PSNC 2010 Benchmarking Fee Data Still a Challenge

August 3, 2010 (PLANSPONSOR.com) – While benchmarking your plan fees may be considered a basic part of carrying out your fiduciary responsibilities, it can be a bit easier said than done because of a shortage of strong plan fee databases.

That was one conclusion of a fee disclosure panel discussion at the recent PLANSPONSOR National Conference held in Chicago.
Panel members told attendees that comparing plan fees to their peers' plans can be helpful in determining whether such expenses are “reasonable” under the Employee Retirement Income Security Act (ERISA), but that the process depends on having a reliable database to use in the comparison.
Jennifer Flodin, Chief Operating Officer and Co-Founder Plan Sponsor Advisors, said the continuing issue of whether plan sponsors understand the nuances of plan fees means some will give bad answers to polls used to build the benchmarking databases.
“Eventually there will be better sources of information, but right now it’s a bit mystical,” agreed fellow panelist Stace A. Hilbrant, Managing Director 401k Advisors, LLC.
Stephanie Napier, Vice President & Senior Trust Counsel, Marshall & IIsley Trust Company, said the Form 5500 was originally intended to provide benchmarking data but that the business has gotten so complex that the form hasn’t lived up to its potential.
When it comes to revenue sharing, Hilbrant said for a sponsor or adviser to ask about the fees was considered extremely unusual at one point. “The business is coming full circle: what used to be a crazy question (about revenue sharing) is now part of the new (fee disclosure) legislation,” he said.
Panel moderator James E. Graham, partner, CapTrust Advisors, said particularly disclosing revenue sharing information could generate more than its share of problems. “I shudder to think about giving revenue sharing information to participants,” Graham said. “It’s like giving car keys and whiskey to teenage boys. It’s just not a good thing.”
Graham added: “They’re going to get all this information they don’t want and they don’t understand and they are going to make even worse decisions than they are now."
A sponsor who runs into problems getting revenue sharing data should consider it a bad sign of things to come. “You need know what they’re earning and what is being generated by the investments in your plan,” Flodin declared.
While the panelists agreed that the notion of further educating participants about fees was a good idea in concept, several expressed reservations about how it will play out.
“From a consultant perspective, we think it’s a step in the right direction to get everybody on the same page about what are the fees, who’s getting what, where do the revenue streams go?” Flodin said.”(But) it’s far from perfect. There are a lot of things we think are going to be missed on this (required fee disclosure) document.  While it helps with disclosure, at the end of the day, how is this information going to be utilized? We don’t think it’s been thought through about what everybody is going to do with this document now that everyone is required to report.”
Hilbrant added: “That the different governmental entities are not in lockstep about what the end point is going to look like is even more frightening.  If you’re a plan sponsor who doesn’t like to talk about these details and just meet with the vendor every once in a while to discuss how the investments are performing, this is going to be a big deal.”
The audio from the conference session is at http://www.plansponsor.com/MmediaContent.aspx?id=6442472847.
Fred Schneyer
editors@plansponsor.com

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Professional Contacts Key to Finance Officer Visibility

August 24, 2010 (PLANSPONSOR.com) – Accounting and finance managers have the best shot at keeping up their visibility by staying active in professional groups, but they shouldn’t forget about using social media outlets as well.

Image via CrunchBase

Image via CrunchBase

A Robert Half Management Resources news release about its latest poll said 28% of chief financial officers recommended keeping up professional group contacts, while 22% said Web sites such as Twitter and Linkedin were also useful in this regard.

According to the news release, visibility enhancing moves recommended by poll respondents also include:

• Publish articles in trade/business journals, 15%
• Volunteer or participate in charitable work, 15%
• Speak at industry events or webinars, 15%

"An extensive base of business contacts is one of the most valuable assets a professional can possess," said Paul McDonald, executive director of Robert Half Management Resources, in the news release. "The most successful executives constantly cultivate a network of people -- through both in-person and online networking -- who will help build their reputation in the industry. As social networking continues to gain popularity, it's especially important to use online tools to build credibility and visibility in the business community."

