Thrive. Grow. Achieve.

Fiduciary Compliance for Retirement Plan Sponsors Dennis Gogarty, CFP®, AIF® Chase Deters, CFP®, ChFC® Special Guests: Harry Atlas, Esq. – Venable, LLP Anthony Bologna – Ascensus, Inc.

Copyright Raffa Wealth Management, LLC . All Rights Reserved.

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WELCOME

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YOU'RE MAKING A

DIFFERENCE IN OUR

WORLD.

LET US MAKE A

DIFFERENCE IN YOURS.

Raffa Wealth Management (RWM) • Founded in 2005 by principals with over 25

years of financial services experience • Clients are mid-sized institutions, high net-

worth investors, and qualified retirement plans

• Assets under management exceed $600 million

• Affiliated with accounting, tax, estate and financial planning professionals.

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AGENDA

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Harry Atlas, Esq. – Venable LLP

• Fiduciary Compliance for Retirement Plan Sponsors

Anthony Bologna - Ascensus

• Fiduciary Training

Chase Deters - Raffa Wealth Management

• Fiduciary Review of Policies and Agreements

© 2016 Venable L

November 1, 2016

Fiduciary Compliance for Retirement Plan Sponsors

© 2016 Venable LLP

LEGAL CONTEXT

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© 2016 Venable LLP

Overview of Fiduciary Duties

• Duty of Loyalty – Act in sole interest of plan participants and beneficiaries for the exclusive purpose of providing benefits

• Duty to Monitor – Monitor service providers and investment managers and pay only “reasonable” plan expenses

• Duty to Follow Plan Terms – Follow terms of plan document in day-to-day operation of the plan

• Duty of Prudence/Care – Carry out duties prudently • Duty to Diversify – Diversify plan investment

options

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© 2016 Venable LLP

ERISA Duty of Prudence

• Must act with care, skill, prudence, and diligence • Duty to seek outside expertise if/when necessary • Primarily relates to investment fund selection,

including performance and fees, and plan fees generally

• Focus is on the process • U.S. Supreme Court held that 401(k) fiduciaries

have a continuing duty to monitor funds made available under a plan

• There has been a recent increase in 401(k) investment/fee litigation

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© 2016 Venable LLP

DOL Fiduciary Rule

• New ERISA fiduciary rule expands who is a fiduciary when providing investment advice for a fee to a retirement plan or its participants – Key is whether a recommendation is made that can

reasonably be viewed as a suggestion to take a course of action or refrain from a particular course of action

– There must be direct or indirect compensation

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© 2016 Venable LLP

Investment Education versus Investment Advice

• Plan information • General financial, investment, and retirement

information • Asset allocation model • Interactive investment materials

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© 2016 Venable LLP

Impact of Fiduciary Rule on Plan Sponsors

• <$50M in plan assets – adviser and plan sponsor may need to enter into contract stating that there are no conflicts of interest and including appropriate fees, depending on how adviser compensation is structured – Best Interest Contract Exemption (BICE)

• >$50M in plan assets – identify fiduciary for advice, ensure new requirements are satisfied, and engage investment committee

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© 2016 Venable LLP

Impact of Fiduciary Rule on Plans

• Primary impact on recordkeepers/TPAs and advisers

• Increased sensitivity for TPAs to avoid inadvertent investment advice

• Limit assistance provided by TPAs to participants contemplating distributions

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© 2016 Venable LLP

Recent Fiduciary Litigation

• 401(k) litigation • 403(b) litigation • Litigation against financial institutions with

proprietary products in fund menu

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© 2016 Venable LLP

401(k) Litigation – Sample of recent large settlements

• Boeing – $57M settlement – Nine years of litigation – Alleged payment of excessive administrative and

recordkeeping fees – Allegation that corporate banking relationship influenced

decision to use recordkeeping services – Alleged imprudent offering of technology sector

fund – Alleged imprudent management of company stock

fund – Holding excessive cash in a unitized stock fund

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© 2016 Venable LLP

401(k) Litigation – Sample of recent large settlements

• Lockheed Martin – $62M settlement – Alleged payment of excessive fees – Alleged imprudent management of stable value fund – Alleged imprudent management of company stock

