Retirement Plans: Managing Your Fiduciary Responsibility

Click here to load reader

Embed Size (px)

Transcript of Retirement Plans: Managing Your Fiduciary Responsibility

  1. 1. Retirement Plans: Managing Your Fiduciary Responsibility
  2. 2. About PensionmarkPensionmark Retirement Group provides retirement plan consulting services toemployers throughout the nation, with a focus on delivering reliableretirement plan solutions and helping employees retire with dignity.Firm Statistics Established in 1988 and currently serving approximately 650 corporate clients with over $5 billion in retirement plan assets Over 71 team members across 21 offices throughout the United States Recognized as one of the top retirement plan consulting firms in the nation1 1. PLANSPONSOR Magazine 2007-2012. Nominated by industry professionals andselected based on a quantitative evaluation of service levels and feedback fromemployer clients.
  3. 3. About AppFolio SecureDocsAppFolio SecureDocs is a virtual data room for sharingand storing sensitive documents both internally andwith outside parties.AppFolio, Inc. Company Basics Founded by the team that created and launchedGoToMyPC and GoToMeeting Backed by leading technology companies and investors Web-based business software for financial and legalprofessionals
  4. 4. About Devyn DuexDevyn Duex, MBA, AIF, CRPSVice President, Client RelationsLPL Registered Administrative AssociateMrs. Duex received her Masters in Business Administration- Marketing (MBA/MKT) from the University of Phoenix and received her Bachelor of Arts degree in Theatre Arts, Magna Cum Laude, from Point Park University in Pittsburgh, PA.She has been recognized as one of the nations most influential retirement plan advisors by 401kWire (2009, 2010). (Based on reader votes, input from distributors and statistics about advisor practice gathered directly from nominees.)Mrs. Duex was recently recognized as one of the Top Women in Business in 2012 for the Tri-Counties by Pacific Coast Business Times.Mrs. Duex also earned the AIF (Accredited Investment Fiduciary) professional designation awarded by the Center for Fiduciary Studies which is associated with the University of Pittsburgh and the CHARTERED RETIREMENT PLANS SPECIALISTSM (CRPS) certification from the College of Financial Planning.
  5. 5. Key TopicsAfter todays session you will have a better understandingof the following: Plan GovernanceWhat is it and why you should care. 401(k), IRS and Department of Labor (DOL) Audit Planning Fee Disclosure is here, now what? Understanding and determiningreasonableness. Are your participants Retirement Ready?
  6. 6. What is Plan Governance?It is more than just fiduciary responsibility:Plan governance encompasses all of theduties, responsibilities, and actions connected with theestablishment and administration of the Plan and themanagement of Plan assets.
  7. 7. What Questions Should You Ask? Are the right people involved? Are duties clearly identified and communicated? Are there formal processes and procedures in placeand documented? Are activities being routinely monitored?
  8. 8. What Questions Should You Ask? Are the right people involved?
  9. 9. Whos Involved?The following people may be involved: Individuals authorized to act on behalf of the employer asPlan Sponsor Fiduciaries Employees of the Plan Sponsor who carry out ministerialduties Service Providers Financial Professionals
  10. 10. One Role At a TimeThe individual can act in only one capacity atany time and must understand which role heor she is in when fulfilling assigned duties.
  11. 11. Settlor FunctionsEmployer functions which are non-fiduciary in natureincluding:Establishing and amending the retirement planDetermining fiduciary structureDetermining who will appoint the named fiduciaryPutting risk strategies in place
  12. 12. Who is a Fiduciary?A Fiduciary is any individual who:Uses discretion in administering and managing a Plan or controlling the Plansassets makes that person a fiduciary to the extent of that discretion or control.A Plan must have at least one fiduciary (a person or entity) named in thewritten Plan as the Named Fiduciary (for some Plans, it may be anadministrative committee or a companys board of directors).Must act in the best interest of Plan participants and beneficiaries, held to ERISAstandard of care: Follow the prudent person rule Follow the diversification rule Follow the exclusive benefit rule Act in accordance with the plan documents Provide information to plan participants.
  13. 13. Ministerial DutiesThese functions are non-discretionary in nature andare necessary to carry out the day-to-day operation ofthe Plan: Enrolling employees in the retirement Plan as a part new employee orientation Processing employee deferrals through payroll Conducting employee meetings emphasizing the importance of planning for retirement
