Coaching the Committee
Art by Lily Snowden-Fine
If your clients’ retirement plan committees fail to get the training they need, the Department of Labor (DOL) and IRS may take notice.
“There are many committee members who have not gone through training,” says adviser Tony Franchimone, a principal at Retirement Benefits Group (RBG) in San Diego. “We’re talking to our clients and prospects about how this is something the DOL and IRS are now looking for when they’re out conducting an audit: If committee members haven’t had training and don’t understand their responsibilities and potential liability, maybe there are things that are slipping through the cracks that could potentially warrant an investigation and bring in money to those agencies.”
Fiduciary training is more of an emerging best practice than an existing industry standard, says adviser Joshua Itzoe, partner and managing director, institutional client group at Greenspring Advisors in Towson, Maryland. “I think it’s fair to say that the vast majority of retirement plan committee members have not received any formal fiduciary training,” he says. “So, we’re setting those people up to fail or to achieve sub-optimal outcomes.”
Timing Issues
Attorney Emily Seymour Costin has heard rumors that the DOL is asking about fiduciary training, during audits. “I have heard they want to know the last time that fiduciary training was given to a committee and, in particular, whether it’s been given in the past year,” says Costin, a partner at Alston & Bird in Washington, D.C. “I have seen people starting to wonder if that’s a signal—but not yet formal guidance—that the DOL expects committee training to be done once a year.”
In her opinion, the frequency of training should depend on several factors. “I don’t think there should be a bright-line rule,” Costin says. “It depends on the number of people on the committee, how sophisticated their knowledge of the plan is, and whether there has been any refresher training.”
Costin says it is not necessary that a lawyer conduct the fiduciary training. “There are plenty of advisory and consulting firms that are able to speak to these issues generally,” she says. “And, if a lawyer gives the committee training, any discussion that happens during the meeting might not necessarily be protected by attorney-client privilege in a potential future lawsuit.”
Two years ago, Shepherd Financial started incorporating training modules it developed into each of its clients’ committee meetings, and it conducts this training at least annually, reviewing one module—each series consists of four—per meeting. The modules each last about 15 minutes, and how quickly a committee completes a series depends on whether it meets quarterly, semi-annually or annually, says Steve Wylam, a partner at the advisory firm, in Carmel, Indiana.
Itzoe believes that, at a minimum, training should be done for the whole committee when a new client comes on board and for any new members who subsequently join the committee. “I also think there is a case to be made that fiduciary training should be provided on an annual basis,” he says. “The responsibility is such a significant one, given the amount of money that committee members are responsible to oversee. The reality is that the vast majority of employees’ retirement plan experience is going to depend on a small group of people who have to make all the key decisions on the plan.”
Core Topics
RBG provides training annually, and the content varies depending on the committee. “The general framework is the same, but if the committee is the same as a year ago, we take some things out [such as the history of the Employee Retirement Income Security Act (ERISA)] because they don’t want to hear it again,” Franchimone says. RBG does most of the training via webinar, but every year it also hosts one or two group training sessions in the San Diego area, which committee members from multiple clients attend. And, for larger clients—i.e., those with $500 million in assets under management (AUM) and up—the advisory firm can do on-site, customized training, sometimes leading it in conjunction with ERISA counsel.
When it trains committees at new clients, RBG covers 10 main topics. These include: an ERISA overview; an explanation of fiduciary status and all of the fiduciary duties of the committee and individuals on it; what is involved in a prudent process; what potential fiduciary liability the organization and individual committee members have; plan management and plan documents; how to assess and monitor investments; plan fees; vendor selection and management; and hot topics such as recent lawsuits. That training typically runs about 90 minutes, although for larger plans it can last up to several hours.
For its training, Shepherd Financial has developed four modules. The topics of these are plan governance, plan administration, investments, and fees and expenses. “Our fiduciary training series provides a solid framework for those categories,” Wylam explains. “In plan governance, we clarify, ‘Who is a fiduciary?’ The plan administration module talks about operational issues such as delinquent contributions, while the investment module includes monitoring funds with a consistent, documented process. Our expenses module discusses costs for investments, advisory and recordkeeping services, revenue sharing and share classes, and how we benchmark all of these fees.”
