Month: July 2019

Deferred Compensation Agreements Put to the Test …and Holding Strong

Just when everyone thought there was nothing more to be said about the bailout issues of the subprime mortgage crisis (2007-2010), it’s back in the headlines. Some 23 former American International Group Inc (AIG) Financial Products (AIGFP) employees[i] have taken their old employer to court. At stake is more than $100 Million in deferred compensation the employees said was contractually owed and verbally promised. This past Tuesday, British court Judge Andrew Baker added support to their battle, ruling that AIG couldn’t use what the Judge described as “abusive arguments” to block the payments.

Bloomberg Business quoted AIG Financial Products Chief William Dooley as having said in a court filing, “the insurance giant would have ‘been under extreme pressure’ from the U.S., especially from an angry Federal Reserve Chairman Ben Bernanke, to stop the payouts and pursue bankruptcy instead.”

Back when governments, both U.S. and European, were bailing out banks and insurers, the Federal Reserve loaned $85 Billion to AIG, with a stipulation that no funds would be distributed out of AIGFP’s bonus pools as those funds should not be “used to reward executives ahead of taxpayers.”

Aside from an obvious but unaddressed argument that the executives involved were taxpayers themselves, the money owed had been set aside as deferred compensation to the former traders and managers to provide them “a sharing of the risks and rewards of the business.”

According to the, “Even as AIGFP realized losses totaling $40 billion in late 2008, ‘the language (of the deferred comp agreements) required for the restoration of payments.’”

AIG is expected to file an appeal with a higher court, arguing that while the company was still losing money, it didn’t have to pay the Financial Products employees their bonuses.[ii]

The courts, it seems, are not being swayed by AIG’s arguments, but are instead siding with the employees, recognizing that contracts are in place to be honored, even when a company would rather not. Earlier this year, a French court ordered AIG[iii] to pay bonuses of more than $2.3 Million to a former managing director at AIG Management France SA, and last year awarded roughly $7.6 Million to another managing director in France.

Thank you to Fulcrum Partners for this great article, which you can also view here on their website.





Self-Directed Brokerage Accounts within a 401(k) Plan? Issues Plan Sponsors Should Address

The typical 401(k) plan sponsor offers a mutual fund lineup of around 20 funds to invest personal and company contributions, and, even with that level of flexibility, hands-on investors are likely asking for more options. The Profit Sharing Council of America reports that the percentage of 401(k) plans with self-directed brokerage accounts (SDBAs) is growing, now above 20%.

401(k) plans with SDBAs offer a significant benefit to their participants, greater flexibility in investment options: more types of investments to choose from, more asset classes available including alternative asset classes such as real estate and commodities, and with certain plans, access to lower-cost investments. This greater flexibility in investment options offers plan participants more diversification and more refined investment strategies across all of their personal investment accounts. It also allows participants to hold relatively tax-inefficient investments in their 401(k) plan account, reducing their current annual tax bill.

The typical hands-on investor among your participants usually earns more, works with a personal financial planner and has more personal wealth, and that is often a good description of the company’s leaders. In addition, these hands-on investors might also be part of your plan’s retirement committee. But, SDBAs within a 401(k) plan are not for everyone. What issues should a plan sponsor consider if they are looking to add or expand the SDBA accounts available in their 401(k) plan?

Fiduciary Considerations and Participant Impact

If the plan sponsor has not implemented SDBAs to date as an investment option for participants, then the first issue to address or questions to answer are:

  • Is adding an SDBA feature really necessary.
  • Should the plan sponsor consider their participant group first, then their fund lineup?
  • How big is the group of hands-on investing participants and are they asking for more flexibility?
  • Are there asset classes that can be added to the current fund lineup to accomplish the objective?

A conversation with your investment advisor and current recordkeeper may result in enhancements to your investment lineup that satisfy the needs of your participants while maintaining a relatively simple and fully automated investment lineup for your plan.

The flip side of your hands-on investor group is the general makeup of your eligible participant population.  Recognize that the Department of Labor requires that all participants must be given the right to invest their 401(k) account through a self-directed brokerage account if the plan offers this feature. As a result, all eligible participants must be notified of the SDBA option, including related fees and account charges.

We know that many participants should stay away from self-directing their retirement accounts; they lack the time, discipline or willingness to do it themselves through ongoing research and actions to effectively manage their SDBA. They may be unwilling to hire an advisor due to cost, they may have an incomplete understanding of risk and return in asset classes, and they may engage in emotional investing, all leading to poor investment outcomes. The latest Charles Schwab SDBA Indicators Report bears this out:  it showed that participants who work with an advisor have higher balances, a more diversified asset mix, and less exposure to individual stocks than non-advised participants.

Also, the Department of Labor has expressed concerns regarding the range of investments that should be made available due to risk and return, reasonableness of fees charged by an advisor, and using investments through the brokerage window. ERISA Section 404(c) has a specific exclusion for investments where the risk of loss exceeds the participant’s account balance.

Carefully evaluating the participant group may cause some plan sponsors to limit investments in SDBAs to only a percentage of the total account, and restrict or prohibit investments in limited or general partnerships, options, futures and other derivatives, margin trading and other forms of investments with potential risk.

Finally, choosing the broker and negotiating the broker’s fees and other charges may be a fiduciary act, particularly if the fiduciary is limiting the number of advisors and brokerage firms available to one or a select few.

