Understanding Your ERISA Fiduciary Responsibilities as a Retirement Plan Sponsor
The Employee Retirement Income Security Act (ERISA) categorizes most retirement plan sponsors and their plan committee members as fiduciaries.
A fiduciary is a person who holds a legal and ethical relationship of trust with another person or a group of people.
As a new plan sponsor, one of the most important steps you can take is to engage in fiduciary training. Sponsoring a retirement plan for your employees means you have a fiduciary duty to act prudently and solely in the best interest of planned participants.
Why Consider Fiduciary Training
Early in your journey as a plan sponsor, it’s critical that you understand what it means to be a fiduciary and how to fulfill your fiduciary duties. Fiduciaries are held to a high standard of conduct and the potential consequences of not understanding can be significant.
Fiduciary training will help committee members understand their duties and responsibilities and what good governance looks like. It’s also a great way to minimize risk through education and governance.
While not a requirement, the Department of Labor (DOL) views fiduciary training as a critical component of prudent oversight, and it frequently looks for evidence of training during plan investigations.
CAPTRUST’s Fiduciary Training for New Retirement Plan Sponsors
Whether you’re a new or seasoned retirement plan sponsor, CAPTRUST has a robust team of retirement industry experts who can help. Our fiduciary training for new plan sponsors is part of our ongoing commitment to service beyond expectation.
In this training, we cover fiduciary duties as required under ERISA, but we also help you understand best practices for managing your new retirement plan beyond what’s legally required for compliance. These best practices help ensure you are fulfilling your obligations as a fiduciary and making decisions in the best interest of plan participants.
We start by defining who is a fiduciary and what their key responsibilities are.
Next, we explore a fiduciary’sduty of prudence, which requires that you continually monitor the investments offered within your plan. Merely providing a range of investment choices is not enough. We also discuss resources and options to support your retirement plan committee.
Then, we dive into your duty of loyalty and impartiality. This is known as ERISA’s exclusive purpose rule. It requires that fiduciaries discharge their duties solely in the interest of participants and beneficiaries, not in the interest of the employer.
Plan sponsors also have a duty to diversify plan investments and a duty to monitor and supervise service providers. Robust training will show you how to evaluate the prudence of any potential vendors and changes to your plan. It will also teach you how to evaluate whether service provider fees are reasonable or not as part of your duty to ensure reasonable costs.
The last piece is your duty to avoid prohibited transactions. To make sure employers are not acting in their own self-interest, ERISA spells out five types of transactions to avoid. These are transactions between the plan and a party of interest. They include money lending, the extension of credit, and the sale, exchange, or leasing of any personal property. Fiduciary training will show you how to make necessary transactions without breaking the rules.
After your initial training, it’s a good idea to consider ongoing sessions in order to build a deeper understanding and stay informed of current trends, updated regulations, and litigation outcomes. But remember, throughout your journey as a retirement plan sponsor, CAPTRUST is here to help.
If you’re part of the team managing investments for a nonprofit, your job is to make sure the organization’s money is invested wisely to support its missions and programs in perpetuity. But how do you go about this important and seemingly complex task? One key step is to create an investment policy statement (IPS).
An IPS is a formal document that explains the guidelines and procedures for how to manage an organization’s investment portfolio. Typically, an IPS will define the organization’s investment goals, risk tolerance, asset allocation, and other key policies. It gives clear directions to finance staff and investment committee members.
Having a written IPS provides several benefits. Most importantly, it helps ensure consistency and accountability and how the portfolio is managed over time, regardless of who is managing it. An IPS may also promote better long-term investment performance. By establishing a disciplined process upfront, it can help prevent emotion-based or reactionary investment decisions that might undermine the portfolio’s success. The policies contained in an IPS act as a guide to help the organization stay on track, even when markets are volatile.
So what exactly goes into an IPS? There are several key elements. First, you’ll want to outline the organization’s investment objectives. Is the overall goal to preserve capital, generate income, or grow the portfolio’s value over time? What are the long-term goals, and are there other, shorter-term goals you want to achieve?
Next, make sure to specify the organization’s time horizon, and risk tolerance. Then give details about asset allocation. What percentage of the portfolio should be invested in stocks, bonds, alternative investments, and other asset classes?
