Tuesday, January 30, 2018 Presented by: Brian … Traps a...2018/01/30 · Tuesday, January 30, 2018 Presented by: Brian Gregov, QKA, AIF ® “Consistently Good Advice in a Constantly

Tuesday, January 30, 2018Presented by:

Brian Gregov, QKA, AIF®

“Consistently Good Advice in a Constantly Changing World”®


Presenters

AIF®, QKA Vice President - Retirement Plan Solutions21 years industry experience

As Vice President for Retirement Plan Solutions, Brian knows that most people are not prepared for retirement. Brian oversees all aspects of retirement plan administration, operations, plan design, governance, consulting, and investment fiduciary services and leads a team of highly credentialed professionals. Brian supports the ongoing plan governance and fiduciary responsibilities for his clients’ 401(k) plans to ensure they fulfill their fiduciary requirements. Brian works closely with his clients to design retirement plans that best meet their specific needs and provides customized solutions to enable his clients achieve their financial and business goals. He ensures that clients are in compliance with all relevant laws and regulations, and coordinates and conducts employee education presentations to help plan participants effectively save for retirement.

Brian holds the Accredited Investment Fiduciary® (AIF®) designation and the Qualified 401(k) Administrator (QKA) designation. He earned a Bachelor’s degree in Business Management from The Richard Stockton College of New Jersey.

Prior to joining AEPG, Brian was a Vice President at Merrill Lynch, where he oversaw the compliance and trust services departments. In that role, he was responsible for managing nondiscrimination testing, annual reporting, and trust statement production for over 1,500 retirement plans. In addition, Brian provided both administrative and consultative support to plan sponsors ranging in size from 100 to more than 100,000 participants and assets exceeding $500 million.

Brian Gregov


Availability of Retirement Plans

• 69% of workers have access to some sort of retirement plan

• 58% of workers have access to DC Plans

• 69% of these workers with DC Plans participate in those DC plans.

• 401(k) savings make up 28% of retirement plan assets. About half of all retirement assets are rolled from 401(k) plans elsewhere (e.g. IRA)

• Median savings 68% higher in those with DC-owning households vs. general population.


Generational Differences

In 2016, there were...

76million

Age52-70

Age35-51

Age21-34

Baby Boomer1946-1964

Gen X1965-81

Millennial1982-95

59million

80million


Generational Differences

View of Technology Today: Tool versus Lifestyle

“Baby Boomers” “Millennials”


Communication Preferences

49%

41%

22%

30%28%

46%

34%

19%

33%

18%

1:1 Consultation Online tools withPersonalized

Recommendations

Educational Webinars ElectronicCommunications

Print Communications

Ages 50 - 59 Ages 20-29

Millennials much prefer personal interaction and electronic solutions to printed data


#1 Financial Goal by Age Group

Saving for Retirement

Paying offDebt

44%

Paying off Debt 19%

35%

Just getting by35%

Just getting by 18%Saving for Retirement10%

Boomers Millennials


Top 3 Milestones: Catalyst to focus on saving for Retirement

Ages 50 -59 Ages 20-29

Current EventsThe Economy

Health

Reaching a certain age

Becoming a parent

Current EventsThe Economy

Marriage

27%

21%

20%

29%

19%

17%


Fewer than half of participants know how much they should have saved for a comfortable retirement

91% 90%77%

67% 64%

43%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% that know “target” or “ideal” numbers

Asked of 1000 401(k) plan participants


Cross generational regret: Not saving enough for Retirement

22%

44%

25%

9%

23%

42%

27%

8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

A great deal Some Little None

Thinking about how you have saved for retirement, how much do you regret about not doing better

550 Participants aged 55-65 1481 participants aged 25 - 54


Participants are looking for help with their 401(k) Plans

70%

58%51% 49%

44%35%

would likepersonalized

investment advice formy 401(k)

wish I had an easierway to know how tochoose investments

for my 401(k)

totally on top of my401(k) investments

impossible to saveenough money in my

401(k) to make acomfortable

retirement possible

I don't feel I knowwhat my best 401(k)

options are

I feel lots of stessabout choosing the

right investments formy 401(k) to have

enough for retirement

“I agree with the following statement”