Plan sponsors and named fiduciaries may be under the impression that implementing self-directed brokerage accounts minimizes fiduciary risk, but there can still be fiduciary obligations that if not met, can trigger liability.  Beyond ongoing fiduciary risks, there can be significant operational issues that are unique to 401(k) plans with SDBAs.

Operational Issues

Historically, self-directed brokerage accounts have been a feature of 401(k) plans sponsored by law firms and medical practices, but these plans have now become much more prevalent across US employers, although with restrictions on the brokerage firm and advisors available.

As the recent Charles Schwab survey indicates, plan participants with larger account balances prefer to work with a professional advisor, specifically a personal investment advisor who knows their full financial picture and participates in their lifetime financial planning. If plan participants can select their own investment advisor for their accounts, maintaining the plan becomes more complex and more expensive to administer.

More Complexity 

Many recordkeepers and administrators have developed their own automated and proprietary solution for self-directed brokerage accounts, catering to larger employers who represent the majority of plan sponsors offering a self-directed brokerage account option in their plan. A single brokerage firm approach for self-directed brokerage accounts significantly limits the investment advisors available to the participant, so this approach is unlikely to work for participants with larger balances, who also often are the key leaders within the organization.

Allowing those key leaders to work with their personal investment advisor forces the benefits team or administrative staff to manually maintain these separate accounts, involving a number of additional steps, many or all of them manual:

  • Excluding participants with outside brokerage firms from the payroll feed and deposits to the recordkeeper for the rest of the plan,
  • Separate checks or electronic transfers to each individual brokerage firm,
  • Logging all transactions and verifying receipt with each individual brokerage firm,
  • Resolving any issues that arise with the individual brokerage firm,
  • Providing separate, aggregate reporting of all plan participants for compliance testing, and
  • Even taking on the role of the plan’s recordkeeper in developing personal plan statements for each participant with a separate self-directed brokerage account, summarizing annual activity in the plan account.

In this manual environment, those participants who self-direct through a separate brokerage firm are ‘off-line’:

  • They do not have access to an online 401(k) participant portal
  • Participant service and support is provided by the employer’s internal staff
  • May not receive a participant summary statement (an ERISA requirement) unless it’s provided by the plan sponsor.

More Expensive

The manual processes involved in working with multiple brokerage firms creates additional internal expense and additional compliance and fiduciary risk for the organization that chooses to work around their recordkeeper’s limitations. The plan sponsor may also incur additional hard dollar expense by hiring its accountant or another third party administrator to consolidate and summarize the assets held across all accounts for the plan in total and reconcile to participant accounts, a necessary step for completing the plan’s Form 5500 annual disclosure filing. Also, if the plan sponsor’s 401(k) plan has more than 100 participants, this expense becomes an annual, necessary expense for a full scope audit as required by ERISA when there is no certified trust statement covering all assets held by the plan.

At Last – Resolving Issues with a Single Solution

When choosing to add or expand the availability of SDBAs in a 401(k) plan, it can feel like, “No good deed goes unpunished”. But, solutions are available that offer greater flexibility to participants at reasonable cost and reduced fiduciary risk. Solutions such as Professionals Choice Retirement PlanTM simplify the multi-vendor approach, allocate plan fees judiciously, and offer participants complete investment freedom to utilize their personal financial advisors. This open architecture personal advisor solution enables fiduciary management with fully- transparent and outsourced professional 401(k) plan administration. Plan sponsors should have a conversation with their investment advisor, their recordkeeper and other advisors to understand what solutions are available that best meet both plan sponsor and participant objectives.*


*Investment advisory services provided via Professionals Choice Retirement Plan are offered through Strategic Retirement Partners (SRP), an SEC registered investment advisor. Findley provides administrative and recordkeeping services, is not a broker/dealer or an investment advisor and is a separate entity from SRP. SRP and Findley are separate entities from LPL Financial.

August 2019 Participant Webinar

Will you please share the following announcement within your organization by copying and pasting this to your participants?

Attention all Retirement Plan Participants and Eligible Employees! Register now for the next event in the 2019 SRP Participant Education Webinar Series!

One Dollar. One Percent. One Future You.
Can “ONE” really make a difference?
Whether you’re new to the 401(k) or simply want to review the benefits of saving within your workplace retirement plan, we invite you to join SRP’s Ann-Marie Sepuka (Managing Director – Houston) to discuss what makes these plans so valuable and break it down into the actual dollars and cents everyone can relate to. She’ll also explore the immense power of visualization, and help you get to know the person you’re saving for…the future you!

Plan Participants and Eligible Employees: Join us via webinar on Tuesday, August 6 @ 1:00 EST / 12:00 CST / 11:00 MST / 10:00 PST.
Register in advance:
Even if you cannot attend the meeting live, a recording will be made available to all registrants.



Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services are offered through Global Retirement Partners, an
SEC Registered Investment Advisor. Global Retirement Partners and Strategic Retirement Partners (SRP) are separate entities from LPL

Global Retirement Partners employs (or contracts with) individuals who may be (1) registered representatives of LPL Financial and investment
adviser representatives of Global Retirement Partners; or (2) solely investment adviser representatives of Global Retirement Partners. Although
all personnel operate their businesses under the name Strategic Retirement Partners (SRP), they are each possibly subject to differing
obligations and limitations and may be able to provide differing products or services.