If You're the Smartest Person in the Room, You're in the Wrong Room!

This title is one of my favorite quotes that is so very wise.  It was originally said by a noted academic, Dr. David Weinberger.  By applying this adage to my professional life, I've almost universally been the better for it.  If it weren't for this philosophy, I never would have tried to write papers, blogs and the like, and thus would never have decided to create this blog.  I've recently realized, that this blog is really the only independent place where I can document all of the work I've done in my career.  So, here are a few of my notable papers in one place, the better ones co-written by someone who is most definitely the smartest person in my two person rooms, HA!  Hope you enjoy these.

Retirement Success: A Surprising look into the Factors that Drive Positive Outcomes - This is the very first paper I published in my professional career, originally published in the Summer edition of the ASPPA Journal in 2011.  Interestingly, this piece has been a weight baring beam in my career, a foundational notion for everything I've done since.  The smart co-author on this gem is David Blanchett (now head of Retirement Research at Morningstar) who took my original question and did 100% of the math! - September 1, 2011

Deconstructing the Fiduciary Models: 3(38) vs. Discretionary Trustee - In this piece, my very smart associate, Mike Samford and I try to tackle a highly nuanced area of ERISA fiduciary service, taking discretion over plan investments.  While I would change some of what I've written here nearly ten years later, most of this still holds.   - July 11, 2012

Third Party Fiduciaries; Myth and Reality- Occasionally, I managed enough nerve to write solo, and invariably the result never as good as when I've written with a partner.  This is my first ever solo piece, originally self published but picked up by Retirementsolutionsnow.com. - June - 2013 (Orig. Jan. 17, 2013)

Retirement Income—In-Plan vs. Out-of-Plan Solutions, Which Is Better?

Retirement Income - In Plan vs Out-of-Plan Solutions, Which Is Better?  - This is still today (in 2021) a hot topic, annuities in retirement plans.  We had this published in the Journal of Pension Benefits and it explores Retirement Income solutions, as they exist within 401(k) plans, whether individuals would be served better with those solutions or out-of-plan solutions and provides ideas for how to adequately deliver retirement income for retired Americans.  The 'smart' on this one was my co-author, Dr. Greg Kasten. - Feb. 1, 2013.

How 401k Advisors can Effectively Offer 316 Services - Here's a piece I authored in 401(k) Specialist which discusses the 'at the time' new spate of administrative fiduciary services and a model for retirement plan advisors to gain a competitive advantage.  No co-author on this one, AND you can tell! - June 14, 2016

- Jason Grantz, QPA, QKC, QKA, AIFA

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Where has the all the content gone?

I'd like to apologize for the lack of consistent content on this blog to those who read it often.  It's been an extremely busy time for me professionally, but the blog post ideas haven't gone away, they've just been getting posted elsewhere!  About 18 months ago or so, my firm, Unified Trust launched a blog and I've been one of the authors populating the content.  Below you can find a link to the blog and a link specifically to the content authored by myself.  Thanks for being patient.  I will try to post here more frequently.

http://blog.unifiedtrust.com/index.php/author/jason-grantzunifiedtrust-com/

http://blog.unifiedtrust.com/

Best - Jason Grantz

Managed Accounts are More Effective

Recently, Plan Sponsor Magazine published their 2015 PLANSPONSOR Defined Contribution Survey and in it was some very interesting data regarding Managed Accounts and outcomes.  See the full survey here: PLANSPONSOR 2015 Defined Contribution Survey

After reviewing the data, one thing becomes very apparent, plans that use a Managed Account combined with an advisor acting in a fiduciary capacity have better results than plans not using these services.  The article below from planadviser magazine dives into the data a little deeper and focuses on average balances.

Managed Accounts - Plans with Managed Accounts have better outcomes

**WARNING: A little commercial below, apologies, but that stats are what they are.**

These results correlate to my personal experience.  At my firm, Unified Trust, approximately 9 out of every 10 plans we bring on board are choosing to adopt our full suite of recommendations, most of which are maternalistic.   We suggest clients utilize automatic enrollment (starting at 6%), automatic deferral escalators and the UnifiedPLan Managed Account Solution.  When looking at these plans, the results are astounding.

