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detailgal

Vanguard, Service And Fiduciary Responsibility

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All,

Okay, I've been here before, so many have been so helpful in my efforts to persuade my employer (small non-profit) to switch or add a 2nd, low-cost plan.

So, I met with boss, cfo and ING rep a few months back. I made my case, pointing to their fees (yes it's an annuity). The boss and cfo agreed that we should look around. I gave them my research and crossed my fingers. Now, the cfo is finding what I predicted, that no company is going to pay off our surrender fees to ING just to have our money, because there's less than $500K of it. The cfo's response re: Vanguard is that they don't offer the service that ING does, the education, and therefore would put the agency at risk for not fulfilling its fiduciary responsibility to its employees. She points to my advanced understanding of investments (I read the Dummies book, have other investments etc, nothing major) and basically says that Vanguard would not meet the needs of the other, 14, less financially-sophisticated employees. She agrees that our current rep has to go, and wants someone who will come out once a month. I tell her that the service that we would get from ING is no different than Vanguard, except that the live body is in the same room. I have asked her to call and speak to a rep at Vanguard's Small Business center. She said she will, though she asks if I have a contact there. ......

I suggested that we have a 2nd plan at Vanguard so that those employees who wanted to could use it. She comes back to the "fiduciary responsiblity" and "education" point. I've also asked that she find out the cost, from our TPA, of administering 2 plans.

 

I'm really frustrated and don't want my frustration to interfere with my discussion with her on this. I did say that I'd like an answer on a 2nd plan by the end of the month (I've let my money sit in the mmkt for a couple of years, not due to any "advanced" abilities, and I want to get on with it).

 

Please, if you have suggestions, offer them up. I know the decision is in the cfo's and boss' hands, but I want to know that I've been well informed in my arguments.

 

As ever, Thanks!

 

DetailGal

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Hi, .........Vanguard has lots of educational information available via mail and internet. I found the reps available via free 800 telephone to be knowledgeable and supportive.

 

As far as The cfo's response re: Vanguard is that they don't offer the service that ING does, the education, and therefore would put the agency at risk for not fulfilling its fiduciary responsibility to its employees"

 

I feel that a company paying extra money to ING does the reverse of fulfilling it fiduciary responsibility to its employees.

 

I personally don't know what the level of fiduciary responsility is required by an agency, if any. Perhaps another poster would know. I would think that there are lots of companies that do business with vanguard or another no load, low expense company and have satisfied their fiduciary responsibility to its employees.

 

Ira

 

 

 

 

 

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Detailgal: By raising the issue of fiduciary responsibiltiy, your CFO is raising an important issue that requires consideration. There are some questions that go to this issue:

First, of all, is your plan a 403B or a 401K, I was not clear.

Secondly, and very importantly: Is your plan subject to ERISA?

You mention a TPA; please exlain what the TPA's role is.

Is there is Plan Document is place that governs the plan?

 

If you know, or could find out, it may be helpful in sorting out the situation.

 

 

Herb

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Herb,

 

Our current, 403B ING plan, is ERISA with a plan document. I've read the regs re: ERISA with regard to transfers etc. and, due to a separate issue, surrender fees, transferring is not feasible. I know that if we had a second plan and an employee wanted to transfer their subaccount (not employer subaccount) monies, or some portion, (in addition to ongoing/future payroll deductions), that that second plan would have to have equally stringent rules re: withdrawls. I am also aware of the reporting responsibilities (5500).

 

As Ira says, is it not a fiduciary responsibility to offer a plan that is low-cost, especially when the average employee income is $35K?

 

RE: Vanguard. I want them or T. Rowe Price as a second plan.

 

My question is: Does online, phone and/or written education meet the requirements of fiduciary responsibility to which our cfo is referring (and she is talking about education, not reporting etc.)?

 

THanks

DG

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Thank you for reply. The fact that your plan is covered by ERISA makes the situation clearer. And you are right that cost/fees are an important issue for fiduciaries to consider. As you know there are reporting requirements. There are also standards of care involved in this as well.

 

I think that the person(s) you should first turn to is the TPA; because it is, usually, their job to make sure that the plan is in compliance, appropriate criteria employed in selecting vendors and plans, etc. This is the case because the institution relies on the knowledge and skill of the TPA to oversee the plan.

 

What does the TPA say about your request?

