Defined Benefit Plans
3(21) & 3(38) Fiduciary Services
Newport Capital Group can serve as both an ERISA 3(21) and ERISA 3(38) Appointed Fiduciary.
A fiduciary is an individual authorized by an express or implied agreement, like a trust or a defined relationship, to act with a high duty of care on behalf of another person, a beneficiary. The fiduciary must make prudent and informed decisions based on all available and material information, acting first and foremost on behalf of the beneficiary. Fiduciaries are required to avoid conflicts of interest and must place the interest of the beneficiary ahead of their own. Fiduciaries must also act in good faith, maintain confidentiality, and communicate by disclosing all pertinent information through the due diligence process.
ERISA 3(21) and ERISA 3(38) Appointed FiduciaryA fiduciary is an individual authorized by an express or implied agreement, like a trust or a defined relationship, to act with a high duty of care on behalf of another person, a beneficiary. The fiduciary must make prudent and informed decisions based on all available and material information, acting first and foremost on behalf of the beneficiary. Fiduciaries are required to avoid conflicts of interest and must place the interest of the beneficiary ahead of their own. Fiduciaries must also act in good faith, maintain confidentiality, and communicate by disclosing all pertinent information through the due diligence process.
ERISA 3(21) Co-Fiduciary Advisor
- We work with the plan sponsor to follow a due diligence process, including the adoption and implementation of an Investment Policy Statement to formalize that process.
- Recommend investments to the plan sponsor, monitors those investments, and proposes appropriate replacements, as outlined in the Investment Policy Statement.
- Advise the plan sponsor in regards to Participant Education following a formalized Education Policy Statement.
- Provide counsel and guidance, but we do not have discretion.
ERISA 3(38) Discretionary Investment Manager
- We are appointed by a plan sponsor to manage the investment process of a retirement plan.
- Only RIA, banks, or insurance companies are qualified to accept 3(38) appointment.
- Investment Manager becomes “solely” responsible for the selection, monitorization, and replacement of investment options.
- Plan sponsors and other plan fiduciaries are relieved of their responsibility for the investment manager’s decisions.
- Plan sponsors retain residual duty to prudently select and monitor the investment manager.
- We retain full discretionary authority to select appropriate investment options according to the Investment Policy Statement.
Plan Committee Formulization
Many companies are not aware of their full fiduciary responsibilities under ERISA. Newport Capital Group will assist in the formation and operation of a retirement plan committee that will oversee the selection and monitoring of the plan’s investments and administrative service providers. This includes advising on the preparation of draft committee charters, committee by-laws, and appointment acknowledgement letters. In addition, we will provide ongoing fiduciary educational support to help make sure that each retirement plan committee member understands their fiduciary roles and responsibilities. We will also meet with the committee to discuss plan investments, additional plan considerations, participant services, and other timely plan-related matters. Draft meeting minutes will also be provided for the committee’s review and will be stored in an online Fiduciary Vault for committee member access.
Plan Asset & Liability Study
Newport Capital Group serves as a 3(21) and 3(38) fiduciary advisor to pension plan clients across the United States. In the 3(21) relationship, Newport Capital Group makes investment recommendations to your Investment Committee. As a 3(38) Investment Advisor to Pension clients, Newport Capital Group is given discretion to manage and implements investment changes for the plan.
Our plan types are varied as Newport works with management plans as well as union plans and smaller-size plans up to mega-size plans. In addition, plan objectives are varied as well, with most plan sponsors having a termination goal, while other clients have a goal to reach fully funded status for plans that will be kept open. Newport Capital Group has deep expertise in crafting customized investment strategies that are designed for each unique pension plan. The approach is based on risk management principles, called liability-driven or liability-aware investing, for defined benefit plans, coupled with an investment discipline that can eliminate plan deficits over time.
Investment Policy Statement
The plan’s Investment Policy Statement (IPS) is a written plan document that establishes guidelines for the investment of the plan’s assets. Newport Capital Group will develop a written IPS for defined benefit plans, it includes plan responsibilities and investment targets that are used to monitor the progress of the plan’s funding status. The IPS lays out objectives, policies, and the roles and responsibilities of the Investment Committee; additionally, it monitors your investments and the plan’s performance. The selection of a plan’s investment options is one of the most important decisions that a retirement plan committee will make. Not only do the plan’s investment options have to offer enough diversification to help participants meet their long-term retirement goals, but they also have to be selected and monitored in the best interest of the participant.
The IPS includes long-term strategic asset allocation targets for the major asset classes that Newport Capital Group uses for pension clients. The targets are developed from the results of the initial plan asset and liability study that is conducted during the onboarding phase for new clients. Additionally, Newport Capital Group uses return, risk, and correlation measures to develop broadly diversified portfolios for all of our clients.
We maintain relationships with 100+ asset management firms across the United States. We also utilize Morningstar’s Office research database and software that allows us to analyze over 27,000 registered mutual funds and over 15,000 separate account and collective investment trusts in the U.S. Our goal is always to find the lowest-cost asset managers within broad asset categories, so that we can build investment portfolios with “best-in-class” managers.
Newport Capital Group provides clients with the fiduciary support needed to operate their plans. This begins with an onboarding audit, where we review plan documents, services agreements, etc. for audit preparedness. In addition we keep committees informed of Department of Labor regulatory updates that could affect plan governance. We also provide legislative updates and monitor court cases that impact retirement plan fiduciaries. We house all important plan-related documentation in an online fiduciary vault for organization and easy access. Clients are reminded of key compliance dates each quarter so all plan responsibilities can be addressed on a timely basis. We also ensure companies have prudent policies in place to document the methodologies used to make plan decisions. In addition, we assist companies in performing their required due diligence by conducing Requests for Information and/or Request for Proposals to evaluate existing service providers against competitors in the marketplace for cost and quality of services, usually due to service issues. For terminated plans, Newport Capital Group will undertake a provider searches for rollover IRA companies and annuity providers.
Many plan sponsors have a goal to terminate their defined benefit plans. The termination process includes many requirements, including government filings, IRS approval, participant notices, and an annuity offering to plan participants. These tasks can be daunting for plan sponsors, but Newport Capital can guide you and your Investment Committee through the process. Newport works closely with your actuary to manage the filing process and required deadlines. Our previous experience helping clients terminate their defined benefit plans can be a valuable asset to your firm as you weigh the option to terminate the plan.