As of the date of this writing, we see roughly 80% of participants stay in the defaulted managed account solution.  This solution provides the participants with the answers AT enrollment to most of their questions.  When can I afford to retire? Am I on track?  What will my monthly income be?  How much of that is from the plan, social security, outside assets and other sources of income?  What should my deferral rate be in order for me to get or stay on track?

Of the participants offered this managed account, we are seeing 71% of those participants on track for a fully funded benefit.  Most industry studies we've reviewed has the industry average at about 25% (lowest I've seen is 15%, highest is 40%).  The system of defaulting participants into a solution that delivers AND implements all of the answers is proven here to be nearly 3 times more effective than traditional methods in delivering the outcome that matters most, retirement readiness.

Whether it is outside studies like PLANSPONSOR's survey, or our first hand experience, I think the results speak for themselves.  The more that we as professionals take on ourselves and do for our clients, the better the results.

-Jason Grantz

What’s in a name?

I received this great piece from a colleague of mine, Joe Reese, who kindly offered to post it on our blog.  Thanks Joe - Jason G.

Recently, we were competing for a law firm and were told by the Plan Sponsor that the insurance company service providers we were competing with “can assume being named the Plan Trustee.”  We are a discretionary plan trustee – it was clear the insurance company service providers were offering a directed trustee solution. While a discretionary trustee and a directed trustee are both trustees and both fiduciaries, they are not one in the same. 

After days of back and forth, reviewing documents, etc. the law firm requested 3rd party information highlighting the difference between a discretionary trustee and directed trustee. The following was our response.

First, some context…

ERISA Section 402(a) provides that a written plan document must include one or more ‘‘named fiduciaries’’ who control and manage the plan’s operation and ad-ministration. ERISA Section 403(a) states that plan assets generally are held in trust, managed by trustees either named in the trust instrument or appointed by the plan’s named fiduciary. Trustees typically have authority to manage and control plan assets unless the plan expressly provides that the trustees are subject to the direction of the named fiduciary or delegates such authority to an investment manager.

Then in the DOL’s own words…

DOL Field Assistance Bulletin 2004-3: Fiduciary Responsibilities of Directed Trustees

http://www.dol.gov/ebsa/regs/fab_2004-3.html

Here are a couple key parts of the above Field Assistance Bulletin:

• The duties of a directed trustee under section 403(a)(1) are therefore significantly narrower than the duties generally ascribed to a discretionary trustee under common law trust principles.
• The named fiduciary has primary responsibility for determining the prudence of a particular transaction, whether the transaction involves buying, selling or holding particular assets. Accordingly, as the courts and the Department have long recognized, the scope of a directed trustee’s responsibility is significantly limited. A directed trustee does not, in the view of the Department, have an independent obligation to determine the prudence of every transaction. The directed trustee does not have an obligation to duplicate or second-guess the work of the plan fiduciaries that have discretionary authority over the management of plan assets and does not have a direct obligation to determine the prudence of a transaction.  See In re WorldCom ERISA Litig., 263 F. Supp. 2d at 761;  Herman v. NationsBank Trust Co., 126 F.3d at 1361-62, 1371 (directed trustee does not have a direct obligation of prudence under ERISA section 404; its obligation is simply “to make sure” the “directions were proper, in accordance with the terms of the plan, and not contrary to ERISA”).

And finally, Case Law…

Federal courts have typically held that a retirement plan’s directed trustee can’t be held liable if it followed the investment directions of the plan’s named fiduciary. Below is a summary of cases dealing with directed trustee liability.

Renfro v. Unisys Corp., 671 F. 3d 314 - Court of Appeals, 3rd Circuit 2011

“Fidelity's limited role as a directed trustee, delineated in the trust agreement, does not encompass the activities alleged as a breach of fiduciary duty—the selection and maintenance of the mix and range of investment options included in the plan.”

