Deferred Compensation - Wild Apricot Committee … · Rodney Walton. Rodney Walton. Account...

Deferred Compensation Committee Fiduciary DutiesDo You Have a

Committee?

Do You Know Your Duties?

Rodney WaltonRodney WaltonAccount Executive813-340-7545rwalton@flcities.comwww.flcretirement.com

Agenda

• Why DC Committees?• ERISA• Fiduciary• GFOA Best Practice• Pick Your Team • A Model• Policy Statement• Let The DC Committee Do It

What I am NOT trying to do

Provide all the answers

Create Sunshine Law

Violations

Give specific advice

ERISA - Not that girl you knew from high school

Signature

ERISA

Employee Retirement

Income Security Act

1974

Our courts have referred

to its high standards

ERISA itself does not give

much guidance

We focus on the

regulations that come from ERISA

Government does not need to

follow ERISA

Retirement plan best practices

Fiduciary Responsibility

Fiduciary Definition

• Required to act for the benefit of another person on all matters within the scope of their relationship

• One who owes to another the duties of good faith, trust, confidence, and candor

Plan Fiduciaries

Among Other Things, A Plan Fiduciary:

• Discretionary responsibility in administration of the plan• Responsible for choosing and terminating of plan providers• Establishes policies and procedures for plan

Plan Fiduciaries

• Its not whether want to be one or not• If you delegate monitoring or not, you still have to monitor• You don’t have to make the decisions, just have the authority to• Its more of a calling…….

Fiduciary Responsibility

• ERISA means not government, right?• State law governs Non-ERISA plans• Non-ERISA does NOT mean Non-Fiduciary• “Each retirement system or plan shall have one or more named

fiduciaries with authority to control and manage the administration and operation of the retirement system or plan.” Florida Statute 112.656

I Know You Are (A Fiduciary) But What Am I?

• 2017 Study by AllianceBernstein found:• 51% of Plan Sponsors think they are fiduciaries• 39% members of DC Committees think they are fiduciaries• Of those who think they are responsible, only 67% think they are fiduciaries

• Plan Administrators are fiduciaries, so the question is: Am I really one as a Plan Sponsor?

Court Cases

ESOP Excessive Fees

Self-Dealing

Revenue Sharing

Definitions

ESOP – Employee Stock Option Program•Over-valued/Under-valued

Excessive Fees –charging excessive fees in retirement plans above what is deemed reasonable•‘Self-Dealing’ and ‘Revenue Sharing’ can loosely fit in the ‘Excessive Fees’ category

Self-Dealing •They could have worked around ‘kickback’ and offered another share class

•Not the best version of their funds in their own companies 401k plan

Revenue Sharing•‘Kickbacks’ of fees paid for having the funds on a mutual fund platform

•Should have passed the fee revenue back to the employees

In summary, you ‘Self-Deal’ when you do not

‘Revenue Share’

Excessive Fees

• Excessive recordkeeping fees in a small plan• 2014 - $1466 per participant• 2015 - $1819 per participant• Charged plan 0.67% to 1.86% of net assets

Voya Financial

• Large retirement plan did not negotiate fees• This was particularly evident in stable value fund• Vanguard Funds cheaper with larger return

Prudential Guaranteed Income Fund

Self- Dealing

• Extra hidden fees that could have been avoided• Guaranteed Account offered in the plan was their own

Mutual of Omaha

• ‘Index’ Funds or ‘Passively’ Managed Funds that Putnum offered were high in fees

• Argument was made of these same type of funds made to mirror the market were much less offered by Vanguard

Putnam Funds Compared To Vanguard

Revenue Sharing

• Nationwide keeps fees for non-proprietary funds that it offers

• Plantiff said this should have been fees returned to the plans

Nationwide Settles 13 Year Suit

• By setting up the provider’s compensation package they became a ‘functional fiduciary’