% of 1000 401k participant responses


401(k) plans are a “must have” benefit for job-seekers

Without a 401(k) in place, 9 out of 10 would think twice about taking a job

93% 90%

43% 42% 34%18%

4% 1%

0%10%20%30%40%50%60%70%80%90%

100%

HealthInsurance

401(k) Plan Life Insurance DisabilityInsurance

5 extra PTOdays

Ability to workfrom home

Gymonsite/free

membership

Onsite Daycare

Benefit/Work Option that is an employer “must-have” for candidates looking for a new job

1000 401k participants questioned

Would think twice about taking a new job

if 401(k) plan is not offered = 91%


401(K) PLAN LITIGATION

Some of the More Popular Cases

Share Class

1-Year Return

3-Year Return

5-Year Return

10-Year Return

Expense Ratio

Revenue Sharing

R1 19.67 7.98 0.33 7.44 1.44 1.00

R2 19.72 8.03 0.36 7.43 1.41 0.74

R3 20.20 8.48 0.79 7.90 0.98 0.50

R4 20.56 8.80 1.09 8.23 0.69 0.25

R5 20.92 9.12 1.39 8.55 0.39 0.00

R6 20.98 9.18 1.33 8.38 0.34 0.00

• Fidelity Employees vs. Fidelity – Fidelity was profiting at the expense of its workers by offering high-cost fund options charging excessive fees for a plan of its size

• Tussey vs. ABB - Fiduciaries never calculated the amount of the recordkeeping fees paid to the record-keeper via the revenue sharing arrangements it had

• Tibble v. Edison International – Breached duty of prudence by investing in retail versus institutional share classes

• More Recent Cases – Yale, Duke, M.I.T., NYU, Princeton


401(k) Plan Trends

• Increase in DOL audits

• On average, the DOL is auditing and closing approximately 4,000 investigations per year

• The DOL has recently increased their audit force to include over 1,000 investigators

• 3 out of 4 audits resulted in violations discovered

• Average cost for a plan to correct a violation, including fines and penalties was around $450,000

• Total monetary recoveries in 2016 of $777.5 million were processed (increase of $81.2 million from prior year)

It is clearer than ever that DC plan sponsors cannot afford to take a hands-off approach toward plan management. The plan fiduciaries (typically, either the company itself or a designated

committee) must ensure they are doing everything they can to act exclusively in the best interest of the plan’s participants.


BEING PREPARED FOR A DOL AUDIT


BEING PREPARED FOR A DOL AUDIT


Trap 1: The Plan’s Recordkeeper Drives the Plan Decisions

Open Architecture Platform No proprietary fund requirement Availability to choose the funds you want as part of your investment committee process Ensure employee fees are kept reasonable and your provider offers an investment platform

and support that minimize your administrative hassles. Understand the provider’s services and support you will be getting from them and how much

is their annual cost. Are there additional fees for certain plan level transactions requested?

Inclusion and Assistance with Key Plan Features plan features that best fit your needs Some key features that should be considered are:

Roth 401(k) option Loans Automatic enrollment of employees Automatic Increase Employee eligibility assistance Specifics around any employer contributions The plan’s QDIA (Qualified Default Investment Alternative) flexibility and support Annual disclosure support


Trap 2: A Lackadaisical Approach to Understanding the Plan Fees

Revenue Sharing Arrangements

Asset Based FeesBilled Fees

Investment Management Fees

Investment ManagementCore Investment Line-up Design

Performance BenchmarkingQualitative Analysis

Quantitative Analysis

RecordkeepingAccounting

Plan ReportsDaily Processing

Quality Assurance Checks

TechnologyWeb-based Access

Participant Call SupportOnline Processing Tools

Enrollment Materials

CommunicationsEducation Sessions

Online Communication PiecesParticipant Statements

Advice Solutions

Compliance SupportPlan Document, SPDAnnual 5500 Filings

Nondiscrimination TestingERISA Services

Plan Sponsor Participant

408(b)(2) disclosure to sponsors effective July 1, 2012404(a)(5) disclosure to participants effective August 30, 2012


Trap 2: A Lackadaisical Approach to Understanding the Plan Fees

LEGAL OBLIGATION• Most plan fiduciaries are unaware of their legal obligation to prove that they used plan assets to pay

reasonable fees.

Areas to Look out For• Having little or no knowledge as to the nature and extent of compensation paid to a 401(k) plan service

providers may enable those service providers to collect excessive fees. • Having no understanding as to what constitutes a reasonable fee arrangement for each category of 401(k) plan

service.• Not understanding and monitoring indirect payments made to recordkeepers and ensuring that they are not

overcompensated.