“As we have explained, a directed trustee is essentially "immune from judicial inquiry" because it lacks discretion, taking instructions from the plan that it is required to follow.”  

Fidelity maintained that it was not a fiduciary with respect to the conduct constituting the alleged fiduciary breach. The trial court granted Fidelity's motion to dismiss, ruling that Fidelity and its related entities were not fiduciaries with respect to the challenged conduct because they did not exercise control over the selection and inclusion of investment options in the plan.

Tussey v. ABB, Inc., Case 2:06-CV-04305, 2010 Document 103

“By the plain language of the Trust Agreement, Fidelity Trust has no responsibility for reviewing the merits of fund choices made by the Pension Review Committee. 

Thus, Fidelity Trust had no responsibility to prevent the addition of the Fidelity Freedom Funds to the Plan’s investment line-up.  For these reasons, the Court finds that Fidelity Trust cannot be held liable for ABB’s breaches under ERISA Section 405(a)(2).” 

Fidelity’s reaction to the Tussey v. ABB court’s decision regarding Fidelity not being responsible as a directed trustee:  “We are pleased with the decision today by the court of appeals,” Vincent Loporchio, a Fidelity spokesman wrote in an email. “Fidelity’s actions were in all respects consistent with our fiduciary duties to our clients and all legal requirements. With this decision on appeal, Fidelity has prevailed on all claims asserted against it in court.” 

In re Cardinal Health Inc. ERISA Litigation, S.D. Ohio, No. C2-04-643, 3/31/06

The US District Court for the Southern District of Ohio dismissed a claim against Putnam Fiduciary Trust Co. as directed trustee of Cardinal Health employees' retirement plan in a case involving company stock investments.  The court found that Putnam was a directed trustee with limited fiduciary duties. The judge also refused to dismiss the employees' claim that some of the Cardinal Health defendants breached their ERISA fiduciary duties by failing to monitor those they had appointed to act as plan fiduciaries, and said Cardinal Health may be liable under the doctrine of respondeat superior for its board of directors' failure to monitor those they appointed to act as plan fiduciaries.

Donovan v. Cunningham14 (S.D. Texas 1982)

This early case briefly discussed the ‘‘limited role’’ of the directed trustee. The court noted that a directed trustee couldn’t be liable for breach of fiduciary duty where its activities ‘‘at all times remained within the limited role of a directed trustee.’’

Maniace v. Commerce Bank of Kansas City18 (8th Cir. 1994)

The Eighth Circuit ruled that a bank serving as directed trustee of an ESOP didn’t violate its fiduciary duties in allowing the plan to continue to hold large amounts of employer stock despite the stock’s declining value. The court found that, as a directed trustee, the bank wasn’t an ERISA fiduciary with respect to employer stock held by the ESOP because it lacked discretion over plan assets. According to the court, ‘‘the obligations of a directed trustee are something less than that owed by typical fiduciaries.’’

Grindstaff v. Green20 (6th Cir. 1998)

The Sixth Circuit ruled that a directed trustee isn’t a fiduciary to the extent it doesn’t control the management or disposition of plan assets. The court rejected ESOP participants’ claim that the ESOP’s directed trustee had a duty to investigate the merits of any directives given to it by the plan’s named fiduciary. The court noted that the trustee had no discretion pertaining to voting the ESOP stock and could only act at the direction of the named fiduciary.

In re McKesson HBOC Inc. ERISA Litigation21 (N.D. Cal. 2002)

A California federal district court dismissed ESOP participants’ claim that the plan’s directed trustee breached its ERISA fiduciary duties by allowing plan fiduciaries to continue to invest in employer stock when it allegedly knew that such an investment was imprudent. The court found that as a directed trustee, the trustee was obligated to follow the investment instructions given by the named fiduciaries and thus couldn’t be held liable for any losses that resulted from performance of its duty to follow those instructions. The court noted in a footnote, however, that if the participants could demonstrate that the trustee knew that the investment directives violated ERISA, then the trustee wouldn’t be relieved of ERISA liability by following such imprudent directives.

