pay no attention to the fees behind the curtain · will integrate numerous content streams,...

A n o f f i c i a l p u b l i c a t i o n o f A S P P A

winter 2014

Pay No Attention to the Fees

Behind the Curtain

1www.asppa.org/pc

Pay No Attention to the Fees Behind the Curtain

Revenue sharing is fast becoming a top-of-mind issue for record keepers

By Steven Sullivan

COVER STORY

30

wiNter 2014

Cover Illustration: Tim Cook

Contents

36 Co-fiduciary Liability Under ERISA

R. BRadfoRd Huss and nicolas J. WHite

42 The Post-Windsor World: Plan Administration and Same-Sex Marriages

ted Rice

feature stories

6 From the President david M. lipkin

46 ASPPA Rallies for Retirement Mike BusHnell and JoHn oRtMan

65 ASPPA on Tour: The Ultimate Conference Experience

Mike BusHnell

70 Government Affairs Update Ronald J. tRicHe

70 Robert M. Kaplan Joins the ASPPA Board of Directors

tRoy coRnett

71 Welcome New and Recently Credentialed Members

asppa in aCtion

2 Plan Consultant | winter 2014

Columns

teChniCal

praCtiCe management

52 Winning the Game: Six Best Practices for Businesses BUSINESS PRACTICES cHRis stRoud

56 Time For a Branding Reboot? MARKETING

sHeRi fitts

60 Profiles in Expertise EDUCATIoN

saRaH siMoneaux

62 Collective Trust Funds Repositioned in 401(k) Plans ADvISoRy

WilliaM david Hand

66 AIS Solves the Remote Location Problem SUCCESS SToRIES

JoHn oRtMan

68 your Newscast, Starring you TEChNoLoGy

yannis p. kouMantaRos adaM c. pozek

04 Letter from the Editor

8 Admitting There is a Problem is the First Step BRian H. GRaff REGULAToRy/LEGISLATIvE

10 GASB’s New Rules on Uniformity and Disclosure ACTUARIAL Bill kaRBon

14 Pre-approved 403(b) Plans — Coming Soon? REGULATIoNS

RoBeRt M. RicHteR

18 The Fiduciary Talk WoRKING WITh PLAN SPoNSoRS

Jake linney

22 PPA Restatements Are Right Around the Corner LEGAL

GaRy d. BlacHMan and aMy G. davies

26 Plan Termination: Getting it Right ADMINISTRATIoN

lauRen okuM

56

ContentsPublished by

Editor in ChiefBrian H. Graff, Esq., APM

Plan Consultant CommitteeMary L. Patch, QPA, QPFC Co-chair

Gary D. BlachmanGenelle M. Brakefield, QKA, QPFC, TGPC

James T. Comer, III John Feldt, CPC, QPA

John Frisvold, QPA, QKACatherine J. Gianotto, QPA, QKA

William C. Grossman, QPA Ronald A. Hayunga, QKA, QPFC

Barry Kozak Michelle C. Miller, QKA

Mark S. Nichols, CPC, QPA, QKA Lauren Okum, MSPA

Norman F. Pierce, QPFC Robert J. Seidell, III, QKA, QPFC

Anne M. Weinblatt, QPA, QKADavid J. Witz

EditorJohn Ortman

Associate EditorTroy L. Cornett

Art DirectorTony Julien

Graphic DesignersMichelle BrownElyse Jennings

Technical Review BoardRose Bethel-Chacko, CPC, QPA, QKA

Michael Cohen-Greenberg Sheri Fitts

Drew Forgrave, MSPAGrant Halvorsen, CPC, QPA, QKA Jennifer Lancello, CPC, QPA, QKA

Robert Richter, APM

Advertising SalesJeff HoffmanFred Ullman

ASPPA Officers

PresidentBarry Max Levy, QKA

President-ElectDavid M. Lipkin, MSPA

Senior Vice PresidentKyla M. Keck, CPC, QPA, QKA

Vice PresidentRichard A. Hochman, APM

Vice PresidentMarcy L. Supovitz, CPC, QPA, QKA

TreasurerJoseph A. Nichols, MSPA

SecretaryAdam C. Pozek, QPA, QKA, QPFC

Immediate Past PresidentRobert M. Richter, APM

Plan Consultant is published quarterly by the American Society of Pension Professionals & Actuaries, 4245

North Fairfax Drive, Suite 750, Arlington, VA 22203. For subscription information, advertising, and customer

service contact ASPPA at the address above or 800.308.6714, [email protected]. Copyright

2014. All rights reserved. This magazine may not be reproduced in whole or in part without written permission of the publisher. Opinions expressed in signed articles are those of the authors and do not

necessarily reflect the official policy of ASPPA.Postmaster: Please send change-of-address notices for Plan Consultant to ASPPA, 4245 North Fairfax Drive,

Suite 750, Arlington, VA 22203.

Reliable, objective news coverage. Expert analysis. Comprehensive primary sources and proven practice tools. Maintain compliance with confi dence by using the most authoritative benefi ts practice and executive compensation resource. Now with new treatises, Portfolios, and monitors.

1213-JO10893 © 2013 The Bureau of National Affairs, Inc.

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l e t t e r f r o m t h e e d i t o rPC

• analysisandopinionfromretirementindustrythoughtleaders

• whitepapersandresearch• successstoriesandQ&Ainterviews

withthoughtleadersAllthatcontentwillbeposted

ontheportal,organizedbytopicandkeptuptodate.Somecontentwillbeopen-access,whileothercontentwillberestrictedtoASPPAmembers.Andastheportalmatures,we’llbeaddingnewkindsofcontentinthefuture,likevideos.

Thenewe-newsletterwillpulltogetherthebestnewlyaddedcontentanddeliverittoyouviaemaileachweek.ASPPAmemberswillreceivethee-newsletterautomaticallyasamembershipbenefit.ThenewprogramismodeledonthesuccessfulNAPANetwebsiteandNAPA Net Dailye-newsletterlaunchedlastyear.Infact,theNTSAAwillbegettingitsownportalande-newsletterinMarchtoo.

OnekeydriverbehindtheASPPAportalande-newsletteristosupplementthequarterly,in-depthcontentinPlan Consultantwithanewwaytoreportnewsonimportantdevelopmentsaffectingtheindustry,highlightmust-readcontentonotherwebsitesthataddressretirementplanissues,provideanewforumforASPPAmemberstosharetheirknowledge—orjusttheir“take”onkeyissues—withpeers,andmuchmore.Lookformoreinformationaboutthenewwebsiteande-newsletterleadinguptotheirlaunchinMarch.

Questions,comments,[email protected].

incomingASPPAPresidentDavidLipkinaddressesthisfocusingreaterdepth.

Regional ConfeRenCes Reinvented

ASPPA’sregionalconferencesarebeingrevampedin2014.Theresult:“ASPPAonTour,”aseriesoffiveconferencesaroundthecountrythatwillincludelocalandregionalspeakerstacklingtheissuesthatareimportantlocallyandregionally.Thisnewdimensionwillsupplementthetraditional“insideWashington”sessionsonregulatoryandlegislativeactivityatthefederallevel,aswellastheimpactofkeycourtdecisions,thathavealwaysmadeASPPA’sregionalconferencessovital.Inaddition,theworkshopsessionsineachconferencewillgetamakeovertofostergreaterinteractionamongattendeesandcreateamorevaluableexperience.Formoredetailson“ASPPAonTour,”seepage63.

asPPa PoRtal and e-newsletteR

InMarchwe’lllaunchanewwebportalande-newsletterforASPPA’scoreconstituencies—TPAs,businessownersandactuaries.Thenewportalwillintegratenumerouscontentstreams,including:• news(compliance,events,industry

news,etc.)• reportsonlegislativeandregulatory

developmentsinWashington,DC,andincourtsaroundthecountry

• “must-read”blogsandothernewcontentfromacrosstheweb

• bestpracticesandnewideasinpracticemanagement

Onehallmarkofavibrantorganizationisafocusoncreatingnewvalue.Itdoesn’t

matterwhethertheorganizationisanailsalonoraglobalbank,astart-uporanindustryleader,aprivatefirmoraprofessionalassociation.In2014,creatingnewvalueforstakeholdersiswhateveryoneshouldbeabout.

Didsomeonesay“professionalassociation”?AsinASPPA?You’dbetterbelieveit.Here’saquickroundupofthreeASPPAinitiativestolookforin2014.Thegoal:toaddvalueforstakeholders.That’syou.

foCus on asPPa CoRe gRouPs

Forthelastseveralyears,oneofASPPA’smaingoalshasbeentoexpandthebreadthoftheassociation’smembership,addingmoredisciplinestoASPPA’score.TheadditionoftheNationalTaxShelteredAccountsAssociation(NTSAA)andthecreationoftheNationalAssociationofPlanAdvisors(NAPA)fueledsignificantgrowthinmembership—nowatmorethan16,000membersandstillgrowing.

Onekeytoachievingandmaintainingtherightkindofgrowthisensurethatasanorganizationgrows,itretainsafocusonitsoriginalcore—to“keepaneyeontheball,”inotherwords.Thisyearwe’llseethefirstfruitsoftheBusinessOwners’TaskForceandareneweddeterminationtobetterservetheneedsofASPPA’scoregroups—TPA,actuariesandbusinessowners.Oneexampleisdescribedbelow—awebportalandweeklye-newsletter.InhisinauguralPresident’sMessageonpage6,

JoHn oRtMan

editoR-in-cHief

value proposition


From the presidentPC

thatyear.Isawthataflattaxwouldnotbegoodformybusiness.ThatledmetogetinvolvedinASPPA’sGovernmentAffairsCommittee.Astheyearspassed,IgotmoreandmoreinvolvedwithGAC.AfterthePPAwasenactedIbecamethechairofthedefinedbenefitssubcommittee,thenco-chairofGACfrom2006through2010.In2005IgotacallfromJohnParks,ASPPA’spresidentatthetime,invitingmetojointheBoard.

goals PResent and futuRe

OneofASPPA’smaingoalsistopreserveandenhancethenation’sretirementsystem.Whatdoesthisreallymean?Itmeansthatwe’rehelpingAmericansenjoytheirretirementandfacilitateit.Weshouldfeelgoodaboutthat.Wealsohelpemployerstofacilitatetheiremployees’retirement.Andindirectlywehelpinasmallwaytomakethiscountryabetterplacetolivein.Weshouldappreciatethattoo.

Onewaywehaveaccomplishedthesegoalsisbyincreasingournamerecognition.ASPPAhasasetofstrategicgoals.Oneofthemostdifficultonestoaccomplishwasgettingournameoutintothepublicmore.Throughthe“SaveMy401k”campaign,ASPPAmembersandtheirassociateshavesentnearly200,000emailstoCongressurginglawmakerstopreservetheexistingtaxtreatment

teamthatworkstogether—wedon’tagreeoneverysinglething,butattheendoftheday,wealwaysmanagetoworkitout.

a little BaCkgRoundLikeBarry,I’manexample

ofhowvolunteeringcanleadtoseniorleadershipinakindofnaturalprogression.IfirstheardofASPPAwhenIwaswithabigactuarialfirminPittsburgh—aplacewhere,frankly,ASPPAwasviewedinasomewhatcondescendingway.ThenotionwasthatASPPAmembersdealtmostlywithsmall401(k)andotherDCplans,whichactuariestypicallyfound“tooeasy”—thatistosay,notactuarial.Isetupmyownfirmin1986,MetroBenefits,Inc.,agrowingTPA/actuarialshop.WehiredalotofQKAsandCPCs—infact,IthinkalmostallofouradministratorshaveanASPPAdesignation.

Inthelate‘80sIranintoaproblemthatoneofmyclientshadinvolvingthePBGC.IwasstartingtoreadmoreaboutASPPA,soIpickedupthephoneandcalledChetSalkind,whowastheexecutivedirectoratthetime.Hewalkedmethroughtheissuesandhelpedmeout.AndthatwasthefirsttimethatASPPAhelpedmeasabusinessowner.

In1996IbecameveryconcernedabouttheflattaxbeingpushedbySteveForbes,whowasseekingtheRepublicanpresidentialnomination

sIheadintomytermas2013-2014presidentofASPPA,I’dliketothankmypredecessor,BarryLevy,agentlemanwhohasdoneagreatdealforASPPAovertheyears.OneofBarry’s

mainfocusesisalsoaninterestofmine—BarrycreatedtheBusinessOwnersTaskForce,whichwillhelpimprovetheservicesforASPPAmembers.Moreonthatbelow.

ASPPAisinbettershapetodaythanitwasbeforeBarry’stermaspresidentbeganalittlemorethanayearago.Wenowhavemorethan16,000members,upfromabout11,000membersbackthen.Mostofall,though,IconsiderBarryafriend,andoffermygratitudeforallhehasdonefortheorganizationovertheyears,andespeciallyduringhistermaspresident.

IalsowanttothankBrianGraff,ourexecutivedirector/CEO.Morethanjustafabulouslobbyist,leaderandvisionary,Brian’spassionfortheindustryandtheorganizationissoevident.We’reluckytohavehimasourexecutivedirector.

I’dalsoliketothankASPPA’sBoardofDirectors.Wearetrulya

A

dealing proactively with changeBuilding on our multidisciplinary growth, it’s time to turn our attention to the needs of the organization’s core constituency: tpas and business owners.

7www.asppa.org/pc

keystothecarforayear.IpromisetodothebestIcan,andIappreciateyourtrustandconfidence.

David M. Lipkin, MSPA, began his term as ASPPA’s president at the ASPPA Annual Conference in October 2013. He is the founder of Metro Benefits, Inc. and the author of numerous articles in professional publications; and has been selected by the DOL to serve as an independent fiduciary for many orphan/abandoned plans.

activelyworkingonyourbehalftoaddressthesechallenges.

Potential RestRuCtuRing asPPa to BetteR suit YouR needs

AsASPPAgrows,we’rebecomingmoremultidisciplinary.Wenowhavetheinvestmentpeople,thetaxshelteredannuitypeopleand,veryimportantly,theactuarialpeoplewhocreatedthisorganization,backwhenASPPAhadone“P.”Thisinfusionofnewdisciplinesmakesusstronger;itmakesusbigger.Butwecan’tlosesightofourroots—ourcoremembers.Wewanttofocusonyourneeds,sothatwecanserveyoubetter.

We’regoingtoaskyoutovoteonarestructuringplansometimeinthenextyear.We’regoingtobeabletofocusonyourneeds,especiallytheneedsoftheTPAandthebusinessowner—andnotjustthetraditionalTPAs,buttheinstitutionalonesaswell.

WehaveagreatteamatASPPA.Thanksforallowingmetohavethe

ofemployerprovidedretirementplans.That’sthekindofthingthatgetsrecognizedandcreatesmorelobbyingpowerforASPPA.

Oneofthegoalsformyyearaspresidentwillbetoproactivelydealwithchange.Wedon’twanttobeadverselyaffectedbyforcesbeyondourcontrol,andwedon’twantourbusinessmodeltobecomeobsolete.OneofthethingsIhopetoaccomplishistohelpASPPAthroughchange.Hereareacoupleofexamples.

tax RefoRmAsanindustry,wehave

proactivelypositionedourselves—lobbying,marchingonCapitolHillandmore.Thestakesarehigh.It’simportantthatsomeonegoestobatfortheindustry,andthat’sASPPA.Otherregulatoryandlegislativeissuesareimportantaswell,suchasthenewfiduciarydefinitionunderdevelopmentattheDOL,actuarialissues,andstateinfringementincreatingtheirownplans.Weare

We’re helping Americans enjoy their retirement and facilitate it. We should feel good about that.”


Americanworkerswithoutaccesstoaretirementplan.

Theproblemisnotthelackofaproduct.Thereareplentyofretirementplanproductsavailableatareasonablecost,includingstraightforwardpayrolldeductionIRAs.Rather,theproblemisoneofdistribution—thatis,smallbusinessretirementplansaresold,notbought.Smallbusinessownersaretoobusyrunningtheirownbusinessestofocusonofferingaretirementplan.Someonehastoconvincethemtodoit,andthatsomeone—quitefairly—wantstogetpaidforthat.

inlargeparttotheconvenienceandinertiaresultingfromsavingsthroughpayrolldeductionandthe“cultureofsaving”thatisoftenfosteredduetotheexistenceoftheworkplaceretirementplan.

Butthereisaproblem,andit’stimeforourindustrytoadmitit:Despiteourbestefforts,therearefartoomanyAmericanswithoutaccesstoaretirementplanatwork.EBRI’smostrecentestimatesindicatethatmorethan51.4%ofallworkersand39.6%offull-timeworkersarelackingretirementplancoverage.Thistranslatestotensofmillionsof

tiswellestablishedthatformostAmericansthekeytosuccessfullypreparingforretirementishavingaccesstoaworkplacesavingsprogram.AccordingtotheEmployeeBenefitResearchInstitute(EBRI),morethan

70%ofemployeesearningbetween$30,000to$50,000participateina401(k)-typeprogramwhenitisofferedtothematwork,whilefewerthan5%ofthosesameemployeessaveontheirowninanIRAwhentheyarenotcoveredbyaworkplaceretirementsavingsplan.Thatisacompellingdifferential,anditisdue

regulAtory/legislAtiveuPdAte

asppa and napa decided early on to offer constructive solutions to a critical problem: the tens of millions of american workers without access to a retirement plan.

I

Admitting There is a Problem is the First Step

By BRIAN h. GRAFF

� Whilewedonotbelievethatastate-sponsoredretirementprogramoptionisnecessary,iflegislatorschoosetocreateastatedefaultoption(e.g.,California),thenitmustbeanIRA-basedprogramexemptfromERISA.

� Ifthereisadefaultstateprogram,thestateshouldsponsorawebsitethatincludesprivate-sectorvendorssothatthestateprogramispresentedtosmallbusinessesalongsideprivate-sectorproductsinordertoachievealevelandcompetitiveplayingfield.Webelievethatiftheseprinciples

arefollowed,dramaticgainscanbeachievedinclosingtheexistingretirementplancoveragegapamongAmericanworkers.Ultimately,thatshouldbeeveryone’ssharedgoal.

Brian Graff, Esq., APM, is the executive director/CEO of ASPPA.

Generallyspeaking,ourindustry’sbusinessmodelisnotwellsuitedfordistributingaretirementplanthatstartswithzeroassets.Weneedtobehonestwithourselves—ourindustryhasreallynotbeenabletofigurethisoutonawide-scalebasis.

WeallagreethataverageAmericanworkersarenotsavingenoughforretirement.ButinWashington,whenweraiseideastoaddressincomeadequacy,wearecommonlymetwiththisretort:“WhyshouldwefocusonadequacywhenhalfofworkingAmericansdon’thavearetirementplaninthefirstplace?”That’sareasonablepoint.It’salsoadrivingforcebehindthosewhoarguethatthegovernment,includingstategovernments,shouldtakethingsover.

Theretirementplanindustrycannotaffordtositonthesidelineonthisissueanylonger.ThatiswhyASPPAandNAPAdecidedearlyinthegametogetinvolved,to

acknowledgethereisaproblem,andtohaveaseatatthetableandofferconstructivesolutions,notabsoluteobjections.ThesesolutionsincludepushingforchangesinabillinCaliforniawhichensuredthatprivatesectorproductscouldsatisfytheemployerrequirement.Currentlyweareactivelyinvolvedwithanotherhalfadozenstatesthatareconsideringthesameissue.Whenweengage,herearetheprincipleswestandby:� Inordertoaddressthesmall

businessretirementplandistributionproblem,thecornerstoneofanystatelegislationmustrequireemployersaboveacertainsize(typicallyatleastfiveemployees)tooffersometypeofretirementsavingsprogramtoemployees.

� Anyqualifiedplan(suchasa401(k)plan)orpayrolldeductionIRAofferedbyanyprivatesectorvendormustbeallowedtosatisfytheemployermandate.Admitting There is a

Problem is the First Step

Both John Hancock Life Insurance Company (U.S.A.) and John Hancock Life Insurance Company of New York do business under certain instances using the John Hancock Retirement Plan Services name. Group annuity contracts and recordkeeping agreements are issued by: John Hancock Life Insurance Company (U.S.A.), Boston, MA 02210 (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595. Product features and availability may differ by state. Plan administrative services may be provided by John Hancock Retirement Plan Services LLC or a plan consultant selected by the Plan. © 2013 All rights reserved. NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED | NOT INSURED BY ANY GOVERNMENT AGENCYFor Third Party Administrators use only. Not for distribution with the public.

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he2008economiccollapseandsubsequentslowrecoverystressedpublicpensionplans,astaxrevenuedeclinedduringaperiodofincreasingplancostsresultingfrompoormarketreturns.DuringthissameperiodtheGovernment

AccountingStandardsBoard(GASB)hasbeenrevisingtheaccountingandfinancialreportingrulesapplicabletopublicpensionplansrequiringincreaseduniformityanddisclosure.

ThisarticlewillprovideanoverviewofthesenewlyissuedGASBrules,discussthereasonsfortheirimplementation,highlightthemostsignificantchangesandaddressissuescreatedbythenewGASBstandards.

HistoRY and BaCkgRoundThecurrentpublicpensionplanaccounting

rulesarefoundinGASBStatements25,27and50.Statements25and27wereissuedin1994andbecameeffectiveinthelate1990s.

T

ACtuAriAl

an overview of the newly issued GasB rules applicable to public pension plans, the reasons for their implementation and issues created by the new standards.

By BILL KARBoN

GASB’s New Rules on Uniformity and Disclosure

Photo by Thinkstock

11www.asppa.org/pc

Determining a Plan’s Funding Requirement

Thereisnospecificrequirementtochangethemethodusedtodetermineaplan’sfundingrequirement.However,thenewGASBrulesrequireastandardmethodologytodeterminetheexpensereflectedinajurisdiction’sfinancialstatement,whichmaynothaveanycorrelationtothemethodologyusedtodetermineajurisdiction’sfundingrequirement.

Discount RateOneofthemostsignificantissues

alreadysubjecttoclosescrutinywithrespecttopublicpensionplansisthediscountrateusedtodetermineaplan’sfunding,accountingandfinancialreportingrequirements.Typically,thediscountratesusedbypublicpensionplansareinexcessofthecorporatebondratesusedbyprivatesectorplans.ThenewGASBrulesnowrequiredocumentationonhowthediscountratewasdeterminedandtheassumedassetallocationandthelong-termexpectedrealrateofreturnforeachmajorassetclassmustbeincludedinthedisclosures.

Furthermore,aprojectionofaplan’sassetsisrequiredtodetermineiftheassetsareprojectedtodepletebeforeallbenefitspromisedtocurrentparticipantsarepaid.Iftheassetsarenotanticipatedtodeplete,theGASBdiscountrateistheexpectedreturnonassetsbasedonthetrust’sinvestmentallocation.Ifassetsareanticipatedtodepletebeforeallbenefitshavebeenpaid,atax-exempt,high-qualitymunicipalbondratemustbeusedfromthetimeassetsdepletetothetimeallbenefitsarepaid.Ifplanassetsareanticipatedtodeplete,thediscountratewillbeablendusingtheexpectedreturnonassetsandthemunicipalbondrate.ThiswilllowertheGASBdiscountrateandadverselyimpacttheGASBexpenseandliability.

Recognizing Unfunded Liability ChangesThenewGASBrulesdefine

Ultimately,thepublicpensionaccountingchangeswillprovidefinancialreportusersaclearerpictureofthesizeandnatureofadefinedbenefitplan’sfinancialobligations.

Historically,apublicpensionplan’sunfundedliability(actuarialaccruedliabilitylessplanassets)wasadisclosureitem,whiletheassetorliabilityonthejurisdiction’sfinancialstatementsreflectedthecumulativedifferencebetweentheannualpensioncostandtheemployer’scontributionstotheplan.Inmanyinstancestherewasamodestdifferencebetweenthepensioncostandactualplancontribution,generatinganinsignificantbalancesheetimpact.Underthenewrules,theunfundedliabilitybecomesabalancesheetitemwhichmostlikelywilladverselyaffectajurisdiction’sfinancialstatement.

summaRY of signifiCant CHanges

ThefollowingsummarizesthesignificantchangesrequiredbythenewGASBpensionaccountingrules.

Determination of Total Pension LiabilityThetotalpensionliabilityis

determinedusingauniformfundingmethod,namelytheentryagenormal(EAN)method.PriortoGASBStatements67and68,actuarialmethodsandassumptionsusedforfinancialreportingpurposeswerethesamemethodsandassumptionsusedtodeterminetheplan’sfundingrequirements.Underthenewrules,pensionaccountingdoesnotneedtoreflectthemethodsusedtodetermineaplan’sfundingrequirement.

Asset RecognitionAssetswillberecognizedatfair

marketvalue.

Net Pension LiabilityAsmentionedabove,thenet

pensionliability(EANliabilitieslessmarketvalueofassets)willbeabalancesheetitem.

GASB50,whichwasissuedin2007,amendedtheapplicablenoticedisclosureandStatements25and27requiredsupplementaryinformation.

InJanuary2006,theGASBapprovedaprojecttoreviewStatements25and27effectivenesscreatingapost-employmentbenefitaccountingandfinancialreportingproject.FromOctober2009throughJune2010,theGASBreachedtentativeconclusionsonbasicemployeraccountingandfinancialreportingissues,whichwerepresentedforpubliccomment.TheGASB’sPreliminary Views on Pension Accounting and Financial ReportingwassubsequentlyissuedonJune26,2010.

Followingacommentperiodandanexposuredraft,onJune25,2012,theGASBissuedStatements67and68amendingGASBStatements25,27and50.Statement67detailsplan-levelfinancialreportingrulesforstateandlocalgovernmentsandpensionplans,andiseffectiveforfiscalyearsbeginningafterJune15,2013.Statement68detailstheaccountingandfinancialreportingrulesimpactingajurisdiction’sbalancesheetandincomestatementeffectiveforfiscalyearsbeginningafterJune15,2014.(NotethattheGASBencouragesearlierapplicationoftheserules.)

Reasons foR aCCounting CHanges

Themainreasonsforchangingtheaccountingrulesarepensionaccountingstandardizationandapurposefulintenttoreflectaplan’s“true”liabilityonthesponsoringjurisdiction’sbalancesheet.Liketheprivatesectorpensionaccountingrules,thenewGASBrequirementswillstandardizethethreemethodsusedinreportinganddisclosingapublicplan’sliabilityandexpense:• thefundingmethodusedto

determinetheplan’sliabilityandexpense

• themethodsusedtoamortizeunfundedliabilitychanges

• thediscountratedeterminationprocess


willavoiddepletingtrustassetsatanyfuturepoint.Asaresult,thenewGASBrequirementscouldindirectlyaffectpublicpensionplanfunding.

