Check­ing un­der the hood of your re­tire­ment plan with an ob­jec­tive me­chanic

Employee Benefit News - - Contents - By Richard Stolz

James Sotell, man­ag­ing di­rec­tor of Com­pe­rio Re­tire­ment Con­sult­ing, shares his per­spec­tive on ad­vis­ing small plans and their fidu­cia­ries.

In the rush of ev­ery­day busi­ness, it’s easy to ne­glect some of the fidu­ciary du­ties in­volved with spon­sor­ing a re­tire­ment plan — par­tic­u­larly for rel­a­tively small em­ploy­ers. And when the plan ad­viser isn’t a re­tire­ment plan spe­cial­ist, some­times re­quired tasks are left un­done. James Sotell, man­ag­ing di­rec­tor of Com­pe­rio Re­tire­ment Con­sult­ing, a reg­is­tered in­vest­ment ad­vi­sory firm in Cary, North Carolina, is very fa­mil­iar with this phe­nom­e­non. EBN re­cently spoke to Sotell for his per­spec­tive on ad­vis­ing small plans and their fidu­cia­ries. .

Em­ployee Ben­e­fit News: Is there any typ­i­cal rea­son why plan spon­sors are knock­ing on your door for ad­vice these days?

James Sotell: Sure. For one thing, they’re look­ing for un­bi­ased ad­vice from a con­sult­ing firm that spe­cial­izes in re­tire­ment plans. But more specif­i­cally, one rea­son is all the pub­lic­ity around lit­i­ga­tion in­volv­ing plan spon­sors and ac­cu­sa­tions that they have been neg­li­gent in ful­fill­ing their fidu­ciary du­ties. An­other is that they have grown large enough, from a few mil­lion dol­lars to the $15-$50 mil­lion range with what the mar­kets have done since 2009. I think some of the ex­ec­u­tives are say­ing, “Hey, this is a siz­able as­set. Are we pro­tect­ing our­selves as an or­ga­ni­za­tion? Are we do­ing what’s best for our par­tic­i­pants to make sure that they’re in the best po­si­tion for re­tire­ment?”

EBN: What do you do to size up a plan and look for po­ten­tial trou­ble spots?

Sotell: We have a check­list. Many of them, if they hadn’t been work­ing with an ad­vi­sory firm that spe­cial­izes in re­tire­ment plans, of­ten lack ad­e­quate ad­min­is­tra­tive pro­cesses and sys­tems for doc­u­ment­ing their ac­tions and meet­ings. Or they don’t have an up­dated or re­vised in­vest­ment pol­icy state­ment, or

on­go­ing due dili­gence and review of their funds tied to their pol­icy state­ment, or bench­mark­ing in­vest­ment per­for­mance or anal­y­sis of their fees to en­sure that they’re rea­son­able for ser­vices ren­dered. EBN: When you find that a spon­sor is de­fi­cient in those ar­eas, are they sur­prised, or do they al­ready know it?

Sotell: There’s a com­bi­na­tion of both. Some spon­sors say, “We have a sense of what we should be do­ing, but we’re not fo­cused on this. This isn’t our core busi­ness, so we’d like to have some­one to help us guide through that process.” And there are other plan spon­sors that have been so re­liant on the ad­vice from ei­ther the record­keeper or maybe a gen­er­al­ist ad­viser who they think is a fidu­ciary, but in a lot of cases is not, and they re­ally don’t know. EBN: So in that lat­ter case, the spon­sor must sus­pect the ad­viser isn’t act­ing in a fidu­ciary ca­pac­ity? Sotell: Well, it’s sort of like a plan spon­sor and two peo­ple in line and the spon­sor says, “Okay, if you’re a fidu­ciary, step for­ward.” And the spon­sor just stays there, but the record­keeper and the ad­viser take a step back, and the spon­sor looks to the right and the left and he’s the only one in line, and by de­fault is the fidu­ciary. EBN: What other is­sues typ­i­cally arise when you do a plan check-up? Sotell: The other most typ­i­cal is­sue is the fees

they’re pay­ing. Clients don’t fully ap­pre­ci­ate or know what all their fees are or how they’re be­ing charged — what is be­ing paid from the funds or the rev­enue-shar­ing from the funds. Is that off­set­ting record­keep­ing fees, is it pay­ing record­keep­ing fees? Is it pay­ing ad­viser fees, or both? EBN: Shouldn’t they have that in­for­ma­tion from the fee dis­clo­sure doc­u­ments they’re get­ting? Sotell: It may get dis­closed to them in some form or fash­ion once a year, but they don’t see a bill, so they don’t un­der­stand the rhyme or rea­son be­hind why cer­tain share classes are of­fered in their plan. They don’t un­der­stand that next to the fund name, that if it says “A” ver­sus “R6,” that that de­notes right away a dif­fer­ence in fees and rev­enue-shar­ing. EBN: When you de­ci­pher it for them, does any­thing sur­prise them?

Sotell: Some­thing that be­comes an “aha mo­ment” is when they un­der­stand they may have dif­fer­ent rev­enue-shar­ing for dif­fer­ent funds, and the rev­enue-shar­ing on their de­fault fund or a fund with a lot of as­sets in it could be higher than some­thing with a small amount. Also, with re­gard to the de­fault or QDIA fund, let’s say it’s a tar­get date fund, spon­sors of­ten lack doc­u­men­ta­tion as to why that tar­get date fund was cho­sen, or just don’t know why, be­cause it was cho­sen be­fore they got on the re­tire­ment com­mit­tee. The is­sue is whether it ful­fills the re­quire­ments of QDIA sta­tus. EBN

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