Download - Craig Daniels - pionline.com
MODERATOR:Susan McDermott, Chief Investment Officer, Institutional Advisory, Pavilion Advisory Group
PANELISTS:• Craig Daniels, Manager of Retirement Investments, Treasury, Delphi Corporation• Kevin Thomas, Director, Retirement Benefit Services, FIS Global• Kevin Knowles, Product Manager Defined Contribution, Russell Investments• Christine Loughlin, Partner, Defined Contribution Practice Leader, NEPC, LLC
Outsourcing: To Delegate or Not?
Delphi Corporation Plan Overview• Provider of Active Safety, Electronics and Powertrain products• HQ in UK, with regional offices in Troy MI, Luxembourg,
Shanghai, Sao Paolo• $15B in revenue, 127K employees• $2B in 401(k) plan, 15K participants• Complete plan redesign and re-enrollment in April 2012• Custom target date funds, multi-manager portfolios, brokerage
Delphi Corporation – Hybrid 3.38/3.21 Model
• Key redesign decision: investment consultant and fiduciary role• Consultant has 3.38 responsibility (discretion) for custom TDFs
and 3.21 responsibility (advisor) for core portfolios• View that glide path design/management not part of investment
committee’s usual scope• Valued additional fiduciary coverage in 3.38 designation• Consultant and committee work closely on investment decisions
Delphi Corporation – Governance & Actions
• Investment Committee meetings: 4-7/year• Development of Investment Policy Statement• Consultant recommendations to adjust glide path• Consultant-led manager watch list and monitoring• Joint decisions to adjust allocation of multi-manager portfolios• Joint decisions to replace individual fund managers• Sponsor-led initiatives to change share classes and reduce fees
FIS 401k Plan Overview
• FIS™ is the world’s largest global provider dedicated to banking and payments technologies.
• HQ in Jacksonville, FL with offices in 49 countries• $9B in revenue, 55K employees worldwide• $2.6B in 401(k) plan, 20K participants• Change in record keeper in December 2014• Auto enrollment & default to target date funds in Dec. 2014• 20 mutual funds plus target date funds
FIS Retirement Plans
• 401(k) Plan• 401(k) Plan for subsidiary• NQ Deferred Compensation Plan• NQ Split-Dollar Plan• NQ Employee Stock Purchase Plan
FIS – Investment Consulting
• Investment Committee meetings: Quarterly• Development of Investment Policy Statement• Consultant is 321 – Non-discretionary• Consultant recommendations to replace fund managers• Consultant-led manager watch list and monitoring• Joint decisions to adjust allocation of multi-manager portfolios• Joint decisions to replace fund managers• Sponsor-led initiatives to change share classes and reduce fees
FIS – Fiduciary Consulting
• Investment Committee meetings: Quarterly• Develop Governance Charter & Fiduciary Practice Statement• Fiduciary Onboarding and Education• Service Provider Review and Plan Expense Analysis• Annual Compliance Review• Annual Governance Review & Oversight• Participant Communications & Education Review
13
Why is DC outsourcing an emerging trend?
HIGHER BAR
BIGGER STICK
GREATER COMPLEXITY
?? ?