Lalonde v. Textron Inc.22 (D. R.I. 2003)

In this case, the district court dismissed ESOP participants’ claim that the plan’s directed trustee breached its fiduciary duties by not rejecting the named fiduciary’s directive to invest in the plan sponsor’s stock. The court found that the directed trustee had no discretionary authority, and hence no fiduciary status. The First Circuit subsequently upheld the district court’s decision after concluding that, even if it were to assume that the trustee wasn’t a true directed trustee, there was nothing in the participants’ complaint that would permit an inference that the trustee abused any discretion it might have had.

Yes, discretionary trustees and directed trustees are both fiduciaries, and trustees…but the role they play are not the same. A Plan Sponsor who confuses the two does so at his or her own peril.

Discretionary Trustee vs. Inv. Mgr. or other fiduciary roles

An old colleague and current competitor of mine, and ours at my firm recently put out a very nice blog post articulating some of the nuances of the trustee role in context vs. other fiduciary roles, Investment Managers and directed trustees.  Certainly worth a quick read, linked here.

http://pentegra.com/expertise/current-thinking/misconceptions-about-the-three-principal-fiduciary-roles-in-a-retirement-plan-the-trustee.aspx

Enjoy!
Jason

Not all 3(38) Fiduciaries are alike - Repost

Pulled this brief blog post from Ary Rosenbaum's blog.  Linked below.

http://www.jdsupra.com/legalnews/not-all-338-fiduciaries-are-alike-01959/

In this post Ary discusses one of the current industry trends, the selling of 3(38) services and discusses briefly how they come in different shapes and sizes and he equates many of these new services to getting a meal at McDonald's.  Love his sarcasm.

About 18 months ago, I authored a paper on this topic as well.  It has many of the same themes as Ary's post, but goes a bit deeper into the topic.  Below is a link to that paper.  Enjoy!

https://www.unifiedtrust.com/documents/Third-Party-Fiduciaries-Myth-and-Reality.pdf

DOL - Service Provider Fee Guides

"..We are particularly concerned that some employers, particularly small employers, may not be reaping the full benefits of the fee disclosure regulation.." - Phyllis Borzi

 http://www.planadviser.com/DOL_Proposes_Service_Provider_Fee_Guides.aspx
 http://www.pionline.com/article/20140311/ONLINE/140319966/dol-proposes-401k-plan-fee-disclosure-guide

This story was all over the place yesterday, I think I received six or seven separate emails on this topic.  Above are a couple of the links to the main story.  In essence, what happened was Phyllis Borzi stated on a national conference call that the Department of Labor (DOL) was very concerned about the fee disclosure documents provided by retirement plan service providers resulting from last year's 408(b)(2) rule change.  As a result they would be furnishing a new format for a fee disclosure guide that would be required explaining how to read the disclosures.  See the above links for the details.

My thoughts: 

This does not come as a surprise.  Between myself and several others at my firm, we've reviewed numerous fee disclosure documents, probably 15-20 from different service providers in addition to furnishing our own and what we've observed is essentially what we thought would happen.  The disclosures are mainly very complex, we believe intentionally so.  Our thought, and I'm sure this is going into the DOL's thinking on the matter is that the service providers will comply with the letter of the law, but not the spirit.  In other words, they will provide the bear minimum to meet the legal requirement, but make the disclosures so complicated that they would be extremely difficult to actually figure out what the plan expenses were.  Here are two examples (provider's name left out).

1.) One client received a disclosure from their service provider who was providing recordkeeping, third party administration, trust/custody and the investment platform.  I.E. it was all bundled.  Our firm acts as the plan's retirement plan and fiduciary consultant and as its' investment manager.  As part of our service we agreed to review and interpret the 408(b)(2) disclosure.  It was 82 PAGES!  It could have been done in three sentences, but it was 82 pages!!!  

