Managing Defined Contribution Plan Investments: A Fiduciary HandbookCallan
Employee Retirement Income Security Act (ERISA) fiduciaries face a challenging task: They must familiarize themselves with ERISA's complicated rules of fiduciary conduct. They must understand and evaluate the performance of plan investments, and in doing so, they are subject to ERISA's prudent expert and exclusive purpose standards. In this handbook we focus on defined contribution (DC) plan investment fiduciaries and some of the key issues they face.
In the complex and litigation-prone world defined contribution plans occupy, it is important to underline what the real focal points for fiduciaries should be. This paper is provided by T. Rowe Price.
1 ERISA § 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A).
2 ERISA § 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B).
3 ERISA § 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D).
4 ERISA § 404(a)(1)(C), 29 U.S.C. § 1104(a)(1)(C)
This paper is sponsored by T. Rowe Price Associates, Inc. Contents of this paper are for informational purposes only and not for the purpose of providing legal advice. The analysis and conclusions are solely those of the author.
Corporate Structuring and Fundraising for Single Purpose VehiclesRiveles Wahab LLP
What do securities syndications and fundraising for real estate, restaurant ventures, film ventures, theme parks and a variety other project finance opportunities have in common?
The answer is simply the often overlooked and misunderstood “SPV.” Essentially, the SPV or “Single Purpose Vehicle” is an entity that is structured to take in investor monies towards funding a singular dedicated project or opportunity. Indeed, a great majority of real estate finance projects, and a variety of other project finance opportunities essential to the U.S. economy, are at least partly funded by SPVs. Furthermore, with the advent of crowdfunding and “general solicitation” under the JOBS Act, the SPV’s role in financing a variety of projects and operating companies cannot be overstated.
Managing Defined Contribution Plan Investments: A Fiduciary HandbookCallan
Employee Retirement Income Security Act (ERISA) fiduciaries face a challenging task: They must familiarize themselves with ERISA's complicated rules of fiduciary conduct. They must understand and evaluate the performance of plan investments, and in doing so, they are subject to ERISA's prudent expert and exclusive purpose standards. In this handbook we focus on defined contribution (DC) plan investment fiduciaries and some of the key issues they face.
In the complex and litigation-prone world defined contribution plans occupy, it is important to underline what the real focal points for fiduciaries should be. This paper is provided by T. Rowe Price.
1 ERISA § 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A).
2 ERISA § 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B).
3 ERISA § 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D).
4 ERISA § 404(a)(1)(C), 29 U.S.C. § 1104(a)(1)(C)
This paper is sponsored by T. Rowe Price Associates, Inc. Contents of this paper are for informational purposes only and not for the purpose of providing legal advice. The analysis and conclusions are solely those of the author.
Corporate Structuring and Fundraising for Single Purpose VehiclesRiveles Wahab LLP
What do securities syndications and fundraising for real estate, restaurant ventures, film ventures, theme parks and a variety other project finance opportunities have in common?
The answer is simply the often overlooked and misunderstood “SPV.” Essentially, the SPV or “Single Purpose Vehicle” is an entity that is structured to take in investor monies towards funding a singular dedicated project or opportunity. Indeed, a great majority of real estate finance projects, and a variety of other project finance opportunities essential to the U.S. economy, are at least partly funded by SPVs. Furthermore, with the advent of crowdfunding and “general solicitation” under the JOBS Act, the SPV’s role in financing a variety of projects and operating companies cannot be overstated.
For decades, hedge fund managers have supplied investors and regulators with information measuring Assets Under Management (AUM) painting a clear picture of net investor capital at risk. RAUM is a new and separate measurement developed by the SEC. It is not intended to replace AUM and does not illustrate net investor capital at risk. The Commodity Futures Trading Commission (CFTC) does not use RAUM, rather, it relies upon the traditional calculation which is consistent with U.S. GAAP. RAUM will represent a manager’s gross assets under management, rather than net assets under management, and it will be available through managers’ public filings on Form ADV beginning in March 2012.
This educational resource details the traditional calculation method that hedge funds use for their assets under management. It also explains the new method of calculation used by the Securities and Exchange Commission, called Regulatory Assets Under Management (RAUM).
Hedge Fund Due Diligence: Resources to Help Investors Better Understand Their...HedgeFundFundamentals
In light of recent changes brought forth by the new rules adopted by the Securities and Exchange Commission (SEC) implementing the Jumpstart our Business Startups (JOBS) Act, this presentation is designed as an educational tool with basic information about who can invest in hedge funds as well as some potential red flags regarding investment fraud.
Following this presentation you will:
- Understand the differences between Internal and External sources of finance.
- Distinguish between long, medium and short term sources of finance.
- Understand the advantages and disadvantages of each form.
For decades, hedge fund managers have supplied investors and regulators with information measuring Assets Under Management (AUM) painting a clear picture of net investor capital at risk. RAUM is a new and separate measurement developed by the SEC. It is not intended to replace AUM and does not illustrate net investor capital at risk. The Commodity Futures Trading Commission (CFTC) does not use RAUM, rather, it relies upon the traditional calculation which is consistent with U.S. GAAP. RAUM will represent a manager’s gross assets under management, rather than net assets under management, and it will be available through managers’ public filings on Form ADV beginning in March 2012.
This educational resource details the traditional calculation method that hedge funds use for their assets under management. It also explains the new method of calculation used by the Securities and Exchange Commission, called Regulatory Assets Under Management (RAUM).
Hedge Fund Due Diligence: Resources to Help Investors Better Understand Their...HedgeFundFundamentals
In light of recent changes brought forth by the new rules adopted by the Securities and Exchange Commission (SEC) implementing the Jumpstart our Business Startups (JOBS) Act, this presentation is designed as an educational tool with basic information about who can invest in hedge funds as well as some potential red flags regarding investment fraud.
Following this presentation you will:
- Understand the differences between Internal and External sources of finance.
- Distinguish between long, medium and short term sources of finance.
- Understand the advantages and disadvantages of each form.
Callan research that found investors over the last 20 years have had to take on three times as much risk to earn the same return electrified the institutional investing community. The Published Research Group interviewed Jay Kloepfer and Julia Moriarty about how the research was done and its implications.
Today’s increasingly complex investment and regulatory landscape places greater pressure on the plan sponsors and fiduciaries overseeing defined contribution plans. Fiduciaries are not only re-examining their current investment decision-making practices, they are also seeking to ensure that those practices allow for enough flexibility in implementation to maximize the likelihood of investment success, while protecting the plan sponsor from potential litigation.
Central to the idea of a well-managed program, a clearly articulated investment policy statement (IPS) serves as the foundation of sound governance and a robust oversight process
How Investment Analysis & Portfolio Management greatly focuses on portfolio c...QUESTJOURNAL
Abstract: Portfolio Construction is a capstone elective that draws on previously studied investment principles, theories and techniques. Its enable synthesize that acquired financial theories and knowledge in the context of portfolio construction and asset allocation. It focuses on gaps in theory and how they can be managed in practice.
Study on Mutual Fund is the Better Investment PlanProjects Kart
Mutual funds have become a hot favorite of millions of people all over the world. The driving force of mutual fund is the ‘safety of the principal’ guaranteed, plus the added advantage of capital appreciation together with the income earned in the form of interest or dividend. People prefer Mutual Funds to bank deposits, life insurance and even bond because with a little money, they can get into the investment game. One can own string blue chips like ITC, TISCO, Reliance etc., through mutual funds. Thus, mutual funds act as a gateway to enter into big companies hitherto inaccessible to an ordinary investor with his small investment.
ESG Engagement Insights, a presentation by Nawar Alsaadi of best engagement practices of 30 asset managers, owners, pension funds, and non-profits around the world. (The work is derived from BlackRock & Ceres’ paper entitled Engagement in the 21st Century).
Callan's director of Hedge Fund Research, Jim McKee, explores the advantages of momentum-based investing strategies, which profit from market trends in whichever direction. He discusses the rationale behind them, how they are defined and harnessed for different diversification needs, and whether they are appropriate for fund sponsors.
The Renaissance of Stable Value: Capital Preservation in Defined ContributionCallan
*Stable value funds are low-risk investment options in participant directed plans that mix capital preservation with return generation. They invest in high-quality, short- and intermediate-duration fixed income securities, and utilize wrap contracts to insulate individual plan participants from market value fluctuations.
*Stable value funds serve as an alternative to more volatile or risky asset classes and are a direct substitute for a money market fund. They typically offer a more attractive yield than money market funds, except during periods when short-term rates are rising rapidly.
*This paper describes how the underlying mix of securities and issuer characteristics have evolved since the financial crisis, and why Callan sees stable value as a healthy and important part of the U.S. retirement plan marketplace.
Introduction
In this paper, we seek to answer questions defined contribution (DC) plan sponsors and their participants may have about stable value funds, including mechanics, instruments, liquidity, and implementation considerations. We also look at risk and performance, address benchmarking issues, cover recent trends, and provide key takeaways for DC plan sponsors.
