PARSIPPANY, N.J. - New York Life Investment Management Retirement Plan Services is one of the first vendors to include a third-party consulting service as part of its bundle of services for defined contribution plan sponsors.
Morningstar Associates LLC, Chicago, will be providing the service, to be offered at no extra cost to all plans NYLIM services, said Barry Schub, senior managing director of NYLIM Retirement Plan Services.
"We think it's an important service," he said. "We do not see any other key bundled player having as comprehensive an offering as this."
The service has three levels. At its top level, Morningstar selects and monitors all the funds chosen from the 40 fund families with which NYLIM has revenue-sharing agreements, said Don Salama, managing director of NYLIM Retirement Plan Services. In the next level, Morningstar sets the asset allocation and sponsors choose funds from a list of around 60 funds Morningstar has selected and grouped by asset class, Mr. Salama said. Between 10% and 15% of the funds on the list are proprietary. In the third level, sponsors gets their choice of the 60 funds, along with ongoing investment monitoring by Morningstar, but they need to hire a broker or another consultant to design the plan.
This relationship gives Morningstar more discretion in fund selection that it would normally have in a standard consulting relationship, said Patrick Reinkemeyer, president of Morningstar's institutional investment consulting group.
Morningstar normally offers consulting services only to plans with more than $5 billion in assets, Mr. Reinkemeyer said. NYLIM's client base comprises plans with assets up to $1 billion, Mr. Salama said.
Unlike investment consultants, "Morningstar will be providing the whole package. It's ongoing consulting, not a one-time event," Mr. Salama said.
The only restriction on Morningstar's discretion in choosing the funds for a plan are certain proprietary restrictions, established by contracts between plan sponsors and NYLIM. They set the percentage of NYLIM funds that must be included in the plan's lineup, Mr. Reinkemeyer said. NYLIM's standard proprietary restrictions are consistent with the industry norm: 100% for small plans and up to 15% for larger ones, he added.
However, sponsors who choose Morningstar's consulting service will not be required to include a larger number NYLIM proprietary funds than they normally would, Mr. Salama said.
Since Morningstar will be providing fund selection and monitoring, it will be taking on the fiduciary responsibility for these services, he said. Fiduciary responsibility is something generally foisted off on consultants by virtue of the services they perform.
According to Bruce Ashton, partner in the law office of Reish, Luftman, McDaniel & Reicher, Los Angeles, if a consultant simply gathers information to allow the plan sponsor to make the decision, the consultant doesn't assume fiduciary responsibility. If the consultant makes specific plan recommendations, it would assume some fiduciary liability - but even so, the sponsor would retain responsibility for approving the consultant's recommendations and the selection and monitoring of the consultant, Mr. Ashton said.
Consultants often try to limit their fiduciary responsibility by contract, Mr. Reinkemeyer said.
"I think the way it's set up now ... (fiduciary responsibility) is something we would have inherited," Mr. Reinkemeyer said. "We're very confident in the process of selecting and overseeing the funds... Why not come out and provide additional comfort for the plan sponsor?"