  14. 14. Accidental FiduciaryFollowing a process is one thing; making a decision orinterpreting how a process should be done is another An employee or other individual who exercises discretionaryauthority over the Plan and becomes a fiduciary, even if notappointed.
  15. 15. Service Providers &Financial ProfessionalsImportant to establish, understand, and monitor yourprocess around organizations providing services to thePlan.
  16. 16. What Questions Should You Ask? Are the right people involved? Are duties clearly identified and communicated?
  17. 17. Roles & Responsibilities Communication of roles and responsibilitiesand anunderstanding of those roles and responsibilities bythe individuals assignedare keys to successful Plangovernance Document, Document, Document!
  18. 18. What Questions Should You Ask? Are the right people involved? Are duties clearly identified and communicated? Are there formal processes and procedures in placeand documented?
  19. 19. Processes and ProceduresCritical in helping both fiduciaries and non-fiduciariescarry out their responsibilities, assisting in keepingyour plan in compliance, and will result in greaterefficiency and preparedness in the event of an IRS orDOL plan audit.
  20. 20. Manage Your Risk by Using aDisciplined ProcessClear and deliberate methodology is keyHow you arrived at a decision can be more important than thedecision itself.Common processes to address: Selecting and monitoring investments Administering loan program Qualification process of DROs Determining claims for benefits Required disclosures to participants Determining Eligibility Plan compliance testing Contribution timing Participant withdrawal transactions and distributions
  21. 21. DocumentDocument, Document.
  22. 22. What Questions Should You Ask? Are the right people involved? Are duties clearly identified and communicated? Are there formal processes and procedures in place anddocumented? Are activities being routinely monitored?
  23. 23. It doesnt end at the set-upRoutinely monitor both fiduciary and non-fiduciaryactivities, and make changes as needed.
  24. 24. ERISA Compliance is ImportantERISA compliance is important. Failure can result inserious penalties. Bear personal liability for breaches Subject to fines of 5% to 100% of the amount of lossesincurred, as well as excise taxes, and civil or criminal sanctions The plan may be disqualified
  25. 25. Poll 1Have you already established Plan governanceregarding your Retirement benefit(s)? YES NO A Process is in place, but not officially documented
  26. 26. Audit Planning 401k Required Independent Audit IRS Audit DOL Investigation
  27. 27. 401(k) Required Audit Over 100 participants as of the first day of thePlan Year Participant definition: Any individual eligible to make elective contributions under a Plan, Nonvested individuals who are earning or retaining credited service, and current and former employees and beneficiaries eligible for or receiving benefits 80/120 Participant Rule; small Plan filer exception Independent Qualified Public Accountant
  28. 28. Poll 2Is your Plan currently under random selection for anaudit/investigation by the IRS or DOL? YES, currently in process YES, a letter was received but the process has not yetstarted YES, a previous Plan year, not currently. No, never been through this process
  29. 29. IRS Audit & DOL Investigation The Employee Benefits Security Administration (EBSA) auditedmore than 3,100 plans 73% of them were required to restore losses The amount of plan restorations, fines, and penalties for the year totaled nearly $1.05 billion Average fine per plan was approximately $450,000 The DOL recently added nearly 1,000 employees, most of themassigned to enforce compliance among plan sponsors One hundred new DOL enforcers are in place with anestimated first-year budget of $153 million Source: FA News (Financial Advisor) February 21, 2012 Plan Sponsors Getting Big Fines From DOL by Jim McConville
  30. 30. DOL InvestigationResponsibility to review Plans for Fiduciary breachesReminder; Basic Fiduciary Duties Acting solely in the interests of the participants and their beneficiaries Being prudent Paying only reasonable and necessary expenses of the plan Following the terms of the plan
  31. 31. DOL InvestigationSteps to help address common problems1. Understand your plan and your responsibilities2. Carefully select service providers3. Make timely contributions4. Avoid prohibited transactions
  32. 32. IRS AuditHow 5500s are Selected for Examination:Project CasesLarge or Unusual Assets or Entries on Form 5500Inconsistencies in AnswersInaccurate AnswersReferrals from IRS Divisions, PBGC, DOL, Interested Parties
  33. 33. IRS AuditHow 5500s are Selected for Examination:Project CasesLarge or Unusual Assets or Entries on Form 5500Inconsistencies in AnswersInaccurate AnswersReferrals from IRS Divisions, PBGC, DOL, Interested Parties
  34. 34. IRS Audit
  35. 35. IRS Audit
  36. 36. Common Examination ErrorsAll Plans: Non-Amenders Definition of Co