Fiduciary Issues and Tools Peter Welsh, Senior Vice President Director of Business Development

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Fiduciary Issues and ToolsPeter Welsh, Senior
Vice PresidentDirector of Business Development
The Ritz-Carlton, Huntington Hotel, Pasadena,
California September 29-30, 2003
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Overview

• Current State

• Most plan sponsors dont understand
  responsibilities

• Most plan sponsors want to do what is right

• Few brokers are generally trained in the area of
  fiduciary responsibility

• Potential compliance issues exist

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401(k) Investment Fiduciaries

• What are the Responsibilities of Investment
  Fiduciaries?
• Exclusive Benefit Rule
• Select Investments with the Care, Skill,
  Prudence, and Diligence under the circumstances
  then prevailing that a prudent man acting in like
  capacity and familiar with such matters would use
  in the conduct of an enterprise of a like
  character and with like aims. ERISA 404(a)(1).
• Diversify
• Operate in accordance with Plan Documents

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401(k) Investment Fiduciaries

• Procedural Prudence
• Fiduciary should give appropriate consideration
  to those facts and circumstances that the
  fiduciary should know are relevant and
• Fiduciary acts accordingly.
• Preamble to 404(c) regulations states that
  fiduciary has a residual responsibility to
  monitor investments to periodically determine if
  investments should continue to be available as
  participant investment offerings

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Investment Monitoring

• Transamericas Co-Fiduciary Role
• Transamerica-Selected Investments
• We are a fiduciary because of our
  discretionary authority over these assets
• TI-Selected Investment
• We aggressively monitor, review, and recommend
  fund changes as necessary

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Investment Analysis

• Due Diligence Performed on Each Investment
  Offered
• Russell/Mellon reviews
• ?Style Orientation
• ?Performance Analysis
• ?Benchmarks Returns
• ?Regression Statistics

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Reporting

• Quarterly Fund Monitoring Review
• Annual Product Review
• Investment Policy Statement
• Annual Fiduciary Review Meeting Agenda

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What Plan Sponsors Need.. more than anything
else - is to

• Have a well defined process to follow!
• Have the ability to demonstrate the process
• Reasons for selecting current provider
• Plan design objectives
• Investment Policy Statement/Maintenance
• Education/Communication provided
• General compliance items

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What Plan Sponsors Need is
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Hows it Different?

• A working document that walks a Plan Sponsor
  through
• Deciding
• Selecting
• Monitoring / Maintaining
• Documenting

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Whats the Layout?

• Two Part Workbook Format
• Back Pocket
• Fiduciary Guide
• Document Investment Monitor CD ROMs
• Quarterly Annual Meeting Agendas
• Sample IPS (also included on CD ROM)
• Sample Investment Matrix
• Available on Web for inclusion in the Back Pocket
• Sample Monthly/Quarterly Investment Pieces

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The Process!

• PART ONE Establishing or Restating your plan.
• Step 1 Documenting your plan provider Selection
• Step 2 Designating a fiduciary and other
  important roles
• Step 3 Plan Design Meeting
• Step 4 Creating and Documenting Investment
  Selection
• Step 5 Communicating to your employees
• Step 6 Finalizing your plan

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The Process (Establishing or Restating your plan)

• Step 1 Documenting your plan provider Selection
• Most Plan Sponsors cant tell you why they
  selected their last provider!
• Our Kit allows for documentation of this
  important decision!
• Outline of the 4 Pillars of a Plan
• Notes Section for Documentation

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The Process (Establishing or Restating your plan)

• Step 2 Designating a fiduciary other
  important roles
• Named Fiduciary
• Functional Fiduciary
• Plan Trustee
• Plan Administrator

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The Process (Establishing or Restating your plan)

• Step 3 Plan Design Meeting
• Who should attend?
• Very Often Fiduciaries dont attend Meetings
• Outlining Retirement Plan Goals
• Most plan sponsors have a difficult time
  answering the simple question What is the
  purpose of our plan?

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The Process (Establishing or Restating your plan)

• Step 4 Creating Documenting Investment
  Selection
• Creating an Investment Policy Statement
• Using the PSCA IPS
• Customizing Selection Criteria to match the data
  provided in the monitor
• Selecting Investments with the Matrix
• Balanced Portfolio
• 9 box matrix in Quarterly Piece for expanding
  selection

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The Process (Establishing or Restating your plan)

• Step 5 Communicating to your employees
• If communicating to employees is important enough
  to be cited as a requirement of 404(c)
  Compliance, why dont most Plan Sponsors document
  it?
• Use Employee Communication Schedule to clearly
  outline and document
• Pre-Enrollment Communication
• Initial Enrollment Workshops
• Ongoing Workshops/Educational Seminars

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The Process (Establishing or Restating your plan)

• Step 6 Finalizing your plan
• Not able to get prior plan docs? How can that be?
• Qualified Plans require certain documentation in
  order to be qualified!
• Use our documentation checklist to make certain
  key items are signed and in place.
• Plan Document
• Adoption Agreement
• Etc.

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The Process! (Ongoing Fiduciary Review)

• PART TWO Ongoing Fiduciary Review.
• Annual Compliance and Plan Review Checklist
• Chronological Layout
• Major Compliance Items outlined
• Testing/Refunds
• 5500/Plan Audit
• Quarterly Investment Review
• Annual Investment Review

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The Process! (Ongoing Fiduciary Review)

• Quarterly Investment Review
• Quarterly Investment Review Agenda Included
• Outlines basic investment review meeting
• Tools to Support Process
• Quarterly Investment Commentary
• Major Items to Watch supports Agenda!
• Market/Economic Commentary

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The Process! (Ongoing Fiduciary Review)

• Annual Investment Review
• Annual Investment Review Agenda Included
• Outlines basic investment/plan review
• Coordinates with the IPS
• Tools to Support Process
• Investment Policy Statement
• Quarterly Investment Commentary Supports
  Agenda!
• Investment Monitor

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