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Warren P.

Fiduciary Responsibility Of ...?

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I've just been informed and have realized that by being interested in bettering our compensation package and recommending change within our deferred compensation plan, I have become a "Functional Fiduciary".

(Summary Definition: Interested party in influencing plan decisions)

I was under the assumption that by recommending better investment alternatives, I was bettering my and my fellow co-workers opportunities. I did not realize that I am now liable to them and the organization for possible lawsuit.

 

WOW........That's a step-up in service I didn't forsee!

 

So where do I go now?

 

I have also found out that the high fee structured plan that we now have is so high that an employee with a claim, can come back and sue us,(me) for unreasonable and unconscionable investments.

 

My question:

 

Where can I find the regulations with regard to fiduciary responsiblities of educating participants within a company sponsored 403(b) plan? Is this a DOL or SEC issue?

 

Our plan is an annuity based plan, our business is in California.

 

I would like to present this to the powers that be, and have them understand the gravity of the current plan and it's potential consequences.

 

Presently, the "plan" has very minimal online education but no other hands on education to participants. I have been building an employee investment library at work and provide printed materials on diversification and investment basics for employees. But I do stipulate that I cannot and will not advise employees on thier investments.

 

Thank you for input.

 

Respectfully,

Warren P.

 

 

 

 

 

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Thank you for asking.

The employee contribution is elective.

The employer contribution or co-pay in this plan is elected at the will of the Board of Directors on an annual basis.

 

One year it was posted as a "profit share" contribution and the contribution, a specific dollar amount, was divided equally amongst only the participating contributors to the plan.

Another year the contribution was classified as an "employer matching" contribution, which was divided in the same manner as the previous discription.

This recent year, there has been a decision of contributing null, nil, or zero. (a common contribution amongst many enterprises this year)

 

Does this matter? If so how or why?

 

Respectfully,

 

Warren P.

 

PS. Thank you to Dan Otter for for your kind words of support and encouragement!

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Hi Warren,

Welcome to the world of 403b reform. Nowhere in the history of retirement planning has the word "liability" been used and abused so much so when one person (you) simply asks about alternatives to the rip-off high fee insurance company annuities. Wow, that's revolutionary. You need to realize that you are attempting to do something good for the employees. Very few people have the courage and raw guts to do something good for educators. The California teachers unions and the districts won’t do it. They are useless. There are a few for example, Paul Valas, the superintendent of Chicago public schools is my hero. He alone knew that their 403bs were a mess and hired KPMG to clean it up. The point is that he did not have to do this. 100% of the districts and 100% of the unions here in California are not doing it because they do not have to do this.

Why? There is money, power and control at stake. For decades, the insurance industry has had a monopoly on 403b plans and they will do and say anything to scare you into submission. I know the feeling you have, I have more than once looked under my car when I went to work. Don't be intimated by those comments. It’s all false. Most innovators have had to endure these scare tactics and now you know what Galileo, Gandi and other innovators had to go through. You are doing the right thing because of the reaction you are getting. I love it!

Now they have you coming here and asking questions. I know you want to do the right thing, but I suggest is to put the onus right back on them. Don't waist your time chasing their empty diverting threats. The scare tactics are just a distraction to keep you busy trying to find out about the fathoms.

Instead, ask them. Where is the evidence for lawsuits? What really has to happen to justify an employee filing a lawsuit, drop in the market, paying high fees, what? Ask for prior cases, but be ready to hear that “we have no cases because of the current system prevents liability.” Respond by saying that sounds “like for me to have hurricane insurance for my house in Los Angeles is a good investment because we get no hurricanes!”