fund

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© 2016 Venable LLP

401(k) Litigation – Sample of recent large settlements

• Novant Health – $32M settlement – Alleged fiduciary breach due to offering retail class

shares when institutional class shares were available – Alleged payment of excessive fees for recordkeeping

and administration

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© 2016 Venable LLP

401(k) Litigation – Not all rulings are negative

• Chevron – Last month court granted motion to dismiss – complaint did not include sufficient underlying facts to support breach of fiduciary claims arising from: – Use of money market fund instead of stable value fund – Use of retail instead of institutional share classes – Use of mutual funds instead of lower-cost collective trusts – Failure of re-bid administrative services on a regular basis – Failure to monitor retirement oversight committee

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© 2016 Venable LLP

403(b) Litigation

• Many large universities have been sued within past two months

• Allegations include: – Failure to leverage the plan’s bargaining power by

using multiple recordkeepers, and multiple investment funds within each asset class

– Selection and retention of underperforming funds – Inclusion of far too many funds, resulting in

“decision paralysis” – Failure to conduct competitive bidding or negotiate

fees and revenue sharing

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© 2016 Venable LLP

403(b) Litigation (continued)

• Many plan sponsors have legacy investment products with transfer restrictions that have made fiduciary oversight difficult or impossible – If legacy investment providers begin to loosen

transfer restrictions because of the litigation, plan sponsors should revisit the legacy investment products in their plans and consider whether they should be removed.

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© 2016 Venable LLP

FIDUCIARY BEST PRACTICES

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© 2016 Venable LLP

Plan Oversight Committee

• Committee delegated by Board with status of “plan administrator” and oversight authority over plan investments and fees

• Beneficial because it serves to identify employees who serve as fiduciaries (and excludes others)

• Beneficial because it provides a framework for satisfaction of fiduciary duties

• Board retains residual fiduciary responsibility and should have a reporting mechanism in place to monitor Committee

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© 2016 Venable LLP

Fiduciary Investment Advisors

• Be sure that your investment advisor has acknowledged fiduciary status

• Section 3(21) co-fiduciary (non-discretionary) – Investment fund performance monitoring – Share class and other investment-based expense

monitoring – Benchmarking of plan expenses – investment and

recordkeeping • Section 3(38) investment manager

(discretionary) – Complete control over fund lineup

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© 2016 Venable LLP

Investment Policy Statement

• Addresses substantive criteria for investment fund monitoring

• Addresses process for investment fund monitoring

• Addresses default investment fund or funds • Need to ensure that fund performance reports

from outside investment advisors align with the investment policy statement criteria

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© 2016 Venable LLP

Indemnification and Insurance

• ERISA imposes personal liability for breach of fiduciary duty

• Committee members can be indemnified by the plan sponsor

• The plan sponsor can maintain fiduciary liability insurance covering ERISA claims

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© 2016 Venable LLP

Privacy and Cybersecurity

• PII – Personal Identifiable Information • PHI – Personal Health Information • ERISA • HIPAA/HITECH • State laws

– State privacy laws may not be preempted by ERISA – Some state privacy laws may be broader than HIPAA

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© 2016 Venable LLP

Privacy and Cybersecurity

• ERISA Fiduciary Duties – Duty of Loyalty

• Must act solely in the interest of participants and beneficiaries

– Duty of Care • Must follow reasonable standard of care in protecting

participant personal and plan information • Plan sponsors must implement stringent measures to

ensure compliance with industry practice – Personal Liability – Penalties for Breach of Fiduciary Duty

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© 2016 Venable LLP

Privacy and Cybersecurity: Action Items

Plan sponsors need to protect participant assets and participant information • Contract terms with service providers may not

provide sufficient protection for data security and privacy issues – Demand notice of breach and create reporting

protocol – Allocate liability in event of breach – Understand location and time frames related to data

storage

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© 2016 Venable LLP

Privacy and Cybersecurity: Action Items

• Review internal security measures and work with IT/Infosec to evaluate service provider security protocol

• Review fiduciary liability policy for coverage or consider cybersecurity insurance

• Train plan participants and beneficiaries to protect passwords and documents with PII to avoid cybertheft

• Develop breach response plan

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© 2016 Venable LLP

Takeaways

1. Maintain fiduciary liability insurance. Mounting a defense, even if successful, will be costly.

2. Understand the plan’s fee structure, including how any revenue sharing amounts flow.

3. Keep abreast of the competitive landscape for recordkeeping services and ensure that the plan is not overpaying (directly or through revenue sharing).