ConClusionWhilethisarticleintroduced

theGASBStatements67and68requirements,thereportinganddisclosurethesestatementsgeneratedisveryextensive,andwerenotintendedtobefullyaddressedhere.

Atatimewhenpublicpensionplansareundergreaterscrutinyduetothechallengesrevealedbyoureconomyandthebankruptcyfilingsofcertainjurisdictions,mostprominentlythecityofDetroit,thenewpensionaccountingrulesaimtobringgreaterdisclosureandtransparency.Governmentalentitieswithpensionplansneedtoaddressandunderstandthesenewrequirementstoeffectivelydeterminethefinancialstatementandcashflowimpacts,asfundingmayneedtobeadjustedalongwithmediarelations.

Bill Karbon, EA, MSPA, CPC, QPA, is a senior vice president and director of compliance with CBIZ

Insurance Services, Inc. in Lawrenceville, NJ. He is a member of ASPPA and the ASPPA College of Pension Actuaries (ACOPA). Bill is a member of ACOPA’s Leadership Council and has also co-chaired the ACOPA Advanced Actuarial Conference, the ASPPA Annual Conference and the ASPPA Professional Conduct committees.

disclosureofthemethodusedtoestablishthediscountrate,possiblyinvitingmediascrutiny.

ThereisnorequirementtheGASBdiscountratealsobeusedforfunding.However,whentheGASBdiscountratemethodologyisdisclosed,itwillbedifficultforajurisdictiontoabandonthatmethodologyanduseadifferentfundingrate.

Unfunded LiabilitySophisticatedusersof

governmentalentities’financialstatements,suchasabondratingagency,forexample,willalreadyhavereadthedisclosuresrequiredbyGASBStatements25and27todetermineaplan’sunderfunding.However,alesssophisticatedstatementuser,suchasthenewsreporter,maysuddenlyseeahittoajurisdiction’sfundbalance(sameasprivatesectornetequity)causedbythebalancesheetrecognizingtheplan’sunfundedliability,andperhapscreateapanicthattheplanhassuddenlysufferedafundedstatuschange.

Determining Funding NeedsWhilethenewGASB

requirementsdonotrequireachangetothemethodusedtodetermineaplan’sfundingneeds,theruleswillultimatelyaffecttheplan’sfunding.

Itbearsrepeatingthatifplanassetsareanticipatedtodepletebeforeallprojectedbenefitshavebeenpaid,amunicipalbondratewillneedtobeusedfordiscountingfromthepointofanticipateddepletionuntilallplanpaymentsaresatisfied.Therefore,jurisdictionsareencouragedtodevelopacontributionpolicythat

thetimeperiodtheplan’sunfundedliabilitychangesmustberecognized.Liabilityexperiencegains/lossesandchangesduetoanassumptionchangemustbeamortizedovertheaverageexpectedremainingservicelivesofactiveandinactiveparticipants.Indeterminingtheaverageexpectedremainingservicelives,theexpectedinactiveparticipantremaininglifeexpectancyiszerowhichproducesashorteramortizationperiodtorecognizethesechangesimpactingunfundedliability.Ashorteramortizationperiodleadstogreateryeartoyearpensionexpensevolatility.

Averynoteworthychangeisthefactthatthetotalvalueofanunfundedliabilitychangeresultingfromaplanamendmentmustberecognizedimmediately,whichimpactstheannualpensionexpensecreatinggreatervolatility.Insomecasesthisrulechangemaymakeajurisdictionthinktwicepriortoimprovingplanbenefitssincethedecision’sfullcostwillbeimmediatelyrecognizedinthejurisdiction’spensionexpense.

fallout fRom tHe gasB CHanges

ThenewGASBruleswillaffectpublicplansbeyondthenumbersusedonajurisdiction’sfinancialstatement.Thefollowingissuesaregoingtonecessitatecloseattentionbyjurisdictionssponsoringdefinedbenefitplans.

Discount RateTherelativelyhighdiscount

rateusedbypublicplansisalreadyunderscrutiny.ThenewGASBrequirementswillnowrequire

At a time when public pension plans are under greater scrutiny due to the challenges revealed by our economy and the bankruptcy filings of certain jurisdictions, most prominently Detroit, the new pension accounting rules bring greater disclosure and transparency.”

13www.asppa.org/pc

Will your plan participants be ready for their Retirement Journey?

We are here to help.

For more information contact: Paul Neveu, CEBSSVP, Sales and MarketingDirect: 603-580-5522 | Cell: 617-285-8203E-mail: [email protected] | www.bpas.com

Benefit Plans Administrative Services, Inc. (BPAS), which includes Harbridge Consulting Group and Hand Benefits & Trust Company, is a national provider of retirement plan administration, actuarial, consulting, collective investment fund administration and VEBA / HRA services to a diverse array of clients spanning the United States and Puerto Rico. We service over 3,500 retirement plans and 300,000 plan participants through partnerships with a wide array of fi-nancial intermediaries and hold $13.5 billion of assets under custody. BPAS service offerings also include automatic rollover and post termination loan administration services. With eight offices and 240 employees, BPAS has the depthdepth of professional and technology resources to deliver value-added services to all employee benefit stakeholders. At BPAS, we are committed to “Solving Tomorrow’s Employee Benefit Challenges … Today.”

Specific services of BPAS include: actuarial and consulting services for pensions and other post retirement benefits; health care consulting; full service administration for the full range of DC plans (401(k), 401(a), 1081, 403(b), 457, ESOP, kSOP, Multi and Multiple Employer plans, Prevailing Wage, etc.); administration of Collective Investment Funds; and the administration of VEBA / HRA and flexible benefit plans.


regulAtioNs

By RoBERT M. RIChTER

a look at the details and expected timeframes of the iRs’s new pre-approved 403(b) plan program.

Pre-approved 403(b) Plans — Coming Soon?

15www.asppa.org/pc

IRSgivesemployersaperiodoftime(theRAP)toadoptanamendmenttoretroactivelyfixanydefectsinthewrittenplan(i.e.,a“remedialamendment”).Forexample,thetermsofa403(b)planmustprovidethatcontributionswillnotexceedthestatutorylimits.Ifaplandoesn’tcontaintheselimits,thentheplanfailstosatisfyCode§403(b)(evenif,inoperation,thoselimitsareneverexceeded).TheRAPallowsanemployertoretroactivelyamendtheplantocorrectthedefectprovidedtheinitialplanwasadoptedin“goodfaith”andthecorrectiveamendmentisadoptedbyadeadlineestablishedbytheIRS.

TheRAPisgenerallytheperiodbeginningontheearliestdatethatachangeinthelawiseffectiveandendingonadatethatisestablishedbylaworbytheIRS.TheIRSstatedthatthebeginningoftheRAPfor403(b)plansisJan.1,2010(orforanewplanestablishedafterthatdate,theeffectivedateoftheplan).TheRAPwillendonadatethathasyettobeannouncedbecauseitwillbebasedonwhentheIRSissuesapprovallettersonthepre-approvedplans.TheexpectationisthatoncetheIRShasapprovedtheplans,therewillbeatwo-yearperiodforemployerstorestatetheirplans(andthiswillbetheendoftheRAP).

individuallY designed Plans

In2009,theIRSannouncedthatitplannedonestablishinga403(b)individualdeterminationletterprogramafterthepre-approvedprogramwasstarted.TheIRShassubsequentlydeterminedthat,duetolimitedresources,nodeterminationletterprogramwillbeimplementedfor403(b)plans.Thismeansemployerswhouseanythingotherthanapre-approvedplanwillhavenowaytoobtainassurancefromtheIRSthattheirplantermssatisfyCode§403(b).AnemployerwillonlyfindoutifthereisaproblemwithitswrittenplanonanIRSaudit.This

heIRSformallyestablishedapre-approved403(b)planprograminMarch2013whenitreleasedRevenueProcedure2013-22.Theprocedure

setstheparametersofprototypeplansandvolumesubmitterplans,whicharecollectivelyreferredtoaspre-approvedplans.Thisarticlewillexplainsomeofthedetailsoftheprogramaswellastheexpectedtimeframes.Theprocesshasalreadybegunforthoseproviderswhoaregoingtobesponsorsofpre-approvedplans.Forthoseproviderswhowillbeusingpre-approvedplansofanotherprovider,itishelpfultounderstandthetimeframesandparametersoftheprogramtoensureplansponsorsknowwhattoexpect.

tHe wRitten Plan RequiRement

In2007,theIRSfinalizedInternalRevenueCode§403(b)regulations,whichrequirethatall403(b)arrangementsmustbeinwriting(withalimitedexceptionforcertainchurchplans).Afterpublicationoftheregulations,theIRSissuedtransitionalreliefwithrespecttothewrittenplanrequirement.Employershaduntiltheendof2009toadoptawrittenplanthatwasintendedtosatisfyCode§403(b)andtheregulations.Bydoingso,theemployerwouldbeentitledtousetheRemedialAmendmentPeriod(RAP).

englisH Please — wHat’s a RaP?

ThetermRemedialAmendmentPeriodisborrowedfromthequalifiedrequirementplanrules(asaremostoftherulesinthenew403(b)program).TheIRSrequiresthewrittenplantoconformtothelaw.Whenlawschange,whetherbystatuteoragencyguidance,planscannotbeimmediatelyamended.Wealsoknowthatnoplanisperfect—mistakeshappen.Therefore,the

changeinpositioncameasasurprisetothepractitionercommunity.Asexplainedbelow,itwillhaveanimpactondecisionsregardingwhichpre-approvedplansaserviceproviderwillwanttooffer.

PRototYPes and volume suBmitteR Plans

Underthenewprogram,therearetwotypesofpre-approved403(b)plans:prototypeplansandvolumesubmitterplans.ThereareonlyafewdifferencesbetweenthesetypesofplansandASPPAhadsupportedtheconsolidationofthesetwotypesofplansintoonepre-approvedplanprogram.TheIRSdecidedbothtypesofplanswereneeded,possiblytoavoidconfusioninthemarketplace.

Aprototypeplanisadocumentthatconsistsofabasicplandocument(thiscontainsthestaticlanguage)andaseparateadoptionagreementthatsetsforththeoptionsavailableforeachemployerusingthatdocument.Whileasponsoringorganizationmayhaveasmanyadoptionagreementsasitwants,theIRSrequiresthatretirementincomeaccountplans(underCode§403(b)(9)forcertainchurches)beinaseparateplan.Inaddition,therearetwotypesofprototypeadoptionagreements:standardizedandnonstandardized.

Astandardizedadoptionagreementismorerestrictiveintheoptionsitcanofferandgenerallyensurestheplansatisfiescoverageandnondiscriminationrequirements(i.e.,therearenooptionsthatcancreatecoverageordiscriminationissues).

Anonstandardizedadoptionagreementhasmoreflexibilityandthereforedoesnotautomaticallyprovideanemployerwithrelianceoncoverageandnondiscriminationrequirements.Mostpractitioners,however,havestoppedusingstandardizedadoptionagreementsfortheirqualifiedplansbecausethecoverageandnondiscriminationrulesarefairlywellsettledandthereisnoneedtohaveamorerestrictiveadoptionagreementto

T


amountstobeheldinaseparateaccount—aseparateaccounting,whichiswhatmostplanscurrentlydo,wouldnotcomplywiththisrequirement.ASPPAhassubmittedacommentletteronthis,aswellasotherissues.WeexpectstillmoreissuestoariseasthedraftingprocessunfoldsanditmaytaketheIRSadditionaltimetoresolvealloftheseconcernspriortoapprovingtheplans.

wHat’s next?TheIRSwillissueguidance

regardingtheendoftheremedialamendmentperiodoncetheyhaveapprovedalloftheplanssubmittedforpre-approval.Inaddition,theIRSwillissueguidanceregardingfuturerestatementcyclesaswellastherulesregardingthemaintenanceofplansduringtherestatementcycles.Forexample,qualifiedplansmustadopt“interim”good-faithamendmentstoreflectchangesinthelaw,andtheseamendmentsareperfectedwhentheplanisrestatedattheendoftheRAP.Similarrulesarenot(yet)inplacefor403(b)plans.

Robert M. Richter, J.D., LL.M., APM, is a vice president with SunGard Relius in Jacksonville, FL.

His team is responsible for the drafting and maintenance of the Relius Document products, which include qualified retirement plans, 403(b) plans, 457(b) plans, cafeteria plans and self-funded health plans. He is a past president of ASPPA (2011-2012) and currently serves on ASPPA’s Government Affairs Committee.

preventinadvertentcoverageornondiscriminationissues.Itremainstobeseenwhetherstandardized403(b)adoptionagreementswillbepopularwith,orevenofferedby,403(b)providers.

Avolumesubmitterplancanbeformattedinoneoftwoways.Itcanusea“prototypeformat”wherebyithasabasicplandocumentandseparateadoptionagreement.Alternatively,itcanbestructuredtoappearlikeanindividuallydesignedplanwhereanemployeronlyreceivesonedocumentthatincludesthestaticlanguageaswellasjusttheprovisionsthatitelectedtoinclude.Ineithercase,theemployerhasreliancewhichissimilartotherelianceprovidedtoemployersusingnonstandardizedadoptionagreements.

Therearetwokeydifferencesbetweenprototypeandvolumesubmitterplans.First,prototypeplansmustuseavestingschedulethatsatisfiesCode§411(a)(2)(i.e.,a6-yeargradedor3-yearcliffschedule).A403(b)volumesubmitterplanispermittedtoofferlessliberalvestingschedulesforplansthatarenotsubjecttotheminimumvestingrequirementsofERISA(e.g.,governmentalplans).Theseconddifferenceisthatifanemployermodifiesaprototypeplan,itlosesrelianceontheentireplan.Ifanemployermodifiesavolumesubmitterplanbuttheplanis“substantiallysimilar”totheapprovedplan,thentheemployerhasrelianceonthetermsoftheplanotherthanthemodificationsitmade.TheIRSdoesnotdefine“substantiallysimilar”andthismaybepreferable.Thereisno

determinationletterprogram,soonewouldexpectanIRSauditortotakeabroadinterpretationoftherulesinceitisunlikelytheauditorwouldwanttoreviewtheentireplan.

wHen will emPloYeRs need to Restate tHeiR Plans?

TheIRSbeganacceptingpre-approvedplansubmissionsbydocumentsponsorsonJune28,2013;thedeadlinetosubmittheplansisgenerallyApril30,2014.(NotethatASPPAhasaskedforanextensionofthedeadline.)Certainsubmissionscanbemadeafterthatdate,butthat’sbeyondthescopeofthisarticle.Oncetheplanshavebeensubmitted,theIRSreviewprocesswillprobablytaketwoyears.

TheIRSwillthenissueapprovalletterstoallsponsorsaroundthesametime,andatthatpointitwillsetthedeadlinebywhichemployersmustrestatetheirplans(i.e.,theendoftheRAP).Weexpectthistobeanothertwoyears.Usingtheseasestimates,employerswillprobablyberestatingtheirplansbetweenMay2016andMay2018.

ThoseproviderswhowillbesponsoringplansdonothavemuchtimetomeetthesubmissiondeadlineofApril30,2014.Theinabilitytoobtaindeterminationlettersputsmorepressureontheseprovidersbecauseplansmustbedraftedtoaccommodateasmanyplandesignsaspossible.TherearealsosubstantiveissuesthatmightimpactthetimingoftheIRSapprovalprocess.Forexample,theIRSrequiresnonvested

It remains to be seen whether standardized 403(b) adoption agreements will be popular with, or even offered by, 403(b) providers.”

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Your participants matter to you, so they matter to us. See how our award-winning tools, team support

and communications can help reach the goals your participants have for retirement. To learn more, call

your retirement plan professional or contact MassMutual at 1-866-444-2601, MassMutual.com/Retire

THE PEOPLE. THE PLANS.WE KNOW YOU CARE ABOUT BOTH.

TOTAL RETIREMENT SERVICES + TPA + DEFINED CONTRIBUTION + DEFINED BENEFIT + NONQUALIFIED +

NONPROFIT + GOVERNMENT + TAFT-HARTLEY + STABLE VALUE + PEO + IRA

©2013 Massachusetts Mutual Life Insurance Company. All rights reserved. MassMutual Financial Group refers to Massachusetts Mutual Life Insurance Company (MassMutual) [of which Retirement Services is a division] and its affiliated companies and sales representatives. Mutual Fund Industry Awards

“Hall of Fame” selection announced 12/2/13 by Fund Industry Intelligence & Fund Director Intelligence (Euromoney Institutional Investor) for MassMutual’s prior awards: Retirement Leader of the Year for industry leadership and excellence in retirement plan services, April 2012; Deal of the Year, April 2013; Ad Campaign of the Year, April 2013. MassMutual is the only firm ever to have earned a Hall of Fame induction in just two years. MassMutual is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliates. RS: 30882-01

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workiNg withPlAN sPoNsors

afiduciaryisnotallornothing.Apersonisafiduciaryinrespecttothepartorpartsoftheplanforwhichtheindividualfunctionallyactsasafiduciary—nomore,noless.

Therearethreemainfiduciaryfunctionsinqualifiedplans:• Plan sponsor–Responsiblefor

appointingandmonitoringtheplanadministratorandtrustee.

• Plan administrator –Responsibleforoperatingtheplaninaccordancewithitslegaldocumentsandresponsiblefortheoveralladministrationoftheplan.

• Trustee–Responsibleforthecontrolofplanassets.

AllarefiduciariesunderERISAbecauseeachmeetsthefunctionaldefinitionbyhavingdiscretionand

PaRt 1: wHo is an eRisa fiduCiaRY?

TheERISAdefinitionofafiduciaryisfoundinERISASection3(21)(A):

Apersonisafiduciarywithrespecttoaplantotheextent:1. Heexercisesanydiscretionary

authorityordiscretionarycontrolrespectingmanagementofsuchplanoritsassets.

2. Herendersinvestmentadviceforafeeorothercompensation.

3. Hehasanydiscretionaryauthorityordiscretionaryresponsibilityintheadministrationofsuchplan.Thefiduciarydefinitionisa

functionaldefinition,soanindividualisafiduciarywhenheorsheactsinoneofthethreemanners.Being

mployersadoptingaqualifiedplanhaveafiduciarydutytotheparticipantsandbeneficiariesoftheplan.Thatiswhyitissoimportantforthe

individualsoperatingqualifiedplanstounderstandexactlywhattheirresponsibilitiesare.Igive“thefiduciarytalk”toclearlyexplainthesedutiesandtoempoweranemployertomakewell-informeddecisions.Thispaperoutlines“thetalk,”whichhasthreemainparts:• Part1:WhoisanERISAFiduciary?• Part2:TheSignificanceofBeingan

ERISAFiduciaryandWhattodoAboutIt

• Part3:StructuringtheFiduciaryGovernanceofthePlan

E

Photo by Thinkstock

The Fiduciary Talkeverything a plan sponsor needs to know about being a fiduciary — in 20 minutes.By JAKE LINNEy

Editor’s NotE: this articlE was thE wiNNiNg ENtry iN asPPa’s 2013 Ed Burrows award call for PaPErs.

19www.asppa.org/pc

Being a fiduciary is not all or nothing. A person is a fiduciary in respect to the part or parts of the plan for which the individual functionally acts as a fiduciary — no more, no less.”

controlovercertainaspectsoftheplan.Also,apersoncanactinmorethanoneoftheseroles.Forexample,aplansponsorwhoalsoactsastheplanadministratorisresponsibleforbothappointingthetrusteeandtheoveralladministrationoftheplan.

Wecanapplythisdefinitiontotwocommonrolesintheretirementplanindustry:directedtrusteeversusdiscretionarytrustee,andplanadministratorversusTPA.

Directed Trustee Versus Discretionary Trustee

Withtwoexceptions,thetrusteeisnamedintheplandocument(ortrustagreement)ashavingcontroloverplanassets.Usuallyindividualsofacompanyarenamedastrusteesandtakeonthatcontrolfunction.Thisisconsideredadiscretionary trustee.

Thefirstexceptiontotheruleiswhenaplandocument(ortrustagreement)requiresthatthetrusteeissubjecttodirectionfromaseparatenamedfiduciary(liketheplansponsor).Intheindustry,thisisconsideredadirectedtrustee.SinceanERISAfiduciaryisafunctionaldefinition,adirected trusteeisonlyafiduciarywhenheorsheactswithdiscretionorprovidesinvestmentadviceforcompensation.Ifthedirectedtrusteedoesnotactineitherofthesefashions,thenheorsheisnotactingasanERISAfiduciary.

Thesecondexceptiontotheruleisthatatrusteecanhireaninvestmentmanager—abank,insurancecompanyorregistered

thebasicstandardsofconductmaybepersonallyliabletorestoreanylossestotheplan,ortorestoreanyprofitsmadethroughimproperuseoftheplan’sassetsresultingfromtheiractions.

Certaintransactionsinvolvingtheplanareprohibited.Theplancannotenterintotransactionswithplanfiduciaries,familymembersofplanfiduciariesandotherpartiesthatmaycauseaconflictofinterestunlessthereisanexemptioninERISAorgrantedbytheDepartmentofLabor.Forthatreason,planfiduciariesmustcarefullyreviewwhattypesoftransactions

investmentadvisor—tohavecontroloversomeoralloftheplanassets.Theinvestmentmanagerwouldthenbethefiduciaryresponsibleformanagingthatportionoftheplan.Thetrustee(orresponsiblefiduciary)hiringtheinvestmentmanagerwouldberesponsibleformonitoringandoverseeingtheinvestmentmanagerforthatportionoftheplan.

Plan Administrator Versus Third Party Administrator

Manyqualifiedplanhirefirmswhichactasthirdpartyadministrators(TPAs)toensurethatthequalifiedplanmeetsvariouscomplianceandaccountingrequirements.ThewaysinwhichthetypicalrelationshipbreaksouttheplanoperationdutiesbetweentheplanadministratorandTPAareillustratedinFig.1.

PaRt 2: tHe signifiCanCe of Being a fiduCiaRY and wHat to do aBout it

AccordingtotheDepartmentofLabor’s“MeetingYourFiduciaryResponsibilities”publication,fiduciariesareresponsiblefor:• Actingsolelyintheinterestofplan

participantsandtheirbeneficiariesandwiththeexclusivepurposeofprovidingbenefitstothem.

• Carryingouttheirdutiesprudently.• Followingtheplandocuments

(unlessinconsistentwithERISA).• Diversifyingplaninvestments.• Payingonlyreasonableexpenses

Fiduciarieswhodonotfollow

Plan Administrator TPA

Fiduciary (named in the plan documents; has discretion and control of plan operations)

Non-fiduciary (spelled out in service contract as not performing any fiduciary functions)

Determines eligibility Performs ADP/ACP testsEnrolls employees into the plan Prepares enrollment formsFiles Form 5500 Prepares Form 5500Provides all notices timely to plan participants Drafts plan documentsApproves all distributions from the plan Prepares distributions for processingMaintains plan documents Consults on plan provisions

fig. 1: Division of Plan oPeration Duties


employerandthecomplexityandsizeoftheplan.

PaRt 3: stRuCtuRing tHe fiduCiaRY goveRnanCe of tHe Plan

Oncetheplansponsorunderstandsthebasics,thecurrentfiduciarygovernancestructureoftheirplanisillustrated.Foranewplan,Idrawablankchart,usingathree-lineboxformat.AnexampleisprovidedinFig.3.

Therearecountlesswaysthiscanlook.TheimportantthingisthatonceyouunderstandParts1and2,youcanalwaysdrawoutthe

takeplacewithintheplanandwhoisinvolvedinthetransactions.

Asoundwaytomeetthefiverequirementsistofollowadocumentedprocessindecisionmakingandactwithexpertiseinbothoperatingtheplanandmanagingplanassets.Lackingexpertiseoraprocess,thefiduciariescanhireaknowledgeableexperttohelp.Herearethreewaysafiduciarycanhirehelp:1. Hireanon-fiduciaryconsultant

tohelpeducatecurrentfiduciariesandhelpdevelopprocesses.

2. Hireafiduciaryconsultantwhoactsasafiduciarytotheplanalong

withthecurrentfiduciarieswhentheconsultantfunctionallytakesonfiduciaryresponsibilities.

3. Outsourcefiduciaryresponsibilitytoaprofessionalfiduciary.Forexample,iftheplansponsor

hiresoutanoutsidefiduciarytoactasplanadministrator,theplansponsorwillstillberesponsibleforatleastmonitoringandprudentlyhiringtheplanadministrator.Inreality,thebreakdownofrolesmaybedistributedasillustratedinFig.2.

Allthreewaysaremeanstomanagethefiduciaryresponsibilitiesoftheplan.Thebestwaywilldependontheparticularcircumstancesofthe

Plan Sponsor Outsourced Plan Administrator

Prudently hire and monitor the plan administrator Determine eligibilityProvide accurate data to the plan administrator Enroll employeesMake timely contributions to the plan Calculate plan contributions

Provide all notices timely to participantsApprove all distributions from the planFile annual Form 5500Maintain all plan documents and plan records

fig. 2: Plan sPonsors’ anD outsourceD Plan aDministrators’ roles

Trustee Jim and Jane Owner

Investment Fiduciaries

Custodian ABG Bank

Non-Fiduciary

Investment Advisor Great RIA Firm

Fiduciary Consultant

TPA World’s Best TPA

Non-Fiduciary

Recordkeeper Stellar Tracking Inc.

Non-Fiduciary

Plan Administrator Employer

Administration Fiduciary

Plan Sponsor Employer Oversight

fig. 3: role, resPonsibility anD fiDuciary status

21www.asppa.org/pc

Jake Linney, QPA, QPFC, ERPA, is part of the Solutions Center at Pentegra Retirement Services, Inc. He designs

qualified plans and consults with clients on a variety of plan topics. In addition, Jake is an advocate for pension education and has led education programs ranging from retirement plan fundamentals to advanced consulting practices.

governancestructureofaplannomatterwhatitlookslike.Onceitisdrawnout,theplansponsorcanseewhattheyareresponsibleforandthediscussioncanbeginonwhoshouldberesponsibleforwhat,wherehelpshouldbehiredandwhichfunctionsshouldbeoutsourced.