Ask your current provider about complaints or lawsuits. For example, Invesco no-load mutual fund company is one of our choices with my school district. I asked a couple of the reps if there were complaints or lawsuits against them from the 2000 participating LAUSD employees. He said none, not even a complaint after about 20 years of service to LAUSD. Here is another and its my absolute favorite regarding 403b liabilities, the chief financial officer of our district admitted to me that when the IRS audited LAUSD 403b accounts for over contributions (which makes LAUSD and individual employees liable to IRS) he said that out of a sample of 900 employees, a miniscule $2000 of over contributions was found! My point is that the "insurance industry and the school districts attorneys crying wolf" syndrome is getting tedious and more evident everyday that the party is over and the industry opponents to 403b reform know it.

What’s really interesting for the opposition is that the reform we talk about on this site will actually help the industry because we attempt to educate our colleagues about the importance of retirement planning. Results: more people participating, even with the lower fee companies will mean more business for the financial industry. It’s ironic but that is what’s going to happen and in the end the opponents will say that we wanted this reform. I know this will happen. Look at all of the reform movements in history. It starts will a few people and slowly grows and when it because status quo, the people fighting it tooth and nail will say they wanted this reform. Gandhi is an example when the English left India, "they left because they wanted to."

Warren, please hang in there. There is a few of us who have been fighting “city hall” for years. You are not alone. This is my opinion based on my experience. It’s all about change and the fact that change is real and scary at times even for us that want it.

In unity for 403b reform,

Steve

 

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Guest Daniel Clark

Warren;

 

I will attempt to provide information that may be helpful in addressing your questions.

 

1. There is not, to my knowledge, a set of regulations that will tell you exactly what to do with respect to addressing fiduciary issues for a 403(b) or other qualified retirement plan.

 

2. I believe the Department of Labor is most likely to be interested in the issue. The SEC tends to focus its energies on SEC regulations governing the issuance and exchange of public securities.

 

3. There is some written guidance from the DOL available from a lawsuit that was settled. The lawsuit is Martin v. Tower. I believe this would be very helpful information for you to examine.

 

4. There are many interested parties that attempt to scare employers in an effort to sell something. You have to be on guard for this.

 

5. Employer contributions to a 403(b) is important because some would argue that such contributions cause the plan to fall under the dictates of ERISA. No employer contributions would support the view that the plan is not govered by ERISA reqirements.

 

6. So you know where I am coming from, I have a business advising plan fiduciaries on investment, administrative , and other issues involving their organization's plans. My firm is independent and has no affiliations (with broker/dealers or insurance companies) and charges hard fees only.

 

Each client (effectively the Fiduciary Committee) has an investment policy statement and we meet periodically to document investment performance oversight. This includes monitoring all fees for all service provided to the plan.

 

I advise clients not to provide any investment advice to participants in participant-directed plans, as this introduces a significant risk for the employer. In those instances where the client wants to provide an advice service to participants, I require them (the fiduciary committee) to receive indemnification from the advice vendor, which has become a standard practice. Advice vendors must be selected with prudence and care similar to that used to select investment choices for participant use.

 

I hope this information is helpful to you.

 

Cheers!

 

Dan

 

 

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Warren:

 

Does your "plan" have a formal "Plan Document"? It should. I assume you are a tax-exempt employer. If I, through my taxes/charitable giving were helping to support your mission I would be quite upset in knowing that it was costing you much more for an expensive 403(b) annuity Plan than for a no-load mutual fund program which provides the same type of tax-deferred retirement savings at one fourth of the cost.

 

IT IS AN OUTRAGE WHEN A SALARY REDUCTION ONLY PLAN ADOPTS A HIGH COST VENDOR----BUT THIS OUTRAGE IS TAKEN TO ANOTHER EXTREME WHEN THE TAXPAYER/CHARITABLE CONTRIBUTOR IS ALSO PAYING FOR THESE HIGH COSTS.

 

I urge you to see the Plan's lawyer asap and start a Request for Proposal Process to revamp your entire 403(b) Plan.

 

Peace and Hope,

Joel L. Frank

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Thank you for the fine responses thus far.

