What Fiduciaries Should Do

In a Time of Rocky Markets

September 10, 2009

Your Presenters

Linda Lauer – Thompson

Dunavant Employee Benefit
Plan Services

Jeff Barnes – Barnes

Retirement Plan Specialists,
Inc.

David Thornton – Bass Berry &

Sims

Sue Ellen Lovejoy – Lovejoy

Associates 2
Today’s Focus

 What safe harbors are afforded to plan

fiduciaries?
 Best practices for compliance with ERISA
404(c)
 Legislation outlook, regulatory guidance,
litigation
 How to more effectively communicate the
plan’s features and benefits – its value – to
all eligible participants

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You May Be A Fiduciary If You…

 Have implementation authority to adopt,

amend, merge, freeze, or terminate a plan
 Have decision-making authority in the
selection and retention of plan fiduciaries
 Give investment advice with respect to plan
assets for compensation
 Make discretionary decisions under the plan
such as whether a hardship withdrawal may be
made, etc.
 Select plan providers – Investment platforms,
record-keepers, TPAs, brokers, etc.

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What Is At Risk?

 All plan fiduciaries are jointly and severally

liable – All plan fiduciaries are personally
liable

 Unless afforded through safe-harbor,

fiduciaries are liable for 100% of
investment losses, measured against what
assets would have otherwise grown to;
fiduciaries are also liable for the legal
expenses and professional fees for the
defense.
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Overview of ERISA 404(a) and 404(c)

404(a): 404(c):
Fiduciary Protections for Participant
Duties Investment Decisions

Investment Policy Broad Range of

Statement (IPS) Investment Options

Quantitative/Qualitative Sufficient Investment

Fund Analysis Information/Education

Description of Fees
Select Investments
and Expenses

Policy Statement
Implement Results
and Employee Notice

Monitor Investments Copy of Prospectus

Follow Plan Document Voting and Tender Rights

Limited Liability Relief Under 404(c)

Does plan meet all

of the standards of 404(c)?
Yes No

Plan is exempt from Plan Sponsor is responsible for

responsibility for participant’s asset every participant's asset allocation
allocation decision decision

For Example … John Doe retires with

Plan fiduciaries are not responsible
for investment losses that result
from participant investment
decisions
$250,000 instead of $400,000 because he
invested in a money market fund with a 3%
return instead of a more appropriate asset
allocation with a 7% return … The plan
sponsor may be held liable for the
$150,000 shortfall, if the plan fails to
meet all of the 404(c) requirements.

Identify areas where plan is not

404(c) compliant and
address/correct deficiencies
What’s your approach?

 Good – Can withstand a lawsuit. Recent Lawsuits

related to 404c –
 LaRue vs. DeWolff, Boberg & Associates, Inc
 Tullis vs. UMB Bank, N.A.
 Hecker vs. Deere
 In re Tyco Int'l Ltd. Multidistrict Litigation (2009)

 Better – Can easily withstand a Department of Labor

audit

 Best – Higher than average participation, higher than

average savings rates -- emphasis on successful
outcome for participants
ERISA 404(c) Requirements - To comply
The reality
- The participant has an opportunity to obtain written confirmation of his
instructions.
- The person to whom the instructions are given is an identified plan fiduciary
who is obligated to comply with the instructions.
- The participant is provided by an identified plan fiduciary with the following:
(1) An explanation that the plan is intended to be a 404(c) plan;
(2) An explanation that the fiduciaries of the plan may be relieved of liability for
losses;
(3) A description of the investment alternatives available under the plan;
(4) A general description of the investment objectives and risk and return
characteristics of each designated alternative;
(5) Identification of any designated investment managers;
(6) An explanation about giving investment instructions;
(7) A description of any transaction fees and expenses which affect the
participant’s account balance;
(8) The name, address and phone number of the plan fiduciary responsible for
providing information;
(9) Specified information regarding employer securities;
(10) A copy of the most recent prospectus provided to the plan for investment
alternatives subject to the Securities Act of 1933;
(11) Any materials provided to the plan relating to the exercise of voting, tender
or similar rights.
ERISA 404(c) Requirements - Continued