The survey was conducted by an independent research firm and includes responses from 1,400 CFOs from a stratified random sample of U.S. companies with 20 or more employees.
Fred Schneyer
editors@plansponsor.com

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Retirement Plans: Former Employees Can Be Current Problems

SHRM

7/15/2010 
By Mark Sweatman, Keane Retirement Services 
There comes a time when employees leave the company for greener pastures or retirement. … Unfortunately, many companies don’t understand the full impact former employees can have on their retirement plan.

For example, most plan sponsors adopt procedures for locating former employees or beneficiaries who have not cashed out of the 401(k) or other defined contribution plan. What happens, however, when a plan sponsor is not able to track down a missing participant? …

Missing Participants and Unclaimed Property
If ex-employees leave contributed and vested funds of less than $5,000 in their former employer's 401(k) or other tax-qualified defined contribution plan, these funds are subject to automatic rollover into an individual retirement account (IRA) in the participant's name (see “Satisfying the 401(k) Rollover Safe Harbor”).

Participants with account balances above $5,000 who are no longer active employees become a continuing cost, …. Plan sponsors are obligated to maintain communication with ex-employee participants but run the risk of becoming disconnected, making it difficult to meet fiduciary obligations. In addition, it puts the organization at risk for problems with unclaimed property reporting.

Many abandoned property laws include dormancy periods for unclaimed amounts in tax-deferred retirement plans. Generally, the state of last known address of the missing participant is the one that benefits in an unclaimed property situation. …

The problem gets worse when a former employee dies. Death is a distributable event in a defined contribution plan. … But, if the plan sponsor doesn’t know that the former employee has died, it can’t initiate the distribution and might find itself in the awkward position of having to explain why the former participants’ account balances declined between the time their beneficiaries were due a distribution and the time they received it.

The ERISA Factor
This is where the Employee Retirement Income Security Act (ERISA) comes in. ERISA requires that plans provide the following:

• Information about the plan, including important information about plan features and funding.
• Minimum standards for participation, vesting, accrual of benefits and funding of plans.
• Length of time a person may be required to work before the person becomes eligible to participate in a plan, to accumulate benefits and to have a non-forfeitable (i.e. “vested”) right to receive those benefits.

While the Internal Revenue Code generally prohibits the forfeiture of vested retirement benefits, a special provision allows the forfeiture of retirement benefits for missing participants, provided the benefit is reinstated if the participant is ever located. Furthermore, to protect ERISA plan administrators from having to comply with various state unclaimed property laws, ERISA supersedes state laws that relate to any employee benefit plan it governs.

Though ERISA is meant to help plan administrators and sponsors—and has alleviated many potential headaches around unclaimed property—plan sponsors and administrators still face the challenge of maintaining accurate data and keeping track of former employees.

Take for instance the 2008 U.S. Supreme Court ruling in LaRue v. DeWolff, Boberg & Associates. … It clears the way for individual participants in other plans to sue when they believe that fiduciaries are acting improperly.

Terminated Plans

To help plan sponsors and administrators terminate defined contribution plans smoothly, the U.S. Department of Labor (DOL) provides guidelines. … If a plan fiduciary is unable to reach plan participants, … any ERISA fiduciary must follow the following search methods:

• Reach out to participants via certified mail.
• Review related plan records.
• Make inquiries to designated plan beneficiaries.
• Employ the IRS letter-forwarding service.

Image via WikipediaAfter all search methods have been exhausted, the DOL acknowledges that plan fiduciaries must still distribute benefits in order to terminate plans. Employers with terminating plans should then consider rollovers into IRAs or transfers into federally insured bank accounts.

As with ex-employee accounts of under $5,000, the preferred distribution treatment for accounts of any size left in a terminating plan is rollover into IRAs. This technique is preferred because it preserves the benefit value by transferring the entire account balance and defers the consequences of income tax to the participant.

Although endorsed by the DOL, IRA rollovers still raise some issues. Choosing an IRA plan and a plan custodian/trustee is a fiduciary decision. As a result, it might be difficult to locate IRA providers that will accept missing participant rollovers.

Plan fiduciaries can consider establishing an interest-bearing, federally insured bank account in the missing participant’s name. However, this option isn’t without issue either. Rolling a benefit plan into a bank account has tax consequences for the participant and presents great potential for unclaimed property consequences. If the participant never learns about the rollover or the account and three to five years (depending on the state’s dormancy period) of inactivity have passed, the state of last known address for the participant can claim the funds if that state has inactivity provisions.

