Monday, December 28, 2009

Lifetime Income Disclosure Act, UTC on Track

Recently (specifically, November 2009), the Lifetime Income Disclosure Act was introduced by Senators Jeff Bingaman, Herb Kohl and Johnny Isakson. This bill would require that 401(k) providers inform participants of the monthly income they would expect at retirement. This projection is intended to be modeled after the existing Social Security statements that Americans presently receive annually. The bill is intended to help the average worker to understand their present financial vulnerability. Click here for a copy of the bill.

Obviously, this is a new introduction to the Senate and will be placed on what seems to be a an ever-growing stack of proposed Retirement Plan legislation which may or may not get passed. However, this one is interesting as it supports many notions that we, at Unified Trust, have been talking about for years. Specifically, it mentions that the average American is on path to a substantial shortfall. We usually quote 80% of workers covered do not have adequate retirement savings in today’s dollars. What also is interesting is that this new type of disclosure is aimed at converting consumer (participants) thoughts from the traditional “investment account” approach to a new “benefit account” approach. I.E. Is the 401(k) actually providing me with adequate income replacement?

This is exactly what we are doing with our new service, The unifiedPLAN®. In fact, each participant enrolled in The unifiedPLAN® will be presented with a mathematically sound Success Analysis at the initial enrollment meeting and each quarter thereafter. Click here to view a sample report. This analysis will show them in today’s dollars what their projected surplus or shortfall is and offer suggestions on how to improve the outcome. In addition, based on this projection a custom tailored model portfolio will be established for the participant and adjust automatically as the math changes from quarter to quarter. This established glide path will improve outcomes for virtually all participants.

Wednesday, December 2, 2009

Benefit Policy Statement - New Value for Advisors

Over the last few years, as more and more professional Retirement Plan Consultants start to manage their practices as ERISA fiduciaries, the documentation process has become very important. Professionally, we have experienced the Investment Policy Statement (IPS) become a document as important to the plan file as the Plan Document, Adoption Agreement and other required documents. Various other policy documents are also normally required, but are often ignored. Some examples are a formal Loan Policy and a formal Funding Policy.

Specifically, cited in ERISA Section 402(b)(1) are requirements to have a written plan document (or documents) with a named fiduciary in charge, with the documents being required to do the following:

(b) Requisite features of plan
Every employee benefit plan shall—
(1) Provide a procedure for establishing and carrying out a funding policy and method consistent with the objectives of the plan and the requirements of this subchapter…

This requirement has been present since the beginning of ERISA, yet most plans simply don’t have one. This is a potential red flag for an auditor and impractical. Unified Trust Company is proud to announce the creation of a new Participant level document that will not only meet this ERISA requirement, but will also create a set of boundaries wherein each individual’s path to successful income replacement at retirement will be mapped out for them formally. This new document is called a Benefit Policy Statement (BPS). To view a sample of the Benefit Policy Statement, click here.

The purpose of this document is to give the participant formal notification of how the trustee intends to drive the process towards secure retirement for the participant. It will provide the Purpose, define the duties and responsibilities of all parties, provide what methods are used to determine Asset-Liability matching and more. Every participant will have their own BPS custom tailored to meet their individual needs. This document will be rolled out in conjunction with Unified Trust’s impending launch of The UnifiedPLAN®, the system of Defined Goal Investing that you’ve been hearing about from us for some time. The UnifiedPLAN® and its use of the BPS are enhancements to Unified Trust’s already successful, Unified Success Pathway™.

Monday, August 10, 2009

The Fraud Conversation

Unfortunately, we all now live in a time when malicious fraudulent acts are a reality in our lives. This comes in many forms, identity theft, credit card fraud and pointedly, investment fraud. We all are affected by the scandals of the day, most recently the Bernie Madoff Ponzi scheme. While we at Unified Trust were not party to this or any other fraud in our 24 year history, we still have to answer the sad question of ‘I never heard of Unified Trust, how do I know you aren’t another Bernie Madoff?’. In conversations with many of our existing Advisor Partners and Advisor prospects, we are told that they are being asked the same type of question. Perhaps, this is the penalty for being independent or for being a boutique service provider or simply a reality of today’s world? In recent days, we’ve taken several steps internally to provide our clients, both Plan Sponsors and Advisors alike, assurances that when money is received by Unified Trust as a service provider that it does reach is intended destination, the Mutual Funds selected by the participants.