 

Dan,

I've not been able to locate the case between Martin v Tower on the DOL website through the search function. I wonder if this was case sealed? I have found some other interesting findings and initiatives that are being discussed.

 

The Department of Labor, as part of its Retirement Savings Education Campaign:

 

"Joe Canary, the Chief in the EBSA Office of Regulations and Interpretations responsible for coverage, reporting and disclosure, explained that disclosures under ERISA were “designed to give people information about the rights and obligations under the plan and the law [and] information about the financial condition of the plan and whether the plan is being administered in accordance with the plan.” It was not designed to ensure, for example, that employees were educated, advised or assisted in planning for retirement. "

 

Source: http://www.efast.dol.gov/ebsa/publications/AC_111401_report.html

 

I was unaware and ignorant of this and, I suppose, so much more.

 

 

Steve,

Thank you for your enlightening post. As to the Gandhi reference, I'm still shaking, but will continue on.

 

Joel,

 

We do have formal "Plan Document", and yes, we are a tax exempt organization with charitable giving. Recently, we had adopted a charitable giving trust plan and at this time these fiduciary issues were brought to the forefront

in a meeting with a legal advisory group and investment planning forum.

I have emphasized the need for the RFP process with all our future negotiations in contractual relationships to our executive staff. I believe this has fell on deaf ears.

 

As Dan Schullo has stated, "There are many interested parties that attempt to scare employers in an effort to sell something. You have to be on guard for this."

 

Respectfully,

Warren P.

 

 

 

 

 

 

 

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Warren: Print this out and show it to your legal committee.

 

Peace,

Joel

--------------------------------------------------------------------------------

Following is a joint statement of the Employee Benefits Security Administration (EBSA) of the US Department of Labor and the Certified Financial Planner Board of Standards, Inc.:

“Plan fees and expenses reduce the amount of retirement

benefits you ultimately receive from plans where you direct the investments. It’s in your interest to learn as much as you can about your plan’s administrative fees, investment fees, and service fees. Read the plan documents carefully. For more information on fees, call EBSA’s toll-free line at 866-444-3272 and request the booklet A look at 401(k) Plan Fees”.

---------------------------------------------------------------------------------

 

Warren:

 

High costs hurt all participants whether he or she cleans the private toilet of the CEO or is the CEO. Who in the organization is advocating the selection of high cost vendors? Does the person or persons also advocate that the vendor for pads and pencils be also high cost? Maybe this abuse runs through the entire workings of the organization. What about the premiums for health insurance? Could this be possible?

 

Joel

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My apology to Steve Schullo. This is the proper credit:

 

As Steve Schullo has stated, "There are many interested parties that attempt to scare employers in an effort to sell something. You have to be on guard for this."

 

Within our organization, I don't belive there is anyone person or persons particularly advocating high expense critieria. I believe there was a hasty decision made to enroll in this current plan and not enough due diligence on the part of the the decision makers. This is also a case of where the the annuity based plan "was sold" to the board of Directors and ultimately the employee will pay and pay and pay.

 

I am sure that the use of services of a fixed fee advisor, such as Dan Clark, could have been helpful in guiding the decision making process in the right direction. All that is behind us now, I hope. Now is the time to re-evaluate our needs and foster change.

 

I have been in contact with another nameless member of 403bwise forum and they have given me some guidance in affecting change and preparing materials for a presenation.

 

Thank you again for all the assistance.

 

Respectfully,

Warren P.

 

PS. We currently use a Third party Administrator to handle the duties of ERISA compliance and testing as well as serving as an intermediary between the providor and the sponsor. Is this a typical arrangement or just another layer of fees?

 

 

 

 

 

 

 

 

 

 

 

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I have been in contact with another nameless member of 403bwise forum and they have given me some guidance in affecting change and preparing materials for a presenation.

++++++++++++++++++++++++++++++++++++++++++++

 

Warren:

 

I was under the impression that we are having an open forum of ideas and of opinions concerning an issue. Don't you feel we all should benefit from what this nameless member of 403wise forum has contributed or just you and your employer?