2.) This example is another client of ours that we took over from a competing service provider last year, one of the larger insurance company platforms in a group annuity format.  The plan was a "small market" plan, under $5m in plan assets.  The 408(b)(2) disclosure was provided to us prior to our appointment.  It wasn't an 82 page situation, it was a different tactic altogether.  In this case, upon an initial glance by us, the plan's advisor, and the client, it appeared that the plan was only paying investment expenses which amounted to approximately 75-85 basis points or 0.75-0.85%.  If that were the actual expenses it would be extremely price competitive in the small plan marketplace.  However, after reading through it and digging through the fine print and following the instructions on where to look on different pages that explained how to perform some of their fee calculations, the plan expenses fell in at 2.28%, that's 228 basis points, a whopping 1.5% more expensive than the client thought they were paying.

What these two cases illustrate are two separate tactics, both of which are deceptive in my opinion, of service providers complying with the letter of the law but ignoring the spirit of the law which, simply put, was fee CLARITY.  After all, we, as experts were able to figure out the plan's true costs, but in both cases the client would not have been able to on their own.  

Good to see that the DOL is going to do something about this.  Remember, having an inexpensive plan isn't an ERISA mandate, but understanding fees and services and validating that they are reasonable is.      

Retirement Plan Business Models - Some thoughts

In early November, I did an interview with a Paula Aven Gladych of benefitspro (http://www.benefitspro.com/), an online media source for all things related to the benefits marketplace.  The topic of the interview was "broker business models for retirement plans".  Very soon after the interview, they posted an article called "Demand Rising for 401(k) advisors".  I was cited in the piece, but a lot of what she and I had discussed was left out, linked below.

http://the401kplanblog.blogspot.com/2013/11/demand-is-rising-for-401k-advisors.html

Unbeknown to me, the author had intended a second piece which was published on 12/27 entitled "Brokers begin to break into 401(k) market".  More of what she and I had conversed about appears in this article.  In it, I discuss a couple of different service models that can work, the widening gap between "retirement pros" and beginners and how both can succeed in selling and servicing retirement plans.  Please enjoy it, linked below.

http://www.benefitspro.com/2013/12/27/brokers-begin-to-break-into-the-401k-market

Demand is Rising for 401(k) Advisors

Every once and a while someone asks me my thoughts about the retirement plan industry.  Occasionally, they choose to print some of those thoughts.  Below is an article from Benefits Pro featuring myself and a few others discussing the demand for specialization from the investment advisory community.  Happy reading.

http://www.benefitspro.com/2013/11/06/demand-rising-for-401k-advisors?eNL=527bea40150ba0744c000091&utm_source=RetirementAdvisorPro&utm_medium=eNL&utm_campaign=BenefitsPro_eNLs&_LID=143409125

Five Steps to Mitigate Fiduciary Risk - or at least minimize it

 Every now and then we see an article of information that isn't saying anything new, but reminds us of some of the basics, i.e. the fundamentals of fiduciary best practices.  Below is an article that does just that, written in an easy to understand way, this article gives employers 5 steps to help mitigate a lot of fiduciary risk.  Thanks to the original publisher, REA & Associates Enewsletter originally authored by Paul McEwan, CPA, AIFA and linked here;

http://www.reacpa.com/five-steps-to-mitigate-your-401k-fiduciary-risk

Five Steps to Mitigate Your 401k Fiduciary Risk

There is so much noise in the marketplace regarding the fiduciary responsibility of plan sponsors it's no wonder people are confused. The confusion starts with who is a fiduciary so it's important to note that fiduciary status is based on the functions performed for the plan, not a person's title.

Your plan's fiduciaries will ordinarily include the trustee, investment advisers, all individuals exercising discretion in the administration of the plan, all members of a plan's administrative committee (if you have one) and those who select committee officials. When determining if an individual or an entity is a fiduciary, you need to look at whether or not they are exercising discretion or control over your plan.

Implementing the following best practices will help you mitigate fiduciary risk:
1.     Adhere to a well-defined, deliberative, documented process.