As a fiduciary, we advocate clients take measures to protect themselves. At a minimum, clients can do the following:
  • Ask to be placed as a third party statement recipient on any accounts where money is held, such as a Mutual Fund Statement.
  • Confirm with the service providers that moneys are being held by a separate body or custodian from the entity generating the reporting.
  • Ask providers to supply independent source verification of the health of the organization they select. These can be balance sheets, audit records and the like.

Unified Trust has produced a ‘client approved’ article that discusses some of the causes of the Madoff scheme and what clients can do to protect themselves.

Click here to read the article—How UTC Prevents Investment Fraud

Additionally, earlier this year, Unified Trust launched a due diligence website where Plan Sponsors and Advisors can find links to independent sources of information on Unified Trust, Trust Companies and the Trust system. Here you will find:

  • Independent Verification of Unified Trust Company’s CEFEX certification for Fiduciary Best Practices
  • Department of Labor Oversight
  • FDIC Trust Examination Manual
  • Unified Trust Company Quarterly Call Reports Federal Financial Institutions Examination Council (“FFIEC”) Central Data Repository
  • Fiduciary360 Fiduciary Best Practices Home Page
  • U.S. Office of the Controller of Currency (“OCC”) Unified Trust Company Governance
  • Most recent SAS 70 Audit Report
  • Most recent Unified Financial Services, Inc. Audit Report

To access the due diligence site, please logon to and select the Conduct Corporate Due Diligence link under the Account Information link on the left side of the page.

Friday, July 24, 2009

Law Suits - Coming Down Market

We invariably have discussions surrounding Discretionary Trustee Services, Fiduciary Services, Fiduciary Responsibility and Liability that lead to the following inevitable question. What is the real risk of all of this stuff? The question is clearly pointed at challenging whether or not the risks are real risks or simply overzealous rule following. This is especially important as the spate of law suits that are publicized in this area are always with very large plans (Deere, Ford, etc.) and their providers, again mostly very large companies. That contrasts to Unified Trust’s typical market, where we partner with Advisors, which we would define at the Under $100m space. We believe that the risk question misses the point. Liability relief is important and useful to a Plan Sponsor who has concerns in this area, however, the point is that the rules under ERISA are written the way they are because they create a path to follow that mandates ‘Best Practices’. If followed absolutely, they should generally lead plans to be more successful at providing adequate benefits to the participants in a fair way than when they aren’t followed. Obviously, we are a true proponent of ‘best in process, best in outcomes’ based approach to Retirement Plan Management. This applies to both Defined Contribution and Defined Benefit Plans.

That said, it should come as no surprise to anyone reading this that the quantity of law suits in the Retirement Plan industry has increased dramatically since the end of 2007. No one worries when the market is going up if their robust returns are slightly lower due to excessive fees, but in a down market even the slightest hint of excessive fees can bring participants and Plan Sponsor’s blood to boil. We have always stated that it would only be a matter of time before we were hearing about fee-driven law suits in the small plan space and that engaging in ‘Best Practices’ is a good way to avoid risk regardless of market cycles or client size.

In the latest edition of Investment News (July 20, 2009), there is an article that discusses a plan of approximately $2m in assets that is suing its Investment Advisor, Custodian and Recordkeeper. To read the full article, click here.

Interesting to us is that the suit is regarding fee disclosure, revenue sharing and hidden fees. We have written on this subject before in published papers and prior emails. I can forward them to anyone interested. The bottom line is that a fee-based environment (as opposed to commission based) where all fees are known, accounted for and disclosed is the only environment appropriate for Retirement Plan Sponsors. That’s appropriate whether using the Suitability Standard or the Fiduciary Standard.