Shepherd Financial backs up the training with material that helps committee members understand the training’s practical application for their plan work. That includes giving committees a fiduciary calendar and a checklist of duties related to the responsibilities covered in each module.
What should be key takeaways from committee training? Before they get training, committee members may not even be aware of their fiduciary status, Wylam says. “[They] often don’t know if they’re a fiduciary,” he says. “Our training helps them understand their roles and responsibilities. And we emphasize carefully documenting everything as part of their prudent process.”
Most of all, the key thing committee members need to understand is the fiduciary duty of loyalty to the plan participant, says adviser Jake Winegrad, a partner at Moneta Group Investment Advisors LLC in St. Louis. “If you look at the litigation happening in the marketplace, what tends to happen is that committee members are making decisions in the best interests of someone other than the participants,” he says. “You have to make all decisions in the best interests of participants, and you have to document that all decisions are made in the best interests of participants.”
Costin agrees that the single most important takeaway is the duty to consider only the best interests of participants in making fiduciary decisions. And it is a good idea to give the committee examples of how that principle can apply to its plan work. Employees who serve on a retirement plan committee wear two hats at work, she says: as an employee, and as a plan fiduciary. “As soon as they go into a plan committee meeting, they need to take off their hat as an employee, who has a duty of loyalty to the company, and put on the hat of a fiduciary with a duty of loyalty to the plan’s participants,” she says.
When Greenspring Advisors does training, Itzoe says, he hopes it gives committee members an awareness of how important their fiduciary responsibility is. “It seems like that would be intuitive, but sometimes committee members don’t grasp how much influence they have,” he says. “We hope this will wake them up and they’ll say, ‘OK, I do have a lot of responsibility and a lot of potential liability.’”
Itzoe also hopes that training gives committee members the knowledge they need to monitor their plan providers. “They need to learn how to ask providers some of the right questions,” he says. “If they don’t ask the right questions, they’re not going to get the right answers. They’ll be much more knowledgeable after training, and then they can hold their service providers accountable.”
Training Tips
To train committees effectively, it will help to keep these tips in mind:
Greenspring Advisors has provided fiduciary training for more than a decade. “Version 1 was 10 to 12 slides on the basics of ERISA and fiduciary responsibilities, and we covered that information with our clients in an unstructured way,” Itzoe recalls. “But since then, we’ve developed a more formal curriculum.” With counsel from law firm Drinker Biddle & Reath LLP, Greenspring has developed online training it calls “Fiduciary U,” which it utilizes for its own clients and licenses for others to use.
Make it convenient. When not doing customized committee training, Moneta does committee training by offering it online for multiple clients at a time, Winegrad says. Besides this being more efficient for Moneta, it can make getting the training more efficient for clients versus having an in-person meeting. “We are rolling that out via webinar, to make it easier for people to access,” he says. “You know how it is: People are strapped for time.”
Greenspring’s Fiduciary U online training takes around two hours for committee members to complete, Itzoe says. The training utilizes a technique known as “chunking” to group the complex information on fiduciary responsibilities into small, understandable pieces. “There is considerable research that shows people can take in only so much information at once,” he says. “Each chapter has three to 12 brief lessons, and each lesson is a one-to-two-minute video.”
Every chapter ends with a quick quiz on the topics covered, and the training finishes with an online final exam, after which committee members get a certificate of completion. On the back end, the Fiduciary U technology allows an adviser to track usage information, including which committee members have started the training and which have completed it.
Try to pique their interest. An adviser cannot guarantee that all committee members will pay close attention to all of the information covered in training. As Franchimone says, “You can take the horse to the well, but you can’t force it to drink.”
To that end, he tries to make the training entertaining, when possible. For example, he often recounts the time a CEO told him lightheartedly that he wanted to hire RBC “to keep him out of horizontal stripes,” meaning to keep the CEO out of a prison uniform. “You get a laugh,” he says. “It’s funny—if you are not dealing with that situation.”