new rules for non-traditional retirement plans: a new world for plan sponsors, employees, and...
TRANSCRIPT
NEW RULES FOR NON-TRADITIONAL
RETIREMENT PLANS:
A New World for Plan Sponsors,
Employees, and Advisors
Presented by Jerry Kalish
PresidentNational Benefit Services, Inc.
John Marshall Law School“Non-Traditional Retirement Plans”
EB 368aBUOctober 31, 2009
Hat tip to Rick Bales at Workplace Prof Blog: http://lawprofessors.typepad.com/laborprof_blog
Retirement Therapy
403(b) Regulations Timeline
• 1958 Added to Internal Revenue Code
• 1964 Regulations first issued that detailed some of basic statutory provisions
• 1964-2004 Hodgepodge of regulations, exam guidelines, revenue rulings, and notices
• 2004 Proposed Regulations issued
• 2007 Regulations finalized
• 2009 Final Regulations effective
20071964 1964-2004 20041958 2009
The world has changed since 1964 when 403(b) regs first proposed
2009:
The New Economic
Realities
Work Force• Veterans: 1922-1945
• Baby Boomers: 1946-1964
• Generation X” 1965-1980
• Generation Y: 1981-2000
403(b) and 457 PlansThe View From 30,000 Ft.
403(b) Market Size and Scope
• 20% - 25% of defined contribution market
• $600 - $700 million estimated assets
• $900 billion estimated assets in 2011
• 58% < $1 million
• 31% between $1 million to $10 million
• 40% ERISA, 60% Non-ERISA
Source: Edward Jones 2008 research
Type of
Sponsor
No. of Plans
(000)
No. of
Active Participants (000,000)
Assets
(000,000,0000)
Public/Private K-12 18.4 3.0 $180
Higher Education 3.6 2.2 $295
NFP Hospitals and Healthcare
1.1 1.5 $105
Charitable and Other
11.3 0.4 $30
Total 403(b) Market 34.4 7.1 $610
Source: RG Wuelfing & Associates, 2008 Retirement Research
403(b) Market by Type of Plan Sponsor
at 2008 Year-End
The current state of fiduciary performance and risks: • Only 58% maintain minutes of meetings (down from 79% last year: Grant Thornton Survey
• Top ten ERISA class action settlements totaled $17.7 billion in 2008 (up from $1.818 billion in 2007) Seyfarth Shaw Survey
What are plan sponsors actually doing?
• Doing nothing (or much)
• Eliminating the plan
• Simplifying the plan
• Scaling down to only one provider
• Keeping multiple providers
How the 403(b) providers see it:
• 86% of providers believe 403(b) margins are as great or greater than in other DC plans
• Highest impact of regs on their business model Written plan document: 57% Elimination of 90-24 transfers: 57% Permissive aggregation of employers: 43% Certification of distributable event: 29% Source: Cerulli Associates 2007 Report: State of the 403(b) and 457 Marketplace:Challenges and Opportunities
What are investment providers doing
• Dropping out
• Becoming the low cost provider
• Becoming the high-service provider
• Becoming a one-stop shop (fully bundled)
• Doing nothing (what and see)
Players at the table
403(b) and 457: Investment Program with Specific Administrative Requirements
Administration Enrollment Employee communication Recordkeeping Compliance
Investment Asset groups Funds Investment managers Investment reporting and monitoring
Who are the service providers
• Investment providers
• Investment consultant/broker
• Common remitter
• Third party administrator (TPA)
• Legal counsel
Service Models
• Bundled
•Alliance
•Unbundled
Best Practices
Fiduciary Best Practices
• Theory vs. Practice
• Investment Policy Statement
• The Retirement Outcome
Classic risk management
• Decide on a plan that could be interpreted as acting in good faith
• Review that plan on a periodic basis and take remedial action if necessary
• Make decisions based on expert recommendations and advice
• Document the decision-making process
• Establish directed investment accounts for defined contribution plans
• Appoint an investment manager and monitor his or her performance
The practical side of being a fiduciary
• Appoint an individual or committee as plan administrator
• Consider the financial strength of your service providers
• Carefully review the principal policy provisions of fiduciary liability insurance you have/are considering
• Be aware of the scope of indemnification coverage
• Make sure investment responsibility has been properly delegated
• Understand that selection of service providers is a fiduciary function
• Assume your plan will be audited
Why have an investment policy statement
• Presents the strategic vision for the investments
• Describes a plan’s investment objectives and decisions
• Helps plan sponsors reduce their fiduciary liability
• Defines how investments are selected and monitored
1988 to 2008Source: DALBAR Quantitative Analysis of Investor Behavior (QAIB) Study 2009
The Cost of Going It Alone
Source: AllianceBernstein
403(b) and 457: Investment Program with Specific Administrative Requirements
Administration Enrollment Employee communication Recordkeeping Compliance
Investment Asset groups Funds Investment managers Investment reporting and monitoring
Coming Attractions: Selecting a Plan Provider
A Framework For Selecting A Plan Provider
• Using “procedural prudence”
• Plan administration and investments appropriate for employee group
• Change emphasis from sell side to buy side
Evaluating plan provider’s experience, capabilities, and fees
• How are administration, recordkeeping, custodial or trust services provided
• What investments are available
• How is the plan sponsor insulated from fiduciary liability
• How is employee communication and investment education provided
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