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Herb,

As I recall, the TPA didn't think it was a big deal to have a second plan, in terms of reporting. Since my first post, I've found someone at Vanguard Small Business who will speak to our cfo, someone who clearly explained the benefits and, to my question, the education and availabililty of Vanguard staff. WHat I/we need to know from the cfo is how much more she will charge to "monitor" a 2nd plan.

 

Thanks again for your input.

DG

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I ask about the TPA because it needs to be determined if the Plan document will accommodate an additional vendor, and the TPA will need to be involved to determine if the second vendor passes all the established criteria for being a vendor under your plan. There may be fees that the TPA will access for an additional vendor (I presume you were referring to that).

 

Many TPA 's can produce a work chart showing who does what; is there a component on education, and can that issue be resolved to the satisfaction of the CFO?

 

I empathize with you, in wanting to move your agenda forward. I would ask some empathy for your CFO. Failure to perfom under ERISA plans can make fiduciaries personally liable for losses under the plan. That along will give most administrators pause. I would think if the CFO has a conversation with the TPA and your suggested vendor , it may go far to assuaging the CFO's concerns.

 

Best of luck to you

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Guest Sierra
Herb,

 

Our current, 403B ING plan, is ERISA with a plan document. I've read the regs re: ERISA with regard to transfers etc. and, due to a separate issue, surrender fees, transferring is not feasible. I know that if we had a second plan and an employee wanted to transfer their subaccount (not employer subaccount) monies, or some portion, (in addition to ongoing/future payroll deductions), that that second plan would have to have equally stringent rules re: withdrawls. I am also aware of the reporting responsibilities (5500).

 

As Ira says, is it not a fiduciary responsibility to offer a plan that is low-cost, especially when the average employee income is $35K?

 

RE: Vanguard. I want them or T. Rowe Price as a second plan.

 

My question is: Does online, phone and/or written education meet the requirements of fiduciary responsibility to which our cfo is referring (and she is talking about education, not reporting etc.)?

 

THanks

DG

Danc: I direct this to you because you suggested that salary reduction 403(b)s come under ERISA. Now our detailgal's plan is an erisa 403(b) with ING. I venture to say ING is charging a ME fee of at least 125 bp. So the same abuses are evident in both erisa and non-erisa 403(b)s.

 

I am willing to bet that the executives that signed off on the ING 403b VA many years ago did not do their due dilligence. (Was the rep a favorite son of the CEO?) THEY DID NOT UNDERSTAND THE PRODUCT THEY WERE CONTRACTING FOR. Detailgal tells us that the current crop of executives are concerned with their fiduciary responsibility---was fiduciary duties practiced by their predecessors? Did they have prior knowledge that a ME fee would be levied? Did they have prior knowledge that surrender charges would apply? Yet it is the current chief that is under the illusion (big time) that he/she is doing right by the ees to continue with ING because the insurer assigns a live person to the case. THE INDUSTRY IS ALL SO SCREWED UP!!

 

I look forward to your reaction.

 

Peace and hope,

Joel

 

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By your definition, Sierra, is it an "abuse" every time an employer chooses a plan that is not the lowest-cost plan?

 

(I ask the question because it seems clear to me that there are several different definitions of "fiduciary responsibility" that might apply, and cost is but one issue as these considerations are made.)

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FT et al.:

 

1) Does fiduciary responsibility include offering a low-cost plan?

 

2) Is it considered irresponsible to offer a high-cost plan to employees making modest incomes?

 

3) What are the other fiduciary responsibilities to which you, FT, refer?

 

4) Can you tell me of an online resource that defines "fiduciary responsiblities?"

 

Thank you,

DG

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FT et al.:

 

1) Does fiduciary responsibility include offering a low-cost plan?

 

2) Is it considered irresponsible to offer a high-cost plan to employees making modest incomes?

 

3) What are the other fiduciary responsibilities to which you, FT, refer?

 

4) Can you tell me of an online resource that defines "fiduciary responsiblities?"

 

Thank you,

DG

 

The Department of Labor defines fiduciary responsibility this way:

 

http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html

 

A brief excerpt:

 

Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include:

 

* Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;

 

* Carrying out their duties prudently;

 

* Following the plan documents (unless inconsistent with ERISA);

 

* Diversifying plan investments; and

 

* Paying only reasonable plan expenses.

 

Clearly, the limiting of expenses to what is "reasonable" is an element here, though not the ONLY element. The DOL is also kind enough to leave the word "reasonable" deliciously undefined, much as they do with the word "prudently" a few clauses above. What is "prudent" and "reasonable" in one person's view will almost certainly not correspond to everyone else's definitions.

