Fiduciary Essentials for Defined Benefit Plans

Introduction and Part 1: The History of Pensions
25 Topics
Learning Objectives
History of Pensions
According to the U.S. Census Bureau
Case Example – Lee Gets Covered By A Pension Plan At Work
Case Example – Lee Gets Covered By A Pension Plan At Work, continued
Case Example – Lee Gets Covered By A Pension Plan At Work, continued
Case Example – Lee Gets Covered By A Pension Plan At Work, continued
Case Example – Lee Gets Covered By A Pension Plan At Work, continued
Case Example – Lee Gets Covered By A Pension Plan At Work, continued
Section 802.106 Information provided to a member
Fiduciary Matters – Broadly Speaking
FI–DU–CI–AR-Y
Who is a fiduciary?
The Core Fiduciary Duties
ERISA Exclusive Benefit Rule
Universe of Plan Fiduciaries
The Investment Steward
The Investment Advisor
The Investment Manager
Attaining Fiduciary Status
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Part 2: Benefits Administration
28 Topics
Session Learning Objectives
Legal duty of the Board
Duties and Responsibilities of Staff
Principles of Retirement Plan Design
Principles of Retirement Plan Design, continued
Qualified Plans
Common Qualified Plan Requirements
Defined Contribution Plans
Defined Benefit Plans
Who contributes to the plan
Assets in Trust
Custody and Use of Funds
Funding Policy
Funding Guidelines
Benefits
Retirement Eligibility
Vesting
Final Average Salary
Benefit Formula
Cost of Living Adjustments
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Part 3: Governance
45 Topics
Best Practice Recommendation – Campaign Contributions
Best Practice Recommendation – Example and Enforcement Remedies (CALSTRS)
Additional Resources
Define By-laws or Operating Procedures
Roles and Responsibilities
Plan Documents
Role of Governing Documents
Role and Responsibilities of Financial Intermediaries
Applicable Ethics Laws
Ethics Policies
Model Policy
Sample Code of Ethics
Sample Standards of Conduct
Fiduciary Duties
Fiduciary Duties
Conflicts-of-Interest
Conflicts-of-Interest
Conflicts-of-Interest
Conflicts-of-Interest
Prohibited Transactions and Interests
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Part 4: The Investment Policy
22 Topics
Learning Objectives
Texas IPS Requirement
Investment of Surplus
Investment Policy
The Investment Policy Statement
Benefits of an IPS
Texas Pension Review Board Guidance
IPS Outline
Executive Summary
Statement of Objectives
Duties and Responsibilities
Investment Policy Test
Investment Policy Philosophy
Time Horizon, Risk, and Return Parameters
Risk Stress Test
“Large Loss” Scenario
Examples of Investment Assets
Typical Policy Portfolio
Rebalancing
Due Diligence
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Part 5: All About Investments
36 Topics
Learning Objectives
Asset Classes
Asset Classes
Investment Objectives and Strategies
Defining the Investment Profile
Cash Flow
Defined Benefit Plans
Return Factors in DB Plans
Formulating an Asset Allocation Strategy
An Approach to Adding Asset Classes
Passive and Active Investment Strategies
Goal of Diversification
Asset Allocation Lessons Learned
Proxy Voting/Good Corporate Governance
Due Diligence Philosophy
Due Diligence
Choosing Investment Managers: Suggested Minimum Criteria
Investment Expenses
Investment Manager Compensation
Who is Being Paid?
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Part 6: Risk Management
37 Topics
Learning Objectives
Risk Management
Risk Is Defined Within A Context, For Example:
Internal Control
Why Is An Internal Controls Framework Important?
Benefits of Internal Controls
Whose Job Is It? Everyone Plays a Role!
Weak Internal Controls Increase Risk
Internal Control Starts At The Top
Risk Assessment
Risk Assessment Concepts & Tools
Risk Assessment using Policies And Procedures
Control for Risk: Separation of Duties
Control for Risk: Reconciliation and Review
Control for Risk: Security of Assets
Control for Risk: Contracting
Risk Assessment: Document Communication
Control for Risk: Monitoring
Level of Investment Risk
Systematic & Non-Systematic Risk
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Part 7: More on Fiduciary Matters
22 Topics
Global Fiduciary Precepts
Precept 1
The Texas Constitution
Texas Government Code
Texas Government Code
An Offense
Other Relevant Texas Laws
Fiduciary Requirements U.S. IRS Code
Potential Liability
Precept 2
Precept 3
Precept 4
Precept 5
Precept 6
Precept 7
Precept 8
The Fiduciary Quality Management System (FQMS)
Step 1 – Organize
Step 2 – Formalize
Step 3 – Implement
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Part 8: More on Actuarial Matters
19 Topics
Learning Objectives
The Present Value (“PV”) concept illustrated
An Actuary considers time and probabilities…
Independent Actuarial Review Considerations
Reasonableness of Actuarial Cost Method
Reasonableness of Asset Valuation Method
Actuarial Valuation Report Compliance
An Actuary Considers Cash Flows
Other Actuarial Issues
State Law Requirements – Texas
Funding Policy
Elements of Funding Policy
Consider Advance Funding
From the Texas Pension Review Board (PRB)
Funded Ratio
When to increase Benefits?
Best Practice Recommendation
Texas PRB Key Metrics
Three Key Levers
Part 9: Challenges We Will Face
14 Topics
The Past is Prologue
The Importance of Making Contributions
Public Pension Sources of Revenue
Average Asset Allocations as of June 2019
Sponsor-Reported Funding Interest Rate
Public Pension Mortality
Pension Funding Policies Going Forward
The Certainty of Uncertainty
The Challenge of Pension Soundness
Fiduciary Obligations
Fiduciary Excellence
Process, Not Performance
Fiduciary Armor
Prudent Process Benefits
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Role and Responsibilities of Financial Intermediaries

Fiduciary Essentials for Defined Benefit Plans Part 3: Governance Role and Responsibilities of Financial Intermediaries

Traditional Broker:

  • Agent
  • Salesperson
  • Intermediary
  • Buyer be aware
  • Fair dealing
  • Rules-based

Consultant:

  • Fiduciary
  • Professional
  • Same side of table
  • Trust assumed (verify)
  • Best interest
  • Principles-based
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