NEW RULES FOR NON-TRADITIONAL RETIREMENT PLANS: :NEW RULES FOR NON-TRADITIONAL RETIREMENT PLANS: A New World for Plan Sponsors, Employees, and Advisors Presented by Jerry Kalish President National Benefit Services, Inc. John Marshall Law School “Non-Traditional Retirement Plans” EB 368aBU October 31, 2009


Slide 2:Hat tip to Rick Bales at Workplace Prof Blog: http://lawprofessors.typepad.com/laborprof_blog Retirement Therapy


Slide 3:403(b) Regulations Timeline 1958 Added to Internal Revenue Code 1964 Regulations first issued that detailed some of basic statutory provisions 1964-2004 Hodgepodge of regulations, exam guidelines, revenue rulings, and notices 2004 Proposed Regulations issued 2007 Regulations finalized 2009 Final Regulations effective


The world has changed since 1964 when 403(b) regs first proposed :The world has changed since 1964 when 403(b) regs first proposed


: 2009: The New Economic Realities


Slide 6:Work Force Veterans: 1922-1945 Baby Boomers: 1946-1964 Generation X” 1965-1980 Generation Y: 1981-2000


403(b) and 457 PlansThe View From 30,000 Ft. :403(b) and 457 PlansThe View From 30,000 Ft.


Slide 8:403(b) Market Size and Scope 20% - 25% of defined contribution market $600 - $700 million estimated assets $900 billion estimated assets in 2011 58% < $1 million 31% between $1 million to $10 million 40% ERISA, 60% Non-ERISA Source: Edward Jones 2008 research


Slide 9:Source: RG Wuelfing & Associates, 2008 Retirement Research 403(b) Market by Type of Plan Sponsor at 2008 Year-End


Slide 10:The current state of fiduciary performance and risks: Only 58% maintain minutes of meetings (down from 79% last year: Grant Thornton Survey Top ten ERISA class action settlements totaled $17.7 billion in 2008 (up from $1.818 billion in 2007) Seyfarth Shaw Survey


Slide 11:What are plan sponsors actually doing? Doing nothing (or much) Eliminating the plan Simplifying the plan Scaling down to only one provider Keeping multiple providers


Slide 12:How the 403(b) providers see it: 86% of providers believe 403(b) margins are as great or greater than in other DC plans Highest impact of regs on their business model Written plan document: 57% Elimination of 90-24 transfers: 57% Permissive aggregation of employers: 43% Certification of distributable event: 29% Source: Cerulli Associates 2007 Report: State of the 403(b) and 457 Marketplace: Challenges and Opportunities


Slide 13:What are investment providers doing Dropping out Becoming the low cost provider Becoming the high-service provider Becoming a one-stop shop (fully bundled) Doing nothing (what and see)


Players at the table :Players at the table


Slide 15:403(b) and 457: Investment Program with Specific Administrative Requirements Administration Enrollment Employee communication Recordkeeping Compliance Investment Asset groups Funds Investment managers Investment reporting and monitoring


Slide 16:Who are the service providers Investment providers Investment consultant/broker Common remitter Third party administrator (TPA) Legal counsel


Slide 17:Service Models Bundled Alliance Unbundled


Best Practices :Best Practices


Slide 19:Fiduciary Best Practices Theory vs. Practice Investment Policy Statement The Retirement Outcome


Slide 20:Classic risk management Decide on a plan that could be interpreted as acting in good faith  Review that plan on a periodic basis and take remedial action if necessary  Make decisions based on expert recommendations and advice  Document the decision-making process  Establish directed investment accounts for defined contribution plans  Appoint an investment manager and monitor his or her performance


Slide 21:The practical side of being a fiduciary Appoint an individual or committee as plan administrator Consider the financial strength of your service providers Carefully review the principal policy provisions of fiduciary liability insurance you have/are considering Be aware of the scope of indemnification coverage Make sure investment responsibility has been properly delegated Understand that selection of service providers is a fiduciary function Assume your plan will be audited


Slide 22:Why have an investment policy statement Presents the strategic vision for the investments Describes a plan’s investment objectives and decisions Helps plan sponsors reduce their fiduciary liability Defines how investments are selected and monitored


Slide 23:1988 to 2008 Source: DALBAR Quantitative Analysis of Investor Behavior (QAIB) Study 2009 The Cost of Going It Alone


Slide 24:Source: AllianceBernstein


Slide 25:403(b) and 457: Investment Program with Specific Administrative Requirements Administration Enrollment Employee communication Recordkeeping Compliance Investment Asset groups Funds Investment managers Investment reporting and monitoring Coming Attractions: Selecting a Plan Provider


Slide 26:A Framework For Selecting A Plan Provider Using “procedural prudence” Plan administration and investments appropriate for employee group Change emphasis from sell side to buy side


Slide 27:Evaluating plan provider’s experience, capabilities, and fees How are administration, recordkeeping, custodial or trust services provided What investments are available How is the plan sponsor insulated from fiduciary liability How is employee communication and investment education provided


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