Assignment 11 - Fiduciary Oversight and Plan Governance

Question 1

• a chg. or modif. often driven by chgs in law, to a plan doc. that alters the operation of the plan
• drafting, reviewing, implementing, and comm. amendments is costly

Answer 1

amendment

Question 2

arrangement b/w recordkeeper and inv. mgrs to split fees generated by the plan inv.

Answer 2

revenue sharing agreements

Question 3

• a formal written doc. distributed to vendors inviting them to present their capabilites and place a bid w/ their pricing to become a service provider
• 1st step for the selection process
• identifies the key items that will be critical to the decisoin to select one provider over another

Answer 3

request for proposal (RFP)

Question 4

these fees are basically trans. costs for buying/selling of shares

Answer 4

sales charges

Question 5

an admin. structure that provides various services through one provider

Answer 5

bundled service provider

Question 6

• trust funds that are mng’d by a trust comp or a bank that pools the inv. of 401K plans
• consist only of qualified plan assets
• no front or back end fees
• inv. mgmt and admin fees

Answer 6

collective investment funds

Question 7

• a form of protection that covers p/h’s for losses that are incurred as a result of fraud. acts by indiv. specified in a bond’s contract
• required by all plans
• 10% of plan assets, up to $500,000 ($1m if ER securities)
• must comply w/ ERISA

Answer 7

fidelity bond

Question 8

• stmt of permissible loan terms
• how the I/R is determined
• # of loans permitted per partic.
• whether terminated partic. can continue to have an outstanding loan, etc…
• scrutinized by IRS audits

Answer 8

loan policy

Question 9

retirement plan committee

Answer 9

• responsible for gov. and admin of retirement plan
• delegate responsiblity to an external party
• provide oversight to ensure that the proper actions are happening in a timely fashion
• fairly small committee - 3 to 5 of the key senior leaders of org.
• s/b in charge to make all necessary decisions regarding the admin of plan such as design, selecting serv. providers, legal counsel, and review of status of plan
• meet at least annually, but no more than qrtly
• focus on inv. perf. and admin serv. provider review

Question 10

What happens if new law is put in place?

Answer 10

• effective date for any req’d chg is start of the following plan year after the legisl. is passed - even if the plan doc has 2 to 3 yrs b4 it has to be updated
• plan sponsor still needs to honor chg’s effective immediately as if it was after they amendment was made to the actual plan.

1. challenges:

• plan sponsor must determine what elements are affected by the chg
• plan must be consistently admin’d according to the altered terms of the plan, as it will be after the amendment has occurred

Question 11

policies and procedures for a retirement plan

Answer 11

• should work in conjuction with plan docs.
• procedural elements require more in-depth plan features that need to be addressed that are not in the plan doc.
• guide the daily operation of the plan: inv. policy, loans and hardship distribs. (if app), QDROs policy.

Question 12

• policy in the plan doc.
• required for all plans
• written doc outlining the guidelines for the structure, op, and decision making for the inv. held by the plan
• selection criteria for the inv. mgrs or MF’s offered by plan
• benchmarks used to measure inv. perf.
• criteria used to chg an inv.
• frequency of reviews
• how fees are to be paid
• if inv. are NOT partic. directed = include targeted asset allocation and frequency of rebalancing
• if inv. ARE partic. directed = specify if any restrictions exist on certain types of inv.

Answer 12

investment policy

Question 13

factors of a Harship W/drawal Policy

Answer 13

• permits these types of distrib.
• s/b written
• establishes min requirements regarding what qualifies as a “hardship”
• how frequently they are processed
• min. loan amt requirement
• what acceptable for proof of hardship
• who will make the determination
• should the partic. use other funds before the hardship?

Question 14

• type of fee assessed on MF’s
• paid when an indiv. 1st inv. in a fund
• deducted upfront
• reduces the mt of paritc’s initial inv.

Answer 14

front-end load

Question 15

• type of fee assessed on MF’s
• assessed when partic. sells shares
• also knowns as deferred sales charge or redemption fees
• dtermined by how long a person keeps the inv.
• pd when shares are sold, unless they have disappeared over time

Answer 15

back-end load

Question 16

typical types of fees assessed on MF’s

Answer 16

• sales charges (loads or commissions) - trasaction costs for buying/selling shares
• Mgmt Fees (inv. advisory fees or acct maint.) - ongoing charges for managing the assets in fund; %age of amt of assets
• Other fees - recordkeeping, furnishing of stmts, inv. advice, front-/back-end loads
• Rule 12b-1 fees - ongoing fees pd out of fund assets.; may be used to pay commissions to brokers, advertising, serv. providers.

Question 17

• type of arrangement that occurs when the standard fee charged for a serv. > actual cost incurred
• permitted under SEC reg 28(e)

Answer 17

soft-dollar arrangement

Question 18

• type of fee found in most partic-directed acct plans such as a 401K plan
• may be flat $ amt per participant or as a small %age of assets
• need to know who receives the pmt and for what services have been provided for this fee

Answer 18

subtransfer agent fees