Stable value funds are popular with DC plans and 529 college saving investors. According to Callan’s DC Index™, 65% of DC plans offer a stable value fund, and typically 14% of total plan assets are in such funds when offered.
We believe stable value can be an effective investment option for DC plan participants seeking capital preservation.
Grading the Pensions Protection Act, 10 Years LaterCallan
Do you remember the Pension Protection Act (PPA)? More than 900 pages of legislation touching seemingly every part of the retirement system. It presented challenges for defined benefits plans. Defined contribution (DC) plans instead saw beneficial provisions, including the permanence of certain provisions of the 2001 Economic Growth Tax Relief Reconciliation Act (EGTRRA) and the creation of safe harbors for using target date funds as defaults and for implementing automatic enrollment.
The PPA heralded a new era for DC plans with the potential to greatly increase workers’ access to retirement income security. But looking at the PPA’s report card, we do not see “straight As” over the last decade.
Many of the provisions took years to enact, and plan sponsors still seem to struggle with them. As the PPA celebrates 10 years, we ask: Was it successful? Did it transform DC plans in the way the industry had hoped? How can we do better?
Callan gives a grade to the performance of nine key PPA provisions over the past decade. We start with the least effective.
What’s on the minds of larger defined contribution (DC) plan sponsors? According to a recently released Callan Associates study conducted in late 2015 with almost 150 employers, fees, investments and compliance top the list. With more resources devoted to running this DC plan, what happens in the larger market usually trickles down market.
Though the number one action taken to reduce fiduciary liability was updating or reviewing their investment policy statement, followed by reviewing fees, the number one priority in 2016 will be compliance.
Other key findings from the Callan DC study include:
*61% use auto-enrollment with 1 in 5 employing re-enrollment for current employees
*88% of plans offer financial advice to employees
*75% benchmark their fees as part of fee calculation and 53% rebate revenue sharing
*86% use TDFs (target date funds) as their default option of QDIA – usage of the proprietary funds of the record keeper as their QDIA is down to 32% from 70% in 2011
*15% of plans increased the number of funds while 11% decreased the number
The DOL’s 2012 fee disclosure regs and the 2006 Pension Protection Act (PPA) were cited as the most important events affecting DC plans showing that fees and auto features paved by the PPA are keys drivers for lawmakers and plan sponsors.
Though there is a lot of noise about the pending DOL conflict of interest rule aimed at increasing oversight of DC plans as well as IRAs, most affected will be advisors, especially those selling proprietary products, and broker dealers that will have to impose greater scrutiny over their advisors that manage DC plans and IRAs.
The DOL rule could limit plan participants access to advisors and advice as well as education especially when they separate from employment but will have little impact on employers running their plan.
Target Date Funds - Finding the Right Vehicle for the Road to RetirementCallan
There seems to be no stopping target date fund (TDF) strategies, which are growing both in use within defined contribution (DC) plans and in products available. Each TDF manager differs in their underlying philosophy, which shapes construction and implementation.
The wide variety of options represents both a benefit and a challenge. As plan sponsors examine and monitor TDF options they must be aware of the differences and how these differences can ultimately affect participant outcomes.
This paper draws on Callan’s comprehensive data on TDFs and DC plans, which is gathered and analyzed annually.
We present key findings and highlight questions plan sponsors may want to consider when evaluating their TDF options.
***
Just as people rely on cars to get them where they need to go, Americans increasingly depend on TDFs to help them achieve their retirement goals. For the first time since the inception of the Callan DC Index™ in 2006, TDFs (25%) recently beat out U.S. large cap equity (24%) as the largest portfolio allocation in DC plans.
As part of Callan’s annual DC Trends Survey, more than 140 DC plan sponsors were asked about their use of TDFs. Callan also annually collects qualitative and quantitative data from target date managers representing both mutual funds and collective trusts. This paper leverages this combined data to examine the current state of the TDF universe and the differentiating characteristics that help drive outcomes.
Defined Contribution Plans and Fee Lawsuits: Stuck in the Mud or the Road to ...Callan
The message is clear for defined contribution (DC) plan sponsors: follow best practices established for plan fees or risk getting stuck in a costly and time-consuming lawsuit.
Nearly 40 401(k) fee lawsuits have been filed since 2006. The first generation of lawsuits focused on revenue-sharing violations, failure to understand specific costs, and use of retail mutual funds in 401(k) lineups. Over time these lawsuits have expanded in scope, covering everything from the prudence of offering certain stable value funds to adherence to investment policy statements.
In addition to monetary payments, settlements have typically included
requirements to:
• Competitively bid plan recordkeeping services
• Engage an outside consultant
• Utilize institutional or retirement-share classes where possible
• Add passively managed funds to the lineup
• Comply with the Department of Labor’s participant disclosure regulation
In this infographic, Callan describes select DC fee lawsuits. We suggest best practices to help plan sponsors keep their plan on the path to success.
Strategies with high active share have garnered much attention from institutional investors following the release of Martijn Cremers and Antti Petajisto’s research paper that introduced the concept.
In this paper we isolate the impact of active share on performance by focusing on “product pairs,” which are two portfolios that share many characteristics (same management team, basic philosophy, research platform, etc.) but have different degrees of concentration (concentrated vs. diversified), which translates fairly directly to a difference in active share.
We ran several analyses using product pairs identified in Callan’s database in order to better understand— and quantify—the performance differences between concentrated and diversified products managed by the same team. Our analysis reveals the inherent difficulty of identifying reliable predictors of excess return across strategies and over time. High active share may be worthy of consideration as a screening variable, but it is clearly only one of potentially dozens of factors that might influence the magnitude and direction of the excess return for any given strategy over time.
Author Gregory C. Allen is Callan’s President and Director of Research. He oversees Callan’s Fund Sponsor Consulting, Trust Advisory, and multiple other firm-wide research groups.
Greg is a member of Callan’s Management, Alternatives Review, and Client Policy Review Committees. He is also a member of the Investment Committee, which has oversight responsibility for all of Callan’s discretionary multi-manager solutions.
Emerging Managers: Small Firms with Big IdeasCallan
Everybody has to start somewhere, including investment managers. Even the largest firms with broad name recognition and substantial assets were once emerging firms.
Emerging managers generally include smaller and newer investment managers, potentially
with atypical ownership structures. While smaller asset pools can work against them in some cases, it can also work in their favor, enabling them to access opportunities that larger, more established investment managers cannot.
Many U.S. institutional investors have long track records of dedicated investments with emerging managers while others are just starting to examine the space.
Emerging manager programs are becoming more commonplace, particularly at public pension funds, as investors recognize the potential portfolio gains that can be achieved through investing with the diverse and entrepreneurial investment managers that make up the emerging manager space.
Callan has long recognized the value that diversity of professionals and firm size can bring to investment outcomes. Our founder Ed Callan was instrumental in launching Progress Investment Management more than two decades ago. In 2010, we launched Callan Connects to expand our universe of emerging manager and minority, women, and disabled owned firms.
In this interview, Uvan Tseng talks with Lauren Mathias, who oversees Callan Connects, about trends and issues in the emerging manager arena.
What do Money Market Reforms Mean for Investors? A Roundtable Discussion with...Callan
Money market funds are an important source of liquidity and are critical to our financial markets.
Following the financial crisis of 2008, some money market funds “broke the buck,” with net asset values (NAVs) falling below $1 per share. The chaotic scene that ensued surprised investors, and regulators have responded by updating laws to prevent a repeat of that difficult time.
On July 23, 2014, the Securities and Exchange Commission adopted amendments to the rules that govern
money market mutual funds. The amendments address the risks of an investor run on money market funds,
while seeking to preserve the benefits of these funds. The new rules—the second wave of reforms since 2008—are effective October 14, 2014, but have a long compliance period (two years or more) to ease the transition.
New requirements include:
Institutional prime money market funds will have a floating NAV.
Portfolios must value securities according to their current market value and redeem shares based on the floating NAV.
Non-government money market fund boards will now be able to impose liquidity fees and redemption gates to address investor runs.
The 2014 changes further tighten disclosure requirements (e.g., the requirement to disclose a fund’s level
of daily and weekly liquid assets, net flows, and market-based NAV on a website) and define enhanced
diversification requirements and stress testing.
The ruling impacts many institutional investors, including sponsors of defined benefit and defined contribution plans. We assembled a group of Callan experts to highlight key provisions and their potential impacts on investors. Jim Callahan, CFA, manager of Callan’s Fund Sponsor Consulting group, sat down with his colleagues to discuss the latest money market reforms.
Roundtable participants included Bo Abesamis, Steve Center, CFA, and Jimmy Veneruso, CFA, CAIA, from Callan’s Trust and Custody, Fund Sponsor, and Defined Contribution groups.
Callan’s 2014 Investment Management Fee Survey provides a current report on institutional investment management fee payment practices and trends. To collect this information, Callan sent an electronic questionnaire to a broad sample of U.S.-based institutional fund sponsors and investment management organizations. Respondents provided fee information for calendar year 2013 (specific dates varied by organization, but the majority were as of December 31, 2013), and perspective on fee practices and perspectives for 2014. We supplemented this data with information from Callan’s proprietary databases to establish the trends observed in this report.