Oncetheoverallgovernancestructureisdecided,particulardutiesandresponsibilitiescanbediscussed.Fig.4providestwoexamplesofhow

investmentdecisionscanbemadeinaplan.

ConClusionOncetheemployerunderstands

thebasicsofERISAfiduciaries,theyareabletomakeinformeddecisionstostructurethefiduciarygovernanceoftheirplans.Naturally,planswillrunbetterwhenallpartiesclearlyunderstandwhattheirresponsibilitiesare.

fig.4: Duties anD resPonsibilities in making investment Decisions

TrusteeInvestment Committee

Investment Selection

Investment Manager (All Plan Assets)

Investment Selection

Investment Advisor

Investment Replacement

Custodian

Investment Replacement

Investment Policy Statement

Plan Sponsor

Investment Policy Statement

Investment Monitoring

Directed Trustee

Investment Monitoring

outsourceD investment manager


PPA Restatements Are Right Around the Corner

legAl

By GARy D. BLAChMAN AND AMy G. DAvIES

henextrestatementperiodforqualified,pre-approvedretirementplansisfastapproaching.Alothashappenedsincethelastrestatementperiod,mostnotablyenactmentofthePensionProtectionActof2006(PPA),whichmanyconsiderthemostsweepingpensionreformlegislationsinceERISA,andotherlegislationaffectingretirementplans.AndtheIRShasissuedregulationsinterpretingthenewlawsandsomeoldonesaswell.

Mostplansarecurrentlyoperatingunder“goodfaith”amendmentsapplyingthenewrulesbuthavenotyetbeenabletogetIRSapprovalofthechanges.Thenextwindowforrestatingpre-approveddefinedcontributionplanswillopenonoraboutMay1,2014,andcloseonoraboutApril30,2016.(Pre-approveddefinedbenefitplansareonadifferentcycle.Thetwo-yearwindowtorestateDBplansisexpectedtoopenatthecloseoftheDCplanwindow—onoraboutMay1,2016.)

Restatement deadlinesAlltax-qualifiedretirementplansarerequiredtohaveawrittenplandocument.

Thedocumentmaybeeitherapre-approvedplan,intheformofeitheraprototype

Right now is a good time to brush up on the requirements and nuances of the process for filing restatements for pre-approved plans.

T

Photo by Thinkstock

23www.asppa.org/pc

discriminationrules.Ifanemployerwhoseplanwas

eligibleforthesix-yearcycleeitheradoptsanIDPorimpermissiblymodifiesthepre-approvedplanmorethanoneyearafterinitialadoption,theplandoesnotimmediatelyconverttothefive-yearcycle,althoughitwillberequiredtoapplyforitsowndeterminationletterduringthesix-yearcycle.(See“IRSLetters”below.)Thefirstapplicablefive-yearcycleisthecyclethatendsafterthecloseofthecurrentsix-yearcycle.Ifthefirstfive-yearcycleendslessthan12monthsafterthedateofthefavorabledeterminationletter,thentheplan’sfirstfive-yearcycleisextendedfor12calendarmonthsanditsnextfive-yearcycleisshortenedaccordingly.

Ifanemployerimpermissiblymodifiesthepre-approvedplanlessthan12monthsafterinitiallyadoptingtheplan,theplandocumentimmediatelyconvertstoafive-yearcycle.

TheIRScanalsodetermineuponreviewthatmodificationstoapre-approvedplan,whiletheydonotadoptimpermissibleprovisions,maketheplanineligibleforthesix-yearcycle.IftheIRSdeterminationresults

(PT)orvolumesubmitter(VS)plan,oranindividuallydesignedplan(IDP).Inthecaseofapre-approvedplan,theIRShasalreadyrevieweditsfeaturesanddeterminedthatitmeetstherequirementsfortaxqualification.AnIDPmustbeseparatelysubmittedtotheIRSforreviewiftheplansponsorwantsadeterminationthattheIDPmeetsthequalificationrequirements.

Tobettermanageitsresourcesforplanreviewandreducethecomplianceburdenforplansponsors,theIRSestablished“remedialamendmentcycles”(Rev.Proc.2005-66,updatedbyRev.Proc.2007-44).Thecyclesprovideforrestatementandapprovalofpre-approvedplanseverysixyearsandofIDPseveryfiveyears.

EmployersoftenaskiftheyarelegallyrequiredtorestatetheirplansorgetadeterminationletterfromtheIRSeachamendmentcycle.Theshortansweris“no.”However,thisprocedureguaranteestheplanprotectionifitincludesanon-compliantprovision.Otherwise,theconsequenceofnon-complianceispotentialIRSdisqualification—resultinginlosttaxbenefitsfortheemployerandplanparticipants.

is mY Plan eligiBle foR tHe six-YeaR CYCle?

Anemployer’splanistreatedasapre-approvedplanandiseligibleforthesix-yearcycleiftheadoptingemployer:• adoptedapre-approvedplaninthe

priorsix-yearcycleandadoptsthePPAversionofthatplanoranotherpre-approvedplanwithinthenextwindowperiod(a“PriorAdopter”);

• maintainedanIDPduringtheprioramendmentcycleandadoptsapre-approvedplanbeforethecloseoftheapplicablefive-yearcycle(a“NewAdopter”);or

• maintainedanIDPandexecutesaForm8905indicatingitsintenttoadoptapre-approvedplanbeforethecloseoftheapplicablefive-yearcycle(an“IntendedAdopter”).

ThesetermsarefurtherdefinedinSection17ofRev.Proc.2007-44.

Ifanemployermodifiestheprovisionsofapre-approvedplan,theplancouldloseitseligibilityforthesix-yearcycle.Generally,theIRSviewsminorchangestoaPTplanascreatinganIDPforpurposesofreliancebutnotforpurposesofthesix-yearcycle.If,however,anIntendedAdopterultimatelyelectsnottoadoptapre-approvedplanoraPriororNewAdopterreplacesitspre-approvedplanwithanIDP,thentheplangenerallylosesitseligibilityforthesix-yearcycle.

wHen does mY Plan BeCome individuallY designed?

Ifanemployermodifiesthepre-approvedprovisionsbyadoptingaprovisionthatisnotpermittedinapre-approvedplan,theplanwillnolongerbeeligibleforthesix-yearcycle.Rev.Proc.2011-49describestheimpermissibleprovisions.ExamplesincludeESOPs,incorporationoftheSection415limitsorADPorACPtestsbyreference,andfailsafeprovisionsforsatisfyingtheSection401(a)(4)

Many plan sponsors historically relied on favorable determination letters as their ‘free pass’ during IRS audits to demonstrate plan document compliance.”


treatedasifitwereanIDP.(SeeSection8.02ofRev.Proc.2013-6.)Ifapre-approvedplanistreatedasanIDP,itmustberestatedtoincludeanylegalchangesmadesincethepre-approvedmasterplanwassubmittedtotheIRS.(Otherwise,apre-approvedplanwouldnotneedtoincludethosechangesuntilthenextsix-yearcycle.)

Tomakeupforthischangeintreatment,theIRSspecificallyprovidesthatifaplanisentitledtorelyonadocumentprovider’sletter,thedocumentprovider’sletterisequivalenttotheemployer’sownfavorabledeterminationletterforalllegalpurposes,includingwhethertheplanhasa“favorableletter”forpurposesoftheEmployeePlansComplianceResolutionSystem(EPCRS).

Whiletheburdensoffilingforadeterminationletterhaveincreasedforemployersadoptingpre-approvedplans,theremaybecircumstancesinwhichanemployerwillstillwantorrequireitsowndeterminationletter.Manyplansponsorshistoricallyreliedonfavorabledeterminationlettersastheir“freepass”duringIRSauditstodemonstrateplandocumentcompliance.ItremainstobeseenwhetherthiswillaltertheapproachtakenbyIRSreviewingagentsduringthenextauditcycleforPPAplans.

Gary D. Blachman is a partner in the employee benefits and executive compensation group at Thompson Hine LLP. His practice focuses on legal compliance requirements applicable to ERISA-governed retirement plans. Gary serves as the current ASPPA General Conferences co-Chair and is a past president of the Cincinnati ABC chapter.

Amy G. Davies is the senior manager of Plan Document Systems LLC (PDS), an affiliate of Thompson Hine LLP. PDS is a leading provider of pre-approved and individually designed plan document solutions.

intheplanmissingitsapplicablefive-yearcycle,theplanmaybeunabletocorrectdeficienciesonaretroactivebasis.IRSguidancedoesnotspecificallydescribethetypesofmodificationsthatwouldresultinsuchadetermination.However,agentsadministeringthepre-approvedplanprogramindicatethisprovisionisdirectedatextensivemodificationsthatunderminetheefficienciesofthepre-approvedplanprogram,particularlythosemakingsubstantivechangesthatimpactparticipantbenefits.Ifthereisanydoubtaboutplanmodifications,itmaybesafertotreattheplanasindividuallydesigned.

iRs letteRsToretaintheirtax-qualified

status,plansmustcomplywithCodeSection401(a)inbothform(i.e.,theplandocument)andoperation.Therearenoprotectionsifaplandoesnotcomplyinoperation.However,aplanisprotectedfromdisqualificationbecauseofanoncomplyingplanprovisioniftheplanhasacurrentIRSletter.TherearetwodifferenttypesofIRSletters:• AlettertheIRSissuestothe

sponsorofapre-approvedplanstatingthattheoptionsandprovisionsofferedunderthemasterplanmeetthequalificationrequirements.Thisiseitheranopinionletter,ifthemasterplanisaPT,oranadvisoryletter,ifthe

masterplanisaVS.• AletterthattheIRSissuestoan

adoptingemployerstatingthattheprovisionsoftheemployer’splanmeetthequalificationrequirements.Thisisadeterminationletter.

Togetprotection,anIDPmustapplyforitsowndeterminationletterduringtheapplicablecycle.However,anemployerthatadoptsapre-approvedplanmayrelyontheopinionoradvisoryletterissuedtothedocumentproviderforplanqualification,unlesstheemployermodifiesthepre-approvedprovisions.Anemployerthatmodifiesthepre-approvedprovisionsofaPTplandocumentcannotrelyonthedocumentprovider’sletterandmustapplyforitsowndeterminationletterforprotection.

Previously,anemployerthatdidnotmodifythepre-approvedprovisionscouldapplyforitsowndeterminationletter,usingasimplifiedapplicationform(Form5307)andpayingareduceduserfee.However,thishaschangedforthenewcycle.OnlyanemployerthathasadoptedaVSplanandmodifiesthepre-approvedprovisionscanapplyforitsowndeterminationletterusingthesimplifiedform.Anyotheradopterofapre-approvedplanthatwantsorneedsitsowndeterminationlettermustfileonthestandardform(Form5300)andpaytheappropriatefee.Inaddition,exceptincertaincircumstances,theplanwillbe

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once the decision is made to proceed with a plan termination, the first step is to get organized. Here are some helpful tips on developing and executing a termination strategy.

By LAUREN oKUM

Plan Termination: Getting it Right

AdmiNistrAtioN

plansponsormaydecidetoterminateaqualifiedpensionplanforseveraldifferentreasons—perhapsbecauseamajorityownerhasmaximizedhisorherbenefit,ortheplansponsorfindsthattheplanistoocostly.

Aplanmayterminateviaastandardterminationonlyifplanassetsaresufficienttosatisfyallplanbenefits,andtheplanadministratorfollowsprescribedsteps.Incontrast,adistressterminationisavoluntaryterminationthatisnotastandard

termination.(Distressterminationsandinvoluntaryterminationsarebeyondthescopeofthisarticle.)

A

Photo by Thinkstock

27www.asppa.org/pc

is tHe Plan suffiCient?Astandardterminationcanonly

occurwhenaplanis“sufficient,”orfullyfunded.Definedcontributionplansarealwaysfullyfunded;definedbenefitplansmaybeunderfunded,fullyfundedoroverfunded.Todeterminethefundedstatus,compareassetstobenefitliabilities—thatis,thesumoflumpsumstobepaid,annuitiestobepurchasedfromaninsurancecompanyandamountstobetransferredtothePensionBenefitGuarantyCorporation(PBGC)formissingparticipants.Theseliabilitiesareoftenlarger(potentially15%-25%higher)thantheplan’songoingliabilitiesfordeterminingannualcontributions.

Plansponsorsofunderfundedplansmaymakeaplansufficientinthreeways:1. bycontributinganamountto

satisfyallbenefitliabilities;2. byamajorityownerofaPBGC-

covered1planelectingtoforgoalloraportionofhisorherbenefit;and/or

3. byreducingbenefitsofanon-PBGC-coveredplanonapro-ratabasistomakeitfullyfunded.

to teRminate oR not to teRminate?

Whenaplansponsordecidestoterminateaplan,itisusuallybecausetheplandoesnotprovideenoughvalueforthecostsandrisksofmaintainingit.Planterminationsultimatelyeliminatethecostoftheplanonthecompany’sfinancials.However,aplanterminationmaybecost-prohibitiveforanunderfundedplan.Thisisespeciallytrueinlowinterestrateenvironments,inwhichlumpsumsandannuitypurchasesbecomemoreexpensive.Inshort,aplanterminationhasahigherexpectedcostbutalowerlong-termmarketriskduetoitsshortertimeframe.Theplansponsormustdecidewhetherit’sworththecostto

moving foRwaRd witH a Plan teRmination

Oncethedecisionismadetoproceedwithaplantermination,itisnecessarytodevelopaterminationstrategy.First,theplansponsorneedstoestablishaterminationdate.Second,itshouldbudgetcontributionstofullyfundtheplanbythatdate,keepinginmindthattheultimatecosttoterminatetheplanissetbythedistributiondateratherthantheterminationdate.Andthird,itshouldreviewitsassetallocationandadjustforashorterinvestmenthorizon.Aninvestmentstrategythatmitigatesassetfluctuationsusuallyworksbest.Ideally,thegoalistofullyfundtheplanbytheterminationdateandallowinvestmentperformancetocoveranyincreaseinbenefitliabilities

terminatetheplan,orifit’sbettertotakeanalternatestrategy.

Ifaplansponsordecidesthataplanterminationistooexpensive,ithasotheroptionstoreducethecostsandrisks.Themostcommonwayistofreezetheplan.ForaDCplan,thismeansnomorecontributions.ForaDBplan,thismeansnomoreaccruals.AfrozenDBplanmaystillrequirecontributions,buttheywillbelessthananongoingplanwithcontinuedaccruals.Inthisscenario,theplanwouldcontinueuntiltheplanisfullyfunded,whichcouldtakeseveralyears.(UnderthePensionProtectionAct,therulesaredesignedtofundtheplanoversevenyears.)Thisstrategyresultsinalowerexpectedcostbutahigherlong-termmarketriskduetoitslongertimeframe.

1DefinedbenefitplansthatarenotcoveredbythePBGCinclude,butarenotlimitedto,planscoveringonlysubstantialownersandplansmaintainedbyprofessionalserviceemployers(definedinERISA§4021)withnevermorethan25activeparticipants.

Photo by Thinkstock

A plan termination has a higher expected cost but a lower long-term market

risk due to its shorter timeframe.”


makingtheirdetermination.Often,noticesmaybecombined.

Forexample,the204(h)noticeandtheNoticeofAnnuityInformationmaybeincludedintheNoticeofIntenttoTerminate.Similarly,anERISA101( j)noticeinformingparticipantsofbenefitrestrictionsprohibitingadditionalaccrualswillsatisfythe204(h)noticerequirement.

administRation duRing tHe Plan teRmination PRoCess

Untiltheplanhasofficiallyterminatedandassetshavebeendistributed,itisnecessarytoadministertheongoingplan.Thisincludesprocessingnewretirees,collectingcontributions,investingplanassets,makingparticipantloans,andfilingIRSandPBGCforms.

PlansponsorsofPBGC-coveredplansshouldalsoprepareforaPBGCaudit.ThePBGCwillauditallplanswithmorethan300participants,planswithanindicationofproblemsandplansthatdistributebenefitsbeforefilingaStandardTerminationNotice.ThePBGCalsorandomlyselectsplanswithfewerthan300participantstoaudit.

afteR tHe Plan teRmination

Finally,plansponsorsshouldmaintainrecordsthatdemonstratecompliancewithERISA§4041forsixyearsafterPBGCForm501isfiled.

Lauren Okum, ASA, EA, MAAA, MSPA, is the owner and actuary of Premier Actuarial Solutions in San

Francisco. She has 20 years of experience in the actuarial profession. She graduated summa cum laude with highest distinction in Actuarial Science from the University of Illinois and Urbana-Champaign and attended Harvard Business School for her MBA.

(duetoagingand/orinterestratechanges)betweentheterminationdateandthedistributiondate.

Indevelopingastrategyforplantermination,keepthefollowinginmind:1. PBGC-coveredplansmaydeduct

thecontributiontofullyfundtheplanin the year of plan termination.

2. Plansthatterminatewithexcessassetsaresubjecttobothanexcisetaxandfederalincometax.Whiletherearewaystomitigatethesetaxes,itisgenerallydesirabletoterminatetheplanwithoutexcessassets.

tHe Plan teRmination timeline

Thefirststepforaplanterminationistogetorganized!Aplanterminationrequiresaresolution,planamendments,participantnotices,governmentfilingsandannuitybidstobepreparedanddeliveredonatimelybasis.Someofthedeadlinesmaybemovingtargets,sincetheydependonresponsesfromexternalentities,soitisimportanttomonitorthesedeadlinescarefully.

Thefollowingitemsarerequiredforallstandardplanterminations:• Boardresolutiontoestablisha

terminationdate.• Planamendment(s)tofreeze

participationandbenefitaccruals(ifplanisnotalreadyfrozen),toreflectanylawchangessincetheplanwaslastamendedandtomakeanydesiredplanchanges(e.g.,offerlumpsumdistributionsifcurrentlynotavailable).

• 204(h)noticestoinformaffectedparties2ofthebenefitfreeze.

• Distributionpackagestoprovideaffectedpartieswithrequirednoticesandallowthemtoelecttheirbenefitoptions.

• Distributionofplanassetsassoonas“administrativelyfeasible.”Generally,thismeanswithinoneyearoftheterminationdate.However,iftheplaniscovered

bythePBGCand/ortheplansponsorappliesforafavorabledeterminationletterfromtheIRS,thendistributionmustbebythelaterof180daysafterthePBGC’sreviewperiodor120daysafterreceivingafavorabledeterminationletter.

ThefollowingitemsarerequiredforcompletingastandardplanterminationwiththePBGC:• NoticeofIntenttoTerminateto

informaffectedpartiesandanyaffiliatedunionoftheproposedplanterminationandtoprovideinformationabouttheterminationprocess.

• NoticeofPlanBenefitstoinformaffectedpartiesoftheirbenefitsandhowtheywerecalculated.

• StandardTerminationNotice(PBGCForm500,includingScheduleEA-S)tonotifythePBGCoftheplantermination.

• NoticeofAnnuityInformationtoprovideaffectedpartieswithinformationabouttheannuityproviderifbenefitsaretobedistributedinanannuityform.

• ScheduleMP(ifapplicable)tonotifythePBGCofmissingparticipants.

• NoticeofAnnuityContracttoprovideparticipantselectingannuitieswithdetailsregardingtheannuitypurchase.

• Post-DistributionCertification(PBGCForm501)tocertifytothePBGCthatthedistributionofplanassetshasbeenproperlycompleted.

ThefollowingitemsarerequiredifaplansponsordecidestorequestafavorabledeterminationletterfromtheIRS:• NoticetoInterestedPartiesto

informaffectedpartiesoftheplansponsor’sintenttofileforafavorabledeterminationletterandtheirrightsinconjunctionwiththeplantermination.

• ApplicationforDeterminationforTerminatingPlan(IRSForms5310and6088)toassisttheIRSin

2Affectedpartiesincludeplanparticipants,beneficiariesofdeceasedparticipants,andalternatepayeesofQDROs.

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Cover story

31www.asppa.org/pc

Pay No Attention

to the Fees Behind the

CurtainBY steve sullivan

he bottom line is, record keeping services are not free,” says Stephen Saxon, an ERISA attorney with the Groom Law Group in Washington, DC.

This, of course, comes as no surprise to the specialists who get paid to provide record keeping services for 401(k) plans. It may, however, be

big news to the plan sponsors and participants who actually thought they were free. That’s because the fees

“T


shareexceedsthevalueoftheservices,iftherecordkeeperjustkeptallthemoney,theircompensationwouldbedeemedexcessive,”saysSaxon.“Under408(b)(2)thatneedstobedisclosed.Andifyourcompensationisexcessive,youcan’trelyonthedebtexemptionunder408(b)(2).Sowhatdoyoudo?”

Asarecordkeeper,youcanputthemoneyintoanERISAbudgetaccountandagreetopaynotonlyyourownfeesbutthefeesofalltheotherconsultants—attorneys,accountants,advisors—associatedwiththeplan.Or,iftherevenueisstilldeemedexcessive,youcanpayitbackintotheplanparticipants’accounts.

“Exactlyhowyou’ddothatisadifferentissue,butthereisthatpossibilityandit’shappening,”Saxonsays.“Ifyoudon’t,itjustgoesbackinthemutualfund’spocket.Thefundhasauthorizedthispaymenttogoout.Tomeit’sstupidtopayitbacktothemutualfund.Itdoesn’tguaranteethatyou’regoingtoimprovethefund’sperformancesotomeit’sstupidtopayitbacktothemutualfund.That’smoneythat’smovedoutsidethemutualfund.”

AbenefitalertfromtheShipman&GoodwinlawfirminMay2013raisedafewquestionsaboutthiscourseofaction:“Aretheycontributions?Ifso,thenshouldn’ttheybesubjecttotheInternalRevenueCode’snon-discriminationrules,andcontributionlimitssuchasInternalRevenueCodeSection415?Oraretheyinvestmentearnings,andifso,thenwasthereductionbythemutualfundauseofplanassets?”

Thealertpointsoutthatthird-partyadministratorswhopermitexcessrevenuesharingusuallydon’ttakeresponsibilityforallocatingit,butleavethedecisionuptothesponsor.Isthatsponsor’sactionasettloractorafiduciaryact?“WethinkthatuntiltheseissuesareansweredbyDOL,theIRS,andthecourts,”theauthorsofthealertsay,“itisriskytohavetheexcessrevenue

manyplanspayforrecordkeepingandadministrationhavealwaysbeenconcealedbehindacurtaincalledrevenuesharing,asystemthat—liketheGreatandPowerfulOz—makesitsmagicvirtuallyinvisible.

Invisible,thatis,untilnewDepartmentofLaborregulationsunderSection408(b)(2)ofERISAcamealonglastyearandrippedthecurtainaside.

Whatdiditreveal?Nothingheinous,justcomplicated.Revenuesharingisaperfectlylegalandusuallyefficientwayofpayingtherecordkeepers,attorneys,accountantsandotherconsultantsforadministeringdefinedcontributionretirementplansandmakingsuretheyrunsmoothlyandfollowtherules.What’simportantisforallthepartiesinvolved—plansponsor,planprovider,andthird-partyadministrators—tobeveryclearaboutexactlywhosemoneytherevenueshareisandwhenitpasseshands.

Revenuesharingisbasicallymoneythatmutualfundsarewillingtopaybecausetheydon’twanttoberesponsibleforparticipant-levelrecordkeeping.Becausetheycanpayrecordkeeperstoassumetheobligationofmaintainingtheaccountbalancesoftheparticipants,itreducesthemutualfund’sworkload;thefundcantreattherecordkeeperastheclientratherthanthethousandsofparticipantsintheplan.

Recordkeeperscalculatethefeeaccordingtothefund’sassets.Theyidentifyanumber,say22or25basispoints—whatevertheyneedinordertoprovidethenecessaryservicesandrunaprofitablebusiness.Themoneycangodirectlytotherecordkeeper,whoestablishesanERISAbudgetaccountfromwhichitsownandotherfeesarepaid.Ortheplanitselfcanestablishaseparatetrustandpaythefeesfromthat.

Aslongasthesystemhummedalongquietlybehindthecurtain,nobodyseemedtopaymuchattentiontoit.Butsomeplansponsorsbeganto

raisequestionsaboutaccountability.ClassactionlawsuitsledtotheDOL’s408(b)(2),disclosurerules,resultinginmoretransparencyandawholenewsetofquestions:• Nowthatweknowwhatthe

feesare,aretheyreasonableorexcessive?

• Doesreceivingrevenuesharemakeyouaplanfiduciary?

• Isrevenuesharingaplanasset?Partoftheproblemwith

revenuesharingisthatexcessivefeescanhappenwithoutanyonereallyknowingaboutit.Let’ssayacompanythathas$100millioninits401(k)planpaystherecordkeeper25basispoints—$250,000—foradministeringtheplan.Fastforward10years.Thecompanyisnowworth$1billion,andit’sstillpaying25basispoints,whichisnow$2.5million.Is$2.5millionstillreasonablecompensation?Therecordkeeper’scostshaveprobablygoneup;they’veprobablyaddedsomenewservicesandtechnology.Buthavetheyreallygoneupthatmuch?

“Atsomepoint,iftherevenue

Record keepers can avoid fiduciary status by establishing a separate ERISA account from which to disperse revenue sharing funds.”

33www.asppa.org/pc

sharingfundsfindtheirwayintotheplanandallocatedtoparticipantaccounts,andsponsorsshouldbeverycautiousabouttakingthisstep.”

AccordingtoAdamCantor,anattorneywithWolff&Samson,ERISAaccountsbenefitemployersbecauseplancostsdon’thavetobepaidfromcorporateassets.Andfundspaidintoitdon’tbecomeplanassets,astheywouldifthefundswerepaidintoaplantrust.Butadequatelyoverseeingtheseaccountsrequiresaheightenedlevelofdiligence.Thereareatleast10questionsthatneedtobeanswered:1. Whichemployeesorofficers

shoulddeterminewhatexpensesqualifyasadministrativeexpensespotentiallyeligibleforreimbursement?

2. Whatkindsofrecordsshouldberequestedfromtheplan’sserviceproviderstodocumentadministrativeexpenses?

3. Howdoesanemployerdeterminethattheadministrativeexpensesare“reasonable?”

4. Whatisthescopeofthecertificationthattheemployerisrequiredtomaketothe401(k)planproviderthattheexpensesareeligibleforreimbursement?

5. Istheemployerresponsibleforindemnifyingthe401(k)planprovideriftheexpensesarelaterdeterminedbyacourtortheDepartmentofLabortobeineligible?

