Brought to you by the Nationwide ® Advanced Consulting Group Fiduciary Roles and Responsibilities in the Establishment and Operation of an ERISA Retirement Plan 1 hr CE NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

2 Some things you need to know This presentation is for educational purposes only and is not intended to be a solicitation or sale of a specific product or service. The presentation is designed to provide accurate and authoritative information in regard to the subject matter covered. The general information in this presentation is not intended to be nor should it be treated as tax, legal, accounting or other professional advice. Nationwide Investment Services Corporation, member FINRA. In Michigan only -Nationwide Investment Svcs. Corporation –T

3NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE Agenda Today’s Typical Retirement Plan Definition of “Fiduciary” Overview of Plan Fiduciary Roles and Responsibilities Establishment of the Plan – Roles and Responsibilities Operation of the Plan – Roles and Responsibilities ERISA’s Core Sections – 404; 406; 408 Prohibited Transactions and Exemptions Fiduciary Aspects of Asset Acquisition Participant Direction of Investments Prudent Practices –T

4NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE Structure of Today’s Typical Retirement Plan Defined Contribution in nature Contribution sources – EE pre-tax or Roth under a CODA ER matching ER discretionary Participant direction of investment Investment lineup – 10 to 20 mutual funds in the “core fund lineup” Self-directed brokerage account or mutual fund window

5 Definition of Fiduciary – ERISA section 3(21)(A) A person is a fiduciary with respect to a plan to the extent that he/she/it - (i) Exercises any discretionary authority or discretionary control respecting the management of the plan or respecting management or disposition of plan assets (ii) Renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the plan (iii) Has any discretionary authority or discretionary responsibility in the administration of the plan NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

6 Current Regulatory Definition of “Investment Fiduciary” DOL Regs. Sec (c) issued in 1975 Current regulations definition - an either/and test Either: (i) renders advice to plan as to value of securities or other property; or (ii) makes recommendations as to advisability of investing in, purchasing, or selling securities or other property And: (i) has discretionary authority or control with respect to purchasing or selling plan assets; or (ii) renders advice on a regular basis to the plan pursuant to a mutual agreement that such services will serve as a primary basis for investment decisions and that such fiduciary will render individualized advice NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

7 Proposed Regulatory Definition of “Investment Fiduciary” Proposed regulations issued OCT 22, 2010; substantially changed the five-part test found in existing regulations EBSA News Release on SEP 19, 2011 announcing withdrawal of proposed regulations with intent to re- propose later Most recent information indicates that re-proposed regulations to surface in JAN 2015 (or later) Current thinking is that re-proposed regulations would end the current five-part test for fiduciary status and focus, instead, on conflicts of interest NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

8 Overview of Plan Fiduciary Roles and Responsibilities Named Fiduciary - ERISA Sec. 402(a) Controls and manages operation and administration of the plan Appoints and monitors the plan administrator and trustee Plan Administrator - ERISA Sec. 3(16)(A) Discretionary authority and responsibility for plan administration Appoints and monitors service providers to the plan Trustee - ERISA Sec. 403(a) Holds legal title to the plan’s assets Appoints and monitors any investment advice fiduciary and/or any investment management fiduciary Investment Advice Fiduciary - ERISA Sec. 3(21)(A)(ii) Provides investment advice to trustee and/or participants Investment Manager - ERISA Sec. 3(38) Has authority to buy, sell, and manage plan assets NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

9 Plan Establishment - Preliminary Decisions of the Plan Sponsor Plan and Trust Documents –Prototype, Volume Submitter, Custom –Trustee –Custodian –Named Fiduciary(ies) –Plan Administrator Funding and Investments –Contributions –Core fund lineup; participant-directed vs. trustee-directed Plan Administration –Plan administrator vs. committee –In house vs. third party administrator Selection of advisory team

10NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE Plan Establishment Process Employer, in its role of Plan Sponsor, adopts a resolution establishing the plan (non-fiduciary activity) Employer appoints a Named Fiduciary (fiduciary activity), which can be the Employer Named Fiduciary appoints the Trustee and the Plan Administrator (fiduciary activity) Employer, as Plan Sponsor, implements plan, trust, and summary plan description documents (non-fiduciary activity) Employer, as Plan Sponsor, communicates plan terms to the "interested parties“ (non-fiduciary activity) Trustee or other Named Fiduciary selects investments (fiduciary activity)

