Assistance on advising the Advisor...Protocol and procedure?

[Guest WLP 1863]

Hello all,

Some years ago, with the the assistance of Benefits Link newsletters and other sites, such as 403bwise, I embarcked on the long and tedious task of addressing our ERISA 403b annuity retirement plan. With the advice and guidance received on various websites and forums, our Board of Directors has approved the change of providers and a change in Third Party Administrators, due to poor fee structures within the plan and unresponsive action by our TPA.

Our current scenario is as follows:

Our Board has decided it has not the resources to manage intelligently the 403b and has hired an Investment Advisor firm to renegotiate our current situation. The firm does not have a direct relationship with any investment company. (???)

The Boards decision was based on reducing fidutiary liability for the nonprofit, and I'm sure themselves as well, and to improve(lower) the cost structure within the plan and to provide ongoing responsible eduction to the participants. The Advisor will develop an Investment Plan Document, and will renegotiate our current situation with an alternate firm as well as other fidutiary responsiblities that are inherent with retirement plan management.

I'm somewhat hesitant about this!

After doing my "due diligence" and forcing members of our organization to address the issues of expense ridden annuities, I feel we may end up back on the same old boat as I was not involved with the selection process. I have requested that I participate in the discussions of the new plan provider selection process and review the transition from current to future providor.

My questions:

1) Is this acceptable or prudent? Or is this something that I should stear clear of?

2) If acceptable, what should the parameters of my involvment be? Typically, do participants have a say in the choices of plan selection and funding vehicles? As a realized functional fidutiary, is it imperative that I do get involved in the process?

I suppose my concern is that when perpetuating the initial awareness of plan fee issues, I had stirred up the pot, so to speak, and may have also put the fear of **insert diety** in some of our finance committee members.

3) With regard to a fairly young plan (4 yrs) that has a 10 year early withdraw penalty, can we negotiate our way out or typically is it the norm to start an additional plan and wait until the penatly phase lapses then transfer funds?

4) Can anyone offer me other advice on advising the advisor?

5) Has any one else gone through this action?

I have met with the advising firm and they appear to have our "best interests" in mind, although past experience leaves me somewhat nervous, as we all know the sales pitch. This is in no way a stab at all advisors, as many are very well qualified and perform substantial quality of service to individuals and organizations alike.

Respectfully,

WLP 1863

[mbozek]

I am confused about what is going on. What has been decided? What is the advisor developing? I have never heard of an investment plan document. You must be referring to an investment policy statement which must be approved by the fiduciaries regardless of who drafted the document. In any retirement plan subject to ERISA, the fiduciaries are personally responsible for the selection of prudent investments which are limited to mutual funds and annuities. I dont know how your employer can allow an advisor to negotiate the conditions of investment management for plan assets with an investment company or insurer which would expose the fiduciaries to personal liability without the advice of counsel. My suggestion is that the employer hire ERISA counsel to guide the fids on the process of selecting investments for the plan. I have advised many 403(b) plan sponsors on the proper design and implimentation of an investment policy.

If the plan is not subject to ERISA then state laws apply.

I dont think you can do much on the withdrawal penalties if the fees were stated in the documents signed by the plan representatives. It would be better to invest future plan contributions in other investments until the penalty provisions lapse.

[Guest WLP 1863]

mbozek,

Thank you for the reply.

>>>>I am confused about what is going on. What has been decided?<<<<

Our organization has had a high fee annuity product in place for four years. Our Board of Directors has re-evaluated this plan and has determined it should go and find an alternate provider. Our 403b is subject to ERISA compliance as we ocassionally are distributed a random dollar amount for profit sharing.

Additionally, we have recently started a Gift Annuity, for fund raising purposes. An investment advising firm was required to manage the assets and develop an investment policy statement. Since the due diligence was done in thier search for this project, the BOD also requested this firm to reaccess and address our 403b issues.

>>>>What is the advisor developing?<<<<

Addressing the 403b will require: Negotiating an exit stategy and defining the liabilities to our organization as well as the participants. Developing an Investment Policy Statement, develop an RFP and solicit bids for an alternate plan or additional plan, if feasible. Define the investment chioces within the plan. With advice from the advisor firm, and the approval from our finance committee, we will negotiate an agreement with the new approved plan provider. The Advisor firm will also identify a reasonable and prudent TPA as well as provide individual independent portfolio education for the employees funded by the nonprofit.

I have been involved with bringing the fee issues to the forefront and seek ensure we are not going to end up with another expensive product for the staff of this small nonprofit. We have only 50 employees, 23 of which are contributing.

>>>>I have never heard of an investment plan document. You must be referring to an investment policy statement<<<<

Yes, you are correct. My apologies!

The purpose of my inquiry, is get a handle on what expect from follow-up meeting with this Advisor firm in designing our plan. What questions should I pose? What are the steps in negotiating a beneficial plan for the participant?

As to the early withdraw penalties; We are currently in a plan that costs each participant 4.36 basis points each year. If we add up six more years paying this fee structure the average participant will lose 25% of thier retirement savings over this short period of time. I know we'll each have to do the math on an individual basis but this the choice we have.

Respectfully,

WLP

[Guest WLP 1863]

ARRGH,

Following up from from an earlier post.

>>>>I have met with the advising firm and they appear to have our "best interests" in mind, although past experience leaves me somewhat nervous, as we all know the sales pitch. <<<<

Well, so much for appearance! After negotiating with our new Gift Annuity investment advisor and entering into a contractual agreement, the advisor has "conveniently" decided that they don't want to participate in assisting us with our 403b ERISA Variable Annuity restructure.

This was, in my opinion , due to entering in to an agreement without the I's dotted and T's crossed. Once the Gift Annuity contract was signed and their fees guaranteed, within two days they( the Advisor) decided it wasn't in their best interests to assist us with our poor retirement plan or alternatives.

Their seems to be a consistant putrid smell in the financial industry that still has has not abated, dispite all the current hub-bub from the SEC and Spitzer.

What has happened to ethics in this industry?

Frustrated and disappointed, I am. When is the Benefits industry actually going to stand up and really be BENEFITIAL!

WLP

[mbozek]

I think the plan fiducaries have to be made aware that they have the responsibility to select investments which are prudent for the plan participants. This issue will not go away. The problem is that few advisors want to advise small plans pn investment matters.

[IRC401]

I was going to ask how the new advisors got paid.

Do you have any idea where you would like to invest your money? Why doesn't someone call Vanguard, Fidelity, TIAA-CREF, T. Rowe Price and a few other organizations and find out what they have to offer.

PS: TIAA-CREF will try to sell your organization a money purchase type plan instead of a p/s type plan and saddle you with all sorts of unnecessary annuity waiver forms, but that is a whole let less of a problem than paying 4%+ every year.

PPS: If there isn't a matching contribution, some of the employees may be better off contributing to an IRA instead of the plan.