6. Howshouldtheemployercoordinatetheuseofforfeitedcontributions(e.g.,unvestedmatchingcontributions)andERISAbudgetaccountbalancestopayforplanadministrativeexpenses?

7. Whathappensifthe401(k)planproviderdoesnotmakesufficientrevenuetomakeallocationstotheERISAbudgetaccountbuttheplanhaseligibleadministrativeexpensesthatcanbereimbursed?

8. Canpaymentbemadeinadvanceoftheservicesbeingperformed?

9. Howfrequentlyshouldthe

employerreviewthecontributionsanddisbursementsfromtheaccount?

10.Howshouldanemployerallocateayear-endbalance(ifcontributionsexceeddisbursements)intheERISAbudgetaccounttoparticipants?Theheightenedscrutiny

surroundingtheallegedexcessivenessof401(k)feeshasmademanysponsorswaryofusingrevenuesharingtopaythem.InarecentPIMCOsurveyofconsultantsservingDCplanswith$2.4trillionincombinedassets,85%saidtheywouldmovetomutualfundsthatdon’tuserevenuesharing.

“Clearly,plansaremovingtomutualfundswithzerorevenuesharingandtocollectiveinvestmenttrustswithzerorevenuesharing,”PIMCOexecutivevicepresidentanddefinedcontributionpractice

leaderStacySchaustoldPensions & Investments.“Webelievethistrendwillcontinue.”

OnecompanydoingexactlythatisReedElsevier,Inc.,aninternationalbusinesspublisherthatprovidestheLexis/NexisserviceintheUnitedStates.ReedElsevier’s401(k)planhasmorethan23,000participantsand$1.4billioninassets.Whenthecompanystartedlookingintoits401(k)andhowitsfeeswereallocated,itdiscoveredthattherevenuesharingwasnotonlymassivelycomplicatedbutinequitable.Itdecidedtosimplifythemenuofchoicesavailabletoparticipantsandincludeonlymutualfundsthatdidnotuserevenuesharing.

LynnFormica,directorofdebtcapitalmarketsandinvestmentsatReedElsevier,explainedtherationaletoconsultantsatNEPC,

fee levelization: technology Holds the key

to really accomplish participant fee levelization, there needs to be a sophisticated technology solution. in the past, record keepers took a monthly snapshot of a participant’s account to

calculate how much revenue sharing each participant paid and how much should be charged or credited to that account. While that’s cumbersome, it’s still easier than calculating and crediting accounts daily.

But monthly snapshots do not accurately reflect how much revenue sharing each participant paid due to market fluctuations, contributions and transactions that may have occurred during the month. a savvy participant could game the system by moving all investments to low-revenue sharing funds monthly when revenue sharing is calculated. though prohibitions against excessive trading due to the market timing scandals limit transactions (and most participants would not even know what to do), having this kind of loophole is a potential problem.

the three major providers who are making fee equalization available — transamerica, John Hancock and oneamerica — have limited the service to mid-market plans or those generally with more than $10 million in assets — although transamerica is just starting to offer the service to smaller plans. transamerica calculates the revenue sharing paid by each participant daily and then credits or charges their accounts based on the overall charge needed to run the plan monthly. if the plan requires 25 Bps by agreement with the plan sponsor, and the investments in a participant’s account generated 35 Bps, that participant’s account would be credited with 10 Bps. similarly, a participant whose investments paid 15 Bps of revenue sharing fees would be charged 10 Bps. according to George Revoir, vp at John Hancock Retirement services, “it’s a technology solution.” that may be why very few providers are offering it — though everyone claims to be “six to nine months away from making a solution available.” — fred Barstein, editor in chief, NAPA Net the Magazine


provider,saidthatifrecordkeepersestablishseparateERISAbudgetaccountstoreceivepaymentsfromthemutualfundsintheplan,thosefundsaren’tconsideredplanassetsandtherecordkeeperwon’tbecomeaninadvertentfiduciarytotheplan.

Saxonisquicktopointoutthattheissueisaboutdisclosure,notfairness,andthatcurrentlyfeeequalizationisnotrequiredandmaynotmakesenseforreallysmallplanswheretheadministrativecostsmightoutweighthebenefits.

Steven Sullivan is a freelance writer in Baltimore, MD.

aMassachusetts-basedfirm:“Toillustratetherevenuesharingproblem,Ididananalysisofparticipantswithdifferentaccountbalancesintheplan(forinstance,$10,000,$60,000,$100,000).Dependingonassumptionsofwhereparticipantswiththesameaccountbalanceswereinvested,onecouldpayanywherefrom0%to0.37%annuallytowardplancosts.Ona$60,000balance,thattranslatedto$0to$186ayear,whiletheactualcosttorecordkeeptheiraccountswascloserto$50perparticipantperyear.Itwasclearthatpeopleincertainfundswerepayingmorethantheirfairshareofplancosts.”

Instead,Formicacalculatedtheplan’srecordkeepingcostsanddecidedtochargeparticipantsaflatquarterlyfeeof$12.50.It’shardtogetmoretransparentthanthat.

Soplansponsorsandproviders,asplanfiduciaries,needtomakesurethatthefeespaidfromrevenuesharingaren’texcessiveandthattheamountofthepaymentsdoesn’tinfluencetheselectionoffunds.

Thelatestwordforrecordkeepers—thoughitmayormaynotbethefinalword—wasdeliveredinJuly2013bytheDOL’sEmployeeBenefitSecurityAdministrationinAdvisoryOpinion2013-03A.Theopinion,involvingSaxon’sclient,aninsurance

sec registration may be next for record keepers

Will record keepers need to register with the securities and exchange

commission if they are receiving payments from mutual fund companies? last summer the sec indicated that it would “ask for information on third party administrators, and may use this information to consider whether entities that provide these services are appropriately registered or exempt from registration.” the question that seems to be piquing the agency’s interest is whether record keepers are receiving payments from mutual funds held in clients’ accounts to pay for services that the funds would have otherwise had to provide — and whether those payments are being made in compliance with the rules. stay tuned.

Part of the problem with revenue sharing is that excessive fees can happen without anyone really knowing about it.”

35www.asppa.org/pc

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Assessments are performed by CEFEX, Centre for Fiduciary Excellence, LLC.

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National Bene� t Services, LLC

North American KTRADE Alliance, LLC

Pension Financial Services, Inc.

Pension Plan Professionals, Inc.

Pension Planning Consultants, Inc.

Pension Solutions, Inc.

Pinnacle Financial Services, Inc.

Professional Capital Services, LLC

QRPS, Inc.

Retirement Planning Services, Inc.

Rogers Wealth Group, Inc.

RPG Consultants

SI Group Certi� ed Pension Consultants

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Summit Bene� t & Actuarial Services, Inc.

Tegrit Retirement Plan Services

TIAA-CREF

TPS Group

Warren Averett Bene� t Consultants, LLC

As of November 5, 2013


FeAture

Co-fiduciary Liability Under ERISA By R. BRADFoRD hUSS AND

NIChoLAS J. WhITE

fiduciaries can’t afford to mind their own business.

Photo by Thinkstock

37www.asppa.org/pc

rulesintheiradministrativeandinvestmentdecisions.

Becauseanentityorindividualcanbeeitheranamedorfunctionalfiduciary,theycanbeafiduciaryforoneplanpurpose,butnotanother.2Forthisreason,inmakingtheirdeterminationsregardingfiduciarystatusunderERISA,courtshavetocarefullyevaluatenotonlytheplan’sdocuments,butallofthefactsandcircumstancesoftheindividual’srelationshipwiththeplan.Thisspecificallyincludesananalysisoftheextenttowhichtheindividualexercisesdiscretionaryauthorityorcontrolovertheplanoritsassetsand,thus,whethertheindividualisafunctionalfiduciaryforoneormoreplanpurposes.

What Are a Fiduciary’s Fundamental Duties?

ERISAimposeshighstandardsuponplanfiduciaries.Thecourtshavereferredtothosedutiesas“thehighestknowntolaw.3ERISA§404(a)setsforththeprimarydutiesoffiduciariesasfollows:

“...afiduciaryshalldischargehisdutieswithrespecttoaplansolelyintheinterestoftheparticipantsandbeneficiariesand(A)fortheexclusivepurposeof:(i)providingbenefitstoparticipantsandtheirbeneficiaries,and(ii) defrayingthereasonableexpensesofadministeringtheplan;(B)withthecare,skill,prudenceanddiligenceunderthecircumstancesthenprevailingthataprudentmanactinginlikecapacityandfamiliarwithsuchmatterswoulduseintheconductofanenterpriseofalikecharacterandwithlikeaims...”Insummary,ERISA§404(a)

providesthatfiduciarieshaveadutytoactwithabsoluteloyaltytotheplan

Amongthemanypearlsofwisdomwereceivefromoureldersistheadmonitionto“mindyourownbusiness!”—inotherwords,respectotherpeople’s

privacy;don’tstickyournoseintheiraffairs.Itisprobablyfairtosaythatintheexperienceofmostofus,thisissoundadvice.

However,ifyouareanERISAplanfiduciary,mindingyourownbusinesscanbeabigmistake!Why?BecauseERISA,throughitsco-fiduciaryrules,imposesonplanfiduciariesadutytomindthebusinessoftheirfellowfiduciariesandtotakeactionwhentheybecomeawareoffactsindicatingthatthoseindividualshave,ormayhave,engagedinabreachoftheirfiduciaryduties.Undertheco-fiduciaryrules,an“innocent”fiduciarywhohasknowledgeofanother’sfiduciarybreachcanbeheldliableforthatbreach,eveniftheyarenotafiduciarywithrespecttothemattergivingrisetothebreach.

BeforedelvingintoadiscussionofERISA’sco-fiduciaryrulesandtheuniqueobligationstheyimpose,wewillfirstprovidesomebackgroundonhowonebecomesaplanfiduciaryandwhatthatstatusentailsintermsoffundamentalduties.

BaCkgRoundWho Are the ERISA Plan Fiduciaries?

UnderERISA,anindividualcanattainfiduciarystatusinthreeways:1. Theindividualcanbenamedas

afiduciaryintheplandocument(i.e.,theplanspecificallystatesthattheemployerwillbetheERISA§3(16)planadministrator).

2. Theindividualcanbenamedpursuanttoaprocedurespecifiedintheplandocument(i.e.,beingappointedastheinvestmentmanagerwhohasthediscretiontoselecttheplan’sinvestment

choices).13. Theindividualisa“functional”

fiduciarybecauseoftheactionstheytakewithrespecttoaplan.Specifically,ERISA§3(21)definesthetermfiduciaryintermsofafunctionaltestasfollows:apersonisafiduciarywithrespecttoaplanto the extenti. heexercisesanydiscretionary

authorityordiscretionarycontrolrespectingmanagementofsuchplanorexercisesanyauthorityorcontrolsrespectingmanagementordispositionofitsassets,

ii. herendersinvestmentadviceforafeeorothercompensation,directorindirect,withrespecttoanymoneysorotherpropertyofsuchplan,orhasanyauthorityorresponsibilitytodoso,or

iii.hehasanydiscretionaryauthorityordiscretionaryresponsibilityintheadministrationofsuchplan.(emphasisadded)

Thus,regardlessoftheirtitleorwhethertheyarementioneddirectlyorindirectlyintheplandocument,individualscanbecomefiduciariesbyvirtueoftheplanfunctionstheyperform.Forexample,membersofacompany’sboardofdirectorsmaythemselvesbefiduciariestotheextenttheyareresponsibleforappointingtheplan’sfiduciaries,sincetheyhavediscretionaryauthorityordiscretionarycontrolwithrespecttothemanagementoftheplan.Asaresult,theplansponsor,officersappointedtotheplancommitteesorotherwisedesignatedtomakeplandecisions,andthedirectorswhoappointplanfiduciaries,areallfiduciariesunderERISA.Therefore,theyaresubjecttothelaw’sfiduciary

1SeeERISA§402(a)(2)andGlazier & Glassworkers v. Newbridge Securities,93F.3d1171,1179(3dCir.1996).2“[I]tissettledthat‘[a]personmaybeafiduciarywithrespecttocertainmatters,butnotothers,forhehasthatstatusonlytotheextentthathehasorexercisesthe describedauthorityorresponsibility.”Severstal Wheeling Inc. v. WPN Corp.,No,10Civ.954(GWG),2011WL3849482,at*12(S.D.N.Y.Sep.1,2011)(quoting F.H. Krear & Co. v. Nineteen Named Trs.,810F.2d1250,1259(2dCir.1987).3Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan,793F.2d1456,1468(5thCir.1986); Donovan v. Bierwirth,680F.2d263,272n.8(2dCir.), cert. denied,459U.S.1069,103S.Ct.488,34L.Ed.2d631(1982).]


4Liss v. Smith,991F.Supp.278,297(S.D.N.Y.1998).5In Re WorldCom, Inc. ERISA Litig.,354F.Supp.2d423,445(S.D.N.Y.2005).6Notwithstandingtheuseoftheterm“co-fiduciary,”theERISAstatutedoesnotcontemplateasharingordelegationoffiduciaryresponsibility.Infact,eachco- fiduciaryremainsatalltimesfullyresponsibleforfulfillingtheparticulardutiesgivingrisetotheirownfiduciarystatus.(Acommonmisconception,baseduponsome recentmarketingtechniques,isthata“co-fiduciary”canrelieveanotherfiduciaryfromliability,wheninfactthatcanhappenonlyinthecircumstanceofadelegation byaplantrusteeofplaninvestmentauthoritytoabank,aninsurancecompanyoranadvisorregisteredundertheInvestmentAdvisorActof1940,thatspecifically acceptsfiduciarystatusinthisregardinwriting,sometimesreferredtoasa“Section3(38)fiduciary.”Thedutytomonitorand,ifnecessary,replacesuchafiduciary canneverbedelegated.)Rather,co-fiduciarystatusorliabilityimposesadutyonERISAplanfiduciariesnottoengageinactsthatfacilitatebreachesbytheirfellow fiduciaries,andtotakereasonableremedialactionwhenitisknownsuchbreacheshaveoccurred.Thecircuitcourtsaresplitontheissueofwhetherco-fiduciariescan sueeachotherforindemnityorcontributioninmakingaplanwholeforlossesresultingfromafiduciarybreach.

parametersofitsduties,issubjecttotheco-fiduciaryliabilityprovisionsof[ERISA]§405(a).”5Specifically,ERISA§405(a)imposesco-fiduciaryliabilityonallplanfiduciariesasfollows:

“Inadditiontoanyliabilitywhichhemayhaveunderanyotherprovisionofthispart,afiduciarywithrespecttoaplanshallbeliableforabreachoffiduciaryresponsibilityofanotherfiduciarywithrespecttothesameplaninthefollowingcircumstances:(1)ifheparticipatesknowingly

in,orknowinglyundertakestoconceal,anactoromissionofsuchotherfiduciary,knowingsuchactoromissionisabreach;

(2)if,byhisfailuretocomplywithsection404(a)(1)intheadministrationofhisspecificresponsibilitieswhichgiverisetohisstatusasafiduciary,hehasenabledsuchotherfiduciarytocommitabreach;or

(3)ifhehasknowledgeofabreachbysuchotherfiduciary,unlesshemakesreasonableeffortsunderthecircumstancestoremedythebreach.6

Undercircumstances1and2,

participantsandbeneficiaries,fortheexclusivepurposeofprovidingfortheirbenefits,andthesethingsmustbeaccomplishedundera“prudentperson”standard,whichisthelevelofanexpert.And,ifthefiduciarydoesnothavetheabilitytocarryouthisorherdutiesatthatlevel,thenERISA’sprudentpersonstandardrequiresthefiduciarytogooutandretaintherequisiteexpertisefortheplan.4ERISAdoesnotspecifically

describehowfiduciariesmustfulfilltheirduties.Rather,forsuchguidancefiduciariesmustturntoadvisoryopinionsandregulationsissuedbytheDepartmentofLabor(DOL)andcourtdecisions.

Co-fiduCiaRY liaBilitYLaw and Guidance

Asifthe“burdens”offiduciarystatuswerenotenough,“[E]veryERISAfiduciary,regardlessofthe

Under the co-fiduciary rules, an “innocent” fiduciary who has knowledge of another’s fiduciary breach can be held liable for that breach, even if they are not a fiduciary with respect to the matter giving rise to the breach.”

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7Free v. Briody,732F.2d1331,1336(7thCir.1984).8ERISA§405(a)(3).9FieldAssistanceBulletin2004-03(December17,2004).

federalcourtcaseinNewYork.InSmith v. Stockwell ConstructionCo.(W.D.N.Y,December10,2011),KevinSmithwasanemployeeofStockwellConstruction,Inc.andaparticipantinStockwell’sprofitsharingplan.Smithexecutedabeneficiarydesignationformnaminghisthen-spouse,DawnSmith,andhisfatherasbeneficiariesofhisplanaccount.Dawndidnotconsenttothedesignationofthefather.TheSmithslaterdivorced.Aspartofthemaritalsettlementagreement,theyeachwaivedanyinteresttheyhadintheother’sretirementplans.Kevindiedacoupleofyearslaterwithouteverhavingchangedhisplanbeneficiarydesignation.

Kevin’sfatherappliedtoStockwell,astheplan’sERISAadministrator,forthebalanceofKevin’splanaccount.HisclaimwasbasedonthefactthathewasadesignatedbeneficiaryandalsothattheSmithshadwaivedanyinterestineachother’sretirementplansaspartoftheirdivorce.Thecompanydeterminedthatthewaiverinthedivorcedecreewasenforceableandthatitalsoconstitutedaqualifieddomesticrelationsorder(QDRO).Onthatbasis,thecompanyapprovedthefather’sclaimforbenefitsandpaidhimtheentirebalanceinKevin’splanaccount.

WhenDawnfiledaclaimforKevin’splanbenefits,thecompanydeniedit.Dawnthenfiledsuitinfederalcourtagainstthecompany;HarryStockwell,Jr.,whowastheplantrustee;andtheplan’sTPA.Dawnalleged,amongothercausesofaction,thatthedefendantsbreachedtheirfiduciarydutiesunderERISAbyfailingtopayplanbenefitsinaccordancewiththeplan’swrittenterms.

Thefactswereundisputedwhenitcametothefiduciarystatusofthecompany.Pursuanttotheplan

tohousetheplan’sadministrativefunctions.Oneofthetrusteesproposedthatthebuildingbeconstructedbyaparticularcontractorwithoutcompetitivebidding.Whenanothertrusteequestionedthechoiceofcontractors,thebidamount,theimpactontheplan’sadministrativecostsandtheabsenceofcompetitivebidding,nosatisfactoryanswerswereprovided.Severalofthetrusteesvoicedconcernsthatgoingforwardonthisbasismightbeaviolationoftheirfiduciaryduties;however,amajorityofthetrusteeswerereadytovotetoconstructthebuildingasproposed.Inresponsetothequestionofwhattheminoritytrusteesshoulddointhiscasetoprotectthemselvesfromliabilityforafiduciarybreach,theDOLstated:

“[I]tisincumbentontheminoritytrusteestotakeallreasonableandlegalstepstopreventtheaction.SuchstepsmightincludepreparationstoobtainaninjunctionfromaFederalDistrictcourtundersection502(a)(3)oftheAct,tonotifytheLaborDepartment,ortopublicizethevoteifthedecisionistoproceedasproposed.If,havingtakenallreasonableandlegalstepstopreventtheimprudentaction,theminoritytrusteeshavenotsucceeded,theywillnotincurliabilityfortheactionofthemajority.Mereresignation,however,withouttakingstepstopreventtheimprudentaction,willnotsufficetoavoidliabilityfortheminoritytrusteesoncetheyhaveknowledgethattheimprudentactionisunderconsideration.

The Duty to Mind Your Co-Fiduciary’s Business: A Case Study

ThefullimpactofERISA’sco-fiduciaryrulescameintoplayina

co-fiduciaryliabilityapplieswhenafiduciaryknowinglyparticipatesinand/orconceals,orotherwiseenablesanotherfiduciary’sbreach.Thatprobablymakessenseandwouldbeexpectedbymostofus.Thatis,ifyouareafiduciaryandyouactimproperlywithrespecttoanotherfiduciary’sbreach,youshouldbeheldresponsiblefordoingso.However,circumstanceNo.3maybesomewhatofasurprise…andperhapsevenashocktosomeofus!Thisisbecauseitprovidesforthepossibilityofliabilitywhenafiduciarymerelyhasknowledgeofthefactsandcircumstancesofanother’sfiduciarybreach,evenifthatbreachinvolvesanaspectoftheplanoverwhichthefiduciaryhasnofiduciaryresponsibility.Thatis,liabilitycanbehadeveniftheindividualisnotanamedorfunctionalfiduciarywithrespecttotheplanmattersgivingrisetothebreach.Tosome,thismayseemsomewhatillogicalorotherwiseunfair,butitisthelaw.

Onceaplanfiduciaryhasknowledgeofanotherfiduciary’sbreach(oranimminentbreach),theonlywaythefiduciarycanavoidliabilityistoundertake“reasonableefforts”toremedythebreach.Courtcasesmakeclearthatonecannotavoidco-fiduciaryliability“bysimplydoingnothing.”7Theco-fiduciaryrulesimposethisdutyregardlessofwhethertheindividualhasfiduciarystatuswithrespecttothesubjectmatterofthebreach.8

AccordingtotheDOL,reasonableeffortsmightincludereportingthebreachtootherplanfiduciariesand/ortheDOL.9Ontheotherhand,simplyresigningasaplantrusteeislikelynotareasonablecourseofactioninresponsetobecomingawareofafellowfiduciary’sbreach.InInterpretiveBulletin75-5,FR-10,theDOLaddressedthesituationofplantrusteesproposingtouseplanassetstoconstructabuilding


The impact of ERISA’s co-fiduciary rules can be somewhat counterintuitive.”

thatthisknowledgecouldestablishliabilityforabreachco-fiduciarybasisand,therefore,DawnwasentitledtopursuehercomplaintagainstStockwell,Jr.Thecourtexplained:

ThatStockwell,Jr.didnothavediscretionoverthepaymentofthesebenefitsdoesnotshieldhimfromliabilityunder[ERISA§405(a)].‘[A]fiduciarymaybeliablefortheknownbreachofaco-fiduciary,evenwhenthebreachoccursinconnectionwithafunctionwhichdoesnotfallwithinthefiduciary’sdesignatedorundertakenresponsibilities.’Magnuson,2006WL2934391,at*21;In re Pfizer Inc.,ERISALitig.,No.04Civ.1007(LTS)( JFE),2009WL749545,at*14(S.D.N.Y.Mar.20,2009);In re PolaroidERISALitig.,362F.Supp.2d461,480(S.D.N.Y.2005)(“FiduciariesmaybeliableunderERISAsection405(a)eveniftheirco-fiduciary’sbreachisbeyondthescopeoftheirowndiscretionaryauthority.”);In re WorldCom,Inc.,ERISALitig.,354F.Supp2d423,445(S.D.N.Y.2005);seealsoSilberman v. Mut. Benefit Life Ins. Co.,138F.3d98,106(2dCir.1998)( Jacobs,J.,concurring)(“[A]co-fiduciary...maybeheldliableforanothertrustee’sbreachwithrespecttoassetsoverwhichthedefendantco-fiduciaryneverexerciseddominionorcontrol.”).Asaresult,Stockwell,Jr.’sawarenessoftheallegedbreachissufficienttopreservePlaintiff’sfiduciaryclaimagainsthimpursuanttoERISA§405(a)(3).Onthisbasis,thecourtdenied

Stockwell,Jr.’smotiontodismiss.Thismeantthateventhoughhedidnothaveauthorityregardingthedeterminationofplanbenefitsanddidnotparticipateinanydecisionsinthisregard,hecouldbeheldliablefortheallegedbreach,providedDawnestablishesthat:(1)thecompanybreacheditsdutytoproperlypay

documents,thecompanywastheplanadministratorunderERISA§3(16),andassuch,itwasthefiduciaryresponsibilityfordeterminingplanclaims,whichitdidinthiscase.Similarly,itwasundisputedthatStockwell,Jr.wasafiduciary,sincehewastheplantrustee;however,hisfiduciarydutieswerelimitedtoselectingandmonitoringtheplan’sinvestments.Undertheplan’swrittenterms,hedidnothaveauthoritytodetermineclaimsforbenefitsandtherewasnoallegationthathehadattemptedtoexercisesuchauthorityinthiscase.Rather,hesimplypaidbenefitsasdirectedbythecompany.Finally,itwasundisputedthattheTPA’sfunctionswerelimitedtoministerialandothernon-fiduciaryfunctionsand,therefore,itwasnotaplanfiduciary.ItwastheTPAthatprovidedDawnwithacopyofthecompany’swrittendenialofherclaim.AndStockwell,Jr.wascopiedonthatcorrespondence.

ThecourtdismissedthebreachoffiduciarydutyclaimagainsttheTPA,easilyconcludingthatitwasnotaplanfiduciary.Thecourtrefusedtodismisstheclaimagainstthecompany,findingthatastheERISA§3(16)planadministrator,itwasafiduciary.ThecourtalsofoundthatDawnSmithhadpleadfactssufficienttosupportaclaimthatithadbreacheditsfiduciarydutyinthiscase.

ButwhataboutStockwell,Jr.?Hearguedthatthebreachoffiduciarydutyclaimagainsthimshouldbedismissedbecausehetook

noactionindenyingDawn’sclaim;hepaidbenefitsasdirectedbythecompanyinwriting;andhisfiduciarydutieswerelimitedtoselectingandmonitoringtheplan’sinvestments.Therefore,sincehewasnotanamedorfunctionalfiduciarywithrespecttoanyaspectoftheplanotherthanselectingandmonitoringtheinvestments,Stockwell,Jr.arguedthathecouldnotbeheldliableforafiduciarybreachoccurringoutsidehisplan-designatedposition,suchasabreachwithrespecttothedeterminationofclaims.

Thecourtdisagreed.WhileacknowledgingthatDawn’scomplaint“describesnobehaviorbyStockwell,Jr.thatwouldamounttoabreachoffiduciarydutytoPlaintiff,”thecourtnotedthatDawnhadalsoarguedthatStockwell,Jr.wasliablefortheactionsofitsco-fiduciary,thecompany,pursuanttoERISA§405(a).Thecourtexplainedthat,astheplantrustee,Stockwell,Jr.couldnotbeheldliable“merelyforhavingbeencopiedontheletterto[theTPA]senttoPlaintiff,informingheroftheplanadministrator’sdecisionnottopaybenefits.”

