Section 3(38) of ERISA permits plan sponsors to outsource discretionary authority over investment selection and monitoring to a Registered Investment Adviser.  Hiring a 3(38) adviser has a distinct advantage: it limits the fiduciary liability for plan sponsors.  For large plans that want sophisticated portfolio modeling, yet don’t have the internal financial expertise, this option shifts the investment management burden to an expert in this area.  For small and medium sized plans with little or no staff to dedicate to investment decision making, a 3(38) adviser might not be an option, but rather a necessity to limit corporate liability.  In managing the fiduciary process, an ERISA 3(38) fiduciary minimizes liability because, unlike a 3(21) investment adviser consultant, the 3(38) fiduciary has discretionary authority over the plan, which means it assumes the bulk of the liability. This liability includes all investment selection and monitoring, with the sponsor still liable for the prudent selection and monitoring of the ERISA 3(38) fiduciary.

With over 10 years of institutional and individual portfolio management experience, eBIS stands ready to fulfill a 3(38) role for defined contribution plans.  eBIS acknowledges this fiduciary status in writing. We construct an Investment Policy Statement (IPS), tailored to the needs of your participants, and review the IPS semi-annually for ongoing suitability.  As the lead fiduciary on a plan, we document all discussions and decisions, traceable back to a document storage solution.

At the heart of a 3(38) adviser's responsibilities is portfolio construction for the benefit of all plan participants.  The Uniform Prudent Investor Act allows fiduciaries to utilize modern portfolio theory to guide investment decisions and requires risk versus return analysis. So a fiduciary’s performance is measured on the performance of the entire portfolio, rather than just individual investments.  At eBIS, we believe this development is extremely important and informs our portfolio decision making: available investment options should complement each other, creating a properly diversified portfolio when allocated prudently.  Make no mistake, a well-structured investment portfolio is no easy task: as of 2016, there are over 11,000 ETFs and mutual funds in the marketplace, with new fund registrations daily.  We use a disciplined investment philosophy to filter these options into a universe that is right for your user base.  We pick investments based on a four-pronged approach: risk-adjusted returns, correlation, mean variance optimization, and “all in” costs, considering management fees, trading costs, 12b-1 fees, sub-transfer agent fees, etc.

We feel this approach is the only way to manage downside risk, or the risk of large losses, which can decimate retirement savings.  For instance, some plans have a multitude of equity funds and claim to be diversified.  However, if most of the equity investments’ returns are highly correlated, plan participants do not have the needed downside protection of true diversification.  Moreover, recent history shows that equity correlations are increasing. With the advent of other asset classes that have shown low correlation to traditional equity and debt, prudent advisors can structure portfolios to reduce risk for plan participants.  eBIS focuses on this approach, with the knowledge that preserving and growing retirement savings steadily through time is the best recipe for financial security.

Moreover, plan participants are asking for this approach.  According to a Charles Schwab quarterly Retirement Pulse Survey, about one-third of investors surveyed (35%) consider protecting retirement assets more important than increasing those assets.  Just 8% of respondents consider increasing assets more important.  At eBIS, we have the tools and experience to deliver prudent investment risk management while assuming full 3(38) fiduciary liability.

Make no mistake, fiduciary responsibility is of utmost importance, not only in this uncertain investment landscape, but also given recent regulatory developments.  The U.S. Department of Labor (DOL) has made clear that all investment advice-givers must now act as fiduciairies to retirement plan participants.  Acting in the best interests of clients, free of conflicts of interest, has always been a hallmark of our firm, and we support and welcome the DOL fiduciary mandate.  As a consulting firm without financial ties to any investment products, we avoid the conflicts of interest embedded with many conglomerates that have incentives to recommend their own or affiliated investments.  eBIS has no proprietary products or fee sharing arrangements; our only incentive is to provide prudent investment advice, based on best practices and empirical research, which puts our clients’ interests above any other consideration.

So, nothing has changed for us with the DOL fiduciary ruling.  We pledge to serve you with integrity, with your best interests squarely in focus, as we always have.  

Section 3(21) of ERISA permits plan sponsors to seek counsel on fiduciary management of their investment portfolio lineup and associated administration.  eBIS can fill a 3(21) consulting role, advising plan decision makers on best practices for investment lineup construction, as well as the multitude of other issues that face plan sponsors.  Should the plan include auto-enrollment, and if so, what is an appropriate safe harbor QDIA?  Should the plan include asset allocation funds, target date funds, annuity options or managed accounts?  What asset classes should be represented in the plan?  What’s the best way to improve employee participation?  How can the plan increase contributions to highly compensated employees?  What is an appropriate fee structure, based on benchmarking, for each service provider to the plan? eBIS can provide critical best practice insight in answering these questions.

