS Audit & DOL Investigation• The Employee Benefits Security Administration (EBSA) auditedmore than 3,100 plans •73% of them were required to restore losses •The amount of plan restorations, fines, and penalties for the year totaled nearly $1.05 billion •Average fine per plan was approximately $450,000• The DOL recently added nearly 1,000 employees, most of themassigned to enforce compliance among plan sponsors• One hundred new DOL enforcers are in place with anestimated first-year budget of $153 million Source: FA News (Financial Advisor) February 21, 2012 ‘Plan Sponsors Getting Big Fines From DOL’ by Jim McConville
  30. 30. DOL InvestigationResponsibility to review Plans for Fiduciary breachesReminder; Basic Fiduciary Duties• Acting solely in the interests of the participants and their beneficiaries• Being prudent• Paying only reasonable and necessary expenses of the plan• Following the terms of the plan
  31. 31. DOL InvestigationSteps to help address common problems1. Understand your plan and your responsibilities2. Carefully select service providers3. Make timely contributions4. Avoid prohibited transactions
  32. 32. IRS AuditHow 5500’s are Selected for Examination:Project Cases•Large or Unusual Assets or Entries on Form 5500•Inconsistencies in Answers•Inaccurate Answers•Referrals from IRS Divisions, PBGC, DOL, Interested Parties
  33. 33. IRS AuditHow 5500’s are Selected for Examination:Project Cases•Large or Unusual Assets or Entries on Form 5500•Inconsistencies in Answers•Inaccurate Answers•Referrals from IRS Divisions, PBGC, DOL, Interested Parties
  34. 34. IRS Audit
  35. 35. IRS Audit
  36. 36. Common Examination ErrorsAll Plans:• Non-Amenders• Definition of “Compensation” –Plan vs. operational definition not consistent• Excluding eligible employees / Including ineligible employees• Plan loans –Sponsor: failure to withhold loan payments
  37. 37. Common Examination Errors401(k) Plans:• Employer matching contributions not made – Failure to properly count Hours of Service – Incorrect plan entry date• ADP and ACP testing failures – Not completed – Not passed• Excess elective deferrals –Limit increased from $16,500 to $17,000 for 2012
  38. 38. Common Examination Errors403(b) Plans:• Excess elective deferrals – Improper use of the 15 year-of-service catch-up rules• Universal availability – Exclusions• Part-time employees• Other arbitrary classifications• Reclassifying independent contractors
  39. 39. Common Examination Errors403(b) Plans:• The 2009 tax year now under review• Focusing on – Were Notice 2009-3 requirements satisfied? – Revenue Procedure 2007-71 requirements – Exempt Organizations - controlled groups? – Universal availability “Bright-Line” test
  40. 40. IRS Audit
  41. 41. How Do You Improve Compliance? This is where proper Plan Governance pays off…it is critical to have disciplined process & internal controls!
  42. 42. Fee Disclosure, Now What?15, 17, 18
  43. 43. Fee Disclosure in Summary• ERISA 404(a)(5) and 408(b)(2), along with enhancements to the 5500-Schedule C are part of a three-pronged DOL disclosure strategy• DOL’s intent is to improve on the disclosure of fees and any conflicts of interest• Designed to assist Plan Sponsor in maintaining reasonableness of fees and allow employees to make better decisions
  44. 44. Poll 3Has your Plan gone through a fee analysis todetermine reasonableness of fees?• YES• NO• NO, but we plan to analyze this, this year
  45. 45. Fee Disclosure- 408(b)(2) Value Proposition • The Department believes that plan fiduciaries need this information, when selecting and monitoring service providers, to satisfy their fiduciary obligations under ERISA section 404(a)(1) to act prudently and solely in the interest of the plan’s participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. Number of times “Reasonableness” or “Reasonable” is mentioned in the regulation: 49
  46. 46. Why the main issue is NOT disclosure, it is ReasonablenessTaking it one step further:• The table above shows the impact on projected retirement account balance of a 20% change in 6 retirement variables.• The chart clearly shows that “provable” differences in these statistics are important to participants.• For example, if a service provider can demonstrate that their communications and education program actually results in deferral rates that are 1.20% higher than average, that will be worth $38,148 to just that one participant• By contrast a 20% reduction in fees (15 bps) is worth only $5,398 to that one participantIn fact, nearly every major lawsuit regarding fees mentioned the impact higher fees have on retirement balances. Bylogic, a Plan Sponsor going for lower fees but choosing a provider that will result in lower retirement balances could alsohave liability. This is why the DOL clearly emphasizes “reasonable fees” versus “low fees”
  47. 47. How Can You Determine Fee Reasonableness • Should reflect those services that help Plan Sponsors fulfill their Fiduciary Duty as well as provide information on Best Practices Plan Sponsor • Should measure those Participant Success Measures that have a proven impact on increasing Retirement Readiness Participants • Should measure those services that have a meaningful impact on the Cost of Servicing the planService Providers
  48. 48. Are Your Participants Retirement Ready? Shifting Focus Investments Plan Fees Retirement Readiness Plan Trends
  49. 49. Plan Success Cycle
  50. 50. Poll 4If your organization works with a retirement PlanAdvisor, does your Advisor provide fiduciaryservices to the Plan?• YES• NO• I am not sure• Currently do not work with an Advisor
  51. 51. Contact UsPensionmark Retirement Group QUESTIONS?24 E. Cota Street, Suite 200Santa Barbara, CA 93101Phone: (888) 201-5488info@Pensionmark.comwww.pensionmark.comAppFolio SecureDocs50 Castilian DriveGoleta, CA 93117Phone: (866) 700-7975info@securedocs.comsales@securedocs.comwww.securedocs.comSecurities offered through LPL Financial, MemberFINRA/SIPC. Financial Representatives of Pensionmarkprovide investment advice through IndependentFinancial Partners, a Registered Investment Advisor andseparate entity from LPL Financial.APPFOLIO is not affiliated with LPL Financial.
  52. 52. Thank You Confidential ©2012 AppFolio, Inc.