 The participant is able to obtain upon request:

(1) A description of the annual operating expenses of each
designated investment alternative;
(2) Copies of any prospectuses, financial statements and reports
provided to the plan;
(3) A list of the assets comprising the portfolio of each designated
investment alternative;
(4) Information concerning the value of shares or units in
designated investment alternatives;
(5) Information concerning the value of shares or units in
designated investment alternatives held in the account of the
participant.
 Plan permits participants to give investment instructions with a
frequency which is appropriate in light of market volatility.
 The core investment alternatives, constituting a broad range,
permit instructions at least once within any three-month period.
 Start with Plan Demographics

 Set some goals for participation and savings rate

 Must know what they are now
 How many employees are actively deferring?
 How much as a % of pay?
 Compare – Benchmark to other firms in similar
industries and or of similar size
 How are investments spread among participants?
 By age?
 By balance?
How to reach goals –
consider…
 Participation
 Auto-enroll
 Make sure to include all eligible but not
participating at scheduled enrollments
 Savings Increase
 Provide statement readings
 Offer savings “disconnect” analysis – called
Gap analysis
Investment Education

 On-going process (should have been

happening prior to and during the recent
downturn)
 Have assets been moved into cash, Gov’t
securities and guaranteed accounts?
 Are allocations still reflective of a
participant’s long term goals/desires?
 Recent upturn in market may bring
participants back to less emotional decision
making
 Additional Safe Harbors under PPA
2006?

 New term “fiduciary adviser” – a person or

organization providing specific investment advice
to plan participants.
 Fiduciary Advisor must have “level comp” or “fee
neutral” – meaning the advisor’s compensation
cannot be dependent upon the fund the participant
chooses.
 Can use a computer-driven model.
 Qualified Default Investment Alternative
 Target Date, Risk Based or Balanced Funds
 Investment Manager Services
Employee Education
Specialists
 Lovejoy & Associates – National network of 50
professional retirement plan educators located
in major metropolitan areas across the United
States
 Backgrounds in financial services, human
resources, banking, or third party
administration.
 On-site group meetings, one-on-one sessions,
and online presentations for employees.
 Translation Services and Financial Literacy
workshops
http://www.LovejoyAssociates.com
Estimates of Employee
Behaviors
 26% Don’t participate
 50% Do not allocate appropriately for their
age and risk tolerance
 48% “cash out” when changing jobs
 Only 10% contribute the maximum allowed
under the plans provisions

Alicia Munnell, “Coming Up Short”

On-Going Targeted Education
Campaign
 Personalize your education campaign
 Consider employee demographics such as
age, range of positions, and levels of
financial sophistication.
 Make it a collaborative effort with
providers,
 designing topics of most concern and/or
 interest to employees or to plan sponsor
On-Going Targeted Education
Campaign
 Presentations – targeted to specific employee groups with
specific objectives appropriate to them, and topics of
interest:
 Newly hired/newly eligible employees
 Current participants with low deferral rates
 Current participants over the age of 50
 Female employees - Significant gender issues exist
regarding life expectancy, level of earnings, investment
behaviors, investment sophistication
 Employees within 5 years of retiring
 Employees who have opted out of the plan
 Understanding Recent Market and Economic Factors
 Managing Your Account - Demonstration of website - a "how
to" lesson
FINANCIAL LITERACY TOPICS

 Budgeting - What's That?

 Who Can Save In This Economy?

 Credit Makeover - How To Monitor and Improve Your Report

 401(k) Loans - The Good, Bad, and Ugly

 What Do Asset Classes Have To Do With Me?

 Take A Deep Breath And Open Your 401(k) Statement -

Strategies For Volatile Markets
Summary

 Safe Harbors are available – Use them

 Build a strong case against litigants
 Build a strong case to withstand a DOL audit
 Document everything! Keep minutes.
 Review your plan provider contracts
 Promote a culture of engaged savers
Closing

If you are interested in receiving a copy of

the presentation, please visit:
www.barnesretirement.com

Securities and investment advisory services offered through Financial

Telesis, Inc.
Barnes Retirement Plan Specialists, Inc. and Financial Telesis, Inc. are not
affiliated

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