At the core of our 3(21) consulting offering is advice on plan portfolio construction.  In structuring the investment choices, we believe a written Investment Policy Statement (IPS) is the best way to demonstrate a thoughtful process and document prudent investment decisions. We help clients develop their overall investment policy approach, create their (IPS) (which outlines the investment selection and monitoring process), and provide unbiased advice on the most appropriate options for their plan.  As a consulting firm without financial ties to any investment products, we avoid the conflicts of interest embedded with many financial conglomerates that have incentives to recommend their own or affiliated investments.  eBIS has no proprietary products or fee sharing arrangements; our only incentive is to provide prudent investment advice, based on best practices and empirical research, which puts our clients’ interests above any other consideration.

Once an IPS is in place, we provide full investment reviews and score each investment option to monitor adherence to the IPS. We monitor risk-adjusted performance of investment options against benchmarks and closely follow fluctuations in investment fees, documenting the process to ensure sound fiduciary practices.  Whenever events occur, such as a change in fund investment philosophy or an increase in fund fees, we document the effects of these events and recommend a course of action.  Throughout our consulting engagements, we keep plan sponsors and Fiduciary Committee members apprised through regular communication and thorough documentation.

Whether your plan needs advice on investment portfolio construction or a host of other fiduciary obligations, eBIS can provide sage counsel.  Our mantra is to care, put our clients’ interests first, and play whatever role is necessary for your success.

In December of 2011, the Department of Labor finalized rules under the 2006 Pension Protection Act (PPA) §2550.408g-1, allowing service providers to offer direct investment advice to plan participants.   The rules allow plan sponsors to hire advisers to provide investment advice, as long as they meet the obligations of the regulations and are audited annually. Previously, plan sponsors could only offer general, investment education.

We at eBIS believe this development represents a golden opportunity for plan sponsors to substantially differentiate their plan offerings from competing employers, while relieving participants of the investment decision making burden and improving their chances for investment success.  In fact, far too few employers are seizing this opportunity: in a recent study, only 16% of employers provide investment advice through a third-party adviser, despite evidence that it does increase a participant's rate of return.  Evidence in point: two recent surveys, one over a 10 year period and another looking at average 3-year annualized returns, found that those participants who received professional investment advice earned 1.9% and 2.67% more per year on their investments, respectively[1]. 

Direct investment advice can aid participants in building better retirement portfolios, and eBIS stands well-positioned to provide this service.  With a deep history of building sophisticated risk-managed institutional portfolios, as well as individual portfolios for wealth maximization, we can tailor personal investment strategies to each of your participants.  We believe that retirement assets should be viewed in the context of an investor’s overall investment portfolio, so we start by assembling an asset inventory, analyzing the appropriate location of assets for tax efficiency.  Then, we administer a proprietary risk tolerance and investment goals survey.  With these building blocks, we can deliver targeted financial plans to your participants and recommend retirement asset allocations that deliver the maximum potential return for the level of risk commensurate with the participant’s needs and preferences.

In addition, eBIS partners with top record-keepers to provide interactive financial planning tools, a valuable supplement to our direct advice, available on-demand through a web interface to plan participants.

[1] Greenspring survey of 15,000 participants and Francis Investment Counsel survey of 7,500 participants

The most overlooked aspect of defined contribution retirement plan investing is participant education.  No matter how diversified or well-structured a portfolio of investments may be, most employees must navigate the investment offerings themselves and decide on a suitable asset allocation.  With modern portfolio studies suggesting that over 90% of investment return is attributable to asset allocation, this situation leaves the most important financial decision in the hands of those least prepared to make it.  

At eBIS, we believe this circumstance can be remedied.  We firmly believe in the importance of training and education for plan participants, and recommend this service in any proposal that we tender.  To deliver training, we subscribe to the Khan Academy paradigm: online or in-person lecture, followed by one-on-one tutoring.  We leverage technology, through on-demand video and webinars, to educate participants on the investments offered through their plan, including managed accounts as a single allocation vehicle, and how to allocate assets depending on life circumstances.  Then, we make ourselves available for direct questions and tutoring on-site at your facility or through online chats.  We firmly believe this approach leads to increased participant interest, concept retention, and improved investment results.

Further, many defined contribution plans suffer from participant apathy, with employees loathe to invest in increasingly volatile markets.  Savings rates and employee participation in many plans may be decreasing, which is a leading cause for financial inadequacy at retirement.  We believe plan promotion and training are the primary vehicles to improve participant utilization and, as a result, retirement security.

Meeting the requirements of fiduciary responsibility requires diligence and structure.  eBIS has a long history of program management and can deliver the framework for effective evaluation, execution, and oversight of plan sponsor fiduciary obligations.  This framework begins with an appropriately structured and staffed Fiduciary Committee.  eBIS can design and document a charter outlining the objectives and responsibilities of the Committee and then help the plan sponsor choose and formally appoint Committee members.   We are strong believers in best practices and marry them to the latest ERISA and Department of Labor (DOL) regulations for fiduciary compliance, e.g., Section 404(c).  eBIS trains each Committee member on these regulations, which inform all Committee decisions, with the objective of limiting organizational and personal liability.  Finally, we organize, lead and document regular meetings with the Committee, addressing any fiduciary issues as they emerge, including new or amended regulations.  eBIS, in a program management capacity, can prepare all meeting agendas, minutes, and follow-up deliverables, all of which can be stored in a central, collaborative fiduciary documentation solution.