Callan conducted similar surveys in 2004, 2006, 2009, and 2011. We offer commentary regarding differences, where relevant, between historical survey results and the 2014 findings, along with observations reflecting both long- and short-term trends.
Seventy-two fund sponsors representing $859 billion in assets, and 211 investment management organizations with $15 trillion in assets under management, provided detailed fee practices and data on 15 asset classes. Results were supplemented by actual and published fee information sourced from Callan’s fund sponsor and investment manager databases, as well as other industry sources.
Key Findings:
*Investment management fees represent 46 basis points (bps), on average, of fund sponsors’ total assets, up from 37 bps in
2009. The difference between the median and average has climbed over this time period. Other data in Callan’s fee survey also reveals a divergence between the funds that pay the most and those that pay the least in investment management fees.
*The range between funds that paid the most (10th percentile) and those that paid the least (90th percentile) increased dramatically:
from 56 bps in 2009 to 73 bps in 2013. Differences in investment policy, and notably asset allocation, can lead to
substantial disparity in fees. While some funds are increasingly looking to low-cost, public market index strategies, others are
investing a greater portion of their portfolio in high-cost alternative assets. Other key survey findings include:
Alternatives, which are consistently the most expensive asset class, are facing fee compression: the median total asset class fee declined from 134 bps in 2009 to 99 bps in 2013, and the 90th percentile fell from 174 bps to 152 bps. Large allocations to alternatives can greatly increase overall investment management fees.
Correlations between percentage of total portfolio allocated to alternatives and fees paid (in bps) were strong in 2013 (+0.70).
Total U.S. and non-U.S. equity fees paid increased marginally from 2009 to 2011, but declined from 2011 to 2013. Median U.S. equity fees run about 60% of their non-U.S. counterparts. Non-U.S. fees are typically higher in part due to research expenses. Fixed income median expenses were flat from 2009 to 2013.
Are Defined Contribution Plans Ready for Alternative Investments?Callan
Amid the growing popularity of the defined contribution (DC) model, the DC industry continues to look for ways to optimize performance.
The outperformance of defined benefit (DB) plans, and the increasing cross-pollination of DB and DC investment staff, has led some DC plans to take a closer look at alternative investments.
We examine three broad areas of alternative investments in relation to the DC market: real estate, hedge funds, and private equity.
Authors: Sally Haskins, Gary Robertson, Jimmy Veneruso
2013 Callan Cost of Doing Business Survey: U.S. Funds and TrustsCallan
Monitoring and controlling costs is a primary fiduciary responsibility for all funds and trusts. In this survey, Callan compares the costs of administering and operating funds and trusts across all types of tax-exempt and tax-qualified organizations in the U.S.
We identify practices and trends to help institutional investors manage expenses.
We fielded this survey in April and May of 2013. The results incorporate responses from 49 fund sponsors representing $219 billion in assets. In this report, we include comparisons with four similar surveys Callan conducted over the past 15 years to identify enduring, long-term trends in fund/trust management and expenses.
Major long-term trends identified include rising external investment management fees and non-investment management external advisor fees, alongside falling custody costs. Allocations have steadily shifted out of U.S. equity and into non-U.S. and global equities, real estate, hedge funds, and private equity since 1998. Other key findings include:
• In 2012, funds spent an average of 54 basis points of total assets to operate their funds. Average total fund expenses have climbed more than 50% since 1998, when Callan first collected this data.
• External investment management fees represent the lion’s share of total fund expenses at 90%. This figure has grown steadily over time, from 83% in 1998. The increase can largely be attributed to growing allocations to more expensive alternative
asset classes, namely hedge funds and private equity.
• More assets flowed to hedge funds and private equity, as the percentage of funds invested in and the average allocations to these asset classes grew. Hedge fund and private equity fees saw modest declines at the median over the last four years, while averages were fairly static. Real estate fees saw little change and the average allocation remained around 6%.
• Not surprisingly, smaller funds—defined as those with less than $1 billion in total assets—pay a premium (65 basis points, on average) to administer their funds relative to mid-sized and larger funds. Conversely, there is little difference between total expenses for the medium (47 basis points) and large funds (48.5 basis points) that responded to our survey. This can
be attributed to differences in asset allocation, as large funds tend to invest in more expensive strategies.
• External investment management fees are the primary driver of total fund expenses. These fees have risen 55% over 15 years. Non-investment management external advisor fees,1 which are the second largest average expense for U.S.
funds, have increased 115% since 1998. However, at 5% of total fund expenses, changes in this area have a more modest impact than external investment management fees.
The Outsourced Chief Investment Officer Model: One Size Does Not Fit AllCallan
As investors reach for returns in a sometimes bruising market, they are adding private equity, hedge funds,
and other alternatives, leading to increasingly sophisticated—and complicated—portfolio monitoring and
management. Heightened regulatory and compliance requirements have further increased the time and
resources required to meet fiduciary responsibilities. This has led some investors to consider delegating
investment oversight, monitoring, and management duties.
The industry press regularly reports on a large and rapidly growing outsourced chief investment officer
(OCIO) market, and some fund sponsors wonder if this model would serve them better than the traditional consulting model. Funds managed through an OCIO are beholden to the same challenging market environment and regulatory atmosphere, but the burden of balancing these challenges can be largely shifted from the investment committee to the OCIO provider. Some funds find this solution meets their needs.
In the outsourced chief investment officer (OCIO) model (also known as “implemented consulting,”
“discretionary consulting,” or “delegated consulting”), an institution shifts discretionary authority to an
advisory firm to manage some or all of the investment functions typically performed by the investment committee. The precise definition of this model varies as much as the name, making the size and scope of the marketplace difficult to pin down.
The increasing popularity of this model is in part a response to the frustration investment committees
have felt amid a shifting environment in which portfolio management requires more resources. While an OCIO offers an elegant solution, it is not a panacea for all the issues facing institutional investors, and relinquishing all fiduciary oversight is not an option.
In this paper we describe the OCIO market and Callan’s approach, which acknowledges that each investor faces unique challenges that require custom solutions. We offer two case studies and a series of questions that might assist fund sponsors in weighing the appropriateness of the OCIO model for their fund.
According to results of Callan Associates’ 2013 Risk Management Survey, more than half of fund sponsors (55%) say their risk management tools are effective at mitigating investment risk, but 14% see them as simply a means to improve risk identification and monitoring. One-third of respondents indicated they do not know yet the effectiveness of their risk management tools because they are new and untested in a true market crisis.
The survey found formal risk management processes are most prevalent at large funds. Half of the medium and small funds have adopted a risk management process or are doing so in 2013. Forty-two percent of respondents employ proprietary and/or third-party risk measurement tools, such as software or data services. Usage of third-party tools is most prevalent at public funds, while endowments and foundations more often use in-house (proprietary) tools.
Corporate and public funds are embracing policy-level approaches to risk management more so than endowments and foundations. Public funds have implemented economic regime asset allocations, risk parity, and risk factor-based asset allocations, while corporate funds favor liability-driven investing and funded status-based glide path de-risking.
Strategy-level approaches to mitigate risk are easier to implement than those that alter the fund’s overall investment policy, and Callan observed higher levels of adoption of strategy changes across fund types. Public funds and foundations and endowments are most heavily implementing or considering real assets, opportunistic fixed income, absolute return and long/short equity. Corporate funds are also embracing absolute return, but long duration is the most favored strategy-level approach used to address risk.
Many fund sponsors wrestle with whether or not to tactically manage plan risk. Only 30% of sponsors have made rebalancing decisions based on risk management findings. Of those that have not done so, 82% do not plan to in the future.Public (31%) and large (25%) funds are the most likely to use tactical implementations going forward.
According to the survey, most funds (94%) do not have a formal risk budget, but explicitly address risk management in their plan governance via asset allocation, investment objectives and disciplined rebalancing.
The investment committee is the body most regularly tasked with deciding when to take action based on the findings of risk management tools. The most common actions taken were asset allocation changes (64% of respondents), manager due diligence/search (56%) and increased manager monitoring (52%). Twenty percent of respondents had not yet taken any actions based on risk management findings.
The survey was conducted in November 2012 and includes responses from 53 fund sponsors representing $576 billion in assets.
Risk Factors as Building Blocks for Portfolio DiversificationCallan
Author: Eugene Podkaminer
Asset classes can be broken down into building blocks, or factors, that explain the majority of the assets’ risk and return characteristics. A factor-based investment approach enables the investor theoretically to remix the factors into portfolios that are better diversified and more efficient than traditional portfolios.
Seemingly diverse asset classes can have unexpectedly high correlations—a result of the significant overlap in their underlying common risk factor exposures. These high correlations caused many portfolios to exhibit poor diversification in the recent market downturn, and investors can use risk factors to view their portfolios and assess risk.
