Fiduciary Risk A Part of IRM

1. Fiduciary RiskA Part of IRM Jamie Collier & Jim Plaster

2. What’s the Risk? • Many agencies sponsor defined contribution plans (employee participants make investment decisions) • Sponsor hired the plan administrator/record keeper • Plan administrator contracts with managers to offer investment options to participants • Plan administrator gets fees from participants and investment managers • Agency still has oversight responsibility of its agent

3. Does your agency: • Periodically review investment options for appropriateness, relative performance and cost • Monitor fees charged to participants • Competitively procure record keeping services • Analyze plan sponsor’s promotional material • Provide appropriate educational resources to participants

4. What can go wrong? • Governmental plan sponsors not subject to ERISA - yet • Courts assess a fiduciary’s performance under “prudent man rule” • Best demonstrated practice by large agencies • Size increases leverage but does let small agencies “off the hook” • Want best benefits at lowest cost for employees

5. Levels of Exposure • Low: Department of Retirement Services Deferred Compensation Plan offered • Medium: Single 457 Plan administered by one private record keeper (like ICMA-RC, Great Western, Northwest Retirement systems) is offered for employee contributions only • High: Employer funded 401 Plan (especially as a SS substitute) administered by a private record keeper

6. WSTIP’s Exposure & Coverage: • WSTIP’s SIR Layer • GEM Layer – reportedly not covered • Excess Layer - ??

7. Ways to Reduce Pool’s Exposure • Exclude coverage in SIR (leave members bare) • Augment coverage in GEM & other excess layers • Improve loss avoidance • Establish a pooled resource to monitor and analyze investment performance, fees, services and competitively procure record keeper services, etc.

8. Pooled Resource is a Win-Win • Can efficiently and effectively accommodate many individual plans in a pooled environment for reduction of risk - and fees! Requirements: • Agencies delegate to a common plan sponsor • Locally administered by each agency within broad options provided by a multi-group plan • Negotiate fees and investment options with single administrator/record keeper • Costs and benefits appropriately shared

9. Dramatic Fee Reduction Possible • Spokane ($50mil in 7 plans) went from 0.55% to 0.135% fee without any loss of service. Annual on-going cost for consulting support: $30K Where fee reduction comes from: • Record keeper agrees to admin fee ceiling • Higher investment balances lower manager’s fees charged to record keeper • Investment managers pay marketing fees to record keeper: amounts over agreed fee rebated to participants or can cover plan costs • Need to be able to commit investment assets to achieve fee savings (unlike GSA co-op contracts)

10. Next Steps: • Identify agencies who wish to pool their 457/401 retirement plans • Legal/regulatory issues limit but don’t determine the pooled sponsor structure • Need to decide whether to operate as separate independent pool (with its own organizational costs) or under the WSTIP umbrella (WSTIP still has coverage risk either way).

11. Discussion: • Should WSTIP organize and sponsor the pooled plan (as a governmental employer) or • Should the interested agencies form their own pool based on a separate inter-local agreement? • What conditions and levels of support should WSTIP (as a Pool) place on this effort?