Jon Chambers

I would worry some about simply retitling the account. There are very specific timing rules pertaining to distributions on account of death. While I have no idea what recordkeeping system you are using, I presume it has procedures for tracking deceased participants and ensuring that the distribution rules are followed. While QDROphile's comment about the title on the account being meaningless is correct, simply retitling the account could lead to other unrelated errors (because once the account is retitled in the beneficiary's name, system users will believe that the account belongs to the beneficiary, when it really belongs to the deceased participant, and must follow rules relating to the deceased participant). Conversely, I presume that your internal service department's requirement that the account must be in the beneficiary's name before a new password can be issued is an internal procedure, not a regulatory requirement. If you are certain that the participant is deceased, and that the beneficiary is the deceased participant's properly designated beneficiary, I see no legal or regulatory impediment to issuing a new password to the beneficiary. So your choice is to retitle the account in a manner that doesn't track reality, and could lead to other compliance issues, or to convince your internal service department that it should be acceptable under the circumstances to issue a new password to the properly designated beneficiary. Personally, I would lean in the direction of the latter approach. Hope this helps, Jon

It's possible to get 404© protection when an SDBA is one of the plan's options. Of course, there are still many requirements that must be met before 404© protection is available. I've seen the indemnification clauses on numerous election forms, don't believe they are valid or enforceable, and have spoken with numerous attorneys that share this opinion. Best regards, Jon

I don't believe that simply "making the prospectus available" gets you 404© protection. Some vendors try to finesse the requirement by providing the prospectus online, and having the participant check a toggle box indicating that they have reviewed the prospectus prior to completing any trade. I recommend that my clients distribute all prospectuses to all participants at least annually. This may be overkill, but it's a good way to comply with the information dissemination requirements of 404©. Hope this helps, Jon

ERISA makes ALL trustees fiduciaries by definition. We already established that (see 29CFR Sec. 2509.75-8). As Kirk and others noted, being a fiduciary does not mean that you have fiduciary responsibility for all plan functions, although you may have co-fiduciary duties, depending on the terms of your contract, etc. We agree on the ability of the DT to reasonably rely on a representation from the fiduciary prior to executing a trade. The point that you didn't address was DT liability when the directing fiduciary has not made a representation. Further, under certain circumstances, the FAB notes that it may not be acceptable for the DT to rely on the fiduciary's representation. For example, the FAB provides that a directed trustee may have to question directions involving the purchase or holding of a security where there are "clear and compelling public indicators" that call into question the issuer’s viability as a going concern. Which is exactly my point. A DT has different duties from a custodian, because a DT is a fiduciary (albeit, a limited fiduciary) while a custodian is not. Your question "Why be a DT?" is a good one. But since there are DT's in the market, I believe that my advice to clients ("Hire a DT, not a custodian") continues to be good advice.

I guess I don't see this as all that confusing. If you are a fiduciary, you are subject to fiduciary standards. The ERISA fiduciary responsibility legal standard has been described as "the highest known to the law." [Donovan v. Bierwirth, 680 F.2d 263, 272 (2d Cit. 1982)] . If you are not a fiduciary (i.e., if you are a custodian), you are not subject to fiduciary standards. If you are a fiduciary, you can have co-fiduciary duties. If you are not a fiduciary, you don't generally have co-fiduciary duties. Certainly a directed trustee, like a custodian, needs to take proper direction from another plan fiduciary. But since a directed trustee is a fiduciary, the directed trustee must take reasonable steps to ensure that the direction is proper (i.e., in accordance with the terms of the Plan, does not contravene ERISA, is not a prohibited transaction, etc.) If the directed trustee merely rubber stamps and executes the fiduciary's direction, they may be breaching their fiduciary duty to the Plan. As you note, directed trustees can require a representation from the directing fiduciary that the directive is proper, and can seek indemnification from the directing fiduciary. These are reasonable steps. However, they don't eliminate the directed trustee's fiduciary liability, they merely manage it. I've been involved in litigation where a directed trustee took no steps to ensure a directive was proper, and consequently, faced liability for executing an imprudent directive. I doubt that they would have faced liability had they been serving in merely a custodial capacity. Finally, in my opinion, it is "useful" to the plan sponsor to have a directed trustee serving in a fiduciary capacity, vs. a custodian in a non-fiduciary capacity. Of course, this is a judgment call on which reasonable people can disagree.