However,thepleadingsshowedthatStockwell,Jr.wasawareofthecompany’sdecisionnottopaybenefitstoDawn.Specifically,DawnhadallegedthatcorrespondencewasexchangedwiththecompanyandtheTPA,whichrequestedinformationconcerningthedenialofbenefits,andthiswouldhaveputStockwell,Jr.onnoticethatthecompanywasdenyingDawn’sbenefits.Thecourtfound

41www.asppa.org/pc

10ERISA§405(a).11ERISA§405(a)(3).12Richard B. Roush, Inc. Profit Sharing Plan v. New England Mut. Life Ins. Co., 311F.3d581,585 (3dCir.2002).

benefits(anantecedentfiduciarybreachisrequiredforco-fiduciaryliabilitytoapply),10(2)Stockwell,Jr.wasawareofthebreach(actualknowledgeofafiduciarybreachisrequired),and(3)hetooknoactiontocorrectit.11“Actualknowledge”ofanERISAfiduciarybreachhasbeendefinedas“knowledgeofallrelevantfactsatleastsufficienttogive...knowledgethatafiduciarydutyhasbeenbreachedoranERISAprovisionviolated.”12

ConClusionTheimpactofERISA’sco-

fiduciaryrulescanbesomewhatcounterintuitive.Thatis,youcanmeetERISA’shighstandardswithinthescopeofyourownfiduciaryresponsibilities,butstillbeliableforthebreachesofotherfiduciariescommittedwithrespecttoanaspectoftheplanoverwhichyoudonothavefiduciarystatus.ThisisbecauseERISA’sco-fiduciaryrulesoperatesuchthatyouarenotaffordedtheluxuryofmindingyourownfiduciarybusiness.Planfiduciarieshaveanaffirmativedutytokeeptheir

eyesopenandtotakereasonableremedialactionwhentheybecomeawareofactualorpotentialbreachescommittedbytheirfellowfiduciaries.

R. Bradford Huss is a Director of Trucker Huss, APC. He is a Charter Fellow of the American College of

Employee Benefits Counsel, a senior advisor of ASPPA Government Affairs Committee and a past member of the Board of Directors of ASPPA. Brad frequently speaks and writes on ERISA litigation and fiduciary responsibility matters.

Nicholas J. White is Special Counsel with Trucker Huss, APC. He is a Fellow of the American College of

Employee Benefits Counsel, a member of ASPPA Government Affairs Committee and a past member of both the Executive Committee and the Board of Directors of ASPPA. Nick is a frequent speaker and writer on a wide range of employee benefits topics.

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Plan fiduciaries have an affirmative duty to keep their eyes open and to take reasonable remedial action when they become aware of actual or potential breaches committed by their fellow fiduciaries.”


FeAture

In the wake of the Supreme Court’s Windsor decision, difficult issues may arise in states where

same-sex marriages are not permitted or where the retroactive

effect of Windsor is at issue. Here’s a closer look at where

things stand.

B

The Post-Windsor World: Plan Administration and Same-Sex Marriages

yanarrow5-4margin,theU.S.SupremeCourtonJune26,2013,overturnedSection3ofthefederalDefenseofMarriageAct(DOMA)inthecase,United States v.

Windsor.1Section3ofDOMAhadprovidedthatonlyindividualsinopposite-sexmarriageswererecognizedas“spouses”and“married”forpurposesoffederallaw.Thisprovisionmarkedasubstantialchangetofederallaw,affectingtheretirementplanrulesunderERISAandtheInternalRevenueCode.

WhydidtheSupremeCourtoverturnSection3ofDOMA?IntheWindsordecision,JusticeKennedysummarizesthemajority’sview:2

BY ted RiCe

43www.asppa.org/pc

or“state-of-residency”rulewouldapply.

Astate-of-celebrationrulelookstowhetheramarriageisvalidlyrecognizedwhereitwasperformed.Forexample,Minnesotanowallowssame-sexmarriagesandthereforesame-sexcouplesmarryinginMinnesotaareenteringintovalid,legalmarriagesunderMinnesotalaw.Underastate-of-celebrationrule,thesesame-sexmarriageswouldberecognizedforfederallawpurposesevenifthemarriedcouplemovedfromMinnesotatoanotherstatethatdoesnotrecognizesame-sexmarriages.

Astate-of-residencyrulelookstowhethersame-sexmarriageisrecognizedinthestateinwhichacouplelives.Forexample,Wisconsindoesnotrecognizesame-sexmarriages.Asame-sexcouplecouldbemarriedinMinnesotaandworkinMinnesotabutliveinWisconsin.If

Washington,DC,allowsame-sexmarriages:California,Connecticut,Delaware,Hawaii,Illinois,Iowa,Maine,Maryland,Massachusetts,Minnesota,NewHampshire,NewJersey,NewYork,RhodeIsland,VermontandWashington.InNewMexico,statelawissilentonsame-sexmarriages,andsomecountiesareissuingmarriagelicenseseithervoluntarilyorbycourtorder.Severalotherstatespermitdomesticpartnershipsorcivilunions.

AgainstthisbackdropofdifferingstatelawsandthefactthattheWindsordecisiondidnotchangeSection2ofDOMA,regulatoryguidance(andperhapsfuturecourtdecisions)isneededtoaddresscertainbenefitplanadministrativeissues.Tohelpclarifythetreatmentofsame-sexmarriagesunderemployeebenefitplans,theInternalRevenueServiceandDepartmentofLaborhaveissuedguidancetohelpclarifythetreatmentofsame-sexmarriagesunderbenefitplans,specificallyIRSRevenueRuling2013-17andDOLTechnicalRelease2013-04.Atthetimeofthiswriting,however,certainissuesremainunresolvedandareexpectedtobeaddressedinadditionalregulatoryguidance.

iRs Rev. Rul. 2013-17: inCome tax tReatment

AftertheWindsordecision,akeyplanadministrativeissuethatneededtobeaddressedwashowaparticipant’sstateofresidencywouldaffectthetreatmentofasame-sexmarriagesinceonly14statesrecognizesame-sexmarriages.Regulatoryguidancewasneededtoclarifyadministrativerulesfordeterminingwhetherasame-sexmarriageisvalidinotherstatesthatdonotrecognizesame-sexmarriage.TheIRSespeciallyneededtoclarifywhetherfromaplanadministrativestandpointaso-called“state-of-celebration”rule

TheclasstowhichDOMAdirectsitsrestrictionsandrestraintsarethosepersonswhoarejoinedinsame-sexmarriagesmadelawfulbytheState.DOMAsinglesoutaclassofpersonsdeemedbyaStateentitledtorecognitionandprotectiontoenhancetheirownliberty.ItimposesadisabilityontheclassbyrefusingtoacknowledgeastatustheStatefindstobedignifiedandproper.DOMAinstructsallfederalofficials,andindeedallpersonswithwhomsame-sexcouplesinteract,includingtheirownchildren,thattheirmarriageislessworthythanthemarriagesofothers.Thefederalstatuteisinvalid,fornolegitimatepurposeovercomesthepurposeandeffecttodisparageandtoinjurethosewhomtheState,byitsmarriagelaws,soughttoprotectinpersonhoodanddignity.Byseekingtodisplacethisprotectionandtreatingthosepersonsaslivinginmarriageslessrespectedthanothers,thefederalstatuteisinviolationoftheFifthAmendment. Let’sstepbackandhighlightthe

partofDOMAthatwasoverturnedandthepartthatremainslaw:• Section3ofDOMAwasover-

turned.Ithaddefinedmarriageforfederallawpurposesasopposite-sexmarriagesonly.

• Section2ofDOMAwasnotoverturned.Itassertsthatnostateisrequiredtorecognizesame-sexmarriagesperformedinotherstates.

SincetheWindsordecisiondidnotoverturnSection2ofDOMA,retirementplanadministrativequestionsremained,suchashowsame-sexcoupleswhoweremarriedinastaterecognizingsame-sexmarriagewouldbetreatediftheymovedtoastatethatdoesnotrecognizesame-sexmarriage.

AsofNov.30,2013,16statesplus

1 United States v. Windsor,570U.S.___,133S.Ct.2675(2013).2AsnotedintheparagraphincludedfromJusticeKennedy’sopinion,themajorityreliedontheFifthAmendmenttotheConstitution.TheFifthAmendment,ratifiedin 1791,includes,amongotherprovisions,theprohibitionthatnopersonshallbedeprivedoflibertywithoutdueprocessoflaw.

As a practical matter and to help avoid discrimination concerns, plans should require the same documentation of marriage for same-sex couples as for opposite-sex couples.”


3 IRSRev.Rul.2013-17,2013-38IRB201,isfoundatthislink:http://www.irs.gov/irb/2013-38_IRB/ar07.html(lastvisitedonDec.16,2013).4TheseFAQsmaybefoundatthislink:http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples(lastvisitedonDec.16,2013).5 TheseFAQsmaybefoundatthislink:http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Registered-Domestic-Partners-and-Individuals-in-Civil- Unions(lastvisitedonDec.16,2013).6 IRSRevenueRuling58-66,1958-1C.B.60.7DOLTechnicalRelease2013-04maybefoundatthislink:http://www.dol.gov/ebsa/newsroom/tr13-04.html(lastvisitedonDec.16,2013).

toplanssubjecttoERISA.TheDOLstatedtherulethisway:

… the term “spouse” will be read to refer to any individuals who are lawfully married under any state law, including individuals married to a person of the same sex who were legally married under any state law, including individuals married to a person of the same sex who were legally married in a state that recognizes such marriages, but who are domiciled in a state that does not recognize such marriages. Similarly, the term “marriage” will be read to include a same-sex marriage that is legally recognized as a marriage under any state law.

Plan administRative RulesBasedontherecentregulatory

guidance,thefollowingadministrativerulescanbesummarized:• Fordefinedcontributionplans,

deathbenefitswillbepaidtoaparticipant’ssame-sexspouseunlesswaivedbythespouse(thatis,thesame-sexspousemustconsenttotheparticipant’sdesignationofanon-spousebeneficiary).Asapracticalmatterandtohelpavoiddiscriminationconcerns,plansshouldrequirethesamedocumentationofmarriageforsame-sexcouplesasforopposite-sexcouples.

• Forplanssubjecttoannuityrequirements,includingallpensionplans,aqualifiedjointandsurvivorannuitymustbeprovidedtotheparticipant’ssame-sexspouseunlessthespousewaivestherighttothebenefit.Suchplansalsomustrequirespousalconsentforplanloans.

• Same-sexspousesarepermittedspousaldistributionandrolloveroptionsuponaparticipant’sdeath.Includedarepermissiblehardshipsunderthesafeharbordefinitionfor401(k)and403(b)

IRSissuedRev.Rul.2013-17,3alongwithFAQsforsame-sexmarriedcouples4andforregistereddomesticpartnersandindividualsincivilunions.5Inthisguidance,theIRSadoptedthestate-of-celebrationruleinsteadofthestate-of-residencyrule.

Rev.Rul.2013-17specifiedthatforfederaltaxpurposes,theIRSwilllooktostateorforeignlawtodeterminewhetherindividualsaremarried.Inrecognizingthemarriagesofsame-sexspousesvalidlyenteredintoadomesticorforeignjurisdiction,theIRSreliedonalong-standinggeneralrule6thatifacoupleismarriedvalidlyunderstateorforeignlaw,theIRSwillrecognizethemarriageforfederalincometaxpurposes.

Rev.Rul.2013-17providedthefollowingrulesforqualifiedretirementplans,effectiveSept.16,2013.• Definition of “spouse” —a

planmusttrustasame-sexspouseasaspouseforfederaltaxpurposesrelatingtoqualifiedplans.

• State-of-celebration rule—aqualifiedretirementplanmustrecognizeasame-sexmarriagethatwasvalidlyenteredintoinajurisdictionwhoselawsauthorizethemarriage,evenifthemarriedcouplelivesinadomesticorforeignjurisdictionthatdoesnotrecognizesame-sexmarriages.

• Domestic partnerships and civil unions are not marriages—apersonwhoisinaregistereddomesticpartnershiporcivilunionisnotconsideredtobeaspouseunderaqualifiedretirementplan,regardlessofwhetherthatperson’spartneristhesameoroppositesex.

dol teCH. Rel. 2013-04: eRisa Plan ConsideRations

OnSept.18,2013,theDOLissuedTech.Rel.2013-04,7whichappliedthestate-of-celebrationrule

astate-of-residencyrulewasappliedforplanadministrationpurposes,thecouplewouldnotbedeemedtobemarriedsincethestateoftheirresidencydoesnotrecognizesame-sexmarriage.

Fromanadministrativestandpoint,thestate-of-celebrationruleiseasiertoapply.FollowingtheWindsordecision,someindustrygroupsappealedtotheIRStoissueguidancethatthestate-of-celebrationruleshouldbeusedforadministrativeconvenience.OnAug.29,2013,the

examples of the state-of-celebration rule• xyz, llc pension plan, a qualified

dB plan, is maintained by xyz, llc, which operates only in Wisconsin, a state that does not recognize same-sex marriages. nonetheless, the plan must treat a participant who is married to a spouse of the same sex under the laws of Minnesota, a state that recognizes same-sex marriages, as married for purposes of applying the plan and federal tax requirements that relate to spouses.

• xyz, llc 401(k) plan, a qualified dc plan, provides that a participant’s account must be paid to the participant’s spouse upon the participant’s death unless the spouse consents to a different beneficiary. the plan does not provide for any annuity forms of distribution. the plan must pay this death benefit to the same-sex surviving spouse of any deceased participant. the plan is not required to provide this death benefit to a surviving registered domestic partner of a deceased participant. However, the plan is permitted to adopt plan language that makes a participant’s registered domestic partner the default beneficiary who will receive the death benefit unless the participant chooses a different beneficiary.

45www.asppa.org/pc

8 IRAsareestablishedpursuanttoInternalCodeSection408and,forRothIRAs,Section408A.9Refertoastate’sdepartmentofrevenueforspecificguidanceonthatstate’slawinthisarea.Forexample,Minnesotarulesaresummarizedatthislink: http://www.revenue.state.mn.us/businesses/withholding/Pages/Same-SexMarriage.aspx(lastvisitedonDec.16,2013).10OnSept.23,2013,theIRSissuedNotice2013-61providingguidanceforemployersandemployeestoclaimrefundsoradjustoverpaymentsofFICAtaxesand employmenttaxeswithrespecttocertainbenefitsandremunerationsprovidedtosame-sexspouses.IRSNotice2013-61maybefoundatthislink: http://www.irs.gov/pub/irs-drop/n-13-61.pdf(lastvisitedonDec.16,2013).11AtleastonesuchcasehasalreadybeendecidedaftertheWindsordecision.InCozen O’Connor, P.C. v. Jennifer J. Tobits, et. al,No.11-0045(E.D.Pa.2013),afederal courtinPennsylvaniarecognizedasame-sexmarriageasvalidinaplanbeneficiarydispute.12TheASPPAcommentletterprovidesdetailedinformationaboutopenissuesandisrecommendedreading.Itmaybefoundatthislink: http://www.asppa.org/Document-Vault/PDFs/GAC/2013/100413comm.aspx(lastvisitedonDec.16,2013).

“spouse”shouldnotberequiredinplandocuments.

• Anyplandocumentamendmentrequiredtocorrectagender-specificspousaldefinitionshouldnotberequiredbeforetheendoftheplan’snextremedialamendmentcycle.

• Plandistributionsunderpre-Windsordecisionrulesshouldbedeemedtobeincompliance.

• Pre-Windsoractuarialvaluationsshouldnotberequiredtoberevised.

• Newparticipantandspousenotificationsregardingthenewsame-sexmarriagerulesshouldnotberequiredbeyondanynecessarychangestoexistingforms,noticesordocuments.

• Nochangesshouldberequiredtotestingresultsforpriorplanyears.

Ideally,theserecommendationswillbeconsideredbytheIRS—buttheiradoptionisnotacertainty.

ConClusionTheimportantadministrative

changesrequiredbytheWindsordecisionandrelatedregulatoryguidancemustbeaddressedbyallplans,includingtheplansofemployerswhoseemployeesworkexclusivelyinastatethatdoesnotrecognizesame-sexmarriage.Plansponsorsandserviceprovidersshouldmonitortheissuanceofadditionalregulatoryguidanceforclarificationsofamendmentrequirementsandpotentialretroactiveeffectsofthenewrulesinvolvingsame-sexmarriage.

Ted Rice is an attorney/shareholder with Kelly, Hannaford & Battles P.A., in Minneapolis. He has

practiced employee benefits law since 1984. Ted’s clients include financial services companies and plan sponsors.

focusedonhealthandwelfareplans,itisworthnotingthattheWindsordecisiondramaticallyaffectedtheadministrationoftheseplanswithrespecttosame-sexmarriedcouples.Healthandwelfarebenefitsmaynowbeprovidedtosame-sexspousesonthesametax-favoredbasisastooppositesexspouses(thoughstatetaxtreatmentwillvarydependingonapplicablestatelaw9).SeeIRSNotice2013-17andIRSNotice2013-6110formoreinformation.COBRAandchange-in-statusrulesnowapplycomparablytosame-sexspousesastheyapplytoopposite-sexspouses.

Plan amendments and RetRoaCtive effeCt aRe oPen issues

TheIRSnotedinRev.Rul.2013-17thatitwillissueadditionalguidancedetailingplanamendmentrequirements(includingthetimingofanyrequiredamendments)andanynecessarycorrectionsrelatingtoplanoperationsforperiodsbeforefutureguidanceisissued(includingtheretroactiveeffectofnewguidance).AsofthiswritinginDecember2013,thisadditionalguidancehasnotyetbeenissued.

Thoughthestate-of-celebrationruleseemsprettyclear,difficultissuesmayariseinstateswheresame-sexmarriagesarenotpermittedand/orwheretheretroactiveeffectoftheWindsordecisionisatissue.Forexample,inheritanceofadeceasedparticipant’splanaccountscouldbecomecontestedinastatethatdoesnotrecognizesame-sexmarriage.11

InanOct.4,2013,commentlettertotheIRS,ASPPAaskedthatthefollowingmattersbeclarifiedviaadditionalguidance:12

• Asageneralrule,adefinitionof

plans,whichincludemedicalcare,tuitionexpensesandburialorfuneralexpensesforaparticipant’sspouse.Also,underthefacts-and-circumstancestest,resourcesreasonablyavailabletodeterminefinancialneedincludeassetsofaspouse.Applicablespousalbenefitsforsurvivorsofqualifiedmilitaryservicemembersarealsoavailable.Lastly,same-sexspousesareeligibleformorefavorabletreatmentundertherequiredminimumdistributionrules.

• Same-sexspousesmayobtainaqualifieddomesticrelationsorderupondivorcefromaparticipant.

• Stockownershipattributionrulesapplytosame-sexspousesandmayaffectHCEstatus,keyemployeestatusandcontrolledgroupstatus.

• Asame-sexspouseisconsidereda“familymember”withrespecttoparties-in-interestanddisqualifiedpersons.Asaresult,aplancouldexperienceaprohibitedtransaction.

otHeR PlansBecausegovernmentalandnon-

electingchurchplansarenotgovernedbyERISA,rulesmayapplythatlimitorreplacethestate-of-celebrationrule.Governingplanprovisionsshouldbereviewedtoaddresssituationsthatariseundertheseplans.Note,however,thatsurvivingsame-sexspouseswouldstillhavetheabilitytorolloveraccountsunderapplicableInternalRevenueCodeprovisions.

Individualretirementaccounts,whicharecreaturesoftheInternalRevenueCode,8willneedtobeadministeredtorecognizefederaltaxrulesapplicabletosame-sexspousesunderthestate-of-celebrationruleofRev.Rul.2013-17.

Thoughthisarticleisnot


atasteofthe2013ASPPAAnnualConference.Whetheryouwerethereornot,enjoytheride.Andmakeplanstobetherenextyear—rainorshine.

BoRzi addResses fiduCiaRY definition Rule

SpeakingtoacrowdedballroomofASPPAmembers,PhyllisBorzi,whoheadstheDepartmentofLabor’sEmployeeBenefitsSecurityAdministration,stronglydefendedDOL’songoingefforttoregulate

TThistimetherewasnohurricanetodisrupttravelplans,astherewasin2012.Nocanceledtourstoseethemonuments,theCapitolbuildingandtheWhite

House.AndnohunkeringdownwatchingsheetsofrainpummeltheGaylord’stoweringatriumwindows.

Thistimetheskiesweresunnyandtheweatherwaswarm.Inshort,itwasbacktonormalatthe2013ASPPAAnnualConferenceinOctober.More

than1,400attendeesgatheredtohearthelatestupdatesonlegislativeandregulatoryinitiativesinWashington,takepartin70workshopsandlearninglabs,hobnobwithindustryvendorsintheexhibithallandrenewtiestofriendsandcolleaguesfromacrossthecountryandfromeveryelementoftheretirementindustry.

Andthen,ofcourse,therewastheABBAtributebanddanceparty.Butthat’sanotherstory.

Thefollowingpagesprovide

By MIKE BUShNELL AND JohN oRTMANPhoToGRAPhy: JAMES TKATCh

FeAture

ASPPA Rallies for Retirement

‘asppa nation’ gathers in Washington, dc for the 2013 asppa annual conference.

47www.asppa.org/pc

averycomprehensivecost-benefitanalysis,thusdealingwithmanyofthecriticisms—somefair,somenot—thatourfirstproposalgot.”Borziaddedthatanypubliccommentperiodfollowingtheintroductionoftheproposalwouldbe“robust,”alongthelinesofwhathappenedfollowingtheregulatorycommentperiodin2010.Afterthoseregulationswerereleased,Borzisaid,herofficereceivedmorethan120commentlettersandheldhundredsofmeetings,oftenfromthesamepeoplerepresentingmultipleorganizations.

“Whilesomecommentarywasofthe‘ justforgetaboutthewholething’nature,wegotsomeverygoodinputthathashelpedusmake,insomecases,

thekindofadviceplanadvisorscangivetoclients,threeyearsafterherofficescuttledanevenwider-rangingproposalamidafirestormofcriticism.

BorzitoldthecrowdthatherofficewasclosetofinishingadraftoftheregulationthatwouldamendthedefinitionoffiduciaryunderERISA,thoughshedeclinedtogiveamorespecifictimeframe.Callingtheregulationher“highestpriority,”shesaidtheregulationswouldseektoaddresspotentialconflictsofinterestsfromplanadvisors,ortoatleastrequirethattheydisclosethecommissionstheystandtogainfromsteeringparticipantstowardcertainplanadministrators.“Thereiseconomicharminconflicted

investmentadvice,”shedeclared.Opponentsoftheregulations,

includingASPPA,havesaidpreviouslythattheregulationswouldleadtounintendedconsequencesandcouldeffectivelykeepmanysmallplanadvisorsfrommakingalivinginthefieldanymore.

“Whenwefinallyissuetheproposal,itwillbeaccompaniedbyanextremelyrobusteconomicanalysis,”Borzisaid.ThefirststepwillbesubmittingafinalizedplantotheOfficeofManagementandBudgetforaneconomicimpactstudy.ShesaidsheexpectstheOMBtoreactpositively.

“Thisisarulethatisgoingtohelpsmallsaversandsmallemployers,”Borzisaid.“Wewilldo

ASPPA Rallies for Retirement

Opposite page: Outgoing ASPPA President Barry Levy (right) passes the gavel to 2013–2014 President David Lipkin.

Top: ASPPA’s Government Affairs and General Counsel staff joined executive director/CEO Brian Graff for the packed general session on developments in Washington.

Left: ASPPA’s Ronald Triche led a workshop on the impact on retirement plans of the Supreme Court’s Windsor decision.


paymentorallocationofexpensesandself-dealingbytheemployerorotherfiduciaries.

TheDOLroutinelyimposesa20%penaltyoftherecoveryamountinauditsthataredeemed“settled.”Toavoidthatpenalty,Ashtonrecommended,don’tenterintonegotiations,don’tindicateyourcomplianceanddon’tstateyouaresettling.

TPAsandplansponsorsshouldalsobeawarethattheDOLislookingmoreinto408(b)(2)complianceandfailurestofollowinvestmentpolicystatements,Ashtonnoted,andaskingaboutwhetherplancommitteeshavehadproperfiduciarytraining.Thoughnotalegalrequirement,fiduciarytrainingisgoodpracticeandhighlyrecommended.

TPAswalkafinelinewhenclientsbecomeinvolvedincriminalinvestigations,sincetheDOLcouldseektoimplicatetheTPAaswell.SoTPAsshouldconsultwithlegalcounselaswellifneeded,Ashtonsaid.

tHe view fRom CaPitol HillWiththefederalgovernment

shutdownfreshineveryone’smindsandtaxreformstillloomingasalegitimateconcern,attendeespackedthemainballroomfortheWashingtonUpdatefromASPPAexecutive

staveoffscrutinyfromtheDOL.Anytipthatyoumayhaveaprohibitedtransactioncanflaganaudit.Othertriggersincludebankruptcy,unfavorablemediacoverageandunusualassetinformationreportedontheForm5500,suchasasignificantamountreportedas“otherassets.”

Ascarefulanddiligentasaplansponsormaybe,animposingletterorsurprisevisitfromaDOLagentisalwaysapossibility,andplansponsorsshouldbepreparedandarmedwithknowledge.

Sohowdoesaplansponsorsurviveanaudit?Ashtonofferedsomeadvice:• ensurethatyousupplyalldocuments

upfront;producingdocumentslaterwillresultinfurtherscrutiny;

• requestanextensionifnecessary;• complywiththerequest;• reviewalldocumentsbeforeturning

themover;and• workwithERISAcounselasneeded

toprepareforlikelyquestionsbeforeinterviewstakeplace.

Ifaplansponsoruncoversanyviolations,self-correctthembeforeturningoverthedocumentstoinvestigatorsandbesuretodisclosethosecorrectivemeasurestotheagent.AlsobearinmindtheDOLlooksforuntimelydepositsofemployeedeferralsandloanrepayments,improper

substantialchangesintheframeworkoftheregulationitself,”Borzisaid.Sheaddedthatanyproposalwillincludesubstantiveexemptionsfromconflict-of-interestandfeedisclosureregulations.