4. Negotiate for “excess” revenue sharing to be rebated to an “ERISA budget account” or consider “fee leveling” so that some participants are not subsidizing others.

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© 2016 Venable LLP

Takeaways (continued)

5. Have an orderly process for evaluating investment fund performance, and document the process.

6. Avoid unnecessary duplication of funds. Each asset class should have, at most, one passively managed and one actively managed option.

7. Be deliberate in your choice of cash equivalent options (stable value, money market fund, bank deposit).

8. Negotiate protection for cybersecurity threat or theft.

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© 2016 Venable LLP

Questions?

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Harry I. Atlas Partner, Venable LLP 410.528.2848 HAtlas@Venable.com

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AGENDA

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Harry Atlas, Esq. – Venable LLP

• Fiduciary Compliance for Retirement Plan Sponsors

Anthony Bologna - Ascensus

• Fiduciary Training

Chase Deters - Raffa Wealth Management

• Fiduciary Review of Policies and Agreements

Presented by: Anthony Bologna November 1, 2016

Fiduciary Training

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Agenda

About Ascensus Department of Labor Fiduciary Regulation Plan fees – stepping into the spotlight Retirement Plan Trends

About Ascensus

The industry’s largest independent services provider

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Offering a unique, comprehensive perspective

As of June 30, 2016

retirement plans administered

$136+ billion in retirement and college savings assets under administration

1.6+ million IRA/HSA accounts serviced

3.8+ million 529 accounts serviced

40,000+

enrollment meetings conducted annually through Total Benefit Communications

4,200

ranked among top retirement plan providers most associated with “good value for the money” in Cogent Reports’™ 2016 Retirement Planscape®

Top Value 529 Program Manager ranked #1 529 program manager in assets under Management by Strategic Insight

independent recordkeeper to offer a scalable, fee-based solution for financial professionals

1st

Department of Labor Fiduciary Regulation

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What does the new DOL regulation do?

It updates the definition of a fiduciary • The original regulation (from the 1970s) made it easy to be an advisor

and not take any fiduciary responsibility • The new regulation pretty much makes all advisors a fiduciary

To ensure employers are adequately protected, advisors must make sure their recommendations are: • Impartial • In the client’s best interest • Illustrates fees in a transparent way

Is this a good thing – or a bad thing? • For keeping your client’s interest in mind, we would generally agree that

this is a good thing!

Buy, sell, exchange or hold securities or other investment property.

Management of securities or other investment property (strategies,

portfolio composition, selection of others.

Rollovers, transfers or distributions (amount, form, destination and

investment)

For a Fee? Recommendation? To Whom? By Whom?

OR

OR

Direct

Indirect

OR

Plan

Plan Fiduciary

Participant

IRA

IRA Owner

OR

OR

OR

OR

Acknowledges fiduciary status

Gives advice under an agreement, arrangement or

understanding that it is based on investor’s particular needs

Gives advice directed to a specific recipient about an

investment or management decision with respect to securities

or other investment property.

OR

OR

Defining investment advice

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Exceptions to recommendations/investment advice

Exceptions to recommendations

or investment advice

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What does this mean for my plan?

It depends on how your advisor is compensated • If your advisor receive commissions (12b-1 fees from mutual funds or

commissions from insurance products) your advisor must use a Best Interest Contract Exemption (BIC or BICE)

• The BIC exemption states that although your advisor is not receiving level fees (fee-based compensation), they are still acting in your best interest

• If your advisor charges a level fee (basis points or fixed dollar), generally speaking have already provide you with a schedule of their services and fees. The BIC exemption is not necessary.