In general, a custodian is not a "fiduciary" (although they may conduct themselves in a manner that makes them a fiduciary. A directed trustee is a fiduciary (albeit, with limits on their fiduciary duties). This is one of the key reasons why we generally recommend that our retirement plan clients engage a directed trustee rather than a custodian. At least historically, the cost for directed trustee services has tended to be quite low.

You may be interested in the recent (Friday) FAB from EBSA: Federal regulators on Friday formally declared that directed trustees under the Employee Retirement Income Security Act (ERISA) are to be considered fiduciaries and are required to act prudently. The pronouncement came from the US Department of Labor's Employee Benefits Security Administration (EBSA), which released Field Assistance Bulletin (FAB) 2004-03. As they did in a legal brief filed in the Enron case, DOL officials said in the document released Friday that a directed trustee not only must carry out its duties prudently, they also must act solely in the interest of the participants and beneficiaries of employee benefit plans. The FAB did note, however, that a directed trustee may rely on the representations of the directing fiduciary unless the directed trustee knows that the representations are false. It also said that directed trustees do not have an independent obligation to determine the prudence of every transaction, nor do they have an obligation to duplicate or second-guess the work of the plan fiduciaries that have discretionary authority over the management of plan assets - though exceptions were noted in circumstances where the directed trustee had knowledge of "material non-public information." MORE at http://newsmail.plansponsor.com/cgi-bin1/D...bU10FkB0GL2N0A7 .

I'll disagree with dh, at least to a minor extent, on a couple of his points. But in general, I found the post thought provoking and sensible, so consider these observations "nits", not major disagreement: 1) Disinflation or deflation can exist--see Japan in the 1990s, or the US in the 1930s. Money supply is simply one of the factors driving inflation, the velocity of money (the number of times an available dollar is spent in any year) and Gross National Product (GNP) are also key factors (depressions such as the US experienced in the 1930s and Japan experienced in the 1990s tend to cause velocity of money to slow dramatically, so even as the government prints more money to stimulate the economy, less money is actually spent). But I agree that the conditions that make deflation likely are highly unusual, and that the probability for deflation has been overstated. IMHO, deflation is possible but highly unlikely. 2) The definition of national "savings" is typically gross national income less gross national consumption. If income is less than or equal to consumption, savings is zero or negative. For the purpose of this statistic, there is no distinction between whether "savings" are invested or held in cash equivalents. This whole topic is somewhat meaningless, as the more important factor is whether aggregate national wealth is increasing or decreasing. For instance, as people watched the value of their homes rise, they increased consumption through refinance techniques. For many people, their wealth was increasing even though their consumption was greater than their income, which isn't necessarily indicative of a problem. However, "zero net savings" may be indicative of a future problem, or of increasing costs of capital for our society as a whole. I won't bother to get into that now. 3) Social Security has some elements of a pyramid scheme and (at least currently) some elements of savings (because more is taken in than is distributed). However, since the Social Security surplus is "invested" in T-bonds, due to the vagaries of government accounting, it simply makes the Federal deficit look smaller than it is, so I see why dh argues that it is not really savings.

In my opinion, this is a grey area. I typically advise clients to pay search fees from corporate assets, not plan assets. One key element to consider is whether recordkeeping/admin costs are currently paid by the plan or by the employer. If the employer is paying recordkeeping/admin costs, and wants to do the search to reduce these costs, then the employer will be using plan assets for its own benefit. If the plan is currently paying these costs, there is a better argument that the search will benefit plan participants, by reducing costs that the plan would otherwise be paying.

Not to the best of my knowledge. And if there were, you would need multiple appendixes to summarize the exceptions to the short-term trading fees.

rlb, remember that 404© protection is transactional in nature. While you are probably right that when an employee selectis advice through an advisor that was selected by the plan sponsor, the sponsor no longer receives 404© protection, if the employee doesn't select the advice, the plan sponsor is still eligible for 404© protection, assuming the plan is otherwise compliant. And as mbozek and katherine note, assuming the advice is prudent, there is little potential liability, even if investment results are not good. This is why "advice" is so popular in many circles--if the advice generates a prudent result, liability is probably minimized. Exceptions might occur if the advice is conflicted, inordinately costly, or demonstrably imprudent.