“Peoplearealwaysaskingmewhenwe’regoingtoseeit,”shesaidoftheregulation.“Whenit’sready,itwillbeproposed.Butwewanttogetitright.”

suRviving a dol auditThirdpartyadministratorsare

concernedabouthowtobettereducateplansponsorsinmakingprudentchoicesabouttheirretirementplaninordertoavoidscrutinyfromfederalofficials.SowhatshouldTPAsdo?

AttorneyBruceAshtonofDrinker,Biddle&Reath,LLPaddressedthisquestionduringapopularworkshopsession.AshtonofferedadvicetoTPAs,including:• encouragefrequentandclear

communicationbetweenplansponsorsandparticipantstoavoiddisgruntlement;

• don’tengageinprohibitedtransactions;and

• staycompliantinyourplan.TheDOLwilltakeanycomplaint

fromaparticipantseriously,Ashtonnoted,soit’suptoTPAsandplansponsorsto“runthetraps”inorderto

Phyllis Borzi, head of the DOL’s Employee Benefits Security Administration, addressed her agency’s effort to expand the definition of a fiduciary.

Rep. George Miller (D-CA), senior Democrat on the House Education and Workforce Committee, meets with ASPPA members Mike Preston, Peter Gould and Wei Zahn in his Capitol Hill office.

49www.asppa.org/pc

director/CEOBrianGraffandtheASPPAGovernmentAffairs/GeneralCounselstaff.

GrafftoldtheaudiencethatASPPAhadpreparedforabattleonCapitolHillthispastfalloverreformingthetaxcode,butthattookabackseattothe17-dayshutdownofthefederalgovernmentandthedebateovertheimplementationoftheAffordableCareAct.

Thatsaid,Graffexpressedconcernthattaxreformcouldstillbeagambitinthenextroundofbudgetnegotiationsorafterthe2014midtermcongressionalelections.“Therealityis,noneofusknowtheanswerastowhenwewouldbeabletoputawaytaxreform,”Graffsaid.“You’dthink[membersofCongress]wouldhavelearnedtheirlessontonotdothisagain…butweworrythatthegovernmentcouldshutdownagainbecauseitdidn’tseemtoodisastrousthistime.”

Earlierthisyear,ASPPAspokeoutagainstaproposalfromtheObamaadministrationthatwouldcaptax-deferredretirementaccountsat$3million,sayingitwoulddiscouragebusinessownersfrominstallingormaintainingretirementplansfortheiremployees.“IfCongressmessesaroundwiththeseincentives,they’regoingtohurtworkers,”Graffsaid.“Theideatocapsavingsatsomeartificiallimitwouldreducetheincentiveofthe

businessownertokeepaplan,andiffewerownerskeeptheirplans,fewerpeoplewillsave.That’sjusthowitworks.”

ASPPA’sdirectorofretirementpolicyJudyMiller,whojoinedGraffonthepanelalongwithgeneralcounselCraigHoffmanandgovernmentaffairsdirectorRonaldTriche,spokeoutagainstanotherproposalthatwouldcapthetaxdeferralrateon401(k)contributionsat28%,meaninganysingleearnermaking$183,250(or$223,050formarriedjointfilers)wouldhavetopaysomelevelofsurtaxontheirretirementcontributionsonincomeabovethatamount.

“Ican’tbelieveanypersonwhostuckthe$3millioncapintoObama’sbudgetwasserious,”Millersaid.“Asforthedeferralcap,therewillprobablybeacapagaininthe2014budget,andit’sourjobtokeepemphasizinghowthebenefitsofthecurrenttaxdeferralrulesaremuchmoreprogressivethanthetaxcodeasawhole.”

Whileacknowledgingthechallengesthattheindustryfacesinthenear-termfuture,GraffsaidthatCongress’long-timehabitofnotpassingsubstantivelegislationoutsideoflast-secondcontinuingresolutionsstandstobeagoodthing.“It’snotallbadnews,”hesaid.“IfCongressdoesnothing,thennothingbadwill

happen.”

PPa doCument Restatements: Plan eaRlY and often

Inaworkshopsession,AdamC.Pozek,ERPA,QPA,QKA,QPFC,apartnerwithDWCERISAConsultants,sharedsometipsonpreparingfortheupcomingPPArestatements.

PozeksuggestedhandlingtherestatementsinafashionsimilartotheEGTRRArestatements.Thatway,practitionerscantakesomecomfortinknowingwhattoexpect.UnliketheEGTRRAdocuments,whichwereoutdatedimmediately,itappearsthatthePPAdocumentwillbecurrentforthemostpart—meaningthatthisisonelessitempractitionerswillhavetoexplaintoplansponsors.(Pozeknotedoneexception:Ifaplansponsorhaselectedtoadopttheoptionalin-planRothtransferprovision,whichwillbeaddedviaasnap-onamendment.)

Pozekofferedthreesuggestionsforpreparingfortherestatementprocess:• ComparetheprovisionsinthePPA

documentwiththeEGTRRAdocumentinordertofamiliarizeyourselfwiththedifferencesandthenewoptionsavailable.

• Determineifyou’dliketoadoptdefaultsacrossmultipleplanstobeinlinewithyourbusinesspractices.

acknowledgments

these asppa members contributed to this article:

• Melanie J. ebert, Qka

• linda M. Wyttenbach, Qpa, Qkaif you’d like to write about an asppa

regional or local event, please contact John ortman at [email protected].

ASPPA Government Affairs staffers Alisa Wolking and Andrew Remo prepping members for the biennial “March on Capitol Hill.”


totoomanyemployeesduringtheflushyearsofthe1990sand2000s,andnowhavetofindsomewayoutofthosecommitments.

“Ifyouhavebillsyoucan’tpay,youhavetocutspendingortakeinmoremoney,that’sobvious,”Karbonsaid.“Butwhenyoucutservicesandmaketaxpayersspendmoretogetless,they’regoingtoleaveandyou’restuckinarut.Thisistheproblemsomestatesface.”

KarbonshowedagraphicfromThe Economist magazinethatexaminedaMoody’sstudyonthemostunderwaterstates.Illinois’totalpensionliabilityisaround$100billion,ormorethan240%ofits2012revenues.Thismeansthat,startingtoday,itwouldtakethestateuntilmid-2016tofindmoneyforitsfutureobligationsevenifitdidn’tspendacentonanythingelse.

Connecticut,Kentucky,NewJersey,Hawaii,Louisiana,Colorado,MassachusettsandMarylandallhavefundinggapsofatleast100%oftheir2012revenues.Whiletheriskofthesestatesdefaultinganytimesoonisnearlyzero,Karbonsaidthesedebtsarekeepingstatesfrombeingabletoinvestinprojectsthatwouldattractnewresidents,likeschoolingandinfrastructure.

• Examinethefrequencyofprovisionsthatcauseconfusion,thendeterminewhichchangesarenecessaryacrossallplans—therebyavoidingtheconstancywithinmultipleplansgoingforward.

Usuallyit’snotsafetoapproachthisasataskinwhichyousimplyrollthedocumentforwardfromtheEGTRRAversiontothePPAversion,Pozeknoted.Thisisbecauseyouwanttobesurethatanycustomizedprovisionsnotinthecurrentdocumentsystemarecapturedinsteadofinadvertentlychangingthemback.

Pozeksuggestedtakingthe

opportunitytonotonlyconverttothePPAdocumentbutalsotocompleteanin-depthreviewofeachplan’sprovisionsinorderto:• confirmthatthedocumentmatches

howtheplanisbeingoperated;• identifywhetherchangesare

necessarygoingforward;• enhancetheplandesigntobemore

inlinewiththeplansponsor’sobjectives;

• maximizethevalueoftheplan;and• maximizeyourvaluetotheclient.

Consultwithclientsandofferrecommendationsonthingstheymightwanttoconsiderchanging,heurgedattendees;diginandhelpyourclientshavearetirementprogramthatmeetstheirneeds.

goveRnment Pension Plan uPdate

Shrinkingtaxbases,agingpopulationsandovereagerpoliticianshaveleftstatesacrossthecountryfacinghugeliabilitiesontheirpensionplans,causingretireesandpensionplanadministratorsaliketofearfortheirlivelihoods.

WilliamKarbon,MSPA,CPA,QPA,aseniorvicepresidentatCBIZBenefits&InsuranceServices,discussedtheparadoxthatnowfacesstatesthatpromisedtoomuchmoney

Bruce Ashton of Drinker Biddle & Reath spoke at a workshop on DOL investigations.

ASPPA member Robert P. Marks makes a light point at the workshop on the impact of the Supreme Court’s Windsor decision.

51www.asppa.org/pc

Forexample,IllinoiswasgivenagradeofD+bytheAmericanSocietyofCivilEngineersintheirlatestexaminationofstates’infrastructureprojects.KentuckyreceivedaCgrade,whileMarylandandLouisianawereeachawardedC-grades.Furthermore,Karbonsaid,thereseemstobelittlehopethatmanyofthesestateswillbeabletogetoutoftheirobligations,sincetheywerecollectivelybargainedandagreedtofairly.

Citiesthatdidn’tcollectivelybargain,however,havebeenabletogetoutofmanyoftheirpromisestoretirees.ThecityofPrichard,AL,forexample,declaredbankruptcyin2009andslashedbenefitsforcurrentretireesbynearlytwo-thirds.

Whileitseemshighlyunlikelythatentirestateswilldeclarebankruptcytogetoutofthesedebts,orevenfeeltheneedto,somelocalmunicipalitieshavebeenforcedto.Detroitfiledthelargestgovernmentalbankruptcyinhistorythisyear(surpassingJeffersonCounty,AL,whichfiledin2011),andothermunicipalitieshithardbytheeconomiccrisismayhavetofollowsuit.SanJosespendsnearly20%oftheirgeneralfundrevenueonbenefitsforretiredworkers,andhascuttheirbenefitsdrasticallyfornewhires.

KarbonsaidthebenefitissuesthatDetroitfaceswillhavelastingramificationsforgovernmentalbodiesthataretryingtogetoutoftheircontracts.TheMichiganconstitutionseemstoforbidanychangestocollectivelybargainedbenefits,sothecitycouldbestuckwithabilltheysaytheycan’tpay.

“Somethingisgoingtohavetogive,”Karbonsaid.“Andonlytimewilltellwhat,exactly,thatis.”

U.S. v. WindSor: suPReme CouRt’s game-CHangeR

WhentheSupremeCourtinvalidatedthekeycomponentsofthe1996DefenseofMarriageAct(DOMA)lastsummer,itgaveasignificantvictorytosame-sexcouplesandcreatedacomplexpatchworkoflawsandstatusesthatvarynotjuststate

bystate,butevenbetweendepartmentsofthefederalgovernment.

RonaldTriche,Esq.,APM,ASPPA’sassistantgeneralcounselanddirectorofgovernmentaffairs,andDonaldKieffer,Jr.,ataxlawspecialistwiththeIRS,discussedtheeffectsthattheCourt’srulinginU.S. v. Windsorishavingonretirementplans.

“Whatweareseeingisanincrediblycomplexwebherethatwestilldon’tknowhowtofullyuntangle,”Trichesaid.“Incometax

attorneyshavehadalotofwork,andwillhaveevenmoreinthecomingyear.”

Trichenotedthatmorethan1,100federalrightsandobligationswereaffectedbytheruling,andPresidentObamaalloweddifferentdepartmentstodeterminewhatkindofstate-sanctionedsame-sexunionstheywouldrecognize.Formajorentitlementprograms,suchas

a lively exhibit Hall (as usual)

the exhibit hall at the asppa annual conference was a hub of both business and fun, with dozens of vendors from across the retirement industry promoting their enterprises to and

making connections with hundreds of attendees. While some booths used free candy, a drawstring bag or a quick cell-phone charge as a way to entice asppa members to hear what they had to say, all of them agreed that the conference provided them with an unrivaled opportunity to promote their business:• taking a break between demonstrations, Ron Wyant of nationwide said his company, one of

the conference’s largest sponsors, renews their contract with asppa because of the value it provides them. “We believe in this organization,” Wyant said of asppa. “the fact that each year we decide to come back says to me that we are getting our message out to the right people.” Wyant added that he and his co-workers also appreciate being able to attend the conference’s sessions, which he says provide a value-add that no other conference can compete with.

• don Whitmire of thompson Reuters, who is an asppa member himself, said he has been coming to the conference for more than two decades. “We sell research tools, tax forms, plan documents and the like, and our primary customers are people who attend this conference,” he said. “this is the largest conference of its kind, and it’s why we come back.”

• Geoff dietrich of dietrich & associates said he loves the way asppa is able to draw in such a wide range of attendees from across the industry. “the facility is beautiful here, and so is the exhibit space,” dietrich said. “and this conference has gotten bigger, with an industry-wide focus. it’s kept up with industry trends in the same way that we have, and it’s why we make the decision to come here.”

• Rick fraley of Wolters kluwer law and Business said activity at their booth had been brisk for much of the first three days of the conference. He said they planned to return to national Harbor in 2014. “We always get our money’s worth,” fraley said. “this always proves to be a great show and a smart use of our time and money.”

Continued on page 61 »

Bringing home the bacon: “Save My 401k” piggy banks were a hot commodity at the ASPPA booth.


BusiNess PrACtiCes

following these six best practices in game terminology can improve your firm’s ability to execute and increase your chances of success.

By ChRIS STRoUD

Businessisnotanartorascience.It’sacompetitiveundertakingwithrules,winnersandlosers,waysofkeepingscore,andalltheelementsofluckand

talent.”ThesearethewordsofJackStack,takenfromhisupdated2013versionofThe Great Game of Business.Thoughrunningabusinessisfarfromagame,theobjectofanybusinessistosucceedor“win,”whichrequiresrigorousplanningandexecutionalongtheway.Thisarticlewilloutlinesixbestpracticesin“gameterminology”tohelpyoucreateawinningbusinessframework.

Best PRaCtiCe #1: CHeCk out tHe PlaYing field and tHe ComPetition

Beforeanygame,itisimportanttoscopeoutthefieldonwhichyouwillbeplaying.Winningteamsalsolearnalltheycanabouttheiropponentpriortothegame.Thesameconceptsholdtrueinbusiness.Atleastonceayear,youshoulddoan“environmentalscan”inordertolearnallyoucanabouttheindustry(your“playingfield”)and

Winning the Game: six Best practices for Businesses

Photo by Thinkstock

53www.asppa.org/pc

concept—consideringviewpointsfromemployees,outsideconsultantsoradvisorsandcustomers,andfactoringinhowthecompanymeasuresupagainstitscompetitors.Thestrengthsshouldidentifypositivecharacteristicsthatgivethebusinessacompetitiveedge.Someweaknessesrepresentexposurethatcanputthefirmatadisadvantageifnotcorrected.Thegoalistomaintainandleveragestrengthsinwaystobenefitthecompanyandtodeterminewhichweaknessesneedtoberemediedinordertoimprovethecompany’sposition.

Anexternalreviewshouldbeconductedtoidentifyopportunitiesandthreats,whicharetypicallycreatedbyexternalforces.Theycanbeattributedtosuchthingsaspoliticalclimate,economicshifts,lawsandregulations,technology,industrytrends,targetmarkets,distributionchannels,competition,etc.Opportunitiestypicallyrepresentareasinwhichthecompanycouldcapitalizeonneworexistingmarketsorincreaseprofitabilityorefficiency.Threatsaretypicallycomprisedofexternalforcesthatcouldcausesignificantstressoreconomicdownturntoabusiness.Sinceacompanycanonlyhandleafinitenumberofinitiativesatanyonetime,itisextremelyimportanttoprioritizeopportunitiesandthreatsinordertodeterminethemostcriticalstrategiesforsuccess.

Theanalysiscanoftenbeassimpleas“matchmaking”strengths

itsplayers(your“competition”).Considerhowtheindustryhasevolved,identifymarkettrends,analyzemarketsegments,andgatheralltheintelligenceyoucanaboutyourcompetitors.Areyourmarketsgrowing,shrinking,orstayingthesame?Whatforcesaredrivingtheindustry—customers,technology,largeproviders,etc.?Whatarethecurrenteffectsoftheeconomyandrecentregulationsonyourmarkets?Howcouldbudgetdeficitissuesandnewlegislationaffectyourbusiness?Whatyoudon’tknowcanhurtyou,sotakethetimetoanalyzeyourenvironmentthoroughly.

Best PRaCtiCe #2: get to know YouR team

Agoodcoachknowshisteamwellandregularlyassesseshisteam’sabilitiesinordertoincreasethechancesofwinning.Inabusiness,youcanaccomplishthesamethingbyconductinganannual“Strengths,Weaknesses,Opportunities,Threats”(SWOT)analysis.ASWOTanalysisisaneffectivetoolformanagingchange,determiningstrategicdirectionandsettingrealisticgoalsandobjectives.Theanalysisrequiresanhonestlookinthemirror(internal)todeterminethecompany’sstrengthsandweaknesses.Italsorequiresalook“outthedoor”(external),factoringininformationgatheredfromtheenvironmentalscan,toidentifypotentialopportunitiesandthreats.TheSWOTanalysishelpsacompanyevaluatewhereitispositioned

today,basedonstrengthsandweaknesses,andtoidentifypossiblefuturedirectionstocapitalizeonopportunitiesandavertthreats.

ThekeyfactorstobeconsideredwhenperformingaSWOTanalysiscanvarydependingonthetypeofcompanyanditsprimaryfocus.Formostbusinessesintheretirementservicesindustry,thefollowingareasareworthyofreviewandevaluation:• Corporateculture• Managementandleadership• Experience/knowledgeleveland

depthofstaff• Operationalefficiencies• Utilizationoftechnology• Abilitytoinnovate• Qualityofwork• Customerservice• Cost/benefitofproductsand

services• Sales,marketinganddistribution

channels• Reputation• Clientbase• Financialstability

Theinternalreviewtodeterminestrengthsandweaknessesconsistsofanhonestassessmentofthecompany’sstructure,capabilities,resourcesandskills.Justasmanyofusdon’tliketoseeourselvesinphotographs,wedon’talwayslikewhatweseewhenwedoanin-depthlookintoourowncompany.However,whenitcomestoacompany’sself-analysis,itisnecessarytoidentifythegood,thebadandtheugly.

Ideally,theinternalreviewwillbeconductedwitha360-degree

When it comes to a company’s self-analysis, it is necessary to identify the good, the bad

and the ugly.”


thefirm.Asyoudevelopyourplan,

carefullyconsiderthesecorequestions:• Whatbusinessareyoureallyin?• Whatistheoverallmissionof

yourcompanyandwhatareyourcorporatevalues?

• Whatproductsandservicesdoyouoffer?

• Whoareyourpotentialcustomersandwhatareyourtargetmarkets?

• Whatdistinguishesyoufromyourcompetitors?

• Whatmotivatesyourcustomerstobuyfromyou?

• Howwillyoureachpotentialcustomersandretaintheexistingones?

• Howwillyoustructureyouroperationforsuccesstodayandinthefuture?

• Howwillyouensureconformitytoindustrybestpractices?

• Howwillyouhireandretainqualityemployees?

• Howwillyouutilizetechnologytoenhanceyourproductsandservices?

• Howwillyousustainandgrowyourbusiness?

Abusinessplanisnever“done.”Itisaliving,breathingdocumentthatshouldbeupdatedatleastonceayear.Refertoyourbusinessplanandgoalsoften—inbusinessstrategymeetings,salesandmarketingmeetings,companymeetings,employeereviews,etc.Tiecompanygoalstoemployees’goals.Developasalesandmarketingplantosupportyourbusinessplan.Includeyourmissionandcorporatevaluesincompanynewsletters,employeehandbooksandyourwebsite.Keepyourbusinessplanandyoursalesandmarketingplancurrentandrelevant.

andweaknesseswithopportunitiesandthreats.Separatethestrengthsintotwogroups—thosethatcanhelpthefirmcapitalizeonopportunitiesandthosethatcanhelpcounterpotentialthreats.Similarly,youcandividetheweaknessesintotwogroups—thosethatrequireimprovementstoallowyoutostrengthenyourmarketpositioningortotakeadvantageofopportunitiesandthosethatshouldbeaddressedquicklyinordertoavoidimmediatenegativeimpactsorpotentialthreats.

Asstrategiesaresolidified,goalsandobjectivestocarryouteachstrategyshouldbedeveloped.AsuccessfulSWOTanalysiswillhelpyourecognizeareaswhereyourcapabilitiesandresourcesarestrongandyourpotentialtocapitalizeonopportunitiesisthegreatest.

Best PRaCtiCe #3: develoP a game Plan

Onceateamhasdoneitshomework,thenextstepistodevelopagameplanwithstrategiesthatgivetheteamthebestchanceofwinning.Similarly,abusinessisreadytodeveloporupdateitsbusinessplanaftergoingthroughtheabovetwosteps.Theprimarypurposeofabusinessplanistoidentifygoalsandmeasurableobjectives,articulatestrategiesandcreateafinanciallysustainablebusiness.Itisameanstokeepyouontrackandhelpyoumaketherightdecisionsforyourfirm.AlthoughmanyTPAsoperatewithoutaformalbusinessplan,itisimportanttodocumentthemostsignificantaspectsofyourgoalsandstrategiesandusethatdocumentasameanstocommunicatetoeveryonein

What you don’t know can hurt you, so take the time to analyze

your environment thoroughly.”the importance of a business Plan

kenneth G. ingham, Mspa, Maaa, ea, aifa®, of ingham Retirement Group in

Miami, fl, had been in business more than 30 years without a documented business plan. He wanted to take his firm to the next level and felt he needed a business plan to do it. after going through the business planning process several years ago, ken explains, “in most companies, people at the top know where they are going — but the employees who are struggling to get the work done are often in the dark about the company direction. if you don’t tell them where you want to go, you probably won’t get there. the business plan helped us communicate our direction to the employees and also helped us find new ways to thank the employees for the good jobs they were doing.”

ingham’s experience underscores the momentum that a business plan can generate. He notes, “as a result of establishing the written business plan, we were one of the first firms to achieve the asppa service provider certification, which strengthened our competitive edge in the marketplace. in addition, our business continues to improve in other ways. after finishing our initial business plan, we held a company meeting to share the plan with our employees and to reinforce the culture we wanted to cultivate. We set up a marketing team to work on a detailed marketing plan, we strengthened our brand and updated our collateral materials, we created a new employee reward system, we refined our budgeting process, and we increased responsibilities to our mid-managers for carrying out the plan’s action items. We feel we now have an even better chance at success and growth than we’ve enjoyed in the past. We understand that our plan is a living, breathing document that we will change and update as we grow.”

55www.asppa.org/pc

Best PRaCtiCe #4: PRomote fRequent gRouP Huddles

Justasfootballteamshuddlebeforeeachplay,group“huddles”arealsoneededinabusinessenvironment.Open,honestcommunicationisrequiredforanyorganizationtoachievesuccess,sokeepingthe“top-down”and“bottom-up”linesofcommunicationopenandkeepingpeopleinformediscritical.Companyhuddlesfrequentlycomeintheformofmeetings—company-widemeetings,departmentmeetings,projectmanagementteammeetings,salesmeetings,adhocmeetings,etc.

Brainstormingisanotherpowerfulhuddletechnique.Retirementplanspecialistsspendmuchoftheirtimedealingwithfacts,detailsandnumbers—allofwhichare“leftbrain”functions.Itisimportanttostepoutofthedailyroutineandengagetherightsideofthebrainbyencouragingcreativityand“outofthebox”thinking.Brainstormingsessionsareagreatwaytoidentifynewopportunities,

improvebusinessprocessesorsolveexistingproblemswhilestimulatingcreativityanddevelopingstrongteamplayers.Asaresult,employeesbecomemoreengagedinthebusiness,makingiteasierforleadershiptoachievebuy-inandsolicitactionwhenideasgeneratedinbrainstormingsessionsarereadyforimplementation.

Brainstormingsessionscanbeeffectiveforfirmownersandmanagers,buttheyareespeciallyeffectiveforrankandfilestaff.A“safe”environmentcanbecreatedforemployeesbyhavingthesessionfacilitatedbyanobjectivethirdpartyorconsultant,withnomanagersorownersintheroom,sothatemployeesfeelfreetospeakmoreopenlythantheywouldinanormalworkenvironment.“Rulesofparticipation”areoftenestablishedinadvancedanddistributedtoemployees.

Brainstormingcanbeveryeffectiverightaftercompliance-testingseasonwhilememoriesarefresh.Itcanfunctionasadebrief,withthegroupconsideringwhichprocesseswentwellandwhich Continued on page 59 »

keeping score

alliance Benefit Group north central states (aBGncs) in albert lea, Mn,

uses a “scorecard” that is updated and reviewed by the leadership team at their weekly meetings. it covers new sales and lost business by revenue and participant counts. it also covers system and web uptime, along with financial information by week, rolling 90 days, and year to date. according to steven pulley, cpc, Qpa, Qka, president of the firm, “it provides our team the critical information to know how we are doing in real time. Most information tells you what happened — we want to know what is going to happen!”

‘open book management’ in Practice

swerdlin & company, a retirement services firm in atlanta, Ga, has been

following stack’s open book management philosophy for approximately 10 years. the firm went through several iterations of the concept before settling into their current routine. lee swerdlin, president, said that they have determined their critical number to be a target based on revenue per employee. annual budgets are prepared, and then the leadership team has a weekly “huddle” with the managers of each department, who each report a forecast for the current month plus three months out. the managers discuss the department’s numbers with their teams, and team members help construct the department’s forecast. top leadership discusses overall company figures with all employees at quarterly meetings. over the years, swerdlin has offered various bonus formulas based on raising their “critical number.” Bonuses have also been given based on accuracy of forecasting.


mArketiNg

a robust brand is built on a foundation of diligent research and clearly communicated purpose, direction, pursuit and details. it’s time to get started.

By ShERI FITTS

time for a Branding Reboot?

Photo by Thinkstock

57www.asppa.org/pc

time for a Branding Reboot?

strategies,it’sevidentwehaveampleopportunitiestopavenewpathwaysthatestablishpositiveperceptionsaimedatnourishingandfortifyingthepublic’strust.Theexecutionmayfeelcomplex,butit’sreallyquitesimple:getpersonal;connectatthehumanlevel.Whenweapplyallweknowaboutinterpersonalrelationshipsandconstructourbrandingaroundthatbodyofknowledge—connectionestablishedbystorytelling—thebridgesoftrustandloyaltymaybebuiltagain.

Priortolaunchingsuchasignificantinitiative,it’shelpfultogainacompleteunderstandingofallthatarebrandingentails,bothbydefinitionandprocess.