Best Practices• Review service provider fees annually against reliable indicators as part of proper ongoing plan governance. • Be able to break out fees for each service and utilize acceptable benchmarks, rather than self-serving

benchmarks that may support excessive fee arrangements.• Have an effective approach to determine what is a reasonable fee arrangement for a 401(k) plan. • Be able to understand the nature and extent of asset-based fees and segment fees by service component,

then measure service, benchmark fees, and implement oversight controls.


Defines Plan Investment Strategy• Sets guidelines for selection and monitoring of plan

investments• Establish parameters (tolerances) for fund

inclusion/removal• Basis for investment committee meetings

Risk Protection• Meet fiduciary responsibilities• Added protection under ERISA 404(c) • Plan audit or legal action support

Manager Performance Evaluation• Guidance for investment decisions• Roadmap for manager hiring/firing• Include a separate and detailed process for the Plan’s

target date funds.

Execution on IPS Strategy

DocumentedFiduciary Process

Fund Monitoring

Fund Selection

InvestmentPolicy

Statement

Fund Evaluation Report

Develop, Write And Follow An Investment Policy Statement (IPS)

The Investment Policy Statement – A “Must Have”

Trap 3: Not Having and Executing on the Investment Policy Statement (IPS)


• Investment review• Annual review of investment

policy• Annual review of target date fund

selection & monitoring• Stable value fund review• Core funds philosophy discussion

• Investment review• Report on industry trends• Review of participant- related issues

(participation, deferrals, retirement readiness)

• Review of participant disclosures practices

1ST Quarter – Investment Analysis 2nd Quarter – Participant Review

• Investment review• Plan design review.• Report of legal changes, IRS & DOL

audit needs• Annual review of plan policies (loan

policy, etc…..)

• Investment review• Annual review of cost and

compensation for service providers• Annual review of service providers

operations issues.• Employee education plan

3rd Quarter – Legislation & Policies 4th Quarter – Administration & Education

Trap 4: Having an Ineffective Plan Investment Committee


A Comprehensive ProcessINVESTMENT FIDUCIARY RESPONSIBILITES

Research & Analysis

• Use an Independent, fee only (RIA) Registered Investment Advisor. No investment company partnership

• Research performed by prudent experts; CFA Charter Holders

• Conduct comprehensive fund/manager returns-based quantitative screening and ranking process.

• Conduct over-the-phone or onsite interviews with fund managers.

• Document comprehensive qualitative due-diligence data for every fund/manager

Selection• Investment Lineup Design• Multiple Investment Track

Approach

• Single Asset Class funds• “Auto-pilot” funds• Managed portfolios• Managed accounts

• Life Cycle (Target-Date) and Life Style (Risk-Based) Funds decision process

• Stable Value Fund decision process

• Core Lineup decision process• Blended vs. “Slice-and-Dice”• Active vs. Passive• Core vs. Extended asset classes

Monitoring Process

• Internally track fund performance daily.

• Conduct monthly and quarterly fund/manager conference calls

• Speak with fund managers when needed

• Internal semi-annual “fund review” meetings

• Provide performance comparison reports.

• Provide detailed analysis write-ups of underperforming funds

• Provide recommendations for fund changes

Trap 5: Fund Lineup Creep


Plan Investments Process

Core Lineup – Decision Process

Document the Process

Select Funds and Design Investment Menu

Conduct thorough evaluation and due diligence of suitable funds.

Carefully design core menu knowing it can affect participant behavior.

Consider and Understand Characteristics of Participant Population

Level of investment knowledge (education and experience) Participant activity (engagement)

Determine Plan Investment Objectives and Priorities

Blended vs. “Slice-and-Dice” approach

Core vs. Extended Asset Classes

Passive Index vs. Actively managed funds

The Process for Comparing / Selecting

Single Asset Class Funds



Target Date Fund – Decision Process

The Process for Comparing / Selecting QDIAs

• Focus on volatility risk management vs. longevity risk management • Offering of DB plan• Core vs. Extended Asset Classes • Passive/Strategic vs. Active/Tactical

Determine Plan Investment

Objectives and Priorities

• Ages and likely retirement dates• Investing behaviors and tolerance for risk• Salary levels, turnover, savings rates and withdrawal patterns.