Your IPS should also include the organization’s policies regarding diversification, liquidity needs, rebalancing the portfolio, and selecting and monitoring investment managers. It’s a good idea to document any investment restrictions as well, including companies or sectors of the economy that are off limits from an investment point of view or that conflict with the mission or values of the organization.
Lastly, be sure to explain the investment decision-making process, reporting requirements, and oversight procedures. Some organizations also choose to include their conflict-of-interest policy within their IPS.
Keep in mind that creating an IPS is not something to be done hastily. It’s a thoughtful and sometimes lengthy exercise that should involve lots of key stakeholders, including investment committee members, board members and staff, as well as professional advisors.
Once you have created a draft of your IPS, it will need to be approved by your board of directors or other governing body. And it should be reviewed and updated on a regular basis, typically once a year or whenever there’s a major change in the market environment.
By documenting investment objectives, policies, and procedures, an IPS promotes continuity, accountability, and better investment outcome. That’s why it’s a crucial part of effective, long-term portfolio management for all organizations.
For help developing an IPS for your organization, call CAPTRUST. Our financial advisors have the expertise and experience to guide you through the process.
Have you ever wondered how people grow their wealth over time or how they save enough money to retire? Investment management is one part of the answer.
Investment management is the process of creating a comprehensive strategy to manage your investments and grow your financial assets. It means looking at your entire financial picture, your goals and their time horizons, your risk tolerance, and more, and then building a portfolio tailored specifically to you.
At CAPTRUST, investment management is one of the three pillars of our wealth management process, along with goal setting and risk management. It’s an important part of financial planning, which also includes strategies like budgeting, saving, and managing debt.
Investment management is something everyone should consider, regardless of your income or net worth, because it can help you understand and balance goals that sometimes compete with one another. It can help you take control of your financial future and make sure your money is working as hard as it can.
Whether you’re working with a financial advisor or managing your own investments, the first step is to name your financial goals. Do you want to save for a down payment on a home in the next five years? Pay for college for your children? Or reach a specific savings goal before retirement? Whatever your goals are, it’s important to define them because then you know how much money you’ll need.
Next, evaluate your risk tolerance. This means figuring out how much risk you’re comfortable taking with your portfolio. Are you the type of person who can handle big swings in the stock market? Or do you prefer a slow and steady approach to growing your wealth?
Once you’ve set your goals and risk tolerance, it’s time to choose specific investments. Examples include mutual funds, exchange traded funds, stocks, bonds, or alternative investments like real estate. The key is to diversify your investments across different asset classes so that you’re managing the risk of large losses while also achieving the returns you need to reach your financial goal. It’s also important to understand the tax implications of each type of investment. Certain investments, like municipal bonds, and certain investment accounts, like 401(k)s, 403(b)s, and individual retirement accounts are tax advantaged.
Deploying the right investments at the right time in your life can help reduce your taxes or at least make them more predictable. Although you don’t need to manage your investments on a day-to-day or even monthly basis, you should check on their progress every year or two, or whenever there’s been a big change in the markets or in your life.
At that point, you may want to make some adjustments. For instance, you might need to rebalance your portfolio to maintain your target risk level. Over time, some investments will likely perform better than others. causing your portfolio to drift away from the original plan. Rebalancing can help you get things back on track.
The most important thing to remember is that it’s not about choosing the right stocks or funds. It’s about taking a comprehensive look at your entire financial picture and crafting an investment strategy that addresses your specific needs and goals. By taking this holistic approach, you can ensure that all the different pieces of your financial life are working together to create the best possible outcomes.
Selecting a Qualified Default Investment Alternative (QDIA)
As an employer, you may choose to offer various benefits to help your employees build their own financial security, especially when it comes to retirement. One effective tool for this is a QDIA, or qualified default investment alternative. A QDIA is the default investment option offered inside an employer-sponsored retirement plan. If an employee contributes to the plan but does not specify how they want their money invested, it is automatically allocated to the QDIA.
QDIAs were created by the Pension Protection Act of 2006. This act was designed to get more people to enroll in employer-sponsored retirement plans and to protect plan sponsors when they choose investments on behalf of their enrolled employees.
A prudently selected QDIA can help provide plan participants with a well-rounded investment portfolio, even if they did not select it themselves. But not every type of investment can be selected as a QDIA, and those that are must meet specific requirements outlined by the Department of Labor.