Should your plan already have a Committee in place, eBIS can apply the principles outlined above to restructure and improve your existing process.

The regulatory environment governing defined contribution plans is one of increasing complexity.  Since ERISA was enacted in 1974, subsequent legislation and government agency rulings have added layers of additional compliance requirements.  Recently, the Pension Protection Act of 2006 introduced statutory authority for auto-enrollment of participants, increased performance disclosure requirements, and established safe harbor investments, known as Qualified Default Investment Alternatives (QDIA), for auto-enrolled employees.  In 2012, the Department of Labor (DOL) issued rulings under §408(b)2 and §404(a)5 governing plan fee disclosure from service providers and to plan participants, introducing significant new requirements for plan administration.  In 2016, the DOL acted once again, requiring that all retirement plan advisers act in a fidcuiary capacity.  What will tomorrow bring?  If the past is any indication, regulatory oversight will only increase through time.

We believe every plan sponsor should partner with a trusted advisor to navigate the regulatory landscape.  From its inception, eBIS has provided industry-leading advisory consulting on regulatory adherence.  We’ve advised large financial institutions on the Basel regulatory rulings governing portfolio risk management.  We’ve advised asset managers on Dodd-Frank portfolio disclosure requirements.  We’ve counseled wealth managers on FINRA and SEC registration parameters.  We can partner with you to structure, manage, and lead your initiative on its path to ERISA and DOL compliance.

Make no mistake: compliance is important.  Non-compliance penalties for the company and company executives can be steep, if recent lawsuits are any indication. Small plans have been fined hundreds of thousands of dollars and large plans have been fined as much as $50 million because of improper plan expenses and/or the companies didn’t prudently select and monitor their plan service providers.

To ensure adherence, we employ our proprietary Solution Delivery Lifecycle (SDLC) methodology to deliver a compliance solution, beginning with initiating a project team and clearly defining the adherence requirements, then progressing through the lifecycle steps until the solution is in place and supported by your internal administration team.  Regulations are onerous, but implementation doesn’t have to be if you choose a good partner.  eBIS stands ready to be your trusted fiduciary counsel and guide through regulatory change.

ERISA fiduciaries have an obligation to ensure that all plan fees and expenses are reasonable in light of the level and quality of services being provided.  We help client Fiduciary Committees benchmark and understand all plan fees and recommend specific steps that can be taken to reduce those fees, if applicable.  eBIS can also assist the Committee in negotiating more effective fee arrangements and cost structures.

Benchmarking does not end with fees.  Plan sponsors should be aware of how all aspects of their plan compare to other peers with similar plan size, to other plans in their industry, and across all national plans.  eBIS partners with industry leading benchmarking providers to inform plan sponsors of metrics that can illuminate their strengths and weaknesses.   In a consultative capacity, we break down these metrics and provide an action plan to address plan shortfalls.  Example benchmark categories include the following:

1. Company Generosity
2. Investment Menu Quality
3. Employee Participation Rate
4. Salary Deferrals
5. Account Balances

Selecting and monitoring service providers is a serious fiduciary obligation.   As a result of benchmarking, sponsors may come to the conclusion that some or all of their current providers are not an appropriate fit.   eBIS can provide a vendor analysis and comparison, recommending a short list of service providers that can meet the needs of the plan and pass fiduciary scrutiny.  We can then manage the detailed vendor due diligence process, helping our clients through an analysis of the short-list vendor alternatives, including a request for proposal (RFP) process.  Once a vendor is chosen, we can construct and manage a project team to execute the conversion process.

Creating and maintaining documentation relating to fiduciary decision making is a critical, and often overlooked, cog in the wheel of fiduciary compliance.  Regulations require plan sponsors  to justify their decisions as fiduciaries.  Failure to do so could result in regulatory fines and/or litigation actions by plan participants, introducing institutional and even personal liability.  Quite simply, justification cannot be left to memory.   

Often decisions are made gradually, the culmination of many workshops, presentations, and discussions.  To substantiate the validity of the fiduciary process, plan sponsors must produce a data trail documenting the means that lead to an end.  These documents might include:

1. Fiduciary Committee meeting minutes
2. Presentations
3. Workshop videos
4. Webinars
5. Investment Policy Statement (IPS) and revision history
6. Investment vehicle review and change documentation
7. Provider search, review and selection criteria

To assist you in your fiduciary role, eBIS uses collaborative, cloud-based technologies to create, edit, share, and discuss documentation affecting your fiduciary process.  This central and secure data store provides easy access to all fiduciary decision-making documentation needed in case of an ERISA audit, or any other oversight or participant-driven inquiry.  This solution has the flexibility to securely add users as service providers increase in number (TPAs, auditors, attorneys, consultants, etc.), and enables remote collaboration with responsible parties.