According to a recent study by CRA Rogers Casey, Plan Sponsors require that 5 primary priorities are met for their retirement plan. Click on each priority below to learn how the ManagedPlan program addresses Plan Sponsor priorities.
Plan Sponsor Priority #1: Fiduciary Concerns
ERISA requires that fiduciaries engage in a prudent process to manage and monitor retirement plans. ERISA Section 409(a) imposes personal liability on fiduciaries that breach their duties. (Note: In the Enron settlement, outside members of the Board and the chair of the plan committee were required to contribute to the settlement from their personal assets.)
Section 404(c) Relief
Nearly all 401(k) service providers seek to assist plan sponsors in availing themselves of ERISA Section 404(c) and delegating responsibility to participants for their own investment selections. However, if the plan does not qualify as an ERISA Section 404(c) [plan], “the fiduciaries retain liability for all investment decisions made, including decisions by the plan participants.” Thus, the critical fiduciary issue for the plan sponsor is the initial selection and continuous monitoring of the investments offered for participant-direction.
The ManagedPlan Solution: ManagedPlan was designed to allow plan sponsors to take advantage of ERISA’s “safe harbor,” allowing a plan sponsor to delegate investment responsibility (and limit fiduciary liability for plan investments) to a qualified “investment manager.” A qualified investment manager is a bank, registered investment advisor, etc. who accepts fiduciary status and discretion over the assets to be managed in writing. If investment responsibility is properly delegated, the plan sponsor will not be under any obligation to invest or manage any assets of the plan that the investment manager is responsible for investing.
ManagedPlan offers a choice of leading, independent “investment managers” that specifically assume fiduciary responsibility with respect to plan assets. Each investment manager undertakes an unbiased investment selection process with no proprietary funds and no sub-advised funds. As a result, under the ManagedPlan Program, a plan sponsor’s fiduciary duty is not to invest or manage assets of the plan, but simply to monitor the selected investment manager’s performance.
Example: Plan Expenses
A threshold or fundamental responsibility of plan sponsors (acting as ERISA fiduciaries) is "defraying reasonable expenses of administering the plan" (ERISA Section 404(a)(1)(A)(ii). The largest component of 401(k) plan fees and expenses are the plan investment expenses. Recently, the U.S. Department of Labor has intensified its focus on plan sponsors’ duty to monitor 401(k) plan expenses. Failure to fully understand plan expenses can be costly in more ways than one because plan sponsors (or other fiduciaries) can be held liable to the plan for the losses sustained by a plan if a court concludes that the plan paid unreasonable expenses.
The ManagedPlan Solution: A hallmark of the ManagedPlan Program is fee disclosure and offset of mutual fund revenue (including both 12b-1 fees and sub-transfer agency fees) against investment management, recordkeeping, trustee and custodial expenses. In addition, ManagedPlan gives you access to the ERISA attorneys and benefits specialists at Professional Capital Services, LLC . Professional design and on-going compliance analysis by the ManagedPlan staff is aimed at maximizing value to your client, while at the same time minimizing its fiduciary exposure.
Plan Sponsor Priority #3: Employee Education/Communication
A recent study by the Pension Research Council found that between 2003 and 2004, 80% of participants failed to initiate a trade in their 401(k) account and 10% only made one trade. Obviously, the majority of 401(k) savers are not regularly and systematically reallocating and rebalancing their accounts. In short, many, if not most, plan participants need help in managing their retirement assets.
The ManagedPlan Solution: More than just an age-based lifestyle or target funds, ManagedPlan offers customized advice and portfolio oversight from independent investment managers each with competitive performance records. Enrollment meetings and participant investment education are designed to focus more on a participant’s circumstances and individual risk tolerance than the complexities of modern portfolio theory. In short, modern portfolio theory is left to the experts – those managing the portfolios. The portfolios deliver long-term professional management to plan participants in the form of continuous monitoring, rebalancing and reallocation. Participants are aided in their selection of the appropriate actively managed portfolios, through the use of ManagedPlan’s on-line risk tolerance questionnaire featuring auto-prompt for changed circumstances. See Why Offer Managed Accounts in Participant-Directed Retirement Plans?
It is well documented that the failure of plan participants to properly allocate and diversify their investments has been a drain on performance. Between 1984 and 2002, the average equity mutual fund returned 9.6% a year, but the individual plan investor in equity mutual funds earned an annual return of 2.7%, undoubtedly due to poorly timed investment changes. Clearly, in the transition from highly customized defined benefit pension plans -- where participants was neither responsible for saving for their retirement nor investing those savings -- to today’s do-it-yourself 401(k) programs, the investment needs of individual participants have been overlooked.
While ERISA does not require that plan sponsors provide either investment education or investment advice, it appears to be both practically and legally advisable for a plan sponsor to do so. From a practical perspective, better educated participants should make better investment decisions, resulting in greater job satisfaction and financial security. From a legal perspective, although ERISA is not clear on the fiduciary responsibilities of plan sponsors in providing investment education to participants, it does appear that plan sponsors should provide the investment education and advice necessary to raise the level of investment knowledge of employees to the appropriate point for selecting among the offered investment options.
The ManagedPlan Solution: ManagedPlan is a true managed account platform featuring a selection of leading independent, investment managers with established records of performance. Because ManagedPlan offers no proprietary funds, no sub-advised funds and no mutual fund revenue sharing requirements (mutual fund fees are fully disclosed and offset against plan expenses), ManagedPlan’s independent, investment managers offer an unmatched level of objectivity in fund and investment selection aiding plan participants in investing to meet their retirement needs.
ManagedPlan includes:
Comprehensive participant education and advisory services
Independent fiduciary services
State-of-the-art recordkeeping and administration
Dedicated individuals providing you with the support you need
Priority #5: Investment Advice
The ManagedPlan Solution: A selection of professional investment managers offering:
Unbiased investment selection by independent investment advisors
Investment strategies offering instant asset allocation, diversification and automatic rebalancing
Dynamic, on-line risk tolerance questionnaire
Established records of performance
Quarterly statements with personalized performance
Plan Sponsor Priority #1: Fiduciary Concerns
Comprehensive participant education and advisory services