BRand, tHY name is Consistent

Weheartheterm“branding”tossedaroundallthetime.Brandingextendsfarbeyondacleverlogo.Avalidbrandshouldconveyacompany’sphilosophyandstory,ensurecohesionatalltouchpoints,establishapersonorfirmasanindustryproandgeneratebrandloyalty.

Asyouexaminetheaspectsofyourownbrand,askthesequestions:Arethevisualaestheticsofyourbusinessinalignmentwithoneanother?Aretheenvironmentandmoraleofthecompanyreflectiveofthecompany’sphilosophy,anddoesthatculturetranslatetowebcopy,communicationsandsocialmediavoice?

Whatarethenutsandboltsofabrand?Itallbeginswithadefiningprocess:• Who are you?Clarifyyourstory.

Gettoknowthetruesoulofyourcompany,thentellyourtargetsandclientsallaboutit.Takethetimetocraftapositioningstatementandinvestigatebrandidentityassociationsandphilosophies.Whatisthecompanycredo?Weaveataleofallthatmatterstoyou,fromphilanthropytoyourfocusonapplication-specificproducts

andhowyougottothatplace.Whatspecificcausesareyourfirmcommittedtoandhowhaveyoumanagedtodifferentiateinourvastlycommoditizedlandscape?

SethGodinstatesitsuccinctly:Marketing is storytelling. The story of your product, built into your product. The ad might be part of it, the copy might be part of it, but mostly, your product and your service and your people are all part of the story. Tell it on purpose.

• Who is your target?Creatingaprofileofyourtargetclientcanguidethefocusofyourmarketingefforts.Pinpointaconcentratedscope.Considerfirmsize,industrytype,employeeeducationlevel,etc.

• What problem do you solve?(Whatlife-improvingservicedoyouprovide?)Beclearaboutexactlywhatyourfirmdoesanddoesnotdo.Aworkforceofunitedstorytellerscommittedtothevaluesandvisionofthecompanyisessentialtothecreativityandproductivitythatarenecessarytodrivearelevant,progressivebrandingeffort.Apositiveenvironmentservestoreinforceandadvanceyourrebrand.

• How do you do it differently?Ifpossible,carveoutaspaceinwhichyoutargetandserveaspecificcommunity;betheirexpert!Definingyourselfasa“go-to”specialist—niching—isamainstayofbrandpositioning.

Touchpoints—thevariousopportunitiesandplacesavailabletoyourclientsandtargetstoencounteryourbrand—arethevehiclethatdifferentiatesyourbrandfromanyother.Touchpointswillvaryfromonecompanytoanother;selectchannelsappropriateforyourvoiceandyourstrategybasedonyourbrandpositioning.Beingdeliberateaboutwhereyouconnectwithyourclientsandprospectscreatesnewexperiences.Mindfullycraftedtouchpointsdistinguishyourfirmfromtherestandestablishbrandrecognition.

We’rereceivinglovelettersfromYaleprofessors.Studiesindicatethat

consumerslacktrustinourindustry.We’refacedwithpotentialtax-benefitreductionsandincreasedscrutinyfromallareasrelatedtoregulation.Itseemsasifwe’retoblameforsomanyofAmerica’sissuesrelatedtoretirementdespitethefacts:Weliveinacultureofabuseofcredit,overconsumptionandquickfixes.

Thefinancialservicesindustryneedsarebrandandtheyneedittohappenyesterday.Theendeavorofrethinkingourbrand,identifyingsourcesofrelevantinspirationandimplementingaretooledstrategycanseemoverwhelming.Truthfully,wehavenootheroptionthantorecalibrateourbrandingeffortsbasedontheneedsandrequirementsoftoday’smarketplace.

tHe good old daYs and wHY tHeY’ve ended

Bythemerenatureofourprofession,wefacesubstantialobstacles.Afterall,oneofthemostcomplicatedrelationshipsistheonethatexistsbetweenpeopleandtheirmoney.Inadditiontomastermindingpromisingfutures,401(k)professionalsaretaskedwithnavigatingpilesofemotionalbaggagethatsurroundthesechallengingrelationships.

Thenumbersaren’tfavorable;currently,wedon’thaveasecureholdontheconsumers’trust.Thoughthisreputationmaybelargelyunwarranted,webeartheonusofchangingtheseperceptions.

Rebrandingisavitaloperationinthemissionofshatteringthelong-heldimagesofourbusiness.Intimidatingjargon,judgmentalandimpersonaldemeanor,andsomewhatsoullessexperiences,coupledwithhackneyedbluelogos,genericbankcolumnsandpredictableadvertisingcampaignsrifewithimagesofsmilingcouplesandtickingclocks,haveleftmanyparticipantsfeelingdisillusioned.

Asweconsidernewbranding


Crafting a brand steeped in company awareness, creativity and mindful intent communicates that you are immersed in the marketplace.”

methodsandconsultedsomeofthebestretailcustomerservice-focusedbrandsthatexisttoday,suchasNordstromandRitz-Carlton.Today,ifyouwishtochatwithUmpqua’sCEO,there’saphonelocatedineachbranchrouteddirectlytohisoffice.

Simple(formerlyBankSimple),launchedin2012,focusedonchallengingthebankingindustry.Thebankwithnobranchesisnowprocessingover$1billionintransactionsayear;customersrarelyusetheirATMcards.Aconceptthatseemedunfathomable—afinancialinstitutionthatwasn’tabuilding—hasdevelopedintoanacceptedmethodofconductingbanking.

Rethinkingourbrandiscritical,butcontemplationisn’tenough.Torebuildtheconceptionofourindustryandtocaptureourtargetclients,wemustseekinspirationinunanticipatedplacessothatwemaytellourstoriesinunexpectedways.Therearenoshortcuts;andthereismuchworktobedone.

Arobustbrandisbuiltonafoundationofdiligentresearchandclearlycommunicatedpurpose,direction,pursuitanddetails.Anexpressedblueprintservesasacompass,informingchoicesonwhere,whenandhowyourbrandshouldshowup.Craftingabrandsteepedincompanyawareness,creativityandmindfulintentcommunicatesthatyouareimmersedinthemarketplace.

Takeholdofyourfutureinthefinancialservicesmarketplace;thepotentialtoformulateagrandplan,completelyyours,islimitedonlybyyourvision.

Sheri Fitts is the president and marketing expert at ShoeFitts Marketing. She leads the planning, develop-

ment and execution of business development, marketing communica-tions and brand engagement programs for organizations and individuals who focus on the retirement plan market-place.

Sourcesoftouchpointsinclude:• Productorserviceexperience• Salesanddistributionchannels• Tradeshows,conventions,seminars• Blogging:contentcreationand

curation• Printedmarketingcollateral• Marketingoutreach• Webcopy• Advertising• E-books• Socialmediachannels• Videoandaudio• Webinarsandpodcasts

Pitfalls to avoid in YouR BRanding initiative• Blaze your own trail. Don’t

botherobservingtheotherguys’brandingstrategiesandemulatingwhatthey’vedone.Thisisasurefirerecipeforanothercookie-cuttermarketplacewhereeveryonelooks,actsandperformssimilarly.Certainlylooktoothersforinspiration—lookoutsideourindustry!—butbuildabrandthatcentersaroundyourcompanystory,targetcustomerandunique

approachwhenrebranding.• Dig deep.It’scriticaltoinvestthe

timeinmarketresearch.Thoughtempting,tryingtobeeverythingtoeveryonewilldilutetheimpactofyourbrand.Truebrandloyaltyisgeneratedfromdoing what you doanddoingitexceptionally.

• Keep the faith.Asolidbrandingefforttakessometimetotakehold.Patience,consistencyandcommitmenttoyourstoryarethekeystoasuccessfulbrandstorythatresultsinbrandrecognitionand,eventually,brandloyalty.

You, inC.Don’tforgettheYouFactor.

Professionalsworkinginthefinancialservicessectorgetabadrap.In“reallife”andamongtheircolleaguesintheindustry,theyareoftenacharismaticlot.Thanks,inlargepart,totheexplosionofsocialmedia,today’sprovider-consumerrelationshipsarebuiltonafoundationofpersonalconnection.Humanizingourselves—shareastoryaboutthevolunteerworkyou’repassionateabout,orlamentthatpatheticgolfhandicap—isasteppingstoneinthepathtowardamoretrusting,comfortableconnectionthattoday’sbusinessrequires.Don’tallowthestaidnecktietobeabarrier;thatcan’tbeyourstoryanylonger.

Thebrandshiftmuststretchfurtherthanspecialization,storytell-ingandsocializing.Youmustcreateatruetransformation.WiththelaunchofwebsitessuchasLearnVest,acompanyaimedathelpingwomenbecometheirownfinancialadvisors,wecannolongerdelayamajorbrandtransformation.

ConsiderPortland,OR-basedUmpquaBank.CEORaymondDavisrecognizedUmpquawouldhavetodifferentiateinordertosurvivethecompetitivebrickandmortarandinternetspace.Traditionalbankingmethodshavealreadybeendone.Thisindustrymustbeviewedfromotherviewpoints.Helookedoutsidefinancialservicesmarketing

59www.asppa.org/pc

through,andensuringaccountability.Itincludesassessingtheorganization’scapabilities,linkingstrategytooperationsandthepeoplewhoaregoingtoimplementthestrategy,synchronizingthosepeopleandtheirvariousdisciplines,andlinkingrewardstooutcomes.”Businessesthatfollowthebestpracticesoutlinedinthisarticlewillimprovetheirabilitytoexecuteandincreasetheirchancesofsuccess.

Chris Stroud, MSPA, MAAA, EA, is an industry consultant at Simoneaux & Stroud Consulting Services,

which offers consulting services to TPAs, record keepers, advisors and financial institutions working in the retirement services area. Chris is a past president of ASPPA (2006-2007) and served as editor of The ASPPA Journal for more than 10 years.

onesneedimprovement.Firmsalsofrequentlyconductbrainstormingsessionsinthesummerorearlyfalltofocusonissuesthatmightcomeupinthenextbusyseason.Brainstormingsessionscanbefocusedonaspecifictopicortheycanencouragethoughtinavarietyofareas.Topicsfrequentlyconsideredinclude:• Whatdoesthefirmdoreallywell?• Opportunitiesfornewproductsor

services• Howtoincreaserevenuesor

profitability• Howtoimprovebusinessprocesses• Howtoincreasecustomer

satisfaction• Howtoincreaseemployeejob

satisfaction• Howtoimproveinternaland/or

externalcommunicationsBrainstormingisawin-

winproposition.Managementispresentedwithpositiveoutcomes,employeesfeeltheirinputisvaluedandrespected,andeveryonewinsbecauseofthepositiveimpactonthefirm’sfuture.

Best PRaCtiCe #5: keeP sCoRe

Thegoalofanygameistowin;todeterminewhowins,youmustkeepscore.Similarly,tosucceedinbusiness,youmustkeepscore.Allgoalsestablishedinthebusinessplanshouldbeaccompaniedbymeasurableobjectives,withaccountabilityassignedandmetricsestablishedtoevaluateeachinitiative.Financialgoalsshouldalsobeoutlinedinthebusinessplan,takingintoaccountthefinancialimpactofotheridentifiedgoalsandobjectives.Firmsshouldcreateanannualbudgetinadvanceforeachyearandthenreconcilefrequentlyduringtheyearwithactualincome/expensesandcurrentprojections.

Manysuccessfulbusinessesbelieveinsharingmuchofthefinancialinformationwiththeir

employees,subscribingatleastinparttothe“openbookmanagement”practicestoutedbyauthorJackStackinThe Great Game of Business.Oneoftheconceptsinthebookistodetermineyour“critical”andwatchitcarefully.ForStack’smanufacturingcompany,forexample,thecriticalnumberwastheamountneededtomakerent.

AuthorMichealLeBouefoncewrote,“Thethingsthatgetmeasuredarethethingsthatgetdone.”Successfulbusinesseshavelearnedthattheymustcloselymonitorthefinancialsandestablishandmonitormetricsforallstrategicinitiatives.

Best PRaCtiCe #6: CeleBRate eaCH win

Post-gamepartiesarealotoffunbecauseeveryoneenjoyscelebratingawin.Inbusiness,youcanshowemployeeappreciationbyrememberingtocelebratethesmallachievementsaswellasthebigwins.Oneofthemostcommonemployeecomplaintsheardis,“Weneverknowhowwearedoingorhowthecompanyisdoing.Weonlygetfeedbackwhenwemakemistakesorwhensomethinggoeswrong.”Successfulbusinesseslearnthatitisimportanttocelebrateeventhesmallwinsinordertokeepmoraleandmotivationhigh.Manycompanieshostluncheons,specialeventsorcorporateretreatstorewardemployeesfortheirhardwork.Inadowneconomywhenextramoneyisscarce,companiescanlookforinexpensivewaystoshowemployeeappreciation.Whentimesaregood,itiswonderfultocelebratesuccessesinabigway.

ConClusionInanygame,therearedirect

linksbetweenplanning,executionandresults.IntheirbookExecution,authorsLarryBossidyandRamCharanexplain,“Executionisasystematicprocessofrigorouslydiscussinghowsandwhats,questioning,tenaciouslyfollowing

» Winning the Game Continued from page 55 celebrating in a

big Way

si Group in Honolulu, Hi, had a record year in 2011 and they wanted to do

something very special to recognize the hard work of their staff. to express their thanks to all employees, they coordinated and funded a company outing to aulani, a disney property on oahu, in January 2012. the entire staff of 22 was invited for the day, and their families were able to join mid-afternoon. the staff had the option of participating in a number of activities during the day. lunch was provided, and the group met back at the hotel in mid-afternoon as their families began to arrive. Recounts craig suemori, a partner at si Group, “We arranged for dinner that evening in a private room at Roy’s with all of the employees and their families. approximately 70 people dined with us and stayed the night.” the staff and their families were able to spend one night, all expenses paid. not only was this event a great way to thank employees, it also helped to increase camaraderie among the si Group employees.


eduCAtioN

planconsultingfirmsthatoperateaslicenseesofAllianceBenefitGroup,LLC.Theirstructureallowseachorganizationtomaintaintheirindependenceandgeographicalautonomywhileprovidingeachfirm

LarryStarr,alongtimeASPPAmemberandfirmowner,frequentlypointsoutthathe

isnotaTPA.Hebelievesthattherearenothirdpartyadministrators,onlyfirstpartyadministrators—or,betterstill,retirementplanconsultingfirms.Inanincreasinglycommoditizedandfee-compressedqualifiedretirementplanprofession,servicefirmsneedtodifferentiatethemselves.Almosteveryretirementplanserviceprovider’smarketingmaterialssaysomethinglike,“Wearethebestatwhatwedo.Weprovidegreatservice.Wemakesureyourplaniscorrectlyandtimelyadministered.”Unfortunately,noneofthesestatementscommunicatewhatmakesonefirmdifferentfromanother.

Considerquantifyingwhatclientsandreferralsourcesvalue:

“Weareoneofonly30ASPPAServiceProviderCertifiedfirmsinthecountry.OnehundredpercentofoursenioradministratorsarecredentialedwithASPPA.OurentirestaffhaspassedexamstoearnoneormoreASPPAcertificates.Ninety-fivepercentofemailsareansweredwithinonehour.Eightypercentofourclientshavebeenwithusfiveyearsormore.”ASPPAeducationandcredentialingarethekeystoservicefirmdifferentiation—andtoretainingandwinningbusinessinanincreasinglycompetitiveservicessector.

Forexample,AllianceBenefitGrouphasusedASPPA’seducationprogramstodifferentiateitselfintheretirementplanservicesprofession.ABGisanationalnetworkofindependentlyownedretirement

A look at how Alliance Benefit Group has used ASPPA’s education programs to differentiate itself in the retirement plan services profession.

By SARAh SIMoNEAUx

profiles in expertise

Photo by Thinkstock

61www.asppa.org/pc

largefirmbuyingpower,accesstosophisticatedtechnicalsupportandservicecollaborationwithotherconsultingfirms.AllianceBenefitGroupisoneofthelargestretirementplanadministratorsinthecountry,providingadministrationservicestomorethan13,000plansrepresentingmorethan$38billioninassetsandmorethanamillionparticipants.

ABGrecognizedthatakeytotheirmemberfirms’successwastheircommitmenttoqualifiedplaneducationandsupportingtheirstaffinearningASPPAcredentials.Despitehavingmorethan100credentialedmembers,thegrouprecognizedthattheycouldgainacompetitiveadvantagebyincreasingthenumberoftheirdesignatedemployees.TheyworkedwithLisaAllen,ASPPA’seducationalprogramsadvocate,topurchaseablockofonlineASPPAexams,includingRPF-1,RPF-2,PFC-1andTGPC-1.

Theymadetheseexamsavailabletoalltheirmemberfirms’staff,alongwiththeonlinestudyguidesforthecourses.Asemployeesbegantakingadvantageoftheonlineexamprogram,ABGperceivedtheneedtoofferadditionaleducationthroughtheASPPAwebcoursessupportingtheDCproctoredexamsforthosestaffmembersworkingtoearntheirQKA,QPFCandQPAcredentials.

AsaresultoftheirpartnershipwithASPPA,ABGnowhasmorethan200credentialedmembersand51moreemployeesworkingtowardtheircredentials.Withsomanycredentialedmembers,ABGmanagersencourageemployeestotakeadvantageofASPPAcontinuingeducationofferings.Webcasts,webcoursesandonsitebootcamp-styletrainingprovidecontinuingeducationforcredentialedASPPAmemberswhodonottraveltoconferences.ABGusedASPPAinstitutionaleducationdiscountstopurchaseanunlimitedlicenseforitsstafftoviewmorethan30ASPPAwebcastseachyear.ABG’sexecutivedirector,Don(Mac)Mackanos,explains:“ABGis

dedicatedtoourassociates’education,andweknowthatASPPA’seducationandcredentialingprogramsleadintheindustryincredibilityandexcellence.”

Approaching250ASPPAcredentialedmembers,ABGmembers’growthinacompetitivemarketplaceanddifficulteconomyisproofthatinvestmentineducationworks.AsLarryStarrwouldsay,ABGistrulyafirstpartyadministrator.

Sarah Simoneaux, CPC, is president of Simoneaux Consulting Services in Mandeville, La. and a

principal of Simoneaux & Stroud Consulting Services. She is a former president of ASPPA and previously served on the Education and Examination Committee as a Technical Education Consultant. Ms. Simoneaux wrote the textbook, Retirement Plan Consulting for Financial Professionals, which is used for the PFC-1 (Plan Financial Consulting - Part 1) course of ASPPA’s Qualified Plan Financial Consultant (QPFC) credentialing program.

As a result of their partnership with ASPPA, ABG now has more than 200 credentialed members and 51 more employees working toward their credentials.”

SocialSecuritysurvivorbenefitsorMedicare,thegovernmentiscurrentlyonlygrantingbenefitstomarriedsame-sexcouplesthatresideinoneofthe16statesthatrecognizesame-sexmarriages.

Addingtotheconfusionforretirementplanprofessionals,theDepartmentofLaborhasconflictingregulationswithintheirownjurisdiction.ERISArulesarebasedonamarriedcouple’s“stateofcelebration,”whileFamilyMedicalLeaveActprotectionsonlyapplytomarriedcouplesthatliveinthose16states.

Trichesaidmanyplanswillneedtobeamended,sincetheycurrentlydon’thaveacleardefinitionofwhoisaspouse.“Planshavealwaysbeensomewhatmurky,andthisgivesalotofadvisorsanopportunitytoaddressthatbydefiningwhocountsasaspouse,”Trichesaid.

Trichealsoemphasizedthedifferencesbetweencivilunionsandtraditionalmarriages.Insomestates,suchasOregon,whichhasabanonsame-sexmarriage,civilunionsweresetuptograntsame-sexcouplesthesamerightsastheiropposite-sexpeerswithoutrunningafoulofstateconstitutions.Forfederalpurposes,however,thoseunionsarenotrecognized,irrespectiveofwherethecouplesmaylive.Forexample,hesaid,asame-sexcouplelivinginOregoncouldjoininacivilunionandberecognizedforstatetaxpurposes,buttheywouldneedtogotoWashingtonStateorCaliforniatogetlegallymarriedinorderforERISArulesandotherfederalrecognitiontoapply.

“Thisisagreatopportunityforyoutoeducateyouremployerssotheycanhelptheiraffectedemployeesproactively,andnothavetowaitforthemtoknockontheHRdepartment’sdoor,”Trichesaid.

Mike Bushnell is ASPPA’s web content manager.

» Rally For Retirement (continued from page 51)

62 Plan Consultant | WIntER 201462

Advisory

collective trust funds Repositioned in 401(k) plans

technology fuels the growth of ctfs.

By WILLIAM DAvID hAND

Withtheincreasedpopularityofdaily-valued401(k)plansinthe1980sand1990s,theretailmutualfundwasfavoredovermonthlyvaluedcollectivetrusts.Theuseofcollectivetrustsfor

definedbenefitplansalsolostoutinthetransitionfromDBplanstodaily-valued401(k)plans.

Itwasnotuntilthelate1990sthatbanktrustcompaniesandindependenttrustcompanieswereacceptedintoNationalSecuritiesClearingCorporation(NSCC)(thedivisionoftheDepositoryTrustCompanythatactsasaclearingandsettlementformutualfunds)withdailyvaluedCTFs,whichallowedCTFstohaveanequalfootingtomutualfundsfordaily-valued401(k)plans.Today,CTFshaveCUSIPs(CommitteeonUniformSecuritiesIdentificationProcedures),auditedreturns,automatedpaymentofrevenuesharing(similarto12(b)-1fees)andT-1settlementforalltheefficienciesa401(k)recordkeeperrequirestotransacttradesonNSCCorthroughaclearingbrokerdealerlikeCharlesSchwab,Fidelity,T.D.Ameritrade,MATRIX,STNandothers.(Seechart.)

ManyCTFSalsohavefundfactsheets,historicalreturns,benchmarks

Photo by Thinkstock

63www.asppa.org/pc 63www.asppa.org/pc

continuetobekeydriversofthegrowthofCTFs.

Yearsago,transparencywassimplythefundperformancepublishedinthenewspaper.Todaytransparency,oncethedownsideofCTFs,istheirbiggestadvantage.Thedefinitionoftransparencyisnowfeedisclosure,performanceandunderlyingholdings,withclearandunconflictedfiduciaryresponsibilitiesdisclosed.Unlikeretailmutualfunds,CTFshaveonlyERISAassets,andarenotsubjecttoSECrequirementsandtherestrictionsofsellingtothepublic.ThisallowsaCTFtobecompletelytransparentandunburdenedbyprospectusrequirementsordelaysinreleasingpublicportfolioinformation.PlansponsorswithCTFsenjoytheadvantagesofworkingdirectlywiththetrusteeandinvestmentmanagerontheexchangeofinformationonatimelyandconsistentbasis,similartohavingaseparatelymanagedaccount(SMA),withouthavingtomeetthehighminimumassetrequirementsofSMAs.

Inaddition,CTFscanhaveverydetailedfundfactsheets.Expensesofthefundcanbebrokenoutbyinvestmentmanagementfee,trusteefee,servicefee(ifpaidtoarecordkeeperorconsultant),costofunderlyingfundsandotherexpenses.Securitiesbeingheld,investmentguidelinesandbenchmarkscanbeeasilyupdatedandkeptcurrentoncollectivetrustfactsheetsaswell.

Additionaltransparencyisgainedatthepointofsale.Eachplansponsorisgivenatrustparticipationagreementthatclearlyoutlinestheroles,responsibilitiesandfeesofallthepartiesinvolvedintheCTF.Plansponsorscangainfulltransparencyintheparticipationagreementandcomfortintheprocessforfiduciaryoversightbythetrusteeandinvestmentmanager.

tHe next geneRation of qdias

Absentaninvestmentelectionbya401(k)planparticipant,plan

sponsorshaveadditionalfiduciaryresponsibilitiesregardinghowtoinvesttheparticipant’s401(k)account.Yearsago,thedefaultfundoftenwasafixedincome,GIC,stablevalue,short-termincomefund(STIF)account,oftenfromaninsurancecompanyasacollectivetrust.WithmanyDCplansalsoofferingtheCTF(GIConstablevalue)asaninvestmentoption,collectivetrustshadastrongfootholdasaDCdefaultoptionandstablevalueinvestmentoption.Today,largeCTFstablevaluefundsstillremain.Bythelate1990s,thebirthofanewdefaultoptionwascreatedwithbalancedfunds,risk-basedfundsandtargetfunds.Manyofthefirstfunds,likeBGI(nowBlackRock)createdindexbasedtargetdateCTFsinlargeplans.

WiththeenactmentofthePensionProtectionAct(PPA)in2006,thequalifieddefaultinvestmentalternativewasdefined.Shortlyafter,thebigfundcompanies—Fidelity,VanguardandT.RowePrice—hadalargemarketshare.

MostofthesefirstgenerationQDIAswerecomprisedprimarilyofsecuritiesthatfollowedthemarket,madeupofthefundcompanies’proprietarymutualfunds(fundsoffunds),usedahighpercentageofactivelymanagedaccounts,andhadequityexposureinthefundsclosetoretirement.Themarketcorrectionin2008and2009andtherecentrecessionhaveplansponsorsrethinkingtheirobjectives.Forexample,CaliforniaPublicEmployeesRetirementSystems(CalPERS)hascontemplatedusingmorelow-costpassiveinvestments.

Despitetheseshiftstopassiveinvestments,manyplansponsorsrealizetheyalsoneedalpha,diversificationandportfoliocomponentsthathavealowcorrelationtooneanotherbutwillperformwellindifferentmarketconditions.Manyofthesestrategiesinvolvetheuseofalternativeassetsclassesnottypicallyseenasacoremenuoptionona401(k)planlineup.

andreportingagencieslikeMorningstarthattrackandpopulatedatatoelectronicfundfactsheetstoserviceproviderslikeNewkirk,for401(k)recordkeepers.

keY dRiveRs of gRowtH Forsometime,largeplanshave

heldbigpositionsinCTFsforlowercost.Thefederalthriftplanisagoodexample.Morerecently,regulatorychangeshavemanyplansponsorslookingintoCTFs.