The following are articles by Unified Trust that discuss fee disclosure, what’s broken and how it works and how it should work.

Ethics of 401(k) Revenue Sharing and Disclosure — Full Article
Revenue Sharing For Qualified Plans — Full Article

Tuesday, June 9, 2009

Fiduciary Delegation - Myth or Reality?

I get asked about this quite often, so I thought it would be a good topic for discussion here. Specifically, the question that I get asked is whether or not Fiduciary Liability (not responsibility or status) can in fact be transferred from a Plan Sponsor or business owner onto another entity or not. Below, I will try and tackle this question appropriately so that it makes sense for all who may be interested.

The notion that fiduciary responsibility and liability cannot be delegated is explicitly false under law. ERISA itself makes this clear, DOL regulations make it clearer, and case law reinforces it. The most obvious way to delegate is simply to hire someone else to be in charge. For example, when one of our clients prudently hires and monitors Unified Trust as discretionary trustee, the client should be able to effectively delegate much of its fiduciary responsibility with respect to plan assets and the client should not be liable for Unified’s acts and omissions as discretionary trustee. The client simply has a fiduciary responsibility to prudently hire and appoint Unified and to monitor our performance as discretionary trustee.

Another path to delegation is through an ERISA investment manager. ERISA section 3(38) defines an investment manager as any fiduciary (other than a trustee or a named fiduciary):

  • who has the power to manage, acquire, or dispose of any asset of a plan;
  • is a Registered Investment Advisor (RIA), bank or insurance company;
  • has acknowledged in writing that he/she is a fiduciary with respect to the plan.

A named fiduciary can appoint and delegate certain plan functions to an investment manager (pursuant to ERISA section 402(c)(3)) and not be liable for the acts and omissions of the investment manager (pursuant to ERISA section 405(d)(1)). Of course, the one caveat is that the appointment of the investment manager must be prudent and this responsibility lies solely with the appointing fiduciary, typically the Plan Sponsor. Click here to read an article previously published in the Journal of Financial Planning that goes into detail on this very topic and how it can benefit Plan Sponsors.

To Summarize:
Myth – You Can’t delegate fiduciary responsibility

  • This is false. Delegation is perfectly legal under ERISA……just rarely done in actual practice.
  • Several sections under ERISA specifically outline how delegation would occur. These are sections 402c, 403a, 405(c)(1)/405(c)(2)/405(d)405(c)(1)/405(c)(2)/405(d)(1).

402(c) – Formally Divides duties among named fiduciaries
403(a)1 – Formally delegate to a Corporate Trustee
403(a)2 and 402(c)(3) – Formally delegate to an Investment Manager
405(c)(1)/405(c)(2)/405(d)(1) – Formally delegate duties of a named fiduciary to another fiduciary (who is not named) – I.E. Independent Fiduciary
405(d)(1)) – “named fiduciaries are not liable for the acts and omissions of other named fiduciaries” if those fiduciaries have been prudently appointed and retained.

  • Based on the above if the plan sponsor delegates the role of trustee to a Corporate (fully discretionary) trustee and does so prudently, that plan sponsor is not responsible for the acts and omissions of that trustee. This includes the delegation of prudently selecting and monitoring investments.
  • Bottom-Line – No one can fully remove the Plan Sponsor’s fiduciary role or ALL of its responsibilities, but parts of it can be outsourced to professional fiduciaries including the role of discretionary trustee. The client in this environment transfers liability to this discretionary trustee. This is generally a good thing. The client is still the Plan Sponsor and named administrator and thus is still responsible for settler/ministerial functions as well as prudently hiring and monitoring service providers including the outsourced trustee service.

Monday, April 13, 2009

IRS 401(k) Savings Plan Checklist

The Internal Revenue Service (IRS) has published a brochure and checklist to assist 401(k) savings plan sponsors in conducting a “check-up” of their plans. The booklet, “Have you had your Check-up this year?” describes the 401(k) Plan Checklist, lists publications and forms that are helpful in operating a 401(k) savings plan, summarizes common mistakes and briefly describes the IRS’ correction programs.