Although constructing ex ante optimized portfolios using risk factor inputs is possible, there are significant challenges to overcome, including the need for active, frequent rebalancing; creation of forward-looking assumptions; and the use of derivatives and short positions. However, key elements of factor-based methodologies can be integrated in multiple ways into traditional asset allocation structures to enhance portfolio construction, illuminate sources of risk, and inform manager structure.
Going Global: U.S. Domestic Bias vs. The WorldCallan
How does the average U.S. pension plan’s domestic bias stack up against that of other developed countries? Taking a look at how investments really break out may surprise you. Flip the page to see more detailed discussions of the evolution in global equity markets and emerging markets as well as global population trends. We also highlight seven key aspects of non-U.S. investing that you may want to consider when assessing your asset allocation strategy.
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Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
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Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
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how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
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Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
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USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
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Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
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USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
1. Callan would like to thank
Michael Barry of Plan Advisory
Services for his contributions to
this handbook.
Managing DC Plan Investments:
A Fiduciary Handbook
Updated August 2016
2. Table of Contents
Introduction 1
Key Functions of a Defined Contribution Plan Fiduciary
1. Investment Structure 4
2. Investment Policy Statement 6
3. QDIA Oversight 8
4. Investment Manager Performance 10
5. Plan Fees 12
6. Employee Communications 17
7. Plan Utilization 19
8. Trends and Overall Plan Effectiveness 20
Conclusion 21
Appendix I: DC Plan Governance – Committee Meeting Rolling Agenda 22
Appendix II: Special Issues – Company Stock and Brokerage Windows 24
Appendix III: Fiduciary Checklist 26
This publication contains general information only and Callan Associates Inc. is not, by means of this publication, rendering accounting,
business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional
advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or
taking any action that may affect your business, you should consult a qualified professional advisor.
Callan Associates Inc. shall not be responsible for any loss sustained by any person who relies on this publication.
Republished by Callan August 2016. Original publication in November 2014.
3. Knowledge. Experience. Integrity. 1
Introduction
Employee Retirement Income Security Act (ERISA) fiduciaries face challenging tasks: They must familiarize
themselves with ERISA's complicated rules of fiduciary conduct. They must understand and evaluate the
performance of plan investments, and in doing so, they are subject to ERISA's prudent expert and exclusive
purpose standards. In this handbook we focus on defined contribution (DC) plan investment fiduciaries and some
of the key issues they face.
ERISA Fiduciary Basics
ERISA establishes rules for how an employer-sponsored retirement plan should be managed. It includes rules for
administration, consideration of participant claims, and the management of plan investments—the latter being the
focus of this handbook.
Who Is an ERISA Fiduciary?
A fiduciary is a person who: (1) exercises control over plan administration or plan assets, (2) renders investment
advice for a fee, or (3) has any discretionary authority or responsibility with respect to plan administration. Under
ERISA, investment responsibility is generally delegated to a “named fiduciary.” Typically, this is a committee of
sponsor officials.
ERISA’s General Fiduciary Standards
ERISA includes some general rules about how a fiduciary must act that describe the basis upon which fiduciary
decisions must be made. Fiduciaries must:
– Act exclusively for the purpose of providing benefits and paying plan expenses.
– Act with care, skill, prudence, and diligence. The ERISA prudence standard has generally been
characterized as a “prudent expert” standard.
– Diversify plan investments to minimize the risk of large losses.
– Act in accordance with plan documents to the extent they are consistent with ERISA.
Prudent Expert
ERISA section 404(a)(1)(B) requires that a fiduciary of a DC plan must act “with the care, skill, prudence,
and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”
4. 2
ERISA Section 404(c)
In most 401(k) or other ERISA-governed, participant-directed DC plans, the fiduciary establishes a fund menu
from which the participants choose investments. Provided certain requirements are met, under ERISA section
404(c) the fiduciary is not responsible for losses that result from those choices (e.g., if a participant invests 100%
in an equity fund and the stock market loses money). In this handbook we generally assume that the plan uses a
fund menu/participant choice structure and complies with the requirements of ERISA section 404(c).
To qualify for ERISA section 404(c) treatment, a plan must generally provide a broad group of investment choices
(at least three funds with meaningfully different risk/return profiles); participants must be able to move assets
between investment funds at least quarterly (and more frequently if the volatility of the investment warrants it);
and participants must be given sufficient information to make an informed choice among the investments (a
summary of each fund’s risk/return characteristics and certain fee information; for mutual funds a prospectus upon
the participant’s first investment in the fund). Participants must also be notified that the plan is a 404(c) plan.
2016 Advice Fiduciary Rule
In April 2016, the Department of Labor finalized regulations defining who is an “Advice Fiduciary.” Under
the new rules, a person is generally an investment Advice Fiduciary if she makes a recommendation to a
plan, plan fiduciary, participant, or IRA owner about an investment, rollover, distribution, or investment
management (e.g., portfolio composition), and either:
She acknowledges that she is a fiduciary1.
The advice is pursuant to an “understanding” that it is based on the recipient’s particular needs or2.
She directs advice about a particular investment to a specific recipient3.
The Department of Labor has indicated that the plan sponsor generally would not be considered to be an
Advice Fiduciary because it generally does not receive compensation. Sponsor employees who are
compensated (in part) to advise participants about plan asset allocation or distributions may, however, be
considered fiduciaries under the new rule.
ERISA fiduciaries are generally subject to duties of loyalty and prudence; they are generally subject to
ERISA's prohibited transaction rules; and in certain circumstances they may have co-fiduciary liability
(liability for the fiduciary breaches of other fiduciaries).
5. Knowledge. Experience. Integrity. 3
Key Functions of a DC Plan Fiduciary
In managing DC plan investments, fiduciaries should consider eight key areas:
Evaluate and Update the Investment Structure1.
Apply and Periodically Review the Investment Policy Statement2.
Evaluate and Monitor the Target Date Fund Glide Path as part of Qualified Default Investment Alternative3.
(QDIA) Oversight
Review and Monitor Investment Manager Performance4.
Monitor and Benchmark Plan Fees5.
Oversee Required Employee Communications6.
Review Overall Plan Utilization7.
Review Defined Contribution Trends and Overall Plan Effectiveness8.
We describe each of these areas in detail in the following sections.
6. 4
1. Evaluate and Update the Investment Structure
While participants in a 404(c) plan are generally responsible for choosing funds from the investment menu, the
fiduciary must make some basic decisions about the available investments, including:
– What asset classes and investment styles (active, passive, etc.) will be available
– Whether to provide a default fund (e.g., a target date fund) and, if so, its design
– Whether to provide a brokerage window
Per ERISA section 404(c), the investment structure of an employee-directed DC plan should offer participants an
array of investment options that provide them with the ability to construct a diversified portfolio appropriate to the
individual’s time horizon and risk tolerance. Beyond that, basic philosophical tenets to keep in mind when
developing the investment structure include:
Build for the long term. An investment structure should reflect legal and regulatory trends, product innovation,
and adherence to a three-tiered framework (see the exhibit below) that facilitates plan usage for everyone, from
“do-it-for-me” to “do-it-yourself” types of participants.
Simpler can be better. The number and composition of choices affects participants’ allocation decisions. The
optimal number of investments offers sufficient diversification opportunity while minimizing participant confusion.
The menu should also avoid creating unintended biases. For example, if there are a lot of small cap equity
options, the sheer number could cause participants to overweight this asset class.
Offer appropriate core options. They should provide access to capitalization and style spectrums. A plan
participant’s ability to construct a diversified portfolio depends on access to core investment options representing
major asset classes. The primary building blocks of well-diversified portfolios include: capital preservation, fixed
income, U.S. equity, and non-U.S. equity.
Cost is important. Investment structures should seek to minimize cost via an effective use of investment vehicles
or share classes.
Sample Three-Tiered Structure
The three-tiered framework seeks
to address the varied needs of
different employees. Generally
the tiers reflect asset allocation
options for the “do-it-for-me”
types, core asset classes for “do-
it-yourselfers,” and specialty
options (e.g., self-directed
brokerage window) for more
financially-savvy investors.
7. Knowledge. Experience. Integrity. 5
Fiduciaries should periodically review the plan’s investment structure as part of their regular due diligence
process. This might involve ensuring the fund lineup continues to fit plan demographics and needs; identifying
opportunities to streamline available investment options; identifying overlaps and gaps in the fund lineup; and
adding diversification opportunities. Because of the evolving nature of the DC landscape, fiduciaries need not
worry about finding the one “right” overall strategy but should periodically revisit past decisions to determine
whether they are still appropriate.
Company objectives, participant preferences, and best practices all change over time. “More is better” used to be
the accepted mantra, and many sponsors set up plans with multiple funds in the same asset class. That approach
has generally given way to a “less is more” approach. The emerging best practice is to focus on multi-manager
funds as the “core” investment strategy.