A manageable menu can help your participants make better decisions
14
U.S. large cap equity
U.S. SMID cap equity
Stable value or money market
Core fixed income
All country intl. equity
Real assets
Simplified menu
LCG
MCG
SCG
Stable value or money market
Corporate bonds
Non-U.S. equity
Real estate
Emerging markets
Infrastructure
Commodities
LCC LCV
MCC
SCC
MCV
SCV
Treasuries
TIPS
15
A review of fiduciary duties and resources is critical
DC PLAN FIDUCIARIES
MAJOR DUTIESSETTLOR DUTIES
STAFF ROLE
STRATEGIC INVESTMENT ADVISOR
“3(21) Advisor”
INVESTMENT MANAGER
“3(38) Fiduciary”
INDEPENDENT PLAN ADMINISTRATOR
“3(16) Independent Fiduciary”
STRATEGYIncome replacement targetParticipation/Auto-featuresQDIA objectivesRe-enrollmentMenu optionsRetirement income options
IMPLEMENTATIONManager selection and due diligenceInvestment guidelinesFee negotiationFund vehicle selectionCustom target date fund/ white-label fund assembly
ADMINISTRATIONRecord keeper and trust/custody selection and reviewsDisclosure and reporting regulationsFee structure and reviewTimely deposit of contributionsDisputes/withdrawals
Establish/terminate plan
VestingCompany match
Is it time for a more efficient fiduciary model?Gain simplicity and accountability
TRADITIONAL DC PLAN MODEL:
Multiple relationships, multiple feesPlan sponsor responsible for all
DC FIDUCIARY OUTSOURCING MODEL:
Single relationship with clearaccountability & direction
STRATEGICADVICE
INVESTMENT MANAGEMENT
VENDOR MANAGEMENT
PARTICIPANT COMMUNICATIONS
DC fiduciary outsourcing team
DC sponsorDC sponsor
INVESTMENTMANAGERS RECORDKEEPER PARTICIPANT
COMMUNICATIONSSTRATEGIC
ADVICE
CONSULTANT
16
Maintain control of what is important to you……delegate the rest
17
Maintains control of strategic decisions relating to your unique employee population(which could include asset classes, active/passive styles, QDIA choice)
Delegate investment manager selection, monitoring, and replacement and recordkeepermanagement/oversight
Plan sponsor Outsourcing provider›
18
3(38) investment management fiduciary
Monitoring of the 3(38)
QDIA selection
Implementation
Monitoring of managers
Hire, fire, replacement decisions
Performance monitoring
Management of investment policy statement
Plan sponsor3(38) oversight decisions
3(38) fiduciary
Investment Management
Decisions
What fiduciary responsibilities
do I retain?
Investment manager selection
Core asset class menu selection
QDIA and Core menu advice
Prudent selection of the 3(38)
PLAN SPONSOR ››
› Re-enrollment got 92% of participants into the plan’s QDIA› QDIA updated from one moderate allocation balanced fund to a series of
open architecture target-date funds› Number of fund options reduced from 21 to 7 › Implemented with third party investment managers (no proprietary funds)› Replaced mutual funds with collective investment trusts› Put in place a self directed brokerage window for the board designated
Non-qualified & supplemental employee retirement plans› Added auto-enrollment feature, adding auto-escalation feature in 2016› Eliminated revenue sharing
For illustrative purposes only; results may be atypical of other plan sponsor outcomes.
Case Study: Results
Case Study: Streamlined plan sponsorsPrevious options (21)
Current options (7)
Balanced Fund
Target Date Funds
Large Cap Value (1) Large Cap Value (2) Large Cap Value (3) S&P 500 IndexUS Large Cap Equity Index FundT Rowe Price Value
Small Cap Value Mid-Cap Value Small Cap Growth Small-Mid Cap Growth US Small Cap Equity Fund
International International Growth International Value US Small Cap Value International Equity Fund (including Emerging Market Equity)
Capital Preservation
Stable Value Fund
Core Bond (1) Core Bond (2)
Fixed Income Fund
Inflation Protected
Real Assets Fund
p.20
Large Cap Growth (1)
Emerging Markets
Large Cap Growth (2)
Short Duration
Large Cap Equity & Income
Important informationPlease remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Diversification does not assure a profit and does not protect against loss in declining markets.
Copyright© Russell Investments 2016. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty.
Russell Investments is a trade name and registered trademark of Frank Russell Company, a Washington USA corporation, which operates through subsidiaries worldwide and is part of London Stock Exchange Group.
The Russell logo is a trademark and service mark of Russell Investments.
Date of first use: February 2016 USI-23742-02-17
21
THIS CONFERENCE MATERIAL WAS CREATED BY RUSSELL AS AN EDUCATIONAL TOOL, AND IS NOT FOR FURTHER DISTRIBUTION.
Outsourced CIO: Defined Contribution Plans
• Nascent, very early days
• May ultimately differ substantially from traditional outsourced CIO− Less total return focused− More process and compliance oriented
Outsourced CIO: Defined Contribution Plans
• The operational complexity of defined contribution plans has grown
› Pros− Addresses a need− Enables better solutions to be
implemented in DC plans
› Cons− Costs more than traditional consulting,
e.g., higher fees− Can never abdicate fiduciary responsibility o Need documented selection processo Need documented review process
− “Hardest” decisions are often policy-related
Outsourced CIO: Defined Contribution Plans