IMA Webinar
Navigating the 401(k) World
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Fiduciary Management – Increasing Fiduciary Liability
“Plan Sponsors are generally unaware that being a fiduciary can put their personal assets at risk… Fiduciary Risk Mitigation should be an important concept for all plan sponsors”
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Fiduciary Management – Increasing Fiduciary Liability
ERISA CRACKING DOWN !
ERISA Conducting additional audits
Over 1000 new ERISA employees hired to conduct additional audits
AUDITS growing for middle market firms “In the past, plan sponsors could
practically ignore their plans. Now, because of litigation and regulatory
scrutiny of plan fiduciaries, chief financial officers are realizing they
can’t just turn to their golf buddy as a plan advisor.” – Benefit PRO
26%
74%
DOL ERISA AUDITSCompliant plans
Non-Compliant
Source: FORBES
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Four Ways to Manage Fiduciary Responsibility
Model 1: Most Basic Do it Yourself
Model 2: Outsource and Partially Delegate Investment Management Responsibilities
Model 3: Outsource and Fully Delegate Investment Management 3(38)
Model 4: Outsource and Fully Delegate the Named Fiduciary Responsibilities to an Independent Fiduciary
Multiple Levels of Liability Mitigation
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Fiduciary Management – By the numbers ERISA
ERISA 3(16) is limited to plan administration. A 3(16) is a first party administrator and not a “Third Party Administrator.” The 3(16) administrator is a plan fiduciary and assumes the liability that comes with it. Is responsible for all filings with the federal government (form 5500 , etc.). Plan sponsor delegates duties and discretionary control.
3(16)ERISA 3(21) includes individuals with discretionary authority or control over the Plan or the Plan’s assets. The amount of discretion given to appointees varies by the terms of the Plan and/or appointment.Risk and responsibility of a 3(21) can vary widely. To address this Full, Specific, or Limited Scope code sections are associated with the 3(21).
3(21)ERISA 3(38) sets strict requirements on who can qualify. A 3(38) must be a bank, an insurance company, or an Registered Investment Advisor. A 3(38) is given full discretionary control over the plans investments.
3(38)
There are Various Industry Expert Classifications
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3(38) Investment Management Service
Investment Policy Statement Development & Review
Quarterly Investment Monitoring Reports
Fund selection & Replacement
Custom Model Portfolio Construction
QDIA Selection / Review
FEE base structure 100% transparency
“Among the most important duties of fiduciaries for 401(k) plans are diversifying the risk of the planinvestment options, controlling plan costs and helping make sure plan participants are contributingenough to succeed financially at retirement.” –
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Participant Services
Most participants are lacking the knowledge to properly manage their 401(k) portfolios
Traditional Education materials are extensive, but overwhelming and time consuming for most participants
Most want professional help managing their portfolio
Participants want more dynamic interaction
* Charles Schwab Report
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Participants Are Unprepared
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Recent Performance Bias
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Why Not Target Dated Funds? Pros
Simple Reduces Investor Mistakes
Cons Varying Glide Paths Bias Fund Choices Misunderstood One Size Does Not Fit All Lack of Manager Ownership Poor Performance Lack of Transparency No Investor Education No Fiduciary Help
“The three industry leaders by assets--Fidelity, T. Rowe Price, and Vanguard--all feature closed-architecture target-date funds. Both types of target-date series have average overall Morningstar Ratings of 2.7 stars across their vintages. Morningstar's figures suggest that open-architecture funds on average provide a performance advantage.”– Janet Yang, CFA, Morningstar
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Steps to a Secure Retirement
Personal Finance Earnings
Budgeting
Saving
Protection
Investing Economics
Fundamentals
Technical Analysis
Cycles
Retirement Health Care
Income/Spending
Transitioning
“I believe that the biggest mistake that most people make when it comes to their retirement is they do not plan for it. They take the same route as Alice in the story from “Alice in Wonderland,” in which the cat tells Alice that surely she will get somewhere as long as she walks long enough. It may not be exactly where you wanted to get to, but you certainly get somewhere.”
- Mark Singer, Author of The Changing Landscape Of Retirement - What You Don't Know Could Hurt You
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The 401(k) Solution Fiduciary Liability Mitigation as a 3(38)
Advisor
Fully Discretionary Investment Management
Dynamic Education
Decades of Experience
Investment and Plan Expertise
Strategic Partnerships TPAs
ERISA Experts
CPAs
Plan Providers
“36% of 401(k) participants used professionally managed
accounts in 2012 – a percentage double what it
was five years earlier and on track to hit 55% in five years.”
- Vanguard
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Investment Management Process Multi-factor Approach
Technical Rankings Fundamental Analysis Top-down Macro View Sentiment Analysis Cycle Analysis
Riskalyze™ Analysis Risk Questionnaire Retirement Success Calculator
Dynamic Allocation
Parallel Investing Aligned Interests Risk Focused
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Riskalyze Software
Questionnaire
Based on Prospect Theory which won the 2002 Nobel Prize for Economics
Emailed directly to participants
Just minutes to complete
Creates custom risk profiles
Results expressed 0-99 (higher number means higher risk tolerance)
Investment Models &Retirement Map
Uses historical risk/reward data
Calculates risk tolerance based on 6 month volatility probabilities
Custom retirement snapshot
Suggested retirement changes based on: Investment Amount
Monthly Savings
Investment Risk Level
Retirement Year
Monthly Withdrawal
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Retirement Map Fail
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Retirement Map Success
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Custom Investment Models
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Continuing Participant Education
InvestTalk Network Radio Show
4-5 pm PST M-F
Podcast iTunes Tune-in Radio InvestTalk Website
Bay Area and San Diego
24–Hour Listener Line
InvestTalk Personal Finance Minute
InvestTalk 101
InvestTalk Insider
KPP Financial
Weekly E-Newsletter Market Guidance
Investment Education
Personal Finance Advice
Regular In-Person Wealth Conferences & Webinars
Annual Employee Education Workshop & Webinar
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Current Key Takeaways Plan Sponsors have huge
liability Vast majority are not aware Scrutiny is increasing fast Various ways to reduce exposure
Participants are unprepared Most admit they are unprepared to
be successful Most want professional help Investors underperform due to
emotions and lack of education Target Dated funds fall short as a
solution
Education process is not dynamic Usually once a year
workshop Most do not review the
material Usually investment
focused only
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The 401(k) SolutionProtecting your Tomorrow, Today
For more info contact:Justin Klein at [email protected]
Or Call 800-557-5461