Action Items
– Assess updates on DC practices, regulation, litigation: To understand current trends in investment
structures
– Review plan qualified default investment alternative: To determine if it continues to meet the needs
of the plan
– Review plan investment options and fees: To meet due diligence requirements
– Recordkeeper/Trust & Custody plan report review: To understand participant utilization of plan
investment options
8. 6
2. Apply and Periodically Review the IPS
Although it is not required under ERISA, Callan recommends the plan’s investment committee adopt an
investment policy statement (IPS). The IPS should reflect the plan sponsor’s basic decisions about overall
strategy and set basic guidelines for how the plan sponsor designs the fund menu and selects, monitors, and
replaces managers.
The biggest risk of an IPS is that it will over-commit plan fiduciaries. We often find that sponsor-fiduciaries have
adopted an IPS that includes unrealistic and overly detailed procedures. Plan sponsors should regularly review
their IPS (e.g., annually) to make sure that it is flexible, manageable, and continues to reflect committee practice.
Why Should You Have an IPS?
An IPS can provide the plan’s investment committee with a roadmap for making reasonable decisions that focus
on the long term. Process is critical. The investment committee should agree on basic objectives for the plan and
the fund and then hire managers to achieve those objectives. It is essential to agree on how to measure overall
plan and fund manager success, and compare actual outcomes against those objectives. It is critical to undertake
this review regularly; otherwise the IPS may become a one-time exercise in wishful thinking that is only revisited
when something goes drastically wrong (e.g., a lawsuit). Finally, when a problem arises, the committee should
stick to the process: understand what went wrong, develop a strategy to fix it, and execute.
9. Knowledge. Experience. Integrity. 7
Investment Policy Statement Do’s and Don’ts
Do
Stay on point. The IPS should set basic
guidelines/procedures for selecting, monitoring, and
de-selecting funds. Stick to those issues.
Be clear. Confusing rules generate confusing
results. Plain language and clear metrics are best.
Review the IPS with committee members to make
sure everyone understands it.
Develop specific criteria for evaluating results.
The committee will need a reasonable and
understandable process for evaluating manager
performance. Agree on those criteria in advance and
use them regularly to determine what’s working and
what’s not.
Document decisions. Committee minutes that
explain the decision-making process are essential,
particularly if litigation surrounding the committee’s
decisions should arise.
Follow the IPS process. Under ERISA, process is
your friend. Your goal is to demonstrate a
reasonable process for each decision. A flexible IPS
can help prevent committee members from breaking
IPS protocol and getting into trouble. Once the
substance of the IPS is agreed on, committee
members should follow it.
Don’t
Get too detailed. An overly specific IPS will get in
your way. Don’t provide elaborate rules about what
kind of minutes will be kept, or make your standards
for selecting a new fund or de-selecting an old one
rigid. Different situations (e.g., bad performance vs.
a change in strategy) will call for different
approaches.
Overcommit. Plans are not required to have an IPS.
If one exists, a court may insist fiduciaries follow it.
Keep your process reasonable.
Focus on the short term. Markets have cycles, and
not every fad is a trend. Discipline and consistency
are as important as short-term results, for fund
managers and the committee. The committee should
generally be focused on strategy, not tactics.
Set it and forget it. Committees are dynamic—the
IPS should be too. If you change the committee
structure, or the committee’s responsibilities change
in a way that affects the IPS, you should update the
IPS accordingly.
Action Items
– Review the investment policy statement: To perform regular due diligence
– Undertake fiduciary training: To ensure the plan’s investment objectives and key governance
procedures are documented as desired
10. 8
3. QDIA Oversight: Evaluate and Monitor the Target Date Fund Glide Path
Plans typically designate one default fund in which to invest participant contributions if the participant fails to make
an affirmative election. Generally, this fund should be a qualified default investment alternative (QDIA). Per the
2006 Pension Protection Act (PPA), a QDIA can be an individually managed account, a balanced fund, or a target
date fund (TDF) that meets certain criteria.
The most common default funds are TDFs (also known as target maturity funds or lifecycle funds). TDFs
generally provide a suite of pre-mixed portfolios, each targeting a specific investment horizon. For example, a set
of TDFs might include 10 vintages of funds in five-year increments ranging from a 2015 retirement date to a 2060
retirement date. The funds’ asset allocations change as the target cohort gets closer to retirement, usually
increasing fixed income and decreasing equity allocations.
Evaluating Target Date Funds
While TDFs are simple for participants to invest in, they are more complex for plan sponsors to evaluate than
single asset-class funds. TDFs have many moving pieces, such as:
– Equity roll down: the rate at which investments of a particular age cohort (say, those retiring within five
years of 2020) are shifted from higher-risk (equity) to lower-risk (fixed income) investments
– Glide path asset allocation: diversification and risk over time
– Underlying manager performance: the value-add provided by the underlying managers relative to the
passively implemented glide path
– Fees: the underlying managers’ weighted average fees and any glide path management fees
Plan sponsors are increasingly using sophisticated analytics, such as retirement income adequacy analysis, to
assess the efficacy of the TDF for their plan. They are also referencing the Department of Labor’s “Tips for ERISA
Plan Fiduciaries” (on the following page) in selecting and evaluating their TDFs.
As defined by the Department of Labor, a target date fund that would be suitable as a QDIA is:
An investment fund product or model portfolio that applies generally accepted investment theories, is
diversified so as to minimize the risk of large losses, and is designed to provide varying degrees of long-term
appreciation and capital preservation through a mix of equity and fixed income exposures based on the
participant’s age, target retirement date (such as normal retirement age under the plan), or life expectancy.
— Department of Labor
11. Knowledge. Experience. Integrity. 9
It should also be noted that clearly communicating relevant information about the TDF to participants is important.
For example, participants should know the fund's high-level investment strategy, possible risks, and fees.
The Department of Labor’s “Target Date Retirement Funds: Tips for ERISA Plan Fiduciaries” provides
general guidance “to assist plan fiduciaries in selecting and monitoring TDFs and other investment options
in 401(k) and similar participant-directed individual account plans,” including:
– Establish a process for comparing and selecting TDFs that involves consideration of how well the
TDF’s characteristics align with eligible employees’ ages and likely retirement as well as other
characteristics of the participant population.
– Establish a process for the periodic review of selected TDFs—at a minimum examining whether
there have been any significant changes.
– Understand the fund’s investments—the allocation in different asset classes (stocks, bonds, cash),
individual investments, and how these will change over time.
– Review the fund’s fees and investment expenses.
– Inquire about whether a custom or non-proprietary target date fund would be a better fit for your
plan.
– Develop effective employee communications.
– Take advantage of available sources of information to evaluate the TDF and recommendations you
received regarding the TDF selection.
– Document the process.
Source: Department of Labor 2013 Bulletin “Target Date Retirement Funds: Tips for ERISA Plan Fiduciaries”
Action Items
– Review plan QDIA: To ensure that it meets plan needs
– Recordkeeper/Trust & Custody plan report review: To determine utilization of QDIA
– Manager presentation (as needed): For update on QDIA approach
12. 10
4. Review and Monitor Investment Manager Performance
Plan fiduciaries are responsible for the overall prudence of the fund’s menu and managers. Adopting a good,
workable process is essential to maintaining sound plan investments. This process should be based on the basic
building blocks of the IPS. In reviewing the performance of a given fund, plan sponsors should:
– Determine whether the fund or manager continues to fit the asset class for which it was selected.
– Consider the performance of the fund or fund manager against a designated benchmark.
– Understand any changes to people, process, or philosophy.
– Review the fees charged by the fund or fund manager.
Fiduciaries should regularly review fund performance; they should also thoroughly document the review and
monitoring process.
Company stock and brokerage windows present unique challenges when it comes to performance. We cover
these topics in greater detail in Appendix II.
Mapping Funds
In the event the fund lineup changes or plans merge, the plan sponsor may be required to map participant assets
between funds.
Fund-to-Fund Mapping
Fortunately, the PPA provides a safe harbor that allows for ERISA section 404(c) protection when participant
assets are reallocated (“mapped”) to remaining or new funds if certain requirements are met:
– Participants’ accounts must be reallocated among one or more remaining or new investment options, “the
stated characteristics of [which], including characteristics relating to risk and rate of return, are, as of
immediately after the change, reasonably similar to those of the existing investment options as of
immediately before the change.”
– At least 30 days and no more than 60 days prior to the effective date of the change, the plan
administrator must notify participants of the change. The notice must include information comparing
existing and new investment options and an explanation that, absent affirmative instructions, participants’
accounts will be automatically reallocated.
– The participant’s investments immediately prior to the “mapping” transaction must have been the product
of an affirmative election.
– The participant must not have affirmatively elected to be in a different fund than the one being mapped to.
13. Knowledge. Experience. Integrity. 11
Mapping to the QDIA
A fiduciary may alternatively map fund assets by following the rules that apply to QDIAs (covered in section No. 3
on pages 8 and 9). Again, transferring “non-elected” money to the QDIA may be protected under ERISA section
404(c) under the PPA. Per the Department of Labor: “Whenever a participant or beneficiary has the opportunity to
direct the investment of assets in his or her account, but does not direct the investment of such assets, plan
fiduciaries may avail themselves of the relief provided by [the final QDIA] regulation, so long as all of its conditions
have been satisfied.” Those conditions are:
– The assets must be invested in a QDIA.