 

Peace,

Joel

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Hi Warren,

Two things:

1. Actually, it was Dan Clark and not I that needs to proper credit for that quote.

2. I completely agree with Joel. This is an open forum. I would like to know what this nameless person said to you on this topic. We are all here to learn. I am not criticizing you, but it’s this "nameless" person who either intentionally or inadvertently wants to keep this a secret. One cynical conclusion is that this person wants your business. That is not the purpose of this forum. If this nameless person is on the up and up, then Mr. or Ms. “nameless”, prove me wrong and come forward!

Take care Warren,

Steve

 

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My apologies, again!

 

Coming Clean,

I had contacted forum participant, Garry, AKA "gschech" on his successful attempt to convince "the top Brass". Because of the fact that this was a personal contact, I felt, apparently incorrectly, that he was due some anonymity until he authorized this reference below. He had graciously provided me with some guidance for addressing our finance committee.

 

"What worked for me was that I put together a few charts that showed the fee comparisons between Valic and TIAA-CREF. For example, the average fund fee for Valic is 1.86% and for TIAA-CREF it's .46%. I also had a chart that showed how much money you would have if you invested $10,000 over a 30 year period, paying different expense ratios. 403bWise has a good chart like the one I just described that you can look at. I also printed some articles off the Internet that told stories of how paying high fees affects your retirement savings. Some Internet sources I used were TIAA-CREF, Mpower Cafe, local newspaper, Morningstar and Business Week. The people I presented to were very impressed with the charts and statistical information. I also did a two page write up explaining why we should switch vendors and what vendors I looked at. I hope this helps. I found out that most employees (even the decision makers) don't get it. They don't understand how high fees can affect their investments." ... Garry

 

PS. His name was withheld out of my respect for him and not withheld by his request.

 

Respectfully,

Warren P.

 

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Guest Tom

Does an employer currently offering a voluntary 403(b) NON-ERISA plan, have any legal responsibilities to its employees? My wife currently works for a hospital with such a plan. The investment choices are with VALIC and ING. Needless to say, the fees are ridiculous and the fund choices marginal. The human resources director says that the hospital has absolutely no fiduciary responsibility because they're non-erisa, and have two "hold harmless" agreements. I disagree. I believe the hospital functioned as a fiduciary when it gave the two insurance companies exclusive access to its body of employees who have no other choices, but I can't find a thing in print to confirm this.

The HR director says complaints of high fees and marginal investment choices are between my wife, the employee, and the insurance company; that the hospital has no responsibilities. I'm finding this hard to accept. I realize this employer doesn't have to jump through any ERISA hoops, but can they really be scott-free on something so important to their employees?

I know anyone can sue anyone, but is their any statutory provisions or regulations that specifically tell non-erisa employers their responsibilities? Thanks so much.

Tom

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Guest Tom

Does an employer currently offering a voluntary 403(b) NON-ERISA plan, have any legal responsibilities to its employees? My wife currently works for a hospital with such a plan. The investment choices are with VALIC and ING. Needless to say, the fees are ridiculous and the fund choices marginal. The human resources director says that the hospital has absolutely no fiduciary responsibility because they're non-erisa, and have two "hold harmless" agreements. I disagree. I believe the hospital functioned as a fiduciary when it gave the two insurance companies exclusive access to its body of employees who have no other choices, but I can't find a thing in print to confirm this.

The HR director says complaints of high fees and marginal investment choices are between my wife, the employee, and the insurance company; that the hospital has no responsibilities. I'm finding this hard to accept. I realize this employer doesn't have to jump through any ERISA hoops, but can they really be scott-free on something so important to their employees?

I know anyone can sue anyone, but is there any statutory provisions or regulations that specifically tell non-erisa employers their responsibilities? Thanks so much.

Tom

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