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Common Employee Benefit Plan Issues And How to Address Them September 27, 2012

Common Employee Benefit Plan Issues And How to Address Them September 27, 2012. Edward M. Proulx, AIFA, QFPC Director of Client Services. ERISA Section 404(a)(1)(A).

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Common Employee Benefit Plan Issues And How to Address Them September 27, 2012

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  1. Common Employee Benefit Plan IssuesAnd How to Address ThemSeptember 27, 2012 Edward M. Proulx, AIFA, QFPC Director of Client Services

  2. ERISA Section 404(a)(1)(A) • “A fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and • For the exclusive purpose of- • Providing benefits to participants …; and • (ii) defraying reasonable expenses of administering the plan”

  3. ERISA Section 404(a)(1)(A) • “A fiduciary shall discharge his duties with respect to a plansolely in the interest of the participantsand beneficiaries and • For theexclusive purposeof- • Providing benefits to participants …; and • (ii) defraying reasonable expensesof administering the plan”

  4. A Ripple In Civil Court • Background • New 408(b)(2) Plan Level Fee Disclosure Requirements • New 401(a)(5) Participant Level Fee Disclosures • Obvious Intent: • Heighten Awareness • Define Obligations • Improve Outcomes

  5. A Ripple In Civil Court • Result • Tussey v. ABB • Case No. 2:06-CV-04305-NKL • Liabilities: • ABB: $35.2 Million • Provider: $1.7 Million • And This is BEFORE implementation of Full Fee Disclosure

  6. A Ripple In Civil Court • What did the Employer’s Committee Do (Wrong)? • Changed one perfectly good fund out for another perfectly good fund. • Caused plan fees (all Soft Dollar) to spike. • Caused providers revenue to jump with no discernible or negotiated offsetting services. • Did not follow their own written policies. • Did not document why their decision was prudent even though it was contrary to their written policies.

  7. A Ripple In Civil Court • Lessons: • Duty to Know What the Plan Costs • Hard Dollar (sponsor budget items) • Soft Dollar (non-budget items) • Duty to Prudent Action • Is “Not Illegal” out and “Prudent” (finally) in? • Who most benefits from this decision? • Document, Document, Document • If it sounds bad when you try to write it down…

  8. Case Study • Fact Set: • Defined Contribution Plan • 100% Participant Directed Investments • “Large Market” • Big Name “National” (Non Fiduciary) Advisory Firm • Big Name “National” Primary Provider • Written Investment Policy Statement • Kept Good Notes, Minutes, etc.

  9. Case Study • Fact Set, continued: • “Two “Frozen” Investment Options • Desire to “unfreeze” one • Desire to remove the other one • Very Employee-Centric Committee • Intentions oriented toward success

  10. Case Study • Problem: • Investment Policy Statement • No provision to “freeze” an investment option • Explicit process to remove an investment option • Meeting Minutes • Clearly lists “the advice of (Their Advisor)” as the reason they approved the “freezes”

  11. Case Study • Investment Policy Statement: 4 Step “Formal” Review • 1. A letter to the manager stating the reasons for the review, • 2. An analysis to determine the cause of under performance • 3. A meeting with the manager • 4. A review of viable investment alternatives to determine if the firm remains attractive compared to other candidates.

  12. Case Study • Lessons: • Good Intent is Not Enough • Is Your Advisor a Fiduciary on Your Plan? • Do they shoulder any risk for non-compliance? • Who is Administering Your Committee Policies? • Meeting Minutes are so key • “According to the plan’s Investment Policy Statement…” • Document Everything, but especially exceptions • Even when you appear to do “nothing”

  13. Case Study • Lessons: • Fiduciary Advisor should be the resident expert. • Is yours? • What other experts do you have at your disposal? • Auditor • Lawyer

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