Mass Mutual Agrees To Settle

GFOA - Best Practices DC Plan – Investment Policies for Retirement Plans

• Statement of purpose• Fiduciary standards• Scope of investment options• Qualified Default Investment Alternative(s)• Monitoring procedures• Liquidity requirements• Participant education and outreach• Target-date or target-risk funds*• Retirement income features or annuity funds*• Brokerage options*

GFOA - Best Practices DC Plan

Participant Education Guidance

for Defined Contribution Plans

Defined Contribution

Retirement Plan Design

Investment Fee Policies for

Retirement Systems

Monitoring and Disclosure of Fees for Defined Contribution

Plans

Your ‘DC’ Committee – Picking Your Team

Best Practices for picking your team

• Again, this is not advice• DC Committee - not the council or commission

• This is an oversight committee

• Different backgrounds/skills of different employees• Example: Human Resources, Risk Management, Finance• Think about different opinions from different departments• Example: Fire could have a different opinion than Public Works

• Share interest in making plan better• Low, odd number of people (small for voting)

Best Practices for your team continued

• Some background knowledge of investments even if it is self-taught• You can always get training from your vendors• Ask good questions

One Possible Model

Council/Commission

DC Committee

Plan Provider(s)

Adopting A Charter/DC Committee Policy Statement

Foundation for establishment

Ongoing governance

Fiduciary Responsibility

Structure

Objectives

Frequency of meeting

Plan Sponsorship

Responsibilities

Investment Best Practice

Organize

Formalize

ImplementMonitor

Why not leave this to the experts?

• How many have gone to RFP? What happened?

Why not leave this to the experts?

Fiduciary Duties In The Public Sector

• Hold Regular Meetings• Establish policies and procedures to monitor co-fiduciaries• Document any decision making processes• Document actions they take to monitor delegates and service providers

and address any service issues• Establish and follow up a conflicts-of-interest policy and document

compliance with it

Why not leave this to the experts?: Your Options

• Consultants could: Do one time search for a fund when the fund breaks the ongoing governance rules

• Join a collective pool• Interlocal agreement• Independent

A Place To Start = Fees

Average Asset-Weighted Investment Expense Ratio2017 Study

<25bps>100bps

75bps-100bps

50bps-75bps 25bps-50bps

A Place To Start = Fees

Average Asset-Based Fees2014 Study

• Average Plan 0.97%• Average Participant 0.55%• Average Dollar 0.39%

A Place To Start = Fees

Worst Case Scenario For Small Plans Under 200 Employees

Investment Expense + Plan Administration = Total Fee

0.75% + 0.97% = 1.72%

1.72% Annual Total Fee!

Let The DC Committee Do It

Unforeseeable emergencies

Mutual Fund Options

Allocation into those funds

Education

Fees and return

Plan Administration

Multiple plans

Begin/Develop RFPs

Questions???????

Resources and References

• https://www.ici.org/pdf/ppr_16_dcplan_profile_401k.pdf

• https://www.plansponsor.com/research/2017-dc-survey-plan-benchmarking/2

• Benefits Magazine, Volume 52, No 4, April 2015, pages 34-39

• https://www.plansponsor.com/magazine/structuring-a-plan-committee

• http://www.gfoa.org/investment-policies-tax-deferred-retirement-savings-plans

• https://www.plansponsor.com/nearly-half-sponsors-fail-realize-fiduciaries

• https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/history-of-ebsa-and-erisa

• https://www.plansponsor.com/voya-sued-charging-excessive-fees-small-retirement-plan/

• https://www.plansponsor.com/participant-says-large-plan-failed-negotiate-better-fees/

• https://www.plansponsor.com/nationwide-settles-13-year-old-revenue-sharing-suit/

• https://www.plansponsor.com/massmutual-agrees-to-settle-revenue-sharing-lawsuit/

• https://www.plansponsor.com/self-dealing-suit-filed-mutual-omaha/

• https://www.plansponsor.com/judge-deals-blow-to-vanguard-fund-comparison-in-self-dealing-case/