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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.
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.
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’s duty 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.
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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.
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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.
To learn more, call CAPTRUST. We’re here to help.
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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.
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In personal finance, there’s a common misconception that diversification means having several accounts at different institutions or with multiple advisors, and so many people keep their assets spread out unnecessarily complicating their financial lives. In truth, diversification refers to the asset allocation of investments within your portfolio, not where you hold them. So, in general, it’s better to consolidate investments into fewer accounts with one advisor or investment manager. This is called asset consolidation.
Asset consolidation refers to the process of combining or merging various assets and accounts. The primary goal is to streamline and optimize the management of these assets, creating a more cohesive and efficient portfolio. Asset consolidation has four main benefits. First is improved planning instead of juggling too many accounts and investments, consolidation allows you to centralize control with everything in one place. It’s easier to see your full financial picture, which can help you make better financial decisions.
Asset consolidation also makes it easier to implement portfolio changes like buying and selling investments. And it simplifies record keeping because working with few institutions means fewer monthly statements and tax documents. Consolidating can also help reduce your total fees. In general, the more assets you hold with one provider, the more opportunities you may have to reduce or eliminate account fees, transaction costs, and administrative expenses.
Although the benefits of asset consolidation are compelling, the consolidation process can be intricate and time consuming. Transferring assets, updating legal documentation, and coordinating with various financial institutions require careful planning and execution. Before you make any moves, talk to a financial professional to discuss the best strategy. Asset consolidation will look different for each investor, and an advisor can help you determine the first or next steps.
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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.
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.
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As an endowment or foundation, an important aspect of fundraising is having a strategy around planned giving in addition to receiving regular donations of ordinary income.
Planned giving, also known as gift planning or legacy giving, is a donation to charity that requires a more strategic approach than simply writing a check. Unlike standard donations, planned giving can allow individuals to create a legacy, reduce taxes, and make significant gifts to the charities of their choosing.
Some forms of planned gifts even allow the donor to make a large gift to an organization and receive a monthly income too. Individuals will need to invest some time to determine the best way to make a donation that will be mutually beneficial to them and the charity. Because they are typically larger than the day-to-day donations that nonprofits receive, planned gifts can be life-changing for your charity and your mission.
Beneifts of Planned Gifts:
If an individual approaches your organization about a planned giving strategy, there are several ways they can think about giving. A really simple way is by changing the beneficiary designations on an IRA to a charity. Another easy way is through qualified charitable distributions or QCDs. For donors over 70-and-a-half who would like to make a charitable contribution a QCD can offer a simple way to give while taking a tax advantaged approach. A QCD also satisfies a donor’s annual required minimum distribution from their IRA, reduces income taxes, and reduces future RMDs. Donors can make a qualified charitable distribution of up to $108,000 per calendar year, or $216,000 for married couples. But it’s important to note, QCDs can only be made from IRA assets.
Another planned giving strategy involves a donor giving a non-profit a gift of a long term appreciated property. The non-profit benefits from the gift and the donor typically won’t pay capital gains when the asset is sold by the non-profit. The donor, in turn, can deduct the fair market value of the gifted asset. Donors may lower estate taxes by giving money, assets, or property at their death to charity. Donations given through a will, beneficiary designations, charitable remainder trusts, or remainder interest deed will not be included in the donor’s estate for estate tax purposes. Donors can even lower their heirs’ income taxes by gifting tax-heavy assets, such as traditional retirement accounts, to charity.
If a donor wishes to make a gift and lower their income taxes, they might consider using a popular vehicle called a donor advised fund or DAF. With a DAF, a donor contributes to a private fund and then can distribute the funds to their chosen non-profits over several years while maximizing the charitable tax benefit in a single year. DAF assets can also be invested and continue to grow tax-free until they’re ultimately gifted to charity. There are other strategies to consider here too, so make sure you talk to professional advisors about what’s best for your donors.
If a donor wants to make a gift but is concerned about needing income, they might be a good fit for either a charitable gift annuity or a charitable remainder trust. Both allow the donor to make a sizable gift to the charity and receive an income tax deduction. The charity then pays an income stream to the donor, their spouse, or even other beneficiaries. At the end of the term, the charity gets to keep the balance of the gift. Another planned giving strategy is through a charitable lead trust or CLT. A CLT does the opposite and pays an income stream to the charity, or charities, of the donor’s choice for a certain term, and the remaining amount pays out to the donor’s beneficiaries. However, the donor still gets an income tax deduction upfront for the gift to the charity.
As always, donors should speak to their tax, legal, and financial advisors before making any type of planned giving commitment. Planned gifts are an important component of a long-term fundraising strategy and can have a major positive impact on your endowment or foundation. Ready to engage your donors? Then call CAPTRUST. We’re here to help.
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Your retirement can be 20 to 30 years or longer. Do you know how you’ll make your money last throughout those years?
During your working years, you’ve had the goal to grow your assets in preparation for retirement. As you get closer to retirement, it’s important to start thinking about how you want to spend that money or said in another way, the withdrawal strategies that best align with your personal goals. One approach is called the bucket strategy.
