IMA Webinar
Navigating the 401(k) World
Fiduciary Management – Increasing
Fiduciary Liability
“Plan Sponsors are
generally unaware that
being a fiduciary can
put their personal
assets at risk…
Fiduciary Risk
Mitigation should be an
important concept for
all plan sponsors”
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Fiduciary Management – Increasing
Fiduciary Liability
DOL ERISA AUDITS

ERISA CRACKING DOWN !

ERISA Conducting additional audits

Over 1000 new ERISA employees
hired to conduct additional audits

AUDITS growing for middle market
firms
Compliant plans
Non-Compliant
26%
74%
Source:
FORBES
“In the past, plan sponsors could practically ignore their plans.
Now, because of litigation and regulatory scrutiny of plan
fiduciaries, chief financial officers are realizing they can’t just
turn to their golf buddy as a plan advisor.” – Benefit PRO
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Four Ways to Manage Fiduciary
Responsibility
Model 1: Most
Basic Do it
Yourself
Model 2:
Outsource and
Partially Delegate
Investment
Management
Responsibilities
Model 3:
Outsource and
Fully Delegate
Investment
Management
3(38)
Multiple Levels of Liability
Mitigation
Model 4:
Outsource and
Fully Delegate
the Named
Fiduciary
Responsibilities
to an
Independent
Fiduciary
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Fiduciary Management – By the numbers
ERISA
3(16)
ERISA 3(16) is limited to
plan administration. A 3(16)
is a first party administrator
and not a “Third Party
Administrator.”
The 3(16) administrator is a
plan fiduciary and assumes
the liability that comes with
it. Is responsible for all
filings with the federal
government (form 5500 ,
etc.). Plan sponsor
delegates duties and
discretionary control.
3(21)
ERISA 3(21) includes
individuals with discretionary
authority or control over the
Plan or the Plan’s assets. The
amount of discretion given to
appointees varies by the
terms of the Plan and/or
appointment.
Risk and responsibility of a
3(21) can vary widely. To
address this Full, Specific, or
Limited Scope code sections
are associated with the 3(21).
3(38)
ERISA 3(38) sets strict
requirements on who can
qualify. A 3(38) must be a
bank, an insurance company,
or an Registered Investment
Advisor.
A 3(38) is given full
discretionary control over the
plans investments.
There are Various Industry Expert
Classifications
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3(38) Investment Management Service

Investment Policy Statement Development & Review

Quarterly Investment Monitoring Reports

Fund selection & Replacement

Custom Model Portfolio Construction

QDIA Selection / Review

FEE base structure 100% transparency
“Among the most important duties
of fiduciaries for 401(k) plans are
diversifying the risk of the plan
investment options, controlling
plan costs and helping make sure
plan participants are contributing
enough to succeed financially at
retirement.” –
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Participant Services

Most participants are lacking the
knowledge to properly manage
their 401(k) portfolios

Traditional Education materials
are extensive, but overwhelming
and time consuming for most
participants

Most want professional help
managing their portfolio

Participants want more dynamic
interaction
* Charles Schwab Report
7
Participants Are Unprepared
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Recent Performance Bias
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Why Not Target Dated Funds?

Pros



Simple
Reduces Investor Mistakes
Cons


Varying Glide Paths
Bias Fund Choices

Misunderstood


One Size Does Not Fit All
Lack of Manager Ownership

Poor Performance


Lack of Transparency
No Investor Education

No Fiduciary Help
“The three industry leaders by assets-Fidelity, T. Rowe Price, and Vanguard--all
feature closed-architecture target-date
funds. Both types of target-date series have
average overall Morningstar Ratings of 2.7
stars across their vintages. Morningstar's
figures suggest that open-architecture funds
on average provide a performance
advantage.”– Janet Yang, CFA, Morningstar
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Steps to a Secure Retirement



Personal Finance

Earnings

Budgeting

Saving

Protection
Investing

Economics

Fundamentals

Technical Analysis

Cycles
Retirement

Health Care

Income/Spending

Transitioning
“I believe that the biggest mistake that
most people make when it comes to their
retirement is they do not plan for it. They
take the same route as Alice in the story
from “Alice in Wonderland,” in which the
cat tells Alice that surely she will get
somewhere as long as she walks long
enough. It may not be exactly where you
wanted to get to, but you certainly get
somewhere.”
- Mark Singer, Author of The Changing
Landscape Of Retirement - What You Don't
Know Could Hurt You
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The 401(k) Solution

Fiduciary Liability Mitigation as a 3(38) Advisor

Fully Discretionary Investment Management

Dynamic Education

Decades of Experience

Investment and Plan Expertise

Strategic Partnerships

TPAs

ERISA Experts

CPAs

Plan Providers
“36% of 401(k) participants used
professionally managed accounts
in 2012 – a percentage double
what it was five years earlier and
on track to hit 55% in five years.” Vanguard
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Investment Management Process


Multi-factor Approach

Technical Rankings

Fundamental Analysis

Top-down Macro View

Sentiment Analysis

Cycle Analysis
Riskalyze™ Analysis

Risk Questionnaire

Retirement Success Calculator

Dynamic Allocation

Parallel Investing

Aligned Interests

Risk Focused
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Riskalyze Software
Investment Models &
Retirement Map
Questionnaire

Based on Prospect Theory which won
the 2002 Nobel Prize for Economics

Uses historical risk/reward data

Calculates risk tolerance based on 6 month
volatility probabilities

Emailed directly to participants

Just minutes to complete

Custom retirement snapshot

Creates custom risk profiles

Suggested retirement changes based on:

Results expressed 0-99 (higher
number means higher risk tolerance)

Investment Amount

Monthly Savings

Investment Risk Level

Retirement Year

Monthly Withdrawal
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Retirement Map Fail
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Retirement Map Success
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Custom Investment Models
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Continuing Participant Education
InvestTalk Network

Radio Show

4-5 pm PST M-F

Podcast
KPP Financial


iTunes
 Tune-in Radio
 InvestTalk Website


Bay Area and San Diego

24–Hour Listener Line

InvestTalk Personal Finance Minute

InvestTalk 101
Weekly E-Newsletter

Market Guidance

Investment Education

Personal Finance Advice

Regular In-Person Wealth
Conferences & Webinars

Annual Employee Education Workshop
& Webinar
InvestTalk Insider
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Current Key Takeaways

Plan Sponsors have huge
liability




Vast majority are not aware
Scrutiny is increasing fast
Various ways to reduce exposure

Education process is not
dynamic



Usually once a year workshop
Most do not review the material
Usually investment focused only
Participants are
unprepared




Most admit they are unprepared to
be successful
Most want professional help
Investors underperform due to
emotions and lack of education
Target Dated funds fall short as a
solution
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The 401(k) Solution
Protecting your Tomorrow, Today
For more info contact:
Justin Klein at JKlein@KPPFinancial.com
Or Call 800-557-5461