Don't Lose Touch
While there is no one-size-fits-all approach for plan sponsors and administrators, one thing is certain: Employee data needs to be analyzed on an annual basis and scrubbed for errors and outdated information. Create an internal system for assessing data quality to help cut down on the number of missing participants remaining in your retirement plans. In addition, when employees are leaving the company, provide them with instructions on how to roll over their benefit funds into an IRA or a new employer’s plan.

By staying on top of data quality and the whereabouts of former employees, you can control costs better, stay in compliance and fulfill obligations to keep participants abreast of pertinent plan information.

Mark Sweatman is president of Keane Retirement Services, a division of The Keane Organization, a provider of compliance and risk management solutions to Fortune 1000 corporations.
Related Articles:
Retirement Plan Sponsors Should Keep Track of Former Employees, SHRM Online Benefits Discipline, February 2009
Satisfying the 401(k) Rollover Safe Harbor, SHRM Online Benefits Discipline, October 2004
Quick Link:
SHRM Online Benefits Discipline

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Retaining key employees in times of change

Many companies throw financial incentives at senior executives and star performers during times of change. There is a better and less costly solution.

McKinsey Quarterly - Organization - Talent
AUGUST 2010 • Sabine Cosack, Matthew Guthridge, and Emily Lawson

Too many companies approach the retention of key employees during disruptive periods of organizational change by throwing financial incentives at senior executives, star performers, or other “rainmakers.” … In our experience, many of the recipients would have stayed put anyway; others have concerns that money alone can’t address. …
Our work with companies in many sectors (among them, energy, financial services, health care, pharmaceuticals, and retailing) suggests there is a better and less costly approach to employee retention… . It starts with identifying all key players, but targeting only those who are most critical and most at risk of leaving. These people are then offered a mix of financial and nonfinancial incentives tailored to their aspirations and concerns. A European industrial company applied this approach during a recent reorganization and found that it required only 25 percent of the budget that had previously been spent on a broad, cash-based scheme. What follows are three suggestions for companies with similar hopes of keeping their top talent without breaking the bank.

1. Find the “hidden gems”

HR and line managers need to work together during times of major organizational change to identify people whose retention is critical. Yet too often companies simply round up the usual suspects…. Few look in less obvious places for more average performers whose skills or social networks may be critical—both in keeping the lights on during the change effort itself as well as in delivering against its longer-term business objectives.
These “hidden gems” might be found anywhere in the company: for example, the product-development manager in an acquired company’s R&D function who is nearing retirement age …—yet who is crucial to ensuring a healthy product pipeline; or the key financial accountant responsible for consolidating the acquired company’s next financial report. Even if the employees’ performance and career potential are unexceptional, their institutional knowledge, direct relationships, or technical expertise can make their retention critical. …
Once HR and line managers have generated a thoughtful and more inclusive list of key players (usually 30 to 45 percent of all employees), they can begin to prioritize groups and individuals for targeted retention measures—in our experience, 5 to 10 percent of the workforce. The key is to view each employee through two lenses: first, the impact his or her departure would have on the business, given the focus of the change effort and his or her role in it; and second, the probability that the employee in question might leave.
When a European industrial company conducted this exercise, it mapped the outputs on a risk matrix. …The company had been launching a new centralized trading unit—requiring almost all traders and their support staff to relocate, with half of them heading to another country—and was steadily losing people. The risk matrix revealed that another 104 people were likely to leave. Among them were 44 employees who were critical for the success of the trading unit. To be sure, some were traders but most were IT, finance, and administrative staff with unique knowledge of the unit’s systems.

Exhibit: During a reorganization effort, one company found that 44 employees critical to the company’s success were likely to leave.