Many of these issues turn on the degree to which the education/advice is "individualized" for the participant. For example, for many years, Fidelity has been providing an "education" tool that gives specific investment recommendations, including recommendations for investing in Fidelity funds. While this looks on its face like a prohibited transaction, Fidelity notes that tool will only generate one of four possible portfolios. Thus, they conclude that the tool is not truly "individualized" for the participant, and is therefore not "advice". Remember that it's not necessarily problematic to deliver advice. The real issue is the possibility for triggering a prohibited transaction if the result of the advice influences fees earned by the advisor elsewhere. Thus, the old TCW approach, where all funds charged the same expense ratio. TCW could deliver advice, without impacting its investment management revenue--whatever the advice, the fee would be the same. Similarly, the SunAmerica opinion relies on the fact that the "advice" is really coming from Ibbotson--developers of the underlying software model. Ibbotson is not a party-in-interest to the plan, so the advice doesn't trigger a prohibited transaction, even though the advice is delivered by SunAmerica representatives, who are parties-in-interest. My guess is that SunAmerica wanted to customize results, and wanted their portfolio models to be "advice", not "education". But you are correct in noting that they could have obtained a very similar result if they had decided to stick with education.

To answer your question directly, no, and no (at least not without litigation/subpoena). But why wouldn't the employer want to share a well-constructed IPS with an employee that requests a copy?

Here's some relevant info from IB 96-1 on what is not advice--basic premise--with appropriate disclosure, and relying on "generally accepted investment theories", you can do a lot before "education" becomes "advice". Note that the IB permits the identification of specific investment options in the models, without making the models "advice", however, if you name funds, you need to include "a statement indicating that other investment alternatives having similar risk and return characteristics may be available under the plan and identifying where information on those investment alternatives may be obtained": "Asset Allocation Models. Information and materials (e.g., pie charts, graphs, or case studies) that provide a participant or beneficiary with models, available to all plan participants and beneficiaries, of asset allocation portfolios of hypothetical individuals with different time horizons and risk profiles, where: (i) Such models are based on generally accepted investments theories that take into account the historic returns of different asset classes (e.g., equities, bonds, or cash) over define periods of time; (ii) all material facts and assumptions on which such models are based (e.g., retirement ages, life expectancies, income levels, financial resources, replacement income ratios, inflation rates, and rates of return) accompany the models; (iii) to the extent that an asset allocation model identifies any specific investment alternative available under the plan, the model is accompanied by a statement indicating that other investment alternatives having similar risk and return characteristics may be available under the plan and identifying where information on those investment alternatives may be obtained; and (iv) the asset allocation models are accompanied by a statement indicating that, in applying particular asset allocation models to their individual situations, participants or beneficiaries should consider their other assets, income, and investments (e.g., equity in a home, IRA investments, savings accounts, and interests in other qualified and non-qualified plans) in addition to their interests in the plan. Interactive Investment Materials. Questionnaires, worksheets, software, and similar materials which provide a participant or beneficiary the means to estimate future retirement income needs and assess the impact of different asset allocations on retirement income, where: (i) Such materials are based on generally accepted investment theories that take into account the historic returns of different asset classes (e.g., equities, bonds, or cash) over defined periods of time; (ii) there is an objective correlation between the asset allocations generated by the materials and the information and data supplied by the participant or beneficiary; (iii) all material facts and assumptions (e.g., retirement ages, life expectancies, income levels, financial resources, replacement income ratios, inflation rates, and rates of return) which may affect a participant's or beneficiary's assessment of the different asset allocations accompany the materials or are specified by the participant or beneficiary; (iv) to the extent that an asset allocation generated by the materials identifies any specific investment alternative available under the plan, the asset allocation is accompanied by a statement indicating that other investment alternatives having similar risk and return characteristics may be available under the plan and identifying where information on those investment alternatives may be obtained; and (v) the materials either take into account or are accompanied by a statement indicating that, in applying particular asset allocations to their individual situations, participants or beneficiaries should consider their other assets, income, and investments (e.g., equity in a home, IRA investments, savings accounts, and interests in other qualified and non-qualified plans) in addition to their interests in the plan. "

In this situation, I'd be looking for a new document vendor, as they are not only wrong, they are quite obviously wrong, and appear to be sticking to their (wrong) beliefs in the presence of clear information (an IRS challenge) that they are wrong.