 

From what I have read about your company, they appear to be "acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them." They are clearly concerned that the plan participants make informed decisions about their financial futures, to which end they have determined that a full-service plan best meets the needs of MOST of the participants. If they prioritize cost over service, then they apparently fear being stuck with a plan that is cheap, but that offers little to no guidance or resources in terms of advising people on their accounts.

 

I'm certain that many people will chime in here in favor of the lower-cost plans, arguing against the existence of service in "so-called" full-service plans, etc. That's another fight for another day, and probably won't interest you too much anyway. The truth is, though, when you consider ALL of the fiduciary responsibilities that are outlined by the Dept. of Labor, it's really hard to make the charge that simply going with a full-service plan is a breach of their responsibilities.

 

On the other hand, if 90% of your employees insist that low cost should be the primary determinant of what makes a good plan, then you might have more impetus behind you.

 

Hope this is helpful.

 

 

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Guest TR1982

Detailgal,

As someone who has sat across from CEO's and CFO's and sold retirement plans, you still have not overcome the major obstacle for the CFO. He/she may not "like" what's there that much, but is the change you are suggesting better for all the employees? You think so. The CFO knows you think so. But if I were in their shoes I might just perceive what you are saying as just what you as an individual employee want. If the employer switches to Vanguard, how many other employees will come and complain about this and that?

 

There has to be a more compelling case presented than what you've given.

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In my opinion, high fees to participants is not evidence of a Fiduciary breech, nor a clear no-no by ERISA standards. Detailgal works for a small employer whom has selected an approach where much (perhaps all) of the plan's administrative/overhead buden is borne by participants. The fees may be appropriate; and the question is did the employer perform due diligence and document their selection of ING? What was the selection criteria, and were the alternatives documented?

 

If the CFO is sincerely concerned about Fiduciary Risk, there should be documentation that ING was a reasonable selection. The employer should understand that its selection of ING shifts more costs to plan participants than other alternatives. There should also be an investment policy with investment performance standards, and there should be a documented process to show that investments have generally peformed in compliance with the plan's minimum performance standards.

 

The CFO can get all sorts of employee education and communications from ING, but if the investment performance of what is offered to employees as choices are not performing in-line with reasonable standards, Fiduciaries should be concerned. Because of the way that expenses are typically netted out against investment performance, excessive fees are often accompanied by sub-performance benchmark investment results.

 

My bet is that there is no selection criteria nor documentation showing why ING was a reasonable choice. There is no investment policy, and there is no documentation to evidence that participants are receiving investment choices that are reasonable. In other words, there is no ducmentation and evidence that fiduciaries are carrying out their duties prudently. This is where a DOL examiner would find fault.

 

The small employer marketplace is very challenging. I think Detailgals' employer is up against this issue, and would be well-advised to rethink plan design, 403(b), and other alternatives that are now available to small employers.

 

Cheers,

 

Danc

 

 

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My bet is that there is no selection criteria nor documentation showing why ING was a reasonable choice. There is no investment policy, and there is no documentation to evidence that participants are receiving investment choices that are reasonable. In other words, there is no ducmentation and evidence that fiduciaries are carrying out their duties prudently. This is where a DOL examiner would find fault.

 

 

 

 

Danc,

 

 

 

You are right. When I asked why ING was chosen, the answer was that the last human resources guy chose it. Other than that, there's been no mention of comparison of plans or justification as to why this was a good one. The only fiduciary responsibility that is currently being cited to me is that the plan be easily understood by all participants. I am trying to tell them that the low-cost companies that I have suggested (I also researched Mutual of America and TIAA-CREF), provide easily understandable info and access to people via phone.

 

TR1982,

 

While I definately have a vested interest in adding a low-cost plan, it was the cfo who, this past winter, first looked at our current plan and said that she didn't like it, that it shouldn't be an annuity and that she wanted my assistance in researching other plans. I have clearly stated my reasons for why I think this is a better deal for all employees (except for the fact that a low-cost plan doesn't offer a loan option or a fixed return fund) due to facts and figures of what a 2% difference can do to one's returns over time. I argue against the loan and fixed, prioritizing the plan as a retirement vehicle, not a savings account or loan office. I do not think that I or any other employee should have to pay high fees to foot others' loan options and 4% return. Please, with your experience, tell me the more compelling arguments.

 

THanks again,

DG

 

 

 

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