2. Mind-sets matter

One-size-fits-all retention packages are usually unsuccessful in persuading a diverse group of key employees to stay. Instead, companies should tailor retention approaches to the mind-sets and motivations of specific employees (as well as to the express nature of the changes involved).
When executives at the European industrial company looked beyond their standard retention package (bonuses plus compensation for the costs of the move) and focused instead on the needs of individual employees, they found a more nuanced situation than they had anticipated. Among the key people at risk were two main groups with two different mind-sets.¹ One consisted of individuals who were worried about relocating because it would uproot their families. The people in the other, more career-driven group didn’t mind living and working abroad but wondered, as they faced change in any event, whether staying or searching for another employer would best further their careers.
In one-on-one conversations with the people in the family-oriented group, managers explored specific concerns and discussed how the company could add to the measures already in place to increase the likelihood of retaining these individuals. On the menu of incentives: an increase in base pay, assistance in finding schools and kindergartens for their children, career counseling for their spouses, language training, and alternative work arrangements so employees could work at home or commute instead of relocating.
Meanwhile, in the conversations with the career-driven people, managers offered them a cash bonus but focused primarily on the organizational chart of the new, centralized unit, which had been designed from scratch. For people who had held senior roles in their local organization, it was essential, for example, to learn about their new responsibilities and how many direct reports they would have; for many of the more junior people a key question was who their bosses would be. Also high on the agenda was a dialogue with each individual about his or her future career and leadership opportunities in the context of the unit’s new strategy.
This targeted approach, which cost just one-quarter as much as the broad financial incentives plan the company had previously applied, succeeded in stabilizing the new unit. One year after its launch, some 80 percent of the staff who received special attention had started to work in the new location—a significantly higher share than for the group that didn’t receive this attention. Since its founding, the unit has increased its sales by more than 30 percent and its earnings before interest and taxes (EBIT) by more than 90 percent.

3. Retention is about more than money

As the European industrial company’s experience suggests, financial incentives play an important role in retention—but money alone won’t do the trick. Praise from one’s manager, attention from leaders, frequent promotions, opportunities to lead projects, and chances to join fast-track management programs are often more effective than cash. Indeed, a 2009 McKinsey Quarterly survey found that executives, managers, and employees rate these five nonfinancial incentives among the six most effective motivators when the main objective of the exercise is retaining people.²
One financial services firm undertaking a recent cost-cutting initiative elected to use only nonfinancial measures—including leadership-development programs—to retain the pivotal players it had identified as being at risk of departure. One year later, none of those players had quit. …
When financial incentives are required, it is important to design them appropriately and use them in a targeted way. For example, one-third of the retention bonus during a merger might be paid to pivotal staff even before the deal is closed, with the remaining two-thirds to be paid out a year later—dependent in part on the recipients meeting defined performance criteria such as the successful transfer of systems from the acquired company.
Targeting retention measures at the right people using a tailored mix of financial and nonfinancial incentives is crucial for managing organizational transitions that achieve long-term business success; it’s also likely to save money.

Still, executives mustn’t view employee retention as a one-off exercise where it’s sufficient to get the incentives packages right. Rather, best-practice approaches build on continuous attention and timely communication every step of the way to help employees make sense of the uncertainty inherent in organizational change. Ultimately, what many employees want most of all is clarity about their future with the company. Creating that clarity requires significant hands-on effort from managers, including the ongoing work of tracking progress so that companies can quickly intervene when problems arise.

About the Authors

Sabine Cosack is a consultant in McKinsey’s Vienna office; Matt Guthridge is an associate principal in the London office, where Emily Lawson is a principal.
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Notes

¹ The number of groups will vary according to a company’s specific situation. We have observed circumstances where employers have identified up to six distinct employee segments.
² See Martin Dewhurst, Matthew Guthridge, and Elizabeth Mohr, “Motivating people: Getting beyond money,” mckinseyquarterly.com, November 2009.

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Majority of ESOP Sponsors Offer another Retirement Plan

Image via Wikipedia

Jon Öyvind Eriksen, CEO of Kantega AS, a norwegian IT company, and one of Norway's largest,
purely employee-owned companies.

PLANSPONSOR.com

August 11, 2010

Approximately 90% of ESOP Association members surveyed reported having retirement savings plans in addition to the ESOP (employee stock ownership plan) including 401(k) plans, pension plans, stock purchase plans, and stock options.