The 401(k) Plan Checklist includes ten questions about the plan’s compliance with key IRS rules. The Web-based version of the Checklist has links to expanded explanations and IRS resources. For example, one can use links to detailed information about highly compensated employees, nondiscrimination testing and eligible employees.

The booklet, Publication 3066, can be viewed at

The 401(k) Plan Checklist, Publication 4531, can be viewed at

Both can also be obtained by contacting the IRS at 800-829-3676.

Of course, one way to avoid issues that these types of “check-ups” tend to uncover is to work with a true discretionary fiduciary with a spotless client audit record. Did you know, that NO Client has ever failed a DOL or IRS audit of its qualified plan while Unified Trust served it? One of the reasons why? Unified conducts a rigorous “front-end fiduciary audit” of each plan it takes over. In this process, we attempt to uncover plan shortfalls, historical prohibited transactions or other possible fiduciary breaches and guide and assist the client in correcting these before they become an issue down the road. While no service provider can guaranty a clear audit, we are proud of our record and proud that our guidance has assisted clients remain compliant with DOL and IRS guidelines.

Monday, March 16, 2009

Automatic Enrollment Mandatory? Maybe?

President Obama recently released an outline of his fiscal year 2010 budget, A New Era of Responsibility: Renewing America’s Promise available here at

Of interest to this writer (and hopefully the readers) is that previous improvements to retirement arrangements that were part of the Bush tax cuts will not expire after 2010. This reinforces the permanency granted by the Pension Protection Act of 2006 (PPA). In addition, this budget also includes several proposals intended to strengthen the private retirement system.

  1. Payroll-deduction individual retirement accounts (IRAs) for workers whose employer does not sponsor a qualified retirement plan.
  2. An expansion of the Saver’s Credit.
  3. Mandatory Automatic Enrollment.

Automatic IRAs
Almost one out of every two workers – or 75 million working Americans – have no employer-sponsored retirement plan. As a solution, the budget proposal would require employers that do not offer a retirement plan to enroll employees automatically in a direct-deposit IRA program. Employees would have the ability to opt out of the savings arrangement. The budget outline provides very few details on the automatic IRA proposal. Other proposals of this type have suggested that employers with less than 10 employees or employers that have been in business less than two years would be exempted. Smaller employers (up to 100 employees) would be entitled to a tax credit for the first two years that they maintain a payroll deposit arrangement. The credit would be $25 for each employee who uses the arrangement, up to a total of $250.

Expansion of the Saver’s Credit
The Saver’s Credit is a tax credit for certain low and moderate income individuals who contribute to workplace retirement plans and IRAs. However, many Americans are unable to take advantage of the credit because they do not have any tax liability, or earn more than the AGI eligibility limit ($55,500 for families/ $27,750 for single taxpayers). The budget proposes making the credit fully refundable so that all Americans can benefit from the credit, and expanding eligibility to families earning up to $65,000 per year. The current non-refundable Savers Credit ranging from 50% down to 10% of the first $2,000 of contributions would be replaced with a uniform refundable credit of 50% of the first $1,000 for all eligible savers.

Mandatory Automatic Enrollment
Interestingly, the budget appears to not only propose automatic enrollment for payroll deduction IRA’s, but that ALL employer-sponsored retirement plans be required to automatically enroll employees. Many of you are already familiar with The Unified Success Pathway®. For those unaware, one of the keys to success, in our view, is making the default for the plan, the path of least resistance. To us that means removing as many barriers as possible to achieving retirement success. Such barriers include joining the plan, increasing deferral rates periodically, asset allocating properly and rebalancing. By automating these and requiring employees to opt out rather than opt in, plan success is more achievable. What is success? A plan that provides an adequate benefit for participants to live on during their retirement years.

Click here to learn more about The Unified Success Pathway®.