Fulfilling Your Fiduciary Duties Regarding Investment ...

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Fulfilling Your Fiduciary Duties Regarding Investment ...

  1. 1. Fulfilling Your Fiduciary Duties Regarding Investment Managers & Mutual Funds: When and How do you Replace Plan Investments? Martha Hutzelman Ice Miller January 29, 2004
  2. 2. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>The recent mutual fund scandal and ongoing Enron-related litigation highlights ERISA fiduciary duties and responsibilities </li></ul><ul><li>Plan fiduciaries should review plan investments on at least a periodic basis </li></ul>
  3. 3. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>Request Information </li></ul><ul><ul><li>Send letters to every investment fund manager specifically requesting: </li></ul></ul><ul><ul><ul><li>Written assurance that the Fund and its employees have not participated in any suspect trading practices </li></ul></ul></ul>
  4. 4. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>Request Information </li></ul><ul><ul><li>Copies of: </li></ul></ul><ul><ul><ul><li>Fund policies </li></ul></ul></ul><ul><ul><ul><li>Fund prospectus </li></ul></ul></ul>
  5. 5. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>Request Information </li></ul><ul><ul><li>Written confirmation that the Fund is insured for errors and omissions </li></ul></ul><ul><ul><li>Notice of changes in assets under management and/or in the fee structure </li></ul></ul>
  6. 6. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>Evaluate Options </li></ul><ul><ul><li>Use a prudent process to evaluate an investment fund that is under investigation </li></ul></ul><ul><ul><li>A plan fiduciary must not overreact or act too quickly out of panic </li></ul></ul>
  7. 7. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>Evaluate Options </li></ul><ul><ul><li>Consider placing Fund on “watch” list </li></ul></ul><ul><ul><li>Consider filing claim against Fund </li></ul></ul><ul><ul><li>Consider Fund termination </li></ul></ul><ul><ul><li>Consider Fund replacement </li></ul></ul>
  8. 8. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>Use Experts </li></ul><ul><ul><li>Engage independent legal and investment advisors to assist in objective evaluation of available options </li></ul></ul>
  9. 9. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>Maintain Investment Policy </li></ul><ul><ul><ul><li>Establish written procedures that describe how investment funds offered under the plan are selected and regularly monitored </li></ul></ul></ul>
  10. 10. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>5. Review Investment Funds </li></ul><ul><ul><ul><li>Follow written procedures in investment policy statement to regularly monitor investment funds offered under the plan </li></ul></ul></ul>
  11. 11. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>6. Communicate with Participants </li></ul>
  12. 12. Fiduciary Actions Responsive to Mutual Fund Scandal <ul><li>7. Document Fiduciary Decisions </li></ul><ul><ul><ul><li>Retain the documentation in a due diligence file for the Plan </li></ul></ul></ul>
  13. 13. General Fiduciary Responsibilities <ul><li>Monitor Plan Fiduciaries </li></ul><ul><li>Monitor Service Providers </li></ul>
  14. 14. General Fiduciary Responsibilities <ul><li>Establish Written Administrative Procedures </li></ul><ul><li>Obtain a Fidelity Bond and consider Fiduciary Insurance </li></ul>
  15. 15. General Fiduciary Responsibilities <ul><li>5. Maintain Benefit Claims Procedures </li></ul><ul><li>6. Maintain Participant Education Procedures </li></ul>
  16. 16. General Fiduciary Responsibilities <ul><li>7. Maintain Participant Directed Account Procedures </li></ul><ul><li>8. Identify Prohibited Transactions </li></ul>
  17. 17. General Fiduciary Responsibilities <ul><li>9. Identify Eligible Employees </li></ul><ul><li>10. Test Plan for Compliance </li></ul>
  18. 18. General Fiduciary Responsibilities <ul><li>11. Update Plan Documents </li></ul><ul><li>12. Follow Terms of Plan </li></ul>

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