There are three main types of QDIAs: target-date funds, managed account services, and balance funds. Each type has its own way of managing a mix of stocks and bonds and comes with its own benefits and considerations to understand.
When selecting a suitable QDIA for your participants, start by looking at the overall demographics of your workforce. Your employees ages, savings rates, and retirement balances can help steer you to the right type of QDIA.
Next, evaluate whether the mix of investments in that potential QDIA suits your employees’ needs. Comparing and contrasting multiple options can help you find the best fit. Consider factors such as risk, return, and cost. These aspects can have significant impacts on participant account balances and behaviors.
Finally, make sure to educate your employees about their QDIA. Explain what a QDIA is, the associated risks and benefits, and how they can choose a different option if they want. Clear information can help employees feel more confident in their QDIA and more informed about their retirement choices. Carefully selecting a QDIA is not only elemental to your fiduciary process, it’s a way to improve your employee’s retirement outcomes.
To learn more about selecting the right QDIA for your retirement plan, or to assess whether your current QDIA is appropriate for your employees, call CAPTRUST. We can help you make an informed choice.
Donor development means creating and sustaining authentic connections with those supporting your nonprofit. By nurturing these relationships, you can build a strong, engaged donor community and help ensure your organization’s long-term financial stability. Donor development is crucial to nonprofits, and it’s the responsibility of all members of your organization, starting with senior leadership.
When evaluating your organization’s donor development programs, consider these five steps.
Identify potential supporters.
Build authentic relationships.
Create engagement opportunities.
Encourage continued support.
And leverage technology.
To identify potential donors, research the people, corporations, and organizations that align with your mission. One way to start is by consulting with your current supporters. Volunteers have the potential to be great donors as they see firsthand not only the impact of the work your organization does, but also how well it’s run. Sometimes, volunteers want to give their time and talent as a path towards later financial support. Community events, social media, and local fundraisers are also great tools to find more supporters.
To build authentic relationships, personalize your approach to each new donor or donor group by working to understand their unique interests and motivations.
Regular communication is important. Keep donors and potential donors well informed with periodic updates about your actions and impact. Invite them to events, offer behind the scenes tours, and show them how their contributions make a real difference.
Remember that potential donors may prefer different methods of communication, with some preferring email or social media and others a newsletter or personal note. Having several ways to engage with donors is another piece of the puzzle. Create in person and virtual volunteer opportunities. Or ask donors to participate on an advisory board. Recognize their contributions publicly through newsletters, social media, or at events. Your gratitude will strengthen their connection to your cause.
To encourage continued support, regularly provide donors with clear information about how their contributions are being used. Transparency builds trust. Consider a donor recognition program to honor long-term supporters and major contributors.
And last, leverage technology. Use donor management software to track interactions, preferences, and donation history. This data can help you tailor your communications and engagement strategies.
Above all, you need to make it easy for donors to give. Have you explained your ability to receive non-cash gifts? Do you clearly state that you welcome gifts of stock by donor-advised funds or qualified charitable distributions? If not, how could you improve your donor education materials? Remember, donor development is a continuous process.
These steps help endowments and foundations create a sustainable donor base, ensuring that your organization thrives long into the future. Want to assess your current donor development programs? Call CAPTRUST. We’re here to help.
Businesses and nonprofit organizations often have large asset pools, like cash or reserves, that aren’t yet designated for a specific goal or need. Typically, these rainy-day funds have grown over time and can represent a significant component of an organization’s overall financial structure. When properly managed, they may be a healthy source of capital growth.
Institutional Asset Pools, or IAPs, are usually managed by an internal investment committee or a third-party investment advisor. Some of these pools are managed conservatively with the goal of capital preservation. In other cases, the portfolio manager will aim to maximize an IAP’s earning power, which can serve to backstop an organization’s outstanding debt. A few examples of IAPs are:
not-for-profit hospital operating reserves,
self-insurance trusts,
captive insurance company assets,
nuclear decommissioning trusts, or
debt financing pools established from the sale of bonds.
Investing Institutional Cash and Asset Pools
Depending on the type of organization and the state where it operates, each institution may be subject to different regulations regarding fiduciary responsibilities. But even if the organization is not defined as a fiduciary, companies still have an ethical responsibility to manage assets prudently. Here are a few best practices to follow when considering whether and how to invest an IAP.