– The participant must have been given an opportunity to provide investment direction, but did not do so.
– A notice generally must be furnished in advance of the first investment in the QDIA and annually
thereafter.
– Material, such as investment prospectuses, provided to the plan for the QDIA must be furnished to
participants.
– Participants must have the opportunity to direct investments out of a QDIA just as frequently as from
other plan investments, but at least quarterly.
– The plan must offer a “broad range of investment alternatives” as defined in ERISA section 404(c).
The Importance of Process
Mapping and defaults are important tools to use in managing fund changes. There is always a risk of disappointed
expectations (e.g., when a participant affirmatively elects to invest in a fund that is then eliminated). The problem
becomes especially acute if the “old” fund does well and the “new” one does not after the change. Fiduciaries
should thoroughly document compliance with the requirements for mapping and defaults and should make every
effort to ensure that participants understand the process and the consequences of not making an affirmative
election.
Action Items
– Review investment markets: To understand the current environment
– Review investment performance: To highlight recent notable developments
– Review watch list (as applicable): Run prescribed process for investments that warrant extra
scrutiny
14. 12
ERISA section 408(b)(2) requires all “covered
service providers” to furnish DC plan sponsors with:
A written description of services to be provided1.
Information on whether the services provided are2.
in the capacity of the provider being a fiduciary
to the plan
A description of all direct and indirect3.
compensation to be received by the provider
5. Monitor and Benchmark Plan Fees
Under ERISA, sponsors must ensure that plan fees
are reasonable and avoid conflicts of interest.
Further, with the issuance of ERISA section
408(b)(2) regulations in 2012, the Department of
Labor raised the bar for plan sponsors by requiring
them to obtain certain fee information from service
providers.
With 408(b)(2), plan sponsors are responsible for
ensuring that all covered service providers have
supplied the required disclosures, and that such
disclosure are complete. It is prudent to regularly
compare provider fees with that of competitors and document that process. If the plan sponsor selects a provider
with higher fees, the plan sponsor should document the reason that motivated the choice. In summary, fiduciaries’
three critical responsibilities around 408(b)(2) disclosures are to:
1. Determine if the providers have given them all the information they are required to.
2. Understand this information and ask for clarification as needed.
3. Use this information to review the reasonableness of fees and benchmark them annually.
Recordkeeper and Trustee Fees
ERISA requires that fees for recordkeeping and trust services be reasonable. In general, reasonability requires
that the fiduciary review the market and pay a competitive rate. The definition of a competitive rate and how it
should be paid (per capita, on a plan-wide basis, or as a percent of assets under management) is still in dispute,
with little insight provided by the Department of Labor. Field Assistance Bulletin 2003-3 (described below) only
notes that fiduciaries must be prudent in selecting the method of fee allocation.
Department of Labor Field Assistance Bulletin 2003-3
– ERISA does not specifically address how plan expenses may be allocated among participants and
beneficiaries.
– A fiduciary must be prudent in the selection of the method of allocation.
– The fiduciary weighs the competing interests of various classes of the plan’s participants and the
effects of various allocation methods on those interests.
– A fiduciary’s decision must satisfy the “solely in the interest of participants” standard. However, a
method of allocating expenses would not fail this standard merely because the selected method
disfavors one class of participants, provided that a rational basis exists for the selected method.
15. Knowledge. Experience. Integrity. 13
Investment Management Fees
Reviewing and benchmarking investment management fees is challenging because there are countless styles
and strategies of investments. Certain funds/asset classes are more “commodity like” (e.g., S&P 500 Index fund),
and a reasonable fee can be more clearly identified. For other investments, it may be more feasible to establish a
reasonable range of fees and to note that other criteria—like performance—are relevant in fund evaluation.
Recent litigation has highlighted the issue of using a higher-priced fund when there is an “identical lower-cost
investment” available.
In Tibble v. Edison, the lower court found a fiduciary violated ERISA by selecting a retail mutual fund share class
instead of an institutional share class that “offered the exact same investment at a lower fee.” In the cases
decided thus far, courts have accepted the argument that selecting a retail share class (higher-priced) when an
institutional share class (lower-priced) is available presents an issue under ERISA.
More recent lawsuits have even sought to extend this principle. Complaints have been filed against fiduciaries of
large DC plans alleging that using even a very low-priced fund (e.g., an index fund charging 4 basis points)
violates ERISA when there is an even-lower-priced fund available for the identical investment strategy (e.g.,
based on the same index). These complaints also allege that ERISA is violated when a plan menu includes a
mutual fund where there is a lower-priced investment vehicle (e.g., a separate account or collective trust)
available using “the same investment managers as mutual funds with the same investment style.” Finally, these
complaints allege it is imprudent to select a high-priced actively managed fund of a particular style (e.g., small cap
value) when there are lower-priced alternatives that have the same “style.” This claim is given more credibility
when the higher-priced alternative underperforms the lower-priced one or the relevant benchmark. If a fund offers
a lower-fee share class or there is another identical lower-fee alternative than the one used in the plan, it is
important for plan sponsors to document why the plan does not take advantage of it (e.g., insufficient assets).
Implications of Tibble v. Edison
On May 18, 2015, the United States Supreme Court reversed the Ninth Circuit Court of Appeals’ ruling that
the 401(k) fee lawsuit of Tibble v. Edison was time-barred, remanding the case back to the Court of
Appeals.
The takeaway: plan sponsors could not claim that a fund had been added to the plan so long ago that it
was no longer subject to litigation. Instead, ongoing monitoring requirements necessitate that plan
fiduciaries continually monitor the efficacy of funds in the plan.
16. 14
Revenue-Sharing Arrangements
Revenue-sharing arrangements—which essentially use a portion of investment management fees to pay for
recordkeeping and trustee services—have been popular with plan sponsors. However, they have recently
become a target of litigators. While they are not illegal, they do present challenges for fiduciaries trying to
evaluate the reasonableness of fees. Revenue-sharing arrangements are often:
Less transparent. Determining how much the plan is actually paying for recordkeeping services can be
challenging because the fees are embedded in fund expense ratios.
Asset-based. This creates several problems:
– Fees increase when total plan assets increase, despite no change in services or service quality. As such,
it is important to evaluate regularly the amount of revenue sharing paid to ensure it remains reasonable.
– The emerging best practice for recordkeeping services is a per capita fee. To determine reasonableness,
the assets-under-management fee has to be “translated” into a per capita fee.
– Revenue-sharing fees are generally charged only on certain funds (e.g., for U.S. large-cap growth but not
on company stock). As such, only those participants invested in funds with revenue sharing pay
recordkeeping costs for services that are generally enjoyed by everyone in the plan. Plans can establish a
reallocation process to correct unequal payments—but it is usually complicated (see inset box on the
following page, “Challenges in Eliminating Revenue Sharing from the Plan”).
Strategies for managing plan fees
– Conducting annual fee reviews (investment management, administrative, and other plan fees).
– Identifying situations in which a lower-priced share class or identical fund is available (e.g.,
collective trusts that deliver the same investment result as a mutual fund) and documenting
reasons for picking “higher-priced alternatives.” For instance, noting that the plan does not qualify
for investing in a lower-priced alternative because of asset size.
– Adopting a fee payment policy either as part of the Investment Policy Statement or as a separate
document. Fee payment policies outline who is responsible for paying plan fees (plan sponsor
versus participant), establish the method of fee payment (asset-based versus out of pocket), and
define acceptable fee payments sources (such as use of revenue sharing).
17. Knowledge. Experience. Integrity. 15
Callan recommends a disciplined approach to revenue-sharing arrangements, including:
– Be clear about what you are buying with revenue sharing; it often pays for more than just recordkeeping
(e.g., a sophisticated participant education program may be included).
– Document exactly how much revenue sharing you pay for each service each year, and make sure you
can defend that number as reasonable.
– Adopt a procedure for allocating revenue-sharing fees that you can defend as reasonable.
– Evaluate emerging best practices when it comes to revenue sharing, which include:
– Capping the amount of revenue sharing permitted to be directed to pay for plan administration fees.
– Designing plan reimbursement accounts that direct excess revenue sharing to pay for additional plan
services or to be rebated back to plan participants.
Challenges in Eliminating Revenue Sharing from the Plan
Eliminating revenue sharing altogether from DC plans is an approach that more and more plan sponsors
aspire to. According to Callan’s 2016 Defined Contribution Trends Survey, 44% of plans with participant-
paid administrative fees use no revenue sharing, up from 29% in 2012. However, there can be challenges
to moving to a revenue sharing-free DC plan:
– Certain investment strategies are only available in mutual funds with revenue sharing—no
institutional share classes or collective trust offerings are available.
– Plans may not qualify for institutional share classes that eschew revenue sharing because of the
size of assets in the plan.
– Institutional share classes may have lower aggregate fees because they do not have revenue
sharing—but their investment management fees may actually be higher than the retail share class.
In this case, moving to such share classes could actually increase overall plan costs (when out-of-
pocket administrative fees are added in).