The survey by the ESOP Association and the Employee Ownership Foundation found 23% of respondents said the ESOP was created to provide an additional employee benefit, and another 21% stated the attraction of the employee ownership concept as the reason. Eighty-four percent of respondents agreed that the ESOP improved motivation and productivity.
The survey also found 78% of companies advertise the fact that they are employee owned through Web sites, in company literature, and in marketing campaigns, according to a press release.
In 2010, the average age of the ESOP was reported to be 15 years as opposed to prior surveys in which the ESOPs reporting were much younger.  In addition, the average account balance has risen dramatically to $195,222.65.
The top reason for establishing an ESOP has not changed over the last decade, with 50% of the respondents reporting that their ESOPs were created as part of an exit strategy, or a buyout from current owners.
The figure for the amount of stock held by the ESOP has increased dramatically to 78% in 2010, up 10% over the 2005 survey data, and up 12% compared to the 2000 data.  The number of currently leveraged ESOPs has decreased with 52% of companies reporting that they are not currently leveraged and have paid off ESOP debt.  This reflects the increasing age of the ESOP as most ESOP loans are a 7-12 year term, the press release said.
The survey is conducted every five years and 460 members participated in 2010. A publication detailing all 45 questions and responses will be available for purchase by members and non-members in the fall of 2010.
Rebecca Moore
editors@plansponsor.com

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Employees look to annuities for retirement security

Employee Benefit Adviser

August 10, 2010

Image via Wikipedia

With declining confidence in their retirement future — 53% of workers are concerned about outliving their retirement funds — a growing number of employees are interested in annuitizing their savings to maintain their income stream throughout their lives, reveals MetLife’s 8th Annual Employee Benefits Trends Study.

According to the study, 55% of respondents say they would prefer to receive part of their retirement savings for as long as they live rather than taking it as a lump-sum payment. Only 9% strongly disapprove of that option.
Specifically, four in ten (40%) would like to hear more about using annuities as part of their defined contribution plans, the study shows, and 44% would like their employers to offer an annuity option in their 401(k), 403(b) and/or 457 plans.
“To some extent, these findings buck conventional wisdom. We know from the annuity take-up rates that very few workers actually annuitize their savings at the point of retirement,” says Jody Strakosch, national director for MetLife’s Retirement Products group. “That said, we’ve long believed that the time would come when workers would shift their retirement focus from assets to income.”

Image via WikipediaStrakosch believes it’s a paradigm shift that in the coming years will lead to more employers offering the opportunity for employees to annuitize at least a portion of their retirement savings. At present, the study reveals that very few companies offer annuities as either a defined contribution distribution option (16%) or as an IRA rollover option (13%). Among companies with 100 or more employees offering a 401(k) plan, of those companies that don’t currently offer annuities as a distribution option, only 20% are considering them.  However, only 14% would not consider offering them.

“With nearly five in ten workers interested in having their employers offer annuities and other lifelong income products, there may be an opportunity for more employers to give these options careful consideration,” says Strakosch.

Tapping 401(k) Funds Can Open your Business to Tax Problems

Small Business Trends
August 3, 2010
By Rieva Lesonsky

Did you use 401(k) funds to start your business, or are you tapping into your retirement to get you business through the current credit crisis? BusinessWeek recently drew attention to a possible trap:  The IRS is starting to pay more attention to entrepreneurs who finance their businesses using money from their 401(k) funds.

Here’s how such moves typically work: A business owner creates a new corporation, sets up a 401(k) plan for it and moves his or her 401(k) monies into the new plan. The money is used to buy shares in the business, giving it an infusion of capital but still retaining the tax advantages of the 401(k).

Monika Templeman, acting director of employee plans at the IRS, told BusinessWeek that the process “is open to abuse.” If the entrepreneur’s 401(k) funds weren’t rolled over in this fashion, but just withdrawn, the business owner would be subject to income taxes, as well as penalties of 10 percent of early withdrawal if he or she is under age 59 ½.

Templeman says the IRS has seen money used to buy stock whose valuation was questionable or even to buy personal assets such as cars.

The rollover strategy has grown in popularity during the credit crisis; BusinessWeek says some 4,000 people are expected to use the tactic this year. Typically, the transaction involves $100,000 to $200,000 in retirement funds. Financial advisers charge clients an average of $5,000 for the paperwork, plus annual fees of about $1,000 to manage the new 401(k). One financial advisor cited compares the fees favorably to the 15 or 20 percent interest rates banks charge on business loans — that is, if you can get a loan.

