401(k) Specialist Issue 1 - 2016 - 31

PROVIDER PERSPECTIVE by Gordon Tewell
The Evolution of a Responsible
Retirement Plan: A Case Study
A COMPANY'S NEW EXECUTIVE TEAM
was recently tasked with becoming the fiduciaries
for the company's 401(k) plan, which
took significant actions and made effectual
plan changes in an effort to fulfill its fiduciary
responsibilities. Here's how:
The policies, vendors and expectations
had been in place for many years, and
therefore were not in-line with current
fiduciary standards. The team ultimately
took on an overhaul of fiduciary processes
to create a new age of stewardship and fiduciary
responsibility. The team met with a
few fiduciary consulting firms and engaged
one of the firms to complete a fiduciary review
of all aspects of the plan's governance.
One of the main goals of the new team
was for a newly established plan committee
to become an independent entity receiving
full disclosure from the providers from
whom they enlisted help and expertise.
Upon receiving the fiduciary review of the
plan's structure, the team found several
areas of sound plan governance were
lacking: a formally structured investment
committee holding regular meetings, an
investment policy statement directing the
plan fiduciaries on how they should select
and monitor the plan investments, and a
process to formally understand and determine
the reasonableness of the fees paid to
the plan's providers.
Due to longstanding provider relationships,
the firm had ongoing and evergreen
contracts. Some of the most enlightening
information in the process related to contractual
restrictions and caveats that interfered
with creating a best-practice fiduciary
approach. The team was able to elevate their
approach and create a clear-cut fiduciary
system that established new practices and
ensured they were doing what was best for
their employees. In order to address all of
these areas, the team worked to update their
service model. They started with detailed
due diligence to understand all that was
included under their current contracts, and
in what areas the plan may be falling short.
Initially, the team focused on the plan's
investments. They sought greater transparency,
both in allowing participants to
understand where their investments were
being made and how much they were paying
for the plan. A best-in-class investment
menu replaced the single fund family approach,
and individual fund expenses were
reduced through the use of institutional
(versus retail) share classes.
As the project progressed, the group
made other improvements, including: a
better pricing structure with their providers,
a higher level of service through better reporting mechanisms and tools for monitoring
providers, and the development of an independent fiduciary process, which is conflict-free
from the possibility of an advisor seeking higher commissions.
Over time, several changes were made, including: establishing a new plan committee,
which includes the executives as well as other company staff, creation of an investment
policy statement, thorough and prudent due diligence and fund analysis, fiduciary training
for the plan committee members, a process to understand the plan's fees and their reasonableness,
and documentation of the committee's meetings and decisions.
In a recent discussion, the executives identified several recommendations and insights
GORDON TEWELL
they learned regarding the creation of a sound process:
* Don't implicitly assume that your fiduciary responsibility is being upheld because nothing
bad has happened.
* Review your processes and providers-not just because it's a healthy exercise for the
organization, but because fiduciary responsibilities requires it.
* If you have not already done so, enlist the help of an independent fiduciary consultant. They
can change the way you view fiduciary responsibility and assist with the fiduciary burden.
* Don't underestimate the power of stewardship. Doing the right thing by your employees
will be one of the most rewarding things you can do for your corporation and yourself.
It's okay to trust, but you must verify by asking hard questions of even your most longterm
service providers.
Gordon Tewell, CFA, CPC, is a principal with Denver, Colorado-based Innovest Portfolio Solutions.
ISSUE 1 2016 | 401kSpecialistmag.com 31

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401(k) Specialist Issue 1 - 2016

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