• Include a well-drafted investment policy statement (IPS) that describes the investment selection and monitoring criteria.
• Review annually the performance of the plan's fund line-up to determine if it meets IPS criteria.
• Identify all of your plan's service providers; know and understand their services and fees; monitor performance; and determine if fees are reasonable through objective plan benchmarking.

2.     Identify conflicts of interest. While they are not illegal, they will result in higher plan fees and reduced investment performance over time if not monitored. Any relationship that prevents the plan from being operated in the exclusive best interest of plan participants increases fiduciary risk.

• Beware of financial arrangements between service providers (for example, payments from mutual fund managers to the plan record keeper, TPA or investment advisor) as they are the biggest source of conflicts. Also be aware of personal relationships between plan fiduciaries and plan service providers.
• Use investment advisors in a fiduciary capacity and make sure they document that status in writing. If your advisors don't serve in a fiduciary capacity, be certain they are compensated on a level fee arrangement and know who pays them.
• Seek an independent review of your plan's service providers and investment platform every three to five years. Use an outside consultant, regardless of how much you trust your advisor.

3.     Take full advantage of fiduciary safe harbors provided for in the law.

• Comply with ERISA 404(c) if you allow participants to make investment decisions. There are three compliance areas: 1) investment menu requirements; 2) plan design and administrative requirements; and 3) information and disclosure requirements.
• Implement a Qualified Default Investment Arrangement (QDIA), especially if your plan has automatic enrollment provisions. This is an approved investment selection for participants not making an affirmative investment election. You should also consider moving all participant balances into the QDIA and then allow participants to make affirmative elections. Be sure to comply with all QDIA requirements.  

4.     Establish a fiduciary file that contains documentation of your plan oversight activities listed above, such as:

• All legal documents, including the IPS
• A copy of all service provider contracts and required disclosures
• All investment monitoring reports and prospectuses
• Minutes of all plan committee meetings
• All due diligence performed when selecting service providers
• Annual Form 5500 and audited plan financial statements, if required
• Annual plan activity summaries from service providers   

5.     Purchase fiduciary insurance. This is not an ERISA fidelity bond which is actually required coverage for all employees handling plan assets. Whereas a fidelity bond reimburses the plan for any losses resulting from dishonest acts by employees of the plan sponsor, fiduciary insurance protects the personal assets of all plan fiduciaries due to allegations of breach of fiduciary duties or failure to act prudently in the best interest of participants.

As a plan sponsor, you have the ultimate responsibility for monitoring the performance of the plan service providers your plan hires. You cannot assign or delegate away fiduciary responsibilities to another person or organization; however, you can share fiduciary status with others that may be more knowledgeable about retirement plan operations. If you don't follow the basic standards of conduct described above, you may be personally liable to restore any losses to the plan or to restore any profits made through improper use of the plan's assets resulting from their actions.

Limiting your fiduciary risk as it relates to your retirement plans is only five steps away. Follow them to protect yourself and you plan participants.

The "Real" Role of a 401(k) Plan Advisor - Good Thoughts Ary

Once in a while someone writes something and gets it right. .  Attached is a good read for Retirement Plan Advisors of all levels, beginner through expert.   Main theme is that overall comprehensive service and maximizing protection is where the value to the employer is, it's not all about picking funds, or really even a little.

See the article linked here.

http://www.jdsupra.com/legalnews/the-real-role-of-a-401k-plan-financi-67827/

Nice work Ary!

Podcast - 401(k) Alphabet Soup, me and Chuck Hammond

New media for me, enjoy!

http://www.blogtalkradio.com/the401kstudygroup/2013/03/15/the-alphabet-soup-of-the-401k-industry

Third Party Fiduciaries - Myth and Reality

Well, I put together a little opinion paper discussing a recent trend we've been seeing in 401(k) products over the last year or so, the so-called "Third Party Fiduciaries".  The idea behind the paper was to share our views to our Advisor Partners and their clients to help them gain a better understanding of the limitations of arrangements that are being oversold to a degree.  Unbeknownst to me, the paper was picked up by 401khelpcenter and put online today.  So, since it is available publicly anyway, I figured I'd link it here for any to see.  Happy reading.