Are there any advantages (or disadvantages) of commission vs. fee-based business? • Technically, no – but…

Plan fees – stepping into the spotlight

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Defining pricing with one of two adjectives

Opaque – difficult to understand or explain • Generally how legacy provider pricing models work • Often used based on average account balance or use of proprietary

funds • Employer may think ‘Wow, my plan is free!’

Transparent – easy to notice or understand, honest and open, not secretive • Considered a newer, more progressive way to illustrate fees • Often times called ‘required revenue’ or ‘explicit pricing’ • All parties simply tell the employer what they need to charge to service

the plan • Employer’s first reaction ‘Wow, my fees went up!’

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Fees – explicit vs. implicit

Explicit/direct fees – commissions, fees and direct payments Implicit/indirect fees • 12(b)-1 fees • Revenue sharing payments • Marketing or distribution fees • Underwriting compensation • Shelf space fees • Recruitment compensation • Gifts and gratuities • Expense reimbursements • Other third party payments or indirect compensation

Retirement plan trends

Fee for service now the majority

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Advisors making the move to fee-based business

19%

81%

23%

77%

2011 2015

Fee-based Commission-based

Source:Ascensus platform, as of December 31, 2015.

I’m no expert…

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Employers and employees embrace guided approach

99% 23%

% OF NEW PLANS OPTING FOR QDIA RE-ENROLLMENT

% OF PARTICIPANTS INVESTED IN QDIA

62% defaulted into the QDIA

38% elected the QDIA

Source: Ascensus platform, as of June 30, 2016.

Lower costs lead to higher utilization

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Fee-based advisors continue to adopt lower cost funds

Source: Ascensus platform, Fee-based plans fund list, as of June 30, 2016.

4,949

5,984

4,185 4,859

2,270 2,082 1,384 931

0 BPS 1-25 BPS 26-50 BPS 50+ BPS

Available

Utilized

The shift to zero revenue

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No-cost funds favored by advisors and employers alike

Source: Ascensus platform, Fee-based plans fund list, as of June 30, 2016.

1,521

2,270

2013

2016

0 BPS FUND UTILIZATION

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AGENDA

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Harry Atlas, Esq. – Venable LLP

• Fiduciary Compliance for Retirement Plan Sponsors

Anthony Bologna - Ascensus

• Fiduciary Training

Chase Deters - Raffa Wealth Management

• Fiduciary Review of Policies and Agreements

Thrive. Grow. Achieve.

Fiduciary Review of Policies and Agreements Dennis Gogarty, CFP®, AIF® Chase Deters, CFP®, ChFC®

Copyright Raffa Wealth Management, LLC . All Rights Reserved.

Page

AGENDA

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Management Agreements • Difference between 3(21) & 3(38) Fiduciary • Ensure fiduciary roles are clearly outlined

Investment Policy Statements • Fund Monitoring and Reporting

Requirements • Responsibility for Add/Replacing Funds

Key Takeaway Recap

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INVESTMENT RELATED ROLES

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What is the role of the Investment Advisor? 1. To make recommendations to Trustees so

that the Trustees can make investment related decisions.

2. To make investment decisions pursuant to investment policy guidelines.

3. I don’t know

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FIDUCIARY STATUS

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3(21) Fiduciary • “A 3(21) investment fiduciary is a paid professional who

provides investment recommendations to the plan sponsor/trustee. The plan sponsor/trustee retains ultimate decision-making authority for the investments and may accept or reject the recommendations. Both share the fiduciary responsibility.”

3(38) Fiduciary • “An [3(38)] investment manager is special type of fiduciary,

one who has been specifically appointed to have full discretionary authority and control to make the actual investment decisions. The manager may select, monitor, remove and replace the investment options offered under the plan.”

http://www.nipa.org/blogpost/1011572/169845/3-21-Versus-3-38-ERISA-Investment-Fiduciaries--Decoding-the-Numbers

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MANAGEMENT AGREEMENTS

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Investment Selection

3(21) Fiduciary Advisor:

• Client acknowledges that (i) it has selected the investment managers and/or investments to be held by or offered under the Plan, (ii) Advisor is acting in an advisory capacity only and Advisor’s trading authority over the [investment managers and/or] investments held by or offered under the Plan is limited to placing orders to the TPA that have been authorized by Client.