18. 16
Whatever approaches are used, it is important that plan sponsors can defend the fees plan participants are
paying as reasonable and competitive. Recent DC plan fee lawsuits have taken the position that plan sponsors
should take their plan out to bid every three to five years in order to ensure that administrative fees are
competitive. This can be done through an RFI or an RFP process.
Action Items
– Review service provider compensation disclosures
– Review and benchmark plan fees
– Engage in a competitive bidding process for plan administration fees every three to five years
– Review and document investment vehicles used
– Evaluate current best practices in plan fee payment approaches
Expense Reimbursement Accounts
The Department of Labor has not opined on revenue sharing in detail. In July 2013, the Department of
Labor issued Advisory Opinion 2013-03A on whether revenue-sharing payments constitute “plan assets”
under ERISA. It asserted that revenue-sharing payments are not assets of a client plan until the plan
actually receives them, or unless there is a contract in place obligating the recordkeeper to pay a certain
amount to the plan. The Advisory Opinion noted that plan fiduciaries must act in the best interests of plan
participants in negotiating the specific formula and methodology under which revenue sharing will be
credited to the plan. Further, plan fiduciaries must periodically monitor that the amount to which the plan is
entitled under revenue-sharing reimbursement arrangements is correctly calculated and applied for the
benefit of the plan. The Advisory Opinion states, “Thus, in considering whether to enter into an
arrangement of this kind, the fiduciary should take into account its ability to oversee the service provider.”
Another consideration around expense reimbursement and revenue-sharing rebating arrangements is the
operational capabilities of recordkeepers. According to Callan’s 2016 recordkeeper questionnaire, most
major recordkeepers are able to rebate revenue sharing. However, some could only do so at the trust level
(but not to the individual participant account that generated the revenue sharing), some required that the
funds be unitized in order to rebate back to individual participants, and others could only calculate the
rebate on a quarterly basis. Further, the extent to which the rebating functionality is automated will vary by
recordkeeper.
19. Knowledge. Experience. Integrity. 17
6. Oversee Required Employee Communications
Plan administrators have a number of “disclosure” obligations under ERISA. Disclosure requirements for
investments are complex and largely beyond the scope of this handbook. At a high level, plan sponsors must
provide a chart with the following information about the plan’s fund menu choices, permitting a straightforward
comparison:
– Identifying information
– Performance data
– Benchmark data
– Investment-related fees
These rules apply only to designated investment alternatives. As such, they generally do not apply to brokerage
windows (described in Appendix II).
Participant Investment Education and Advice
ERISA does not require that plan fiduciaries provide participants with investment education or advice beyond a
basic description of how the plan works and the characteristics of the available investment options. However,
most sponsors arrange for some education or advice, typically from a third party (unaffiliated with any of the plan's
funds) or one or more of the plan’s fund providers.
Simple investment “education” (as distinguished from “advice”) is generally not subject to ERISA fiduciary rules,
including the 2016 Advice Fiduciary Rule. Indeed, the Advice Fiduciary Rule generally adheres to prior guidance
by defining non-fiduciary education as: providing information about the plan and how it works, as well as general
investment concepts (e.g., risk and return, diversification, and dollar-cost averaging).
With respect to asset allocation models, non-fiduciary investment education for plan participants can identify a
specific investment alternative if it is a designated investment alternative under the plan, subject to oversight by
an independent plan fiduciary. This rule applies so long as the model:
1. Identifies all other designated investment alternatives available under the plan that have similar risk and
return characteristics, if any; and
2. Is accompanied by a statement indicating that those other designated investment alternatives have
similar risk and return characteristics, and identifying where information on those investment alternatives
may be obtained. “Interactive investment materials” (e.g., a software program) may also identify a specific
investment alternative or distribution option, subject to similar rules.
However, the 2016 Advice Fiduciary Rule triggered a critical change with respect to advising plan participants on
termination of employment. Generally speaking, it is not a fiduciary act under the rule to provide general
information about the options available to plan participants upon termination (e.g., that they may keep assets in
the plan, take a withdrawal, or rollover their assets into a new employer plan or IRA). However, specific direction
about rollover options would be considered fiduciary advice. Historically, recordkeepers have regularly had
benefits center representatives engage in such conversations with plan participants, and have built in rollover
capture from such conversations into recordkeeping revenue models. Plan sponsors should fully understand how
20. 18
recordkeepers are approaching these—or any fiduciary conversations—within the Benefits Center under
Department of Labor’s new rules.
When an unaffiliated third party provides education/advice, plan fiduciaries are only responsible for ensuring that
the provider is competent and the education/advice is generally prudent. When one of the plan’s fund providers
offers advice/education, additional rules apply. Generally, the provider must qualify for either the “flat fee”
exemption or the “model-driven advice” exemption.1
The plan’s legal counsel should review this issue with the
plan provider. Education or advice fees that are passed onto the participant should be reasonable, and should be
regularly reviewed and documented.
1 The Department of Labor exempts advice providers from prohibited transactions provided advice is based on a computer model, or if the
advisor is paid a flat fee that does not change based on investment choices.
Action Items
– Update on DC best practices, regulation, litigation to understand the evolving education/advice
environment
– Review approach that services providers are adopting to investment communication, education, and
advice in light of the 2016 Advice Fiduciary Rule
21. Knowledge. Experience. Integrity. 19
7. Review Overall Plan Utilization
A review and evaluation of how employees are utilizing the DC plan is a good management practice, although it is
not required by ERISA. Such a review includes:
– Participant asset allocation decisions
– Transfer activity
– Participation levels
– Participant deferral levels
– Loans and withdrawals
A regular evaluation of plan usage can help officials understand what adjustments to plan design, delivery, and
communication might be required to achieve better outcomes. This could include implementation or modification
of automatic enrollment/escalation provisions, implementation or modification of investment defaults, changes to
the investment fund lineup, implementation of advisory solutions, inclusion of retirement income solutions, and
development of targeted communications.
Action Items
– Recordkeeper/Trust & Custody plan report review – To understand plan participant behavior
– Retirement benefit and settlor decisions/strategy update – To determine if plan provisions meet the
needs of the company and plan sponsor
– DC best-practices, regulation, litigation – To understand how the plan measures up to other plans
22. 20
8. Review Defined Contribution Trends and Overall Plan Effectiveness
Increasingly, plan officials are also evaluating overall plan effectiveness, using measures such as a retirement
income adequacy analysis. This involves projecting expected income levels that the plan is likely to generate for
participants in retirement, given contribution levels, available investments, time horizon, etc.
There is currently no requirement under ERISA to perform such evaluations. However, this type of analysis can
be useful in understanding the extent to which plan design (including TDF design) can help workers achieve their
retirement goals.
Action Items
– Recordkeeper/Trust & Custody plan report review: Review aggregate data on retirement income
replacement levels
– DC best-practices, regulation, litigation: To understand how the plan measures up to other plans
23. Knowledge. Experience. Integrity. 21
Conclusion
Taking responsibility for a DC plan can be daunting, with plan fiduciaries facing personal liability in the event that
the plan is found to be improperly managed. However, having a thorough process in place can do much to
mitigate fiduciary risk and help plan officials maintain a high standard of care, ideally leading to strong outcomes
for plan participants.
– Appendix I contains a sample DC Plan Governance Committee Meeting Rolling Agenda. This includes
descriptions and roles for various quarterly and annual tasks, such as reviewing and approving minutes,
investment performance review, plan report review, and DC best practices review.
– Appendix II covers special issues surrounding the use of company stock and brokerage windows in the
DC plan.
– Appendix III contains a Fiduciary Checklist to help plan sponsors stay on track with fiduciary requirements.
24. 22
Appendix I
DC Plan Governance – Committee Meeting Rolling Agenda
See the following page for detailed descriptions of each bulleted agenda item.
Assumes: ERISA-regulated plan, joint investment/administration committee, calendar year
First Quarter (May)
– Review/approve minutes, follow-ups
– Investment performance review
– Watch list review*
– Recordkeeper/Trust & Custody plan report
review
– New committee members – plan overview (as
applicable)
– Update on DC best practices, regulation,
litigation
– Manager presentation(s)
Alternate structure: Conduct manager
presentations during a separate, annual two-day
session
Second Quarter (August)
– Review/approve minutes, follow-ups
– Investment performance review
– Watch list review*
– Service provider compensation disclosures**
[ERISA 408(b)(2)]
– Review/confirm participant disclosures***
[plan documents, factsheets, 404(a)(5), other
404(c) required items]
– DOL filings, compliance checklist review***
– Fiduciary training (markets, regulations, plan
administration)***
– Manager presentation(s)
Third Quarter (November)
– Review/approve minutes, follow-ups
– Investment performance review
– Watch list review*
– Review plan QDIA: objective, methodology,
implementation, fees, scenario/outcome
testing, communication materials
– Review plan investment options: fees,
performance attribution, allocation structure
and factor exposures (if multi-manager),
organization updates
– Manager presentation(s)
Fourth Quarter (February)
– Review/approve minutes, follow-ups
– Investment performance review
– Watch list review*
– Retirement benefit – Settlor decisions/strategy
update***
– Investment policy statement (IPS) review***
– Investment markets review, outlook, CMA
updates
– Manager presentation(s)
* If applicable, per the investment policy statement.
