Barbara Appleby, JD, MA, AIF® Kristin Guibord, MBA, AIF®
KNOW YOUR PLAN RESPONSIBILITIES
FIDUCIARY RESPONSIBILITY
PLAN INVESTMENTS
TOPICS OF DISCUSSION
1. Who is a plan fiduciary?2. What are the fiduciary’s responsibilities? • Overall
• Plan Investments
FIDUCIARY RESPONSIBILITY
Who is a Fiduciary?
“Fiduciary by Title” • Named fiduciary • Trustee “Fiduciary by Act”• Anyone who exercises any discretionary authority or control with respect to the management of the plan or its assets, or in the administration of the plan.
FIDUCIARY RESPONSIBILITY
Responsibilities of a Plan Fiduciary.
ACT PRUDENTLY ACT WITH LOYALTY FOLLOW PLAN DOCUMENTS DIVERSIFY INVESTMENTS KEEP FEES REASONABLE
FIDUCIARY BEST PRACTICES
Establish an Investment Committee
• Not a legal requirement, but support the requirement for procedural prudence.
• Members have experience and expertise in investment matters.
• Members with less investment expertise, but perspective on the nature and needs of the workforce.
• Consider the time commitment and the willingness of potential members when making member selections.
FIDUCIARY BEST PRACTICES
Adopt an Investment Policy Statement (IPS)
• Provides guidelines and policy direction for selection and monitoring of investment options and service providers. • Defines which asset classes will be offered in the plan and
intent to offer a diverse range of investments.
• Defines criteria for evaluating and selection of investment options.
• Identifies benchmarks used for performance review of investments.
• States frequency of and process for review of investments.
FIDUCIARY BEST PRACTICES
Implement Investment Process
• Select investments in accordance with Investment Policy Statement.
• Conduct annual meeting for in-depth review of investment performance and overall investment lineup.
• Use criteria identified in the IPS to add or replace investment.
• Conduct check-up meetings to monitor fund performance.
• Document all meetings and decisions and maintain a file.
FIDUCIARY BEST PRACTICES
Ensure Compliance with ERISA 404(c)
404(c) provides that “if a plan gives participants direct control over their assets, plan fiduciaries may be relieved from potential liability for losses resulting from participants’ investment decisions.”
FIDUCIARY BEST PRACTICES
Ensure Compliance with ERISA 404(c)
Basic requirements under 404(c)
• Must offer a “broad range of investment
alternatives” (at least 3) with materially different risk and return profiles.
• Participants must be able to change their
investments with frequency appropriate in light of the volatility of the investment options.
FIDUCIARY BEST PRACTICES
Provide Education and Advice to Participants
• Participant education is NOT a duty of a plan fiduciary.
HOWEVER
• Promoting participant success in achieving retirement goals is an element of “procedural” prudence required by fiduciaries.
FIDUCIARY BEST PRACTICES
Provide Education and Advice to Participants,
Continued
Education versus Advice
• Goals are the same: Lead participants to diversify their accounts according to the asset allocation strategy best for them.
• Key difference: Giving investment advice is a fiduciary act. Giving investment education is not.
What constitutes advice?
Gathering personal information about a participant’s situation, needs and goals in order to advise them on a particular course of action.
FIDUCIARY BEST PRACTICES
Utilize, select and monitor outside experts
• Goal is to promote procedural prudence by filling gaps in the fiduciaries’ expertise and provides for an
independent informed expert’s view.
• ERISA encourages the use of outside consultants.
• May include investment professional, lawyer, auditor, or consultants.
• Selection criteria should include expertise, credentials, references and fees.
FIDUCIARY BEST PRACTICES
Good Fiduciary Habits are all about PROCESS
Old adage: “Prudence is process”
Even better might be…
• “Prudence is process – but only if you can prove it.”
• Having a process you consistently follow and document is more important than making the “right decision.”
FIDUCIARY BEST PRACTICES
Reference Material and Guides:
U.S. Department of Labor:
www.dol.gov/ebsa/publications/fiduciaryresponsibility.html Check with your 401k Platform provider. Some have very well-produced and easy-to-understand guides written for plan fiduciaries.