http://www.unifiedtrust.com/Documents/Third_Party_Fiduciaries.pdf

Discretionary v. Directed Trustees: Fiduciary Focus

In case you haven't seen it, yesterday in Morningstar's Fiduciary Focus column, Here --> http://www.morningstar.com/advisor/t/50458854/discretionary-trustees-vs-directed-trustees.htm, author Scott Simon tackled a topic that we, and our firm, Unified Trust, have been tackling for years. The topic is Discretionary Trustees vs. Directed Trustees. I got rather excited, thinking to myself selfishly that finally, someone else is going to discuss the merits of appointing a discretionary corporate trustee and the advantages of that over the more common, less valueable step-sister, the Directed Corporate Trustee.

Note, that while the article is, in my opinion, well written, factual and fairly thorough, I was disappointed, nonetheless, to read that he was referring to Discretionary Trustees in the broader sense. He makes the valid point that all trustees appointed by the Plan Sponsor are Discretionary Trustees unless specifically appointed as a Directed Trustee. That includes individuals, such as business owners or boards or officers appointed in this role. The only place he even mentions that you can appoint a Discretionary CORPORATE Trustee is as an aside where he states how uncommon this appointment is. He doesn't go into the merits of Prudent Fiduciary Appointment, or even compare contrast the differences between the two types of Corporate Trustees. You can incidentally find that on this blog.

Here -->http://the401kplanblog.blogspot.com/2011/11/practical-differences-of-various.html
and
Here -->http://the401kplanblog.blogspot.com/2011/04/338-im-discretionary-trustee-service.html

Disappointment aside, he does make a few very good points.

1.) All trustees are Discretionary unless specifically identified as Directed in the Plan Document at which point the responsibilities of trustee fall back to the Named Fiduciary, typically the Plan Sponsor. The good example of US Airways and their relationship to Fidelity Trust Company is provided.

2.) Directed Trustees provide a very limited array of services, typically asset custody, following direction and ensuring transaction accuracy. They are a highly limited fiduciary, and most (that I've seen) disavow fiduciary status in the contracts.

3.) No one can ensure blanket relief from fiduciary liability. There are only degrees of limited relief. Unfortunately, he doesn't point out that the highest degree is to prudently appoint a Discretionary Corporate Trustee.

So, long story short (too late, I know), Scott Simon wrote a decent article making the point that the devil is in the details, and that Plan Sponsors should be wary of unscrupulous sales pitches about fiduciary relief.

Practical Differences of Various Fiduciary Services

Over the last several years, there has been a growing level of awareness surrounding the various roles that retirement plan advisors and consultants play when serving their clients. The increased awareness can be attributed to the establishment of organizations dedicated to promoting fiduciary best practices, as well as the increased exposure to content available at a growing number of industry conferences. Not surprisingly, this has led to the creation of new business models, new credentials and new expertise.

The sections of the ERISA dealing with fiduciary responsibility, in name, have evolved into marketing terminology. For example, ERISA §3(38) Investment Manager is now a bell or whistle made available by the advisor or the service provider. An unfortunate side effect of this trend is the wide disparity in the quality of the delivery system. Some claim to be ERISA fiduciary “experts” using ERISA fiduciary as a sales feature, when really their expertise is in sales or asset gathering. Even among genuine experts, there are many who lack the depth in understanding the many nuances that distinguish the roles. In a recent competitive situation we observed an advisor team, acting as an ERISA §3(38) Investment Manager, state to a client that they are equivalent to a fully Discretionary Trustee, but that they could do it for less. This claim, in the form of salesmanship, was plainly inaccurate and disappointing, yet it happens all too frequently.