** Sponsor is responsible for initial 90-day review of new or updated disclosures. Callan recommends a periodic fee benchmarking
exercise designed specifically for the type of service provider being evaluated, e.g., investment manager vs. recordkeeper.
*** Supervised by sponsor’s ERISA counsel.
25. Sample Agenda Item Detail
Fiduciary Task Description Responsibility
Quarterly
Review/approve minutes, follow ups Typically one committee member is assigned to introduce last
quarter’s minutes
Plan sponsor staff
Investment performance review Review investment performance, highlight recent notable
developments
Consultant
Watch list review (as applicable) Run any prescribed process for investments deemed to warrant
additional scrutiny
Consultant
Manager presentation(s) Invite investment managers (preferably the portfolio manager) to
review strategy in person with the committee
Investment manager(s)
Annually
Recordkeeper/Trust & Custody plan report review Annual report from recordkeeper that describes the plan, its assets,
its participant demographics, and investment activity
Recordkeeper, with input from staff and
consultant on items of note
New committee members – plan overview Introduce retirement benefit objectives and plan features to new
committee members
Plan sponsor staff, with consultant support
Update on DC best practices, regulation, litigation Overview of investment and governance trends affecting the DC
marketplace
Consultant
Review plan QDIA: objective, methodology,
implementation, fees, scenario/outcome testing,
communication materials
Review QDIA to ensure its alignment with plan objectives relative to
participants’ long-term retirement savings needs
Consultant and plan sponsor
Review plan investment options: fees, performance
attribution, allocation structure and factor exposures (if
multi-manager), organization updates
Quantitative and qualitative review of plan investment options Consultant and plan sponsor
Service provider compensation disclosures* [ERISA
408(b)(2)]
Confirm that the direct and indirect compensation to the plan’s
service providers is reasonable in the opinion of the plan’s fiduciaries
Plan sponsor staff, ERISA counsel, support from
consultant
Review/confirm participant disclosures** [plan docs,
factsheets, 404(a)(5), other 404(c) required items]
Audit documents to ensure the disclosures are accurate and comply
with DOL rules
Plan sponsor, recordkeeper, ERISA counsel,
support from consultant
Plan compliance - status report** Ensure compliance with DOL/IRS rules Plan sponsor staff
Fiduciary training (markets, regulations, plan
administration)**
Educating committee members on recent trends in the marketplace ERISA counsel with support from staff and
consultant
Retirement benefit – Settlor decisions/strategy update** Review/updates to plan benefits, match levels, eligibility/vesting,
retiree asset rules
Company board/plan sponsor
Investment policy statement (IPS) review** To ensure the investment objectives and key governance procedures
of the plan are documented as desired
Plan sponsor, ERISA counsel, support from
consultant
Investment markets review, outlook, CMA updates Review of capital markets and discussion of related effects relative to
the plan’s investment objectives
Consultant
* Sponsor is responsible for initial 90-day review of new or updated disclosures. Callan recommends a periodic fee benchmarking exercise designed specifically for the type of service provider being evaluated, e.g.,
investment manager vs. recordkeeper.
** Supervised by sponsor’s ERISA counsel.
Knowledge.Experience.Integrity.23
26. 24
Appendix II
Special Issues: Company Stock and Brokerage Windows
Company Stock
Many 401(k) plans allow investment in company stock. Some believe that company stock investments help align
employee and company interests. Tax benefits are another potential benefit.
Company stock presents a number of challenges. It is effectively a “single stock fund,” and thus can present
special risks that would otherwise be “diversified out” in another investment, such as a mutual fund. (There is an
exemption from ERISA's diversification requirement with respect to company stock, if certain conditions are met,
to address this issue.)
Company stock funds are volatile, creating potential for participants to lose significant amounts of money. As a
result, company stock is one of the most litigated issues for 401(k) plan sponsors, and the applicable rules—as
interpreted by the courts—remain unclear.
In 2014, the Supreme Court found that the law does not create a special presumption of prudence for employee
stock ownership plan (ESOP) fiduciaries, thereby negating a DC stock-drop defense that had been upheld by
most Circuit Courts prior to the ruling. Instead, the Supreme Court laid out alternative defenses for ESOP
fiduciaries that may be helpful in understanding fiduciaries’ monitoring responsibilities with respect to company
stock. In its decision, the Supreme Court noted that:
With respect to the role of public information in decision making: Because markets are efficient, plaintiffs must
demonstrate that there were special circumstances making it imprudent for fiduciaries to rely on market prices
in evaluating the efficacy of the company stock. (Note: The Court declined to speculate what “special
circumstances,” if any, could give rise to a claim.)
With respect to the use of inside information: In order to state a claim for breach of the duty of prudence on
the basis of inside information, plaintiffs must plausibly allege an alternative action that the defendant could
have taken that would have been consistent with securities laws, and that a prudent fiduciary in the same
circumstances would not have viewed as more likely to harm the fund than to help it.
As DC stock drop cases continue to be litigated, clearer guidelines for the appropriate monitoring of employer
stock will emerge.
Brokerage Windows
Generally, brokerage windows (self-directed brokerage) allow participants to invest in funds or securities that are
not part of the plan’s main menu. A brokerage window can be limited to a selection of mutual fund families carried
on the recordkeeper’s platform. Alternately, “full brokerage” enables access to stocks, exchange-traded funds,
and other securities.
27. Knowledge. Experience. Integrity. 25
Brokerage windows can be an effective tool to: (1) allow plan participants who are sophisticated investors (e.g.,
participants using an account manager/advisor) to access investments otherwise unavailable and (2) deal with
pressure to increase the number of fund options available in the core fund menu.
Brokerage windows present certain risks. Fees can be higher, evaluation of investment choices by participants
could require a high level of investment sophistication, and some investments (e.g., very aggressive mutual funds
or single stocks) may be volatile and present significant risk to the participant.
Whether or not plan sponsors are required to monitor the investments within a brokerage window is an area of
considerable debate. Many plan sponsors that offer brokerage windows take the position that it is not necessary
to monitor the individual investments in the brokerage windows, as they are not “designated investment
alternatives.” However, the Department of Labor has considered requiring greater oversight in this area.2
Generally, it is considered a best practice to ensure that the brokerage window operates in a reasonable manner
and with reasonable fees.
2 In 2012 the Department of Labor sought to require greater plan sponsor oversight of self-directed brokerage accounts in a field assistance
bulletin (FAB). Lawmakers took exception, contending that the Department of Labor was inappropriately using the FAB to issue new regulation
without a comment period. The DOL subsequently removed the self-directed brokerage account disclosure requirement from the FAB.
28. 26
Appendix III
Sample Fiduciary Checklist
A checklist can help to ensure that each fiduciary task has been completed as scheduled. We provide a sample
checklist with the recommended timing for each activity within a calendar year (e.g., complete annual plan fee
monitoring and benchmarking in the third quarter). Click here to download a version of this checklist that can be
customized for your fund.
Task
Recommended
Timing
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Adopt an investment policy statement and
investment structure
At outset
QDIA oversight: evaluate and monitor the
glide path of the target date fund
Periodically*
Review and monitor investment manager
performance
Quarterly
Monitor and benchmark plan fees Annually
Review overall plan utilization Quarterly
Ensure that required employee
communications are properly executed
Annually
Review the investment policy statement Annually
Review DC trends and overall plan
effectiveness
Annually
Evaluate and update the investment
structure
Periodically**
* See page 8.
** See page 4.
29. Corporate Headquarters
Callan
600 Montgomery Street
Suite 800
San Francisco, CA 94111
1.800.227.3288
1.415.974.5060
www.callan.com
Regional Offices
Atlanta Denver
1.800.522.9782 1.855.864.3377
Chicago New Jersey
1.800.999.3536 1.800.274.5878
Author
Lori Lucas, CFA, is an Executive Vice President and Defined Contribution
Practice Leader at Callan Associates. Lori is responsible for setting the
direction of Callan’s DC business, providing DC support both internally to
Callan’s consultants and externally to Callan’s clients, and developing
research and insights into DC trends for the benefit of clients and the industry.
Lori is a member of Callan’s Management Committee and is a shareholder of
the firm.
Formerly, Lori was Director of Retirement Research at Hewitt Associates. Lori
has also served as a vice president at Ibbotson Associates, a pension fund
consultant at J.H. Ellwood & Associates, and an analyst and product
development leader at Morningstar, Inc.
Lori received a Masters from the University of Illinois and a BA from Indiana
University. Additionally, she earned the right to use the Chartered Financial
Analyst designation. Lori is a former columnist for Workforce Management
online magazine and her views have been featured in numerous publications.
She is the Chair of the Defined Contribution Institutional Investment
Association, former Executive Chair of the Employee Benefit Research
Institute’s Research Committee, and a member of NAGDCA. Lori is also a
frequent speaker at pension industry conferences.