First, remember to keep your organization’s specific goals and needs in mind. Capital preservation in a highly conservative strategy may be the right choice, or it may be a good idea to explore opportunities for growth. What’s important is that leaders and committee members understand both the upside potential and the risks involved in investing an IAP, so that the organization can make informed decisions with appropriate short- and long-term perspective.
Second, consider how quickly your organization might need to deploy the capital. Will it need access to this money in the next month, in the next one to three years, or on a much longer time horizon? Understanding the organization’s cashflow needs and vulnerabilities will help determine which asset pools may be good candidates for investment.
Third, make sure to manage risk over time. Work to understand how the organization may be impacted by changes in IAP values before making any investment decisions. Many organizations seek to maintain certain internal capital or financial ratios. Others may be required to do so through bond indentures or covenants. Regardless, understanding how IAP investment decisions will impact the organization’s financial risk will help its leaders make better decisions.
And fourth, take time to document key investment decisions and the reasoning behind them. For organizations that do not have a formal investment policy statement, this is a good time to write one. And for those that do, remember to review it at least once a year. These checkups will help ensure that current policy still aligns with the organization’s needs and objectives. At times, an investment committee or financial advisor may be managing institutional assets that have liabilities attached. In this case, organizations should create models that explain the conditions under which it may be appropriate to take risk, and when it is best to remain conservative.
By following these practices, organizations that are independently managing their IAPs can deliver on their fiduciary responsibilities, whether legally mandated or not. However, for organizations that want assistance, managing institutional asset pools is an easy add-on to a trusted relationship with an existing financial advisor. Whichever path you choose, organizations that manage their IAPs well are better positioned to not only protect their assets but also potentially grow them over time.
To learn more about institutional asset pools, call CAPTRUST. We’re here to help.
As financial advisors to retirement plan sponsors across the country, we know the value of financial wellness for employees. CAPTRUST at Work is designed for employers who want to help their employees reach their financial wellness goals and maximize their employee benefits. Learn more by watching this video.
Nonprofits are increasingly opting for CIO outsourcing–in other words, looking beyond their organization for a chief investment officer to manage their portfolios. Here’s why it may be a good idea to consider these nonprofit investment advisors.
Transcript: An increasing number of endowments and foundations are now delegating their investment management to an outsourced chief investment officer, OCIO.
An OCIO can be especially helpful to nonprofits with limited staff, limited investment expertise, or highly specialized investment needs. But it’s important to know the benefits and considerations before deciding whether OCIO is the right choice for your organization.
An outsourced chief investment officer is a professional advisor or advisory firm hired by a nonprofit to manage its investment portfolio and make strategic investment decisions on the organization’s behalf. Typically, an OCIO provides day-to-day management of the organization’s investment program, allowing nonprofit leaders to focus on their mission. The OCIO has investment discretion and is directly accountable for performance. That’s why you might hear the OCIO relationship described as discretionary portfolio management.
Most nonprofits have a limited number of, or sometimes no, full-time staff who can focus on investments. So it can be hugely helpful to have a professional investment manager working on your behalf. As a co-fiduciary, the OCIO is bound to act in the best interest of organizations and their beneficiaries. The OCIO services often include portfolio analysis, management, and trading, investment policy statement development, research and selection of investment managers, regular performance reporting, and tactical or strategic asset allocation. For many nonprofits, handing these tasks over to a trusted partner is a welcome sigh of relief.
However, engaging in OCIO might not be the right move for every nonprofit organization. For instance, institutions with a strong, capable, and well-resourced internal investment team might not need one. And institutions that prefer to have direct control over their investment decisions will probably find an OCIO less appealing.
If you decide to engage in OCIO, due diligence is key. Research multiple firms, explore their fees, reporting schedules, track records, and stability. Institutions with highly specialized investment requirements will need an OCIO with robust industry expertise to meet their specific needs. You may also want to gauge how well the OCIO will integrate with your organization’s existing governance structure and communication channels. Ultimately, the decision to hire an OCIO should be based on careful evaluation of your organization’s needs, objectives, and resources. Making a well-informed decision can lead to more efficient and effective portfolio management that is better aligned with your institution’s short and long-term objectives.
To better understand whether an OCIO is right for your organization, call CAPTRUST. Our nationwide team of institutional advisors can help you decide the next steps forward.