Consider and Understand

Characteristics of Participant

Population

• Conduct thorough evaluation and due diligence of suitable funds.• Review fund fees and expenses • Consider whether a custom target-date funds would be a better fit

Select a Target-Date Fund Suite




Stable Value Fund – Decision Process

•Safety vs. Return•Tolerance to accept loss of principal

Determine Plan Investment

Objectives and Priorities

•CITs/Pooled Funds vs GIC/GA Funds•Guarantees and ability to meet them •Termination provisions, portability•Typical portfolio characteristics

Consider and understand Two of

the Main Stable Value Fund Structures

•Conduct thorough evaluation and due diligence of suitable funds (next slide)

Select a Stable Value Fund

•Plan fiduciaries should document the selection and review process, including how they reached a decision


The Process for Comparing / Selecting The Capital Preservation Fund


Trap 6: No Understanding of the Plan’s Security Protocols

• Breaches will cause an large headache for businesses, not to mention the huge financial toll they can take due to damage control and loss of business

• There have been many pension plan data breaches:• Database hacking due to failure of plan to install security system updates• Virus planted to steal login information that was then used to change recipients of disbursements• Employee downloading confidential information to a home computer• Unauthorized login to a broker website that resulted in payments being sent to the wrong person• Email phishing that lured participants into sharing personal data

• How Can Plan Sponsors Minimize This Risk?• Conduct due diligence by completing a risk analysis for the plan. • Put into place cyber security policies and procedures and ensure all employees get well trained in them.• Conduct a thorough usage analysis to identify:

• Every party with access to retirement plan data• Every piece of equipment that may contain personal identification information (with a plan for regular

inventory)• Which vendors need which data• Protocols used to transfer files and data to vendors and their security• Any insurance and coverage limits

• Verify Vendor Security• Get Help


Fiduciary Standards Have Not Changed, They Are Just Becoming More Important to Follow

Have Regular Retirement / Investment Committee Meetings• Recommend holding at least quarterly meetings• Add more as needed depending on economy, changing regulations, important

plan decisions• Face-to-face meetings ideal. Conference calls are just as good.

Establish agenda, review investment performance, plan statistics, operation and administration functions

• Leverage vendor quarterly/annual reports and conduct thorough review of them• Pull out Investment Policy Statement (IPS) and ensure it is still in line with plan’s

investment goals and being followed

Consider having an independent advisor periodically review plan operations and administrative processes

Keep written minutes of committee meetings• Establish clear policies and procedures• Make sure all decisions and reasons are fully documented in the committee

minutes. • Keep minutes and documentation for ever!!!

Trap 7: Having No or Sloppy Documentation Around Plan Decision Making


Questions

Employee Education Sessions

Brian Gregov, QKA, AIF®

Vice PresidentAEPG Wealth Strategies25 Independence Blvd.

Warren, NJ 07059Phone: 908-821-9771


Disclosures

Important Disclosures:

Please remember that different types of investments involve varying degrees of risk, including the loss of moneyinvested. Past performance may not be indicative of future results. Therefore, it should not be assumed thatfuture performance of any specific investment or investment strategy, including the investments or investmentstrategies recommended or undertaken by American Economic Planning Group, Inc. (“AEPG”) will be profitable.Definitions of any indices listed herein are available upon request. Please remember to contact AEPG if there areany changes in your personal or financial situation or investment objectives for the purpose of reviewing ourprevious recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions toour investment management services. This presentation is not a substitute for personalized advice from AEPGand nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, orinvestment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of anytype. Investment decisions should always be made based on the investors specific financial needs, objectives,goals, time horizon, and risk tolerance. Please remember to contact AEPG Wealth Strategies if there are anychanges in your personal or financial circumstances or investment objectives as these changes may impact ourprevious recommendations. This information is current only as of the date on which it was sent. The statementsand opinions expressed are, however, subject to change without notice based on market and other conditionsand may differ from opinions expressed in other businesses and activities of AEPG. Descriptions of AEPG’sprocess and strategies are based on general practice and we may make exceptions in specific cases. A copy of ourcurrent written disclosure statement discussing our advisory services and fees is available for your review uponrequest.

January 2017

Documents

Tuesday, January 30, 2018 Presented by: Brian … Traps a...2018/01/30 · Tuesday, January 30, 2018 Presented by: Brian Gregov, QKA, AIF ® “Consistently Good Advice in a Constantly