Recentlawsuitsonfees,regulationsforfeetransparencyattheplanlevelunder408(b)(2)andtheparticipantlevelunder404(a)(5)haveplanfiduciariesconcerned.Additionally,withserviceslikeFiduciaryBenchmarksandBrightscopeprovidinggreatertransparencyonthehigherfeesassociatedwithinvestments,consultantsandplansponsorsaretakingacloselookatfees.Manytimesthesefeesareapparent—forexample,anauditfeeforaCTFcanbelessthan$5,000,whileanauditfeeforamutualfundcancostmorethan$50,000.

Otherfeescanbehardertoidentify,likethe“impact”cost,whichisthecostamutualfundhastoprovideliquiditytoretailinvestors,cashmanagementorcommissionspaidonbuyingandsellingsecurities.Otherarrangementsexistthataffectperformance,includingsecuritieslendingorlitigationrecovery.Manyoftheseadditionalcostscanbeseeninpassiveinvestments,whereanindexedCTFwilloutperformanindexedmutualfund.TheCTFhasbothalowertotalexpenseratioandbetterperformance.Plansponsorsunderstandtheimportanceof“cost”asadragonperformance.

FiduciaryoversightandregulationsprovidethataCTFisadirectassetoftheplan(unlikeamutualfund);therefore,theinterestsoftheCTFandplansponsorarecloselyaligned.ThisadditionalfiduciaryrequirementofaCTF,aswellaslowcostandtransparency,


andeffectively.Otherbusinessmodelsexist

foradvisorsthatdon’twanttobeasubadvisortothe

trust;forexample,theadvisorcouldbeamarketingsolicitorfortheCTF.However,thesebusinessmodelsrequireacloselookathowtobeststructuretheadvisorsexistingbusinesstoavoidconflictsofinterest.Manytimesthesegoalsareaccomplishedbystructuringmultipleshareclassestohaveseparatefeesandrevenuesharingarrangements.TheflexibilityoftheCTFandtrusteeplaysanimportantroleinanadvisorcreatingtheoptimumQDIAsolution.

William David Hand, MSPA, MAAA is the CEO of Hand Benefits & Trust, a BPAS Company, where he has led the company’s national practice in the development of new collective investment trusts. He also serves as executive vice president of BPAS, Inc. David is an Enrolled Actuary, a member of ASPPA and the American Academy of Actuaries, on the board of directors of the Council of Independent 401(k) Recordkeepers, a Registered Securities Representative and a Registered General Securities Principal.

Additionally,publicpensionsarestrugglingtomeettheiractuarialreturnsaregraduallyallocatingmorealternativeassets.

CollectivetrustsaremostfavorablypositionedtoholdalternativeassetsbecausetheyarenotburdenedwithSEC,retailinvestorandcomplicatedtaxreportingrequirements.TheQ32013CerulliEdgestates:“LongamainstaywithintheDBmarket,CTFsaregainingtractionasaninvestmentvehiclewithinDCretirementplansaswell.ThePensionProtectionActof2006setforthprovisions(autoenrollmentandautoescalation)designedtoincreaseretirementplanparticipationratesandprovidelowercostplanoptions.AccordingtoarecentCerullisurveyof30CTFmanagerswithacollective$1.4trillioninassetsundermanagement(AUM),three-quartersof2012netflowscamefromDCplans,withthebalancefromDBplans.”

advisoRs favoR Ctfs

Advisorstoplanshaveoftenaddedvaluebyassetallocationstrategies.InDBplans,thesestrategiesarerelativelystraightforwardintheadministrationofapooledaccount.InDCplans,oftentheadvisorwillbuildamodelorsetofinvestmentmodelsforthe401(k)participanttomakeanelectionorbedefaultedinto.Thesemodelsaremostoftenmaintainedbyenhancedrecordkeepingsystemsorsometimes“unitized”byeachplanseparatelybyaplatformprovider.Models,educationalmodelsandrecommendedassetallocationstrategiesbyadvisorshavebeenreviewedbytheDOLandguidelineshavebeenpublished.TheseguidelineslookattherequireddisclosuresforthesemodelstocomplywithdesignatedinvestmentalternativerequirementsandhowtoproperlystructuretheseaswellforaQDIA.(Formore,seeaWagnerLawGroupwhitepaperat:http://www.bpas.com/media/hbt/Models_Wagner_WhitePaper.pdf.)

Manyadvisorsfacethechallengesofhowtoscalethesemodelsacrossmultipleplans,useassetclassesnotonthecoremenu(nonDIAassets),alternativeassets,revenuesharing,participant404(a)(5)disclosures,auditedreturnsandeffectiveemployeeeducationmaterials.Oftenthestructureandflexibilityofthecollectivetrustisthemosteffectivesolution.Theadvisorisabletobecomeasubadvisortothetrustundera3(21)fiduciaryarrangement,andthebanktrustremainsasthe3(38)fiduciary“maintainedbythebank”withfinaldiscretionaryinvestmentmanagement.Thetrustcompanyandadvisorworkcloselytodevelopaninvestmentpolicystatement,fundfactsheetsandparticipationagreementtoreplicatetheadvisormodelportfolios.OftentheCTFaffordstheadvisoraccesstoinvestmentswithalowercoststructure.Anexampleisprovidedinthe“CaseStudy”sidebar.

Thecombinationoflowerexpenses,asingleCUSIPperfundontherecordkeepingsystemandaccesstoanationaltradingplatform(i.e.,CharlesSchwab,Fidelity,T.DAmeritrade)allowsanadvisortoplaceaCTFacrossmultipleplansquickly

Objective: Move from Registered Investment Advisor/Record Keeping (RIA/RK)

Index Models to CTF Solution.

Observations:

1. Underlying cost of Investment Funds

*RIA/RK Model 23 bpsCTF Solution 11 bps

**Net Savings 12 bps

*RIA/RK Model was limited to investments on the core menue.

** Flexibility was also a key consideration along with compliance and revenue sharing.

Case Study: Underlying Investment Cost

65www.asppa.org/pc

ON

REGIONAL CONFERENCES2014

ASPPATHE ULTIMATE CONFERENCE EXPERIENCE

for retirement plan professionals.

asppa is reinventing its regional conferences this year, focusing more on local and regional issues and adopting a livelier, more interactive approach to workshop sessions.

By Mike BusHnell

Whiletherewillbemoretalkaboutfundingbaselinesthanthereisat

yourstandardrockconcert,ASPPAistakingtheirbestpracticesontheroadthisyearfor“ASPPAonTour.”Takingplaceinfivecitiesaroundthecountryduring2014,eachstopwillmixregionalandnationalcontenttogiveattendeesthemostcompellingandmotivatingretirementplanconferenceexperiencethereis.

BeginningonJan.23-24inLosAngelesandendinginCincinnatiinNovember,ASPPAonTourwillfeatureworkshopsthatactuallyarewhattheysaytheywillbe.Speakerswillintroducevarioustopicstoattendees,buttheaudiencewillbeencouragedtocollaborateandproblem-solveinsteadofsittinginalectureandbeing“talkedat”forlongperiodsatatime.

ThetourwillbestoppinginPhiladelphia(May1-2),Chicago( June5-6)andBoston( July10-11).Roughly75%ofthecontentwillbeconsistentacrossallfiveevents,buttheremainingcontentwilladdresslocalissues,featuringconference-specificspeakerswhoknowtheregionintimately.

Theconferenceswillpackawealthofknowledgeandinformationfromacrosstheretirementplanspectrumintotwofulldays.TheywillbesimilartotheASPPAAnnualConferenceinthattheywillfeaturegeneralsessionsonethics,governmentupdatesandregulatory

issues.Buttheywillalsofeaturenearlyadozenconcurrentworkshopsinwhichattendeeswillparticipateinroundtablediscussionsinsmallgroupsabouttheissuesthataffecttheirlivelihoodsthemost.

Thebreakoutswillbecasestudyoriented,focusingonspecificaspectsofageneraltopic—forexample,ERISAaccounts,safeharborplans,cashbalanceplansandissuesrelatedtocrosstesting.Thespeakerswillactnotaslecturers,asiscommonwithmanyotherconferences,butratherasfacilitators,helpingattendeesapplyreal-worldtechniquestotheissuesathandandguidingthemthroughdemonstrations.Thesetupisdesignedformaximumretention,withlivelyinteractionsthatallowattendeestoshowwhattheyhavelearnedbeforethesessionhasevenended.

Notonlywilltheconferencesgiveattendeesunrivaledinsightandinformation,alongwithaccesstonationallyrenownedspeakersandindustryleaders,buttheywilldosoinfirst-classvenuesintheheartofsomeofAmerica’smostvibrantcities:• TheLosAngelesconferencewillbe

heldjuststepsfromtheHollywoodWalkofFame

• AttendeesinChicagocanenjoyviewsoftheLoopandtheRiverwalkfromtheirwindow

• InPhiladelphia,visitorswillsetuprightonBroadStreet,justminutesfromwheretheUnitedStatesdeclareditsindependence

• TheBostonconferencewillbe

heldintheheartofthehistoricBackBaydistrict,withinwalkingdistanceofBeaconHill,FenwayPark,theSkywalkObservatory,andmuchmore

• Cincinnati’sconferencewillbeheldattheNorthernKentuckyConventionCenter,setrightontheOhioRiver,withbothpanoramicviewsofthecityskylineandeasyaccesstoNewportontheLevee,theregion’spreeminententertainmentdistrict.

Registrationdeadlinesaredeterminedonaconference-by-conferencebasis,butearlyregistrationgenerallyendsaboutfiveweekspriortotheeventdate.Attendeesmayalsoregisteronsite,iftheychoosetowaituntilthatpoint,andtheyarenotrequiredtobookahotelroom.Astheyearunfolds,lookformoreinformationabouteachconferenceviaemail.

ASPPAonTourwon’thaveanypyrotechnicshows.Butitwillhaveawealthofinformationforeveryoneinvolvedintheretirementplanfield,fromaccountantsandactuaries,toTPAsandconsultants,toHRprofessionalsandplanadministrators.Fiveshows,eachwiththeirownregionalflavor,andoneoverarchinggoal:tohelpattendeessucceedinwaystheydidn’tevenknowwerepossible.Don’tmissout!

Mike Bushnell is ASPPA’s web content manager.


suCCess stories

cameupwithananswerthatworkedforthefirm,foritsclientandforplanparticipants.WespokewithCathyJuilfs,AIFA,CEBS,CFP,aprincipalandthechiefcomplianceofficeratAIS,abouttheirsolution.

Q: Let’s start with a little about your client and the problems you faced.

A:Ourclientisaregionalhotelchain,withhotelsin19states.TheircorporateofficeisinourtownofSt.Cloud,butnoneoftheirhotelsareeveninMinnesota.

Amongemployersfacingthedifficultiesassociatedwithcommunicatingwith

employeesatdiverselocationsabouttheir401(k)plans—groupmeetings,troubleshootingquestions,etc.—hotelchainsmayhaveoneofthehardestrowstohoe.Howcanthatkindofemployerdesignandmaintainanemployeecommunicationsplanthatworks?

AISPlanning,aregisteredinvestmentadvisoryfirminSt.Cloud,MN,facedthatquestionand

It’sexpensiveandhardtogethotelemployeestogetheringroupmeetingsonaregularbasis.Wedogroupmeetings,ofcourse,butwhenwegowelookforsomeonewhoisparticipatinginthe401(k)planandwhohasanaturaltalenttobeourgo-topersonateachlocation—apersontheemployeestherealreadygototoaskquestions.Inmostcasesit’snottheboss;it’saco-worker—anopinionleader.

Thenwestayconnectedwiththatperson,usinghimorherasour“go-

ais solves the Remote location problem

ais planning’s cathy Juilfs explains how her

firm enlists “instigators” to serve as contacts at a

hotel chain’s locations.

By JohN oRTMAN

67www.asppa.org/pc

Q: The turnover rate in the hospitality industry is very high. What do you do when one of your instigators gets a better job and leaves?

A:Isearchforanotherpersonwhenwe’reoutatthenextgroupmeeting.I’vetriedtofindareplacementoverthephonebutyoujustdon’tgettheirpersonalitycomingthroughthatway.Ittakestheone-on-onecommunicationfromouroffice,facetoface.Ididhaveoneinstigatorwholeftandrecruitedsomeoneforme.Butthat’sonlyhappenedonceinthreeyears.

Q: Is your hotel chain client the only one that uses the instigators?

A:Wedotheinstigatorprogramforallofourclients,butwe’vehadthemostsuccesswiththehotelchain.Ithinkthat’sbecauseoftheeducationlevelthattheemployeeshave.Alotofthemareatthehighschooleducationlevelorbelow.Wedoitatthemedicalclinicsthatweworkwithtoo,butthoseemployeeshaveneverbeenafraidtocallusdirectly.There’snointimidationthere.Wehavetwolocalmanufacturerswhereit’sworkingextremelywelltoo.Basicallyitwasjustuslookingattheproblemofwidelydispersedgeographiclocationsandtryingtosolveitsowecouldstillbeasinvolvedaswearewiththepeoplewhoareamiledowntheroadfromus.

to”foreducationinformationeveryquarterandtohelpemployeeswhohavequestionsanddon’twanttocallusdirectly.Kindofan“instigator,”ifyouwill.

Q: Has it been difficult to persuade people to do that?

A:No,ithasn’t.Ithinkthekeyisforustogotoagroupmeetingandlookatwhat’sreallygoingoninthatmeeting—andbeforeandafteritaswell—andwhokindofcapturestheattentionoftheotherpeople.Andthentalkingindividuallywiththatperson,saying,“Wedon’twantyoutogiveadvice;whatwewantyoutodoisjustbethat‘comfort’personsothatyourco-workerscanfeelthatit’sokaytoaskyouaquestionandnotfeelthatthey’reaskingastupidquestion.”

Noonewantstogototheirbossandaskastupidquestion.Instead,wecreateacomfortableinteractioninwhichthat“comfortperson”listensandjustsays,“Let’sjustcallAISPlanningandaskifthatprovisionisavailableinourplan,oraskthemtohelpyoufigureoutwhichinvestmentsyoushouldbein,orhowyoucangetoutofthisdebtcrisisthatyou’rein.”

Q: Sounds like financial wellness is a big part of what you do.

A:Wedoprovideadvice;wearefiduciariestoallourplans.Butbecauseweleadwithplanning,mostofthequestionswedealwithonadailybasisdon’thavetodowiththeplan;theyhavetodowithlife.Theyhavetodowithquestionslike:shouldIbuyacarorleaseone;I’vegotallthiscreditcarddebtandIdon’tknowhowtogetoutfromunderit;I’mhelpingtopaymymom’sexpensesandit’skillingusfinancially.

Whenwehavegroupmeetings,thefirstthingwetalkaboutisthatifyoudon’thaveanemergencysavingsaccountorifyou’reseriouslyindebtwithyourcreditcards,youshouldbeaddressingthoseproblems,notdeferringpayintoa401(k)account.Idon’twantpeopletosavemoneyintotheir401(k)untiltheyhavetherestoftheirfinancesinorder.

EveryparticipantinourplansgetsaccesstoaCFPforuptotwohoursayearaspartoftheirplan.Whenwestartedthefirm,thewaywebegansellingourserviceswaslikeanEAP—acounselingservicekindofthing,butaddressingfinancialhealthinsteadofmentalhealth.We’vebeenfollowingthatapproachsince2000.

Q: How do you communicate with your “instigators”?

A:Wecreateourcommunicationsinternally.Therearealotofservicesouttherethatwecouldbuy,butwebelieveindoingthisourselves.WewritetheminWord,converttoapdfandemailthepdftoourinstigators.Theydistributeitorbringittoastaffmeeting—everylocationisalittlebitdifferent.

Wecreateacommunicationspieceeveryquarter.They’reveryshort—nevermorethanonepage.Iwritethearticlesbasedonwhattheinstigatorsbringtomyattention—there’snosciencebehindthis.Inthecourseofthreemonthswekeeptrackofwhowetalkto,whatwetalkabout,etc.Ifweseethatloanquestionsarecomingupmorethanonceoverthecourseofaquarter,thenthatwillbethetopicthatwewriteabout.Orifwe’regettingalotofquestionsaboutreversemortgages,we’llwriteaboutthat.Shortandtothepoint,andweleaveitopenforthemtocallustofollowupiftheylike.

Q: Do the instigators get any rewards at all?

A:No,theydoittotallyonavolunteerbasis—there’snobonusorevenrecognition.Theydoittohelptheirco-workers.Wedothankthem,though—overandover.

It’salsobecausetheycareabouttheirownretirement.We’relookingforpeoplewhoaregoodsaversintheirownretirementplan—they’rethepeoplewhoyoulookatandsay,“Mygosh,sheonlymakes$20,000ayearandshe’ssaving10%.Whoisthisperson?”Theytendtobeuniqueindividualsbasedontheirlifecircumstances.

editor’s note

this is the first installment of a new column focusing on real-life examples

of retirement industry success stories — instances where a retirement professional came up with a new idea or a new way of delivering a service that “moved the needle” for a client or for plan participants. do you have a success story of your own? then we want to hear from you — contact me at [email protected].


TouchCast » www.TouchCast.com

Your Newscast,Starring

YouBy yA N NI S P. K Ou M A N TA R O S A N D A D A M C . P O z E K

A self-proclaimed television studio in your hands, TouchCast takes the era of DIY internet video to a whole new level. Basically, TouchCast gives you

the tools to create professional-looking video right from your iPad … tools like a teleprompter, adjustments for video and audio levels, positioning guides so that you appear in just the right spot on screen, etc. Use the built-in titles and themes to simulate the look and feel of your favorite newscast, right down to the streaming ticker at the bottom of the screen.

Still not convinced? How about embedding content from around the web right into your video? Add a video from YouTube, a feed from Twitter, a map, an online poll, a Wikipedia entry … you get the point. If that’s not enough, you can also use the white board feature to bring out your inner meteorologist (or inner sports commentator) by interacting with your on-screen content while you talk.

Once recorded, copy/paste links to your nifty new videos to share them anywhere you would share other online content. Even create your own channel and invite clients, participants, referral sources, etc. to subscribe. Spend a few minutes with this free app, and you’ll be making YouTube look passé in no time.

teChNology

69www.asppa.org/pc 69www.asppa.org/pc

Feedly » www.Feedly.com

W hether you love ‘em or hate ‘em, Google is one of the 800-pound gorillas of tech, and they can pretty much do what they want when they want. Usually that means adding new tools, but sometimes, it means taking away things … as was the case with the widely used Google Reader.

There have been a number of other RSS readers that have attempted to swoop in and fill the void Google created, but few have done it as well as Feedly. Not only does it deliver on its basic functionality of grabbing content from your selected feeds, it doesn’t skimp on the visual presentation in the process. In addition, unlike some of the other would-be Google Reader replacements, it includes versions for both the desktop and the mobile device, allowing you to create a single account so that your news can follow you wherever you go.

The basic version is free, but you can upgrade to the pro version for $45 per year. So far, however, I haven’t really noticed anything missing from the free version that would cause me to upgrade.

Waze » www.waze.com

W aze is the world’s fastest growing community-based traffic and navigation application. The tagline, “Outsmarting Traffic, Together,” is a

perfect summary of the capabilities of this very powerful crowd-contributing community. Purchased by Google for a deal valued at $1.1 billion, the FTC said publicly on Oct. 1, 2013, that it would not challenge the purchase by U.S. antitrust regulations.

The concept is simple. Use Waze on any major app platform, and you have instant visibility to other “Wazers” on the road, and the real-time information on your route. Using the Navigation feature, Waze will broadcast alerts to you on the upcoming police, accidents, road hazards or traffic jams, all shared by other drivers in real time.

Additional capabilities include community-edited maps so that detours, dead ends and any other sudden changes to a thoroughfare do not affect your commute. This constant feedback allows this powerful app to provide users with traffic information to outsmart the commute. Cost? Not on a tool that grows more powerful with each additional user, so you can download and use Waze at no consumer cost. Plus, with Facebook integration and a points system, you can even connect with all your friends online and on the road.

In fact, is there any reason you shouldn’t download and use this app before you hit the road today?

Cozi » www.cozi.com

I ’m an Android man, and she’s an Apple gal … or maybe for you it’s vice versa. Either way, cross-platform integration for calendar sharing has been

a real nightmare in today’s online living. Enter Cozi.This free app and website allows users to create

households online and connect users of various devices to share calendars, shopping lists, to-do lists and more. Now any member of your family can access the family calendar online or from any mobile device. Grocery lists, after school activities with the kids, pet grooming and other appointments all within the hour? No problem — with Cozi you can divide and conquer, assign tasks and spend more time together as a family!

Founded by Seattle ex-Microsoft and ex-Amazon veterans with kids of their own, Cozi has been fanatical about the family since its founding in 2005. Every family has one common denominator — we are all crazy busy! Cozi takes the chaos of family schedules, synthesizes it and delivers more harmony at home. If you don’t use Cozi, you should, because it will make your household more cozy in the future.

Yannis Koumantaros, CPC, QPA, QKA, is a shareholder with Spectrum Pension Consultants, Inc. in Tacoma, Wash. He is a frequent speaker at national conferences, and is the editor of the blog and

newsroom at www.spectrumpension.com.

Adam Pozek, ERPA, QPA, QKA, QPFC, is a partner with DWC ERISA Consultants, LLC in Salem, N.H. He is a frequent author and speaker, and publishes a blog at www.PozekOnPension.com.

Adam and yannis are always on the lookout for new

and creative mobile applications and other technologies.

If you have any tips or suggestions, please email

them at [email protected] and

[email protected].


asppa’s Biennial March on capitol Hill

fundADPtestsafeharborcontributionstotheinclusionof“lifetimeincomeillustrations”ondefinedcontributionplanbenefitstatementstotheneedforfurtherguidanceinrelationtotheSupremeCourt’sdecisionintheWindsor(akaDOMA)case.

Aswemoveinto2014,GovernmentAffairswillcontinuetoworkonissuesthatmattertoourmembers.WhenRep.DaveCamp(R-MI)andSen.MaxBaucus(D-MT)issuetheirproposedtaxreformlegislation,we’llbethere.WhentheDOLissuesitsre-proposed“definitionoffiduciary”regulations,we’llbethere.Nomattertheissue,ifitisimportanttoASPPAmembers,we’llbethere.

Ronald J. Triche is ASPPA’s Assistant General Counsel and Director of Government Affairs.

atASPPA’sregionalconferences,duringASPPAwebcastsandatASPPABenefitsCouncilmeetings.HealsospeaksatNIPAchaptermeetingsandwebcasts,andhasprovidedtestimonybeforetheTreasuryDepartmenton401(k)issuesandotherretirementplanissues.

HeisagraduateoftheStateUniversityatAlbany(NY)andhasagraduatedegreefromWilliamPatersonUniversity.HeisalsoaformerhighschoolbasketballcoachatFortLee,NJ,hishometown.

Troy L. Cornett is the director of human resources and board of director liaison for ASPPA. He is also the associate editor ofPlanConsultantand NAPANettheMagazine.

retirementsystemthatissupportedbytheprivatesector.SeveralattendeeswereactuallypresentwhentheHouseofRepresentativespassedTheRetailInvestorProtectionAct,sponsoredbyRep.AnnWagner(R-MO),whichwouldprohibittheDOLfromissuingitsre-proposed“definitionoffiduciary”regulationsuntilatleast60daysaftertheSECfinalizesitsrulesregardingthefiduciarystatusofbroker/dealerswhoprovideadvicetoretailinvestors.Whatagreatwaytobeapartofthedemocraticprocess!Iencourageeveryonetoparticipatein2015.

InadditiontoplanningtheMarchonCapitolHill,theGovernmentAffairsstaffworkedwiththeGovernmentAffairsCommitteeon13differentcommentlettersbetweenJulyandOctober.Theletterscovertopicsrangingfromtheuseofforfeituresto

asmembersoftheTPAandfinancialadvisorcommunity.

Heiscurrentlyservingasaco-chairofASPPA’sGovernmentAffairsCommittee,isaformermemberoftheBoardofManagersoftheAmericanInstituteofRetirementEducation(AIRE,LLC),andisaformermemberoftheBoardofDirectorsoftheNationalInstituteofPensionAdministrators(NIPA).In2009,BobwaspresentedwithNIPA’sLifetimeAchievementAwardforhiscontributionstotheretirementplanindustry.

Kaplanisafrequentspeakeratindustryevents,includingtheannualconferencesofASPPA,NIPA,WesternPension&BenefitsCouncilandSPARK.Healsospeaks

The2013ASPPAAnnualConferenceendedonOct.30andtheofficeisgettingbackto

normal.(Beinganewstaffmember,Ilearnedjusthowmuchworkgoesintoplanningandrunningthisconference!)Aspartofthisyear’sevent,ASPPAhelditsbiennialMarchonCapitolHill.TheMarchofficiallykickedoffatMondaynight’s“HillRally”whereJimDornan,ASPPA’sPoliticalDirector,energizedthecrowdandletthemknowwhattoexpectwhentheyvisitedwiththeirrepresentativesonTuesday.

OnTuesdaymorning,450attendeesdescendedonCapitolHilltomeetwith115membersofCongressandtheirstaff.Duringthemeetings,theyvoicedtheirconcernsaboutthevariousissuesthatdirectlyaffectourindustry,includingtaxreform,thedebtceilingandtheneedforastrong

RobertM.Kaplan,CPC,QPA,hasbeenelectedtoASPPA’sBoardofDirectors

andwillserveafirstfulltermexpiringin2016.Kaplanhasmorethan30yearsofexperienceinretirementplanservices,includingplandesign,administration,salesandconsulting.

Kaplanisthevicepresident,nationaltrainingconsultantforINGUS.HisresponsibilitiesincludewebcastandlivetrainingforINGUSRetirementServicespersonnel,aswell

Government affairs update

Robert M. kaplan Joins the asppa Board of directors

By Ronald J. tRicHe

By tRoy l. coRnett

71www.asppa.org/pc

WElCOME NEW AND RECENTly CREDENTIAlED MEMBERSMSPAPrecious Abraham, MSPAIan H. Altman, MSPAJames S. Barr, MSPATimothy A. Brumbaugh, MSPAWilliam E. Buckheit, MSPAJoseph J. Cimino, MSPABarton G. Fleming, MSPALisa A. Mullennix, MSPAStanley H. Tannenbaum, MSPAFei Xiong, MSPA

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asppa’s Biennial March on capitol Hill

The ERISA Outline Bookby Sal L. Tripodi, J.D., LL.M.

PRINTThe ERISA Outline Book is both

a reference book and a study

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2013 HIGHLIGHTS

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