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

Craig DanielsManager of Retirement Investments, Treasury

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 Global

Kevin ThomasDirector, Retirement Benefit Services

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

Russell Investments

Kevin KnowlesProduct Manager Defined Contribution

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Why is DC outsourcing an emerging trend?

HIGHER BAR

BIGGER STICK

GREATER COMPLEXITY

?? ?

Presenter

Presentation Notes

Harder to be a DC fiduciary On top of that – regulatory reform, enforcement actions, lawsuits expected to continue into 2015 Bar, stick, complexity How is a company to know if adequately fulfilling these high expectations? Ensure the plan is designed to meet the three key fiduciary tests of Expertise, Alignment, and Accountability

A manageable menu can help your participants make better decisions

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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

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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

Presenter

Presentation Notes

Most important part, where our real work begins. Evaluate resources vs. duties vs. fiduciary requirements Duties Resources - #’s not new! Review against fiduciary tests: Do staff and committees have expertise? Are they aligned (compensation, corp objectives)?, Can accountability be clearly demonstrated with performance objectives and committee charters and job descriptions?

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

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Presenter

Presentation Notes

WHAT: The left side is complexity, the right is simplicity. The point on this is that you need to focus on managing risk. This is complicated enough without managing all these relationships. SO WHAT: We give you time back so you can work on the strategy that’s required today to manage risk TRANSITION: How do we do this?

Maintain control of what is important to you……delegate the rest

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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›

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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

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THIS CONFERENCE MATERIAL WAS CREATED BY RUSSELL AS AN EDUCATIONAL TOOL, AND IS NOT FOR FURTHER DISTRIBUTION.

NEPC, LLC

Christine LoughlinPartner, Defined Contribution Practice Leader

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


• 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


craig daniels - pionline.com

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