Fiduciary RiskA Part of IRM

Jamie Collier & Jim Plaster

What’s the Risk?Many agencies sponsor defined contribution

plans (employee participants make investment decisions)

Sponsor hired the plan administrator/record keeper

Plan administrator contracts with managers to offer investment options to participants

Plan administrator gets fees from participants and investment managers

Agency still has oversight responsibility of its agent

Does your agency:Periodically review investment options for

appropriateness, relative performance and cost

Monitor fees charged to participants

Competitively procure record keeping services

Analyze plan sponsor’s promotional material

Provide appropriate educational resources to participants

What can go wrong?Governmental plan sponsors not subject

to ERISA - yet

Courts assess a fiduciary’s performance under “prudent man rule”

Best demonstrated practice by large agencies

Size increases leverage but does let small agencies “off the hook”

Want best benefits at lowest cost for employees

Levels of ExposureLow: Department of Retirement Services

Deferred Compensation Plan offered

Medium: Single 457 Plan administered by one private record keeper (like ICMA-RC, Great Western, Northwest Retirement systems) is offered for employee contributions only

High: Employer funded 401 Plan (especially as a SS substitute) administered by a private record keeper

WSTIP’s Exposure & Coverage:

WSTIP’s SIR Layer

GEM Layer – reportedly not covered

Excess Layer - ??

Ways to Reduce Pool’s Exposure

Exclude coverage in SIR (leave members bare)

Augment coverage in GEM & other excess layers

Improve loss avoidanceEstablish a pooled resource to

monitor and analyze investment performance, fees, services and competitively procure record keeper services, etc.

Pooled Resource is a Win-Win

Can efficiently and effectively accommodate many individual plans in a pooled environment for reduction of risk - and fees!

Requirements:Agencies delegate to a common plan

sponsorLocally administered by each agency within

broad options provided by a multi-group planNegotiate fees and investment options with

single administrator/record keeperCosts and benefits appropriately shared

Dramatic Fee Reduction Possible

Spokane ($50mil in 7 plans) went from 0.55% to 0.135% fee without any loss of service. Annual on-going cost for consulting support: $30K

Where fee reduction comes from:• Record keeper agrees to admin fee ceiling• Higher investment balances lower manager’s

fees charged to record keeper• Investment managers pay marketing fees to

record keeper: amounts over agreed fee rebated to participants or can cover plan costs• Need to be able to commit investment assets to

achieve fee savings (unlike GSA co-op contracts)

Next Steps:

Identify agencies who wish to pool their 457/401 retirement plans

Legal/regulatory issues limit but don’t determine the pooled sponsor structure

Need to decide whether to operate as separate independent pool (with its own organizational costs) or under the WSTIP umbrella (WSTIP still has coverage risk either way).

Discussion:

Should WSTIP organize and sponsor the pooled plan (as a governmental employer) or

Should the interested agencies form their own pool based on a separate inter-local agreement?

What conditions and levels of support should WSTIP (as a Pool) place on this effort?