Fiduciary Issues Peter Welsh, Sr. VP

1
Fiduciary IssuesPeter Welsh, Sr. VP
The Ritz-Carlton, San Francisco, California May
14-16, 2003
2
401(k) Basics

• The Plan
• Each Plan must have at least one named fiduciary
  who serves as the Plan Administrator. See Labor
  Reg.2509.75-8.
• The Trust
• ERISA, generally speaking, requires that all
  assets of an employee benefit plan be held in
  trust by one or more trustees. ERISA Sec. 403(a).
  

3
401(k) Fiduciary Responsibility

• Whos an investment fiduciary under ERISA?
• A person who
• has discretionary authority over plan assets
• exercises any control over plan assets
• gives investment advice for compensation
• The Plan Administrator automatically has
  fiduciary status solely on the basis of his role
  as plan administrator because, by the very nature
  of the position, plan administrators have
  discretionary authority or discretionary
  responsibility in the administration of the plan.

4
401(k) Investment Fiduciaries

• Who are the Investment Fiduciaries?
• Trustee, Plan Committee, Board of Directors
• Officers responsible for investments
• Discretionary authority
• Authority to Direct
• Functional Fiduciaries
• A persons belief or formal title is irrelevant
  in determining his fiduciary status under ERISA.
• The definition includes persons having authority
  and responsibility with respect to the matter in
  question, regardless of formal title.

5
401(k) Investment Fiduciaries

• Who are the Investment Fiduciaries?
• An Investment Fiduciary is one who has any
  authority or control of the management or
  disposition of Plan Assets.
• ERISA employs the concept of Functional
  Fiduciary
• People responsible for the selection and
  retention of other plan fiduciaries exercise
  discretionary authority and control with respect
  to the management of the plan and are therefore
  themselves fiduciaries. ERISA Reg. 2509.75-8.

6
401(k) Investment Fiduciaries

• What are the Responsibilities of Investment
  Fiduciaries?
• Exclusive Benefit Rule
• Select Investments with the Care, Skill,
  Prudence, and Diligence under the circumstances
  then prevailing that a prudent man acting in like
  capacity and familiar with such matters would use
  in the conduct of an enterprise of a like
  character and with like aims. ERISA 404(a)(1).
• Diversify
• Operate in accordance with Plan Documents

7
401(k) Investment Fiduciaries

• Procedural Prudence
• Fiduciary should give appropriate consideration
  to those facts and circumstances that the
  fiduciary should know are relevant and
• Fiduciary acts accordingly.
• Preamble to 404(c) regulations states that
  fiduciary has a residual responsibility to
  monitor investments to periodically determine if
  investments should continue to be available as
  participant investment offerings

8
Investment Monitoring

• Transamericas Co-Fiduciary Role
• Transamerica-Selected Investments
• We are a fiduciary because of our
  discretionary authority over these assets
• TI-Selected Investment
• We aggressively monitor, review, and recommend
  fund changes as necessary

9
Investment Analysis

• Due Diligence Performed on Each Investment
  Offered
• Russell/Mellon reviews
• ?Style Orientation
• ?Performance Analysis
• ?Benchmarks Returns
• ?Regression Statistics

10
Reporting

• Quarterly Fund Monitoring Review
• Annual Product Review
• Investment Policy Statement
• Annual Fiduciary Review Meeting Agenda

11
Institutional Trustees

• Institutional Trustees
• Unless trustee assumes the role of the Plan
  Administrator, the existence of an institutional
  trustee does not have any effect on the
  employers potential liability to administer the
  plan
• Discretionary Trustees might relieve some
  liability for losses due to imprudent investments
  made by Discretionary Trustee, however, most
  Institutional Trustees are Directed Trustees
• It is by now well-established that the power to
  appoint plan trustees confers fiduciary status,
  Tomasso, 682 F. Supp. _at_ 1300, 1305.

12
Institutional Trustees

• But Trustees are always fiduciaries, right?
• Where the plan instrument does not accord the
  Trustees any discretionary authority over
  investment decisions of the plan and the plan
  does not name the trustees as fiduciaries, such
  trustees may not be considered fiduciaries.
  Arakelian v. National Western Life Ins. Co., 748
  F. Supp. 17 (DC D.C. 1990).
• Thus whether fiduciary status exists with respect
  to a particular office or position is dependent
  upon the facts and circumstances and whether the
  office or position performs the functions
  described in ERISA Sec. 3(21)(A).

13
(No Transcript)