With the IRS planning increased scrutiny of such plans, it may be a good idea to review your plan with your advisor and your accountant to make sure it’s not raising any red flags. If you do use 401(k) funds to finance your business, make sure the money is put to good use and don’t use it for any expense for which you can’t make a clear business case.

The IRS website has lots of resources that can help your accountant and advisor clarify the issues. A closer look at the issues with these plans can be found in “Guidelines Regarding Rollovers as Business Startups (ROBS).” This publication is for IRS agents, so it’s pretty dense, but will give you some insights into the issues with the rollover concept.

About the Author

Rieva Lesonsky is President and Founder of GrowBiz Media, a content and consulting company that helps entrepreneurs start and grow their businesses. A nationally known speaker and authority on entrepreneurship, Rieva has been covering America 's entrepreneurs for nearly 30 years. She blogs at SmallBizDaily.

China’s Clean Tech Boom

 Image via Wikipedia

 

Bruce Usher, the former CEO of EcoSecurities, describes China’s path to leadership in renewable energy.

strategy+business magazine
by Laura W. Geller

China is fast becoming a clean technology leader. By 2008, it had become the world’s leading producer of solar panels, and last year it claimed the same title for wind turbines. Investment in clean tech in China in 2009 reached US$34.6 billion, compared with the United States’ investment of $18.6 billion. Bruce Usher, formerly the CEO of EcoSecurities Group PLC, a company that sources, develops, and trades carbon offsets from greenhouse gas emissions reduction projects, and now an adjunct professor of finance and executive in residence at Columbia Business School, has observed China’s growth in this sector firsthand. … Usher spoke with strategy+business in May about what he witnessed, what he learned, and what he sees as the future of clean tech in China and other emerging economies.

S+B: What did you observe on the ground as your business grew in China?
USHER: … What we found was that the industrial policy established by the Chinese government through the NDRC [National Development and Reform Commission] was very effective at stimulating development within the private sector. In our case, that meant stimulating the construction of clean energy projects, primarily small hydro and wind projects. Once the policies were in place, the private sector moved quickly. The banking sector tended to be quite supportive as well, in terms of availability of capital and attractive rates.

S+B: What are some of the unique benefits and challenges that China presents?
USHER: Based on my experience watching the way the clean tech industry has evolved in China, I’m convinced that the challenge of reducing carbon emissions is less about innovation and more about implementation. …[In] the U.S., for example, they are not getting implemented, or they are not getting implemented quickly enough. That’s where I was particularly impressed with my experience in China: There was an ability to get things done fast, and on a massive scale.

Because the Chinese government is more involved in industrial policy, it sets rules that are supportive, but that can also be restrictive. … We encountered some other fairly technical challenges working in China, but those were more than offset by the fact that things tended to get done very quickly as long as we worked within China’s strict regulations.

S+B: What does the future of clean technology in China look like?
USHER: …[The] big picture is they’re building massive numbers of coal-fired power plants as well, which produce an enormous amount of pollution, and that’s simply because they have such voracious demand for energy. They have to build these plants, or at least they believe they have to build them, to meet this demand. But the amount of hydro and wind development in China has also been massive for the last couple of years, and it’s very clear they will continue to grow this area in the years to come. The level of expertise coming out of China is only going to get higher. I see enormous development in the sophistication of the products being made in China, and I see more and more local development there, as well.

Looking ahead, something else interesting is happening in China with electric cars and battery technology. The country has experienced rapid growth in transportation infrastructure, and in some ways has a competitive advantage — the U.S. already has an infrastructure based on gasoline-powered vehicles, but because China’s is still developing, it is easier to make the transition to electric. We already see electric-powered two-wheeled vehicles everywhere in China, and I would be surprised if cars were far behind.

S+B: Do opportunities exist for other emerging economies to make a name for themselves in clean tech?
USHER: Emerging economies have one huge advantage over developed countries. To explain, I’ll use a cell phone example. Americans who travel to the developing world are often shocked by how well their cell phones work there. …[That’s] because these countries went straight to mobile, without a landline step in between. There are more cell phones in Africa than there are in North America today. …[We’re] talking about very simple phones. But cell phone coverage is ubiquitous in the developing world.