While we find that the uptick in the use and discussion of the various fiduciary roles exciting on some levels, the misuse that occurs with client consulting can be problematic. In the example above, by that advisor claiming that selecting funds for their client is the same as a being a fully discretionary trustee, it substantially diminishes the robust list of services provided by a discretionary trustee that goes well beyond fund selection. Many of those services are equally, if not more, important to the Plan Sponsor and the participants. For that reason, we have created a comprehensive chart that explains the PRACTICAL differences for the various fiduciary services available in the market. Click here

DOL to Reconsider Fiduciary Rules

The Department of Labor announced that it would be re-proposing its rule on the definition of fiduciary due to requests from the public via Congress that the agency provide more input on the rule.

Anticipated changes include but are not limited to:

-Clarifying that fiduciary advice is limited to individualized advice directed to specific parties
-Addressing concerns about application of the rules to routine appraisals
-Clarifying limits of the rule's application to arm's length commercial transactions, such as swap transactions.
-Addressing the impact of the new regulation on current fee practices of advisors and brokers, and looking at exemptions permitting brokers to receive mutual fund, stock, and insurance commissions.

The full article, available through PLANSPONSOR.com, can be seen here.

The 3(38) IM & Discretionary Trustee Service Model

Over the last several years, there has been increasing awareness of the various fiduciary roles that retirement plan advisors and consultants play when serving their retirement plan clients. In previous posts, we have tackled the topics of Full-Scope §3(21) vs. Limited Scope §3(21) Advisors, as well as how fiduciary delegation and appointment functions. In this post, along with supporting documents, we are focusing on the two main discretionary fiduciary models: that of a Discretionary Trustee and that of an ERISA Section 3(38) Investment Manager.

Please peruse the following Journal of Pension Benefits article we co-authored which discusses the differences between the duties of a Discretionary Trustee and those of an ERISA §3(38) Investment Manager (IM), view article. We believe this is an important topic given Unified Trust’s position as a Discretionary Trustee and given that we have recently launched a new service model called Investment Manager, more information.

In the article we discuss a model for comprehensive Retirement Plan Fiduciary Governance we’ve called The Two Party System, illustrated here.

The idea is for the plan sponsor to hire two separately engaged, independent (of each other) fiduciaries. They may be a Discretionary Trustee and an IM or a Full/Limited Scope §3(21) Advisor. One of these parties does the work required to ensure proper fiduciary governance and the other oversees the first which allows proper adherence to the Duty to Monitor. In the absence of two, the party responsible for oversight is the Plan Sponsor and, in most cases, little if any fiduciary liability exposure is shed. The combination of a Discretionary Trustee and an IM or §3(21) Advisor together make for a potentially superior model to a Discretionary Trustee, §3(38) IM or §3(21) Advisor alone.

I'm a Fiduciary, What Are You?

It’s interesting to observe how trends affect one’s life from time to time. Ordinarily when one thinks of trends, they think of it in the context of the social side of life. For example, trends in music, fashion, television, etc. Every now and then trends start to appear in the professional world as well. One emerged trend of the last several years in the 401(k)/Pension business is the trend towards offering fiduciary services. Of course with this comes the inevitable misusage of the term fiduciary and a variety of marketing terms and sales gimmicks intended to take advantage of the trend without actually providing anything in return. Through the course of travel my coworkers and I often get many of the same questions surrounding ‘fiduciary’. Confusion in this area isn’t surprising as there is a lot of market noise, from the marketing terms like Co-Fiduciary or the sales tools like Fiduciary Warrantees to the newest trend, the selling of specific code sections as the different flavors of fiduciary.

We’ve all seen the various new categories of advisor; ERISA §3(38) Investment Manager, Full-Scope §3(21), Limited-Scope §3(21) and so on. On Linked-In there are lively discussions about it, articles are being published on it on Morningstar.com and an unfortunate result is some general confusion from a lot of Advisors of ERISA plans on what all of this is and what they should or should not be calling themselves or doing, not to mention what they’re allowed to do or not allowed to do under their Broker/Dealer contract if they are a registered rep. For that reason, we have created a new piece as an attempt to simplify and consolidate the most recent array of terminology.

Select the following link to view the complete document – Fiduciary…A Different "F" Word.

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.