3(38) Fiduciary Advisor:

• Client acknowledges that (i) Advisor’s trading authority over the [investment managers and/or] investments held by or offered under the Plan is limited to the Plan recordkeeping and administrative platform selected by the client.

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MANAGEMENT AGREEMENTS

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Investment Monitoring 3(21) Fiduciary Advisor:

• Advisor shall monitor the investment options ongoing and provide a detailed report annually assessing the adequacy of the investments in relation to appropriate benchmarks. Advisor may recommend replacements for current funds due to a variety of factors.

3(38) Fiduciary Advisor:

• Advisor shall monitor the investment options ongoing and provide a detailed report annually assessing the adequacy of the investments in relation to appropriate benchmarks. The Advisor shall have the sole discretion and responsibility to select, add, remove and/or replace investment options due to a variety of factors.

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AGENDA

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Management Agreements • Difference between 3(21) & 3(38) Fiduciary • Ensure fiduciary roles are clearly outlined

Investment Policy Statements • Fund Monitoring and Reporting

Requirements • Responsibility for Add/Replacing Funds

Key Takeaway Recap

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INVESTMENT POLICY REVIEW

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Monitoring and Reporting 3(21) Fiduciary Advisor: • If overall satisfaction with the investment option is

acceptable, no further action is required. If areas of dissatisfaction exist, the investment advisor and Plan Sponsor must take steps to remedy the deficiency. If over a reasonable period the advisor is unable to resolve the issue, termination may result.

3(38) Fiduciary Advisor: • If overall satisfaction with the investment option is

acceptable, no further action is required. If areas of dissatisfaction exist, the investment advisor must take steps to remedy the deficiency. If over a reasonable period the advisor is unable to resolve the issue, termination may result.

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INVESTMENT POLICY REVIEW

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Investment Selection Services 3(21) Fiduciary Advisor: • The investment advisory consultant (investment advisor),

which is responsible for; (i) Assisting and making recommendations to Plan Sponsor for the selection and monitoring of the investment managers

3(38) Fiduciary Advisor: • Advisor shall have the sole discretion and

responsibility to select, add, remove and/or replace investment menus that provide a diverse selection of investment options and otherwise comply with section 404(c) of the Employee Retirement Income Security Act (ERISA) that may be offered by the Plan.

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AGENDA

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Management Agreements • Difference between 3(21) & 3(38) Fiduciary • Ensure fiduciary roles are clearly outlined

Investment Policy Statements • Fund Monitoring and Reporting

Requirements • Responsibility for Add/Replacing Funds

Key Takeaway Recap

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KEY TAKEAWAYS

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1. Understand your plan’s fee structure, including how any revenue sharing amounts flow

2. Stay updated on the competitive landscape for recordkeeping services to ensure your plan is not overpaying

3. Negotiate for revenue sharing to be rebated back to an ERISA budget account or consider fee leveling so that some participants are not subsidizing others.

4. Have an orderly process for evaluating investment fund performance, and document the process

5. Review your management agreement and investment policy statement to ensure clear outline of fiduciary status, roles, and responsibilities

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DISCLOSURE

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This information was gathered from reliable sources but we cannot guarantee accuracy. Any performance related information is based on participant responses and have not been verified. Past performance is not an indication of future results and any investment can lose value.

Performance results have been compared to balanced benchmark portfolios comprised of broad market indexes. The benchmarks were selected because we feel they are the broadest market benchmark available in each broad category. They may or may not be suitable benchmarks for comparison to any particular investor’s portfolio or for the average results reflected in this study. You should consult with your investment professional to determine suitable benchmarks for your portfolio.

Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated.

Past performance is not an indication of future results. Any investment can lose value.