It involves allocating your retirement savings into three buckets:
The difference between the three buckets is the time horizon for when you’ll need to access the money and therefore, the level of risk you are able to take with those funds. The shorter your time horizon, the less room you have for error with riskier investments because you need that money to be available to you sooner rather than later. The longer your time horizon, the more risk you can take.
The idea with a three-bucket strategy is to secure one to two years of cash or liquidity needs in a more conservative, low-risk capital preservation bucket, one that is likely to maintain its value in the short term. You would then place the next three to five years of living expenses in your income bucket, which is a portfolio with moderate risk. The remainder of your portfolio would be allocated to a longer term, higher risk growth bucket designed to maximize market returns.
To leverage the three bucket strategy, you must first calculate your annual retirement spending. Look at your spending history. How much do you need to cover your essential expenses like food, shelter, healthcare, utilities, transportation, and taxes. Next, identify your discretionary expenses, including hobbies, travel, entertainment, memberships, gifts, and any charitable giving. It’s important to have a realistic picture of how much you’re spending each year. If you don’t already have a budget that you stick to, start by tracking your expenses for a few months.
Next, identify your sources of income in retirement. Some are considered lifetime income. Those you can expect to pay you as long as you live, such as:
The next type is variable income sources or sources that have a finite amount of money in them and could run out if not managed well. These include:
The last categories, any other assets that could serve as additional income sources like rental property income or receiving an inheritance. Once you have a full picture of your retirement income and
expenses, you can then allocate your retirement savings to each of the three buckets. Matching your different types of retirement income to your expenses can be helpful. Lifetime income sources like social security and pensions are often best matched with your essential expenses.
Knowing you can reliably provide food, housing, and medical expenses can ease your anxiety. But if your lifetime income sources are inadequate to cover your essential needs, you’ll have to determine how much you need to draw from your retirement plans, IRAs, or other savings that you may have. If you’d like to get started on the bucket strategy, but need guidance, then call CAPTRUST. We are here to help.
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As defined contribution plans continue to evolve. An increasing number of plan sponsors are now turning to 3(38) investment managers for help with their retirement plans. But before you can decide whether this type of relationship might be right for your organization, it’s important to know what it entails.
To better understand the role of a 3(38) investment manager. Consider what it’s like to move to a new home. When you move, you have three options:
If you choose to do everything yourself, you’ll be fully responsible for the entire process and the outcome. If you ask friends and family for help, that can handle some of the work and can offer useful suggestions on how to pack and move things, but ultimately, the decision-making and responsibility are still yours.
This is similar to hiring a 3(21) investment advisor, but if you choose to hire a moving company, that company assumes full responsibility for moving everything efficiently and for the care and safe transport of your items. Unloading this burden onto professionals gives you time and energy to focus on all the other elements of your move. This is what it’s like to hire a 3(38) investment manager.
A 3(38) investment manager is an advisor, asset manager, or trustee appointed by a retirement plan sponsor to assume responsibility for the investments in its retirement plan. The 3(38) manager can assume responsibility for managing a single fund, or can be responsible for selecting and monitoring all of the investments in the plan menu for single fund 3(38) services. Investment managers will typically handle underlying investment selection, asset allocation, rebalancing, and trade execution.
On the other hand, 3(38) services covering the entire plan menu usually include in-depth investment manager research fund selection, ongoing investment monitoring, fund change management with record keeping partners, and signing paperwork for all investment changes within the plan. This is different than a 3(21) investment advisor because 3(38) managers have the discretionary authority to make the investment changes on their own. They can pack and move all the boxes as they see fit, and they have the expertise necessary to do this effectively and efficiently.
A 3(21) advisor can only give guidance and make recommendations when serving in a 3(38) capacity. The investment manager absorbs the investment fiduciary risk from the plan sponsor for the selection and monitoring of the funds in the menu. Given the increased frequency of litigation in the retirement plan industry, this can be a meaningful delegation of risk for many organizations. Importantly, though, hiring a 3(38) does not absolve plan sponsors of all fiduciary responsibility.
Sponsors still have a fiduciary duty to monitor the firm hired as the 3(38) investment manager to ensure the manager is enacting a thorough and appropriate process. Another potential advantage is saved time for the retirement plan committee. By delegating investment monitoring and decision-making committee members can spend less time making investment decisions and more time focused on other initiatives to improve their plan.
But the decision to engage a 3(38) investment manager may not align with the needs of every sponsor. For instance, sponsors with a robust internal investment team might not require these services, and sponsors that like to have direct control over their investment decisions might find the 3(38) approach less appealing.
For sponsors that do decide to hire a 3(38) manager, due diligence is critical. Research multiple firms and evaluate their fee structures investment, selection, process, and experience serving in a 3(38) capacity.
Think you might need help moving the boxes for your retirement plan? Call CAPTRUST. Our team of institutional advisors can help you determine the best solution for your plan.