So if that can happen in cell phones, there’s reason to think that in clean energy or renewable energy, similar forces may be at work. Because their energy infrastructure is often very poor to begin with, and because there’s rapid growth and demand for energy, developing countries can leapfrog the sort of dirty, traditional energy that we have in our infrastructure in the United States. Similar to the electric car example above, they can go straight from no energy to clean energy, and that’s a huge advantage because clean energy is still more expensive than dirty energy, but incrementally so, and if you’re going from zero to building something, you might be willing to make that incremental investment. Here in the U.S., if we have to scrap our current infrastructure, that’s a huge additional cost. We need to start all over again, and that’s a big challenge.

S+B: Besides China, what emerging economy is making notable progress?
USHER: I think Brazil, … is an interesting example. What Brazil’s leaders recognized more than 20 years ago is that their country had a competitive advantage in its ability to produce cane sugar due to geography and expertise, and that it could convert that Image via Wikipediainto an energy product — ethanol — at a competitive price.

Building on that success, I think Brazil is taking some fairly innovative approaches to managing the resources of the Amazon. … Deforestation still goes on, no question about it, but the rate of deforestation has slowed significantly in the last couple of years, and government initiatives have contributed greatly to this improvement. Now, it’s not necessarily clean tech, but in many ways, it’s addressing a similar problem. It’s addressing climate change in a way that’s specific to Brazil.

Author Profile:

• Laura W. Geller is the deputy managing editor of strategy+business.

Tips for Documenting the Selection and Monitoring of Your Advisers

Reish & Reicher

By Jason Roberts (July 2010)

…[While] most [plan sponsors] go to great lengths to establish procedures to select and monitor plan investment options, many do not have adequate processes or documentation regarding the selection and monitoring of consultants or advisers that often assist the plan fiduciaries in investment-related matters.
Fiduciaries of employee benefit plans are charged with carrying out their duties prudently and solely in the interest of participants and beneficiaries of the plan and are subject to personal liability to, among other things, make good any losses to the plan resulting from a breach of their fiduciary duties. In selecting service providers, the responsible plan fiduciary must engage in an objective process designed to elicit information necessary to assess the qualifications of the service provider, the quality of the work product, and the reasonableness of the fees charged in light of the services provided. In addition, this process should be designed to avoid self-dealing, conflicts of interest or other improper influence. The following steps are designed to assist fiduciaries in evaluating the adviser and the services to be provided.
Step 1: Evaluate the credentials of the adviser and his or her experience with servicing employee benefit plans, the services to be provided and the fees to be charged.

• You should also consider obtaining competing bids from other providers offering equivalent services and document the basis upon which you have selected your adviser, including any relevant industry experience and/or retirement-specific designation(s).

Step 2: Evaluate any potential conflicts of interest and the adviser’s policies and procedures designed to address those conflicts.

• The SEC has warned that “business alliances” among pension consultants and money managers can give rise to serious potential conflicts of interest under the Advisers Act that need to be monitored and disclosed to plan fiduciaries.

Step 3: Periodically review the performance of your service providers to ensure that they are providing the services in a manner and at a cost consistent with the agreements.
Step 4: Review plan participant comments or any complaints about the services and periodically ask whether there have been any changes in the information you received from the service provider prior to hiring (e.g. does the provider continue to maintain any required state or federal licenses).
Step 5: Prepare a written record of the process you followed in reviewing potential service providers and the reasons for your selection of a particular provider.

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Any U.S. federal income tax advice contained in this communication (including any attachments) is neither intended nor written to be used, and cannot be used, to avoid penalties under the Internal Revenue Code or to promote, market or recommend to anyone a transaction or matter addressed herein.

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© 2010 Reish & Reicher, A Professional Corporation. All rights reserved. The REPORT TO PLAN SPONSORS is published as a general informational source. Articles are general in nature and are not intended to constitute legal advice in any particular matter. Transmission of this report does not create an attorney-client relationship. Reish & Reicher does not warrant and is not responsible for errors or omissions in the content of this report.