11 Employer - Roles and Responsibilities Employer acting as plan sponsor is a nonfiduciary General business decisions Plan establishment, amendment, and termination Employee communications regarding the plan Making contributions to the plan Employer may be either a named or functional fiduciary Appoints other fiduciaries, such as the trustee [ERISA sec. 403(a)] and the plan administrator [ERISA sec. 3(16)] Adopts funding policy and method – ERISA sec. 402(b) Supervises overall operation of the plan Functional fiduciary status if not named in the document and carrying out fiduciary activities NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

12 Named Fiduciary - Roles and Responsibilities ERISA sec. 402(a) – plan and trust must be in writing and provide for one or more named fiduciaries ERISA sec. 3(21)(A)(i) – named fiduciary exercises discretionary authority or control managing the plan Plan document can specify multiple named fiduciaries - employer – appoints and manages other fiduciaries and formulates plan’s funding policy and method plan administrator – may be outsourced trustee – may be individuals or institutional any investment manager appointed by the trustee Contrast functional fiduciary position – not named in the document or appointed as a fiduciary becomes a fiduciary by his or her actions in providing investment advice or managing plan and its assets or administering the plan NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

13 Trustee - Roles and Responsibilities ERISA sec. 3(21)(A)(i)... someone who exercises any authority or control respecting management or disposition of plan assets is a fiduciary ERISA sec. 403(a) requires all plan assets to be held in trust, unless invested exclusively in insurance contracts Trustee has exclusive authority to manage and control plan assets, unless – Trustee is subject to direction of a named fiduciary who is not a trustee Trustee has delegated authority to an investment manager Who is eligible to serve as trustee? One or more individuals Financial institution with trust company powers NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

14 Discretionary Trustee vs. Directed Trustee Discretionary Trustee – Complete control over the investment of plan assets and complete fiduciary responsibility therefor May choose to hire an investment manager for all or a portion of the plan’s assets; retains fiduciary responsibility for prudent appointment and oversight of the investment manager, but not the manager’s individual decisions Directed Trustee – No control over the investment of plan assets and no fiduciary responsibility therefor Receives investment direction from a named fiduciary who assumes fiduciary responsibility Can also receive investment direction from participants in an ERISA sec. 404(c) arrangement Must refuse to comply with direction if contrary to ERISA or the plan NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

15 Funding Policy vs. Investment Policy Statement Funding Policy – ERISA sec. 402(b)(1) An employee benefit plan must provide a procedure for establishing and carrying out a funding policy and method consistent with the objectives of the plan and the requirements of ERISA Title I Formulated by employer in its role of a named fiduciary and communicated to the trustee Investment opportunities and long-term performance goals Cash flow needs and projected future cash contributions Investment Policy Statement (“IPS”) Not required by ERISA Designed to further the purposes of the plan and its funding policy Named fiduciary (trustee) adopts the IPS Once adopted, IPS becomes part of the plan documents Does not relieve named fiduciary of its obligations to appoint and monitor the trustee and/or investment manager NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

16 Plan Administrator - Roles and Responsibilities ERISA sec. 3(21)(A)(iii)... person or entity is a fiduciary to extent of any discretionary authority or responsibility in the administration of the plan ERISA sec. 3(16) further defines “plan administrator” May be the Employer or one or more employees May be outsourced Typical functions of a 3(16) plan administrator – Determining eligibility of employees to participate Making benefit determinations Interpreting the plan document Administering plan loan and QDRO provisions Making disclosures to participants who direct their own investments Filing reports with IRS and DOL A TPA is not a plan administrator NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

17 Fiduciary Investment Adviser - Roles and Responsibilities ERISA sec. 3(21)(A)(ii)... person who provides investment advice to the plan for a fee, direct or indirect is a fiduciary May be a Named Fiduciary or a Functional fiduciary (i.e., one becomes a fiduciary in this role by his or her actions) No ERISA requirements for one to act in this capacity; FINRA and/or SEC requirements may apply Advice may be rendered to the trustee and/or the participants Trustee (or employer in role of named fiduciary, in case of directed trustee) appoints any investment adviser and supervises his or her activities Co-fiduciary role; adviser recommends and trustee is responsible as a fiduciary for acting (or not acting) NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

18 Fiduciary Investment Manager - Roles and Responsibilities ERISA sec. 3(21)(A)(i)... one is a fiduciary if he or she exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets... ERISA sec. 3(38) – an “investment manager” is any fiduciary other than a trustee or named fiduciary who: has the power to manage, acquire, or dispose of any plan asset is a registered investment adviser under the Investment Advisers Act of 1940 or applicable State law, bank, or insurance company has acknowledged in writing its fiduciary status with respect to the plan Statutory requirements, ability to act, and signed fiduciary statement distinguish manager from adviser NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

19NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE ERISA’s Core Sections ERISA Sec Affirmative fiduciary duties; "prudent man" rule ERISA Sec Prohibited Transactions (a) Party in Interest (b) Fiduciary ERISA Sec. 408(b) - Relevant Statutory Prohibited Transaction Exemptions (2) Contracts for necessary services; no more than "reasonable" compensation (14) Investment advice to participants (17) Exempt transactions with parties in interest

20 ERISA Section 404 – Affirmative Fiduciary Duties Every decision or action of a plan fiduciary must be discharged within the following parameters – solely in the interest of plan participants and beneficiaries for the exclusive purpose of providing benefits and defraying reasonable expenses of plan administration with the care, skill, prudence, and diligence of a prudent person in similar circumstances by diversifying the investments of the plan to avoid risk of large losses, unless it is prudent not to do so under the circumstances in accordance with the terms of the plan and related documents, to the extent they are consistent with ERISA while maintaining the indicia of ownership of all plan assets within the jurisdiction of the U.S. district courts at all times NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

21 ERISA Section 406(a)(1) – Party in Interest Prohibited Transactions (A) "sale or exchange, or leasing of any property between the plan and a party in interest“ (B) "lending of money or other extension of credit between the plan and a party in interest“ (C) "furnishing of goods, services, or facilities between the plan and a party in interest“ (D) "transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan“ NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

22 ERISA Section 406(b) – Fiduciary Prohibited Transactions (1) self-dealing – fiduciaries may not deal with plan assets for their own interests or their own accounts (2) dual loyalties - a fiduciary may not act on behalf of a party whose interests are adverse to those of the plan or its participants (3) anti-kickback provision - fiduciary may not receive any consideration for his/her personal account in connection with a transaction involving assets of the plan NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

23 Common Statutory and DOL Exemptions to the Prohibited Transaction Rules 408(b)(2) – reasonable arrangements with a party in interest for office space, or legal, accounting, or other services necessary for the establishment of the plan, if no more than reasonable compensation is paid therefor 408(b)(14) and 408(g) – Eligible Investment Advice Arrangements 408(b)(17) – allows for sale of products to a plan by a nonfiduciary, if plan receives no less, nor pays no more than adequate consideration PTEs 77-9 and Permit insurance agents, brokers, pension consultants to receive commissions on sale of products if certain conditions are met PTE Permits sale of life insurance policy by a plan to the insured participant under certain conditions NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

24 Penalties Associated with the Commission of a Prohibited Transaction Financial Penalties under the Internal Revenue Code 15% of amount involved, increased to 100% if not corrected within the “taxable period” ERISA liability for a fiduciary breach 409(a) – personal liability to restore losses to the plan caused by fiduciary breach, not necessarily investment losses 501 – criminal penalties up to $100,000 fine and 10 years in jail 502(a) – lawsuits authorized against plan fiduciaries 502(l) – 20% penalty of any “applicable recovery amount” DOL’s VFCP correction program Allows correction of certain fiduciary violations w/o penalty IRS’ EPCRS correction program Allows for correction of plan admin matters w/o penalty NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

25NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE Fiduciary Aspects of Plan Asset Acquisition Service Provider/Broker/Advisor/Seller Disclosures Fees, expenses, commissions, product information PTE 77-9, PTE 84-24, DOL Regs b-2(c) Purpose of disclosures is to provide the responsible plan fiduciary with sufficient information to determine necessity of the asset purchase and reasonableness of amount paid by the plan Responsible Plan Fiduciary (“RPF”) Actions Based on information furnished, RPF must determine prior to any purchase of assets both the necessity of the purchase and the reasonableness of the amount paid Written authorization of the purchase; maintain records for 6 yrs Benchmarking Decision to purchase must be based on value to the plan, not necessarily the lowest cost

26NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE Participant Direction of Investments in Defined Contribution Plans Participant direction of investments is discretionary with the plan’s trustee; not an absolute right granted to participants Objective – to transfer liability for investment decisions to the affected participants Avoid - participants are directing their own investments but plan fiduciaries retain liability therefor ERISA Sec. 404(c) – Compliance with the section 404(c) regulations is optional If participants direct their own investments and if the section 404(c) regulations are followed, liability for investment decisions transfers to the affected participants

27 Three Basic Requirements Of An ERISA Section 404(c) Plan Plan must be an individual account plan described in ERISA Section 3(34) Plan provides an opportunity for a participant to exercise control over assets in the account Plan provides a participant the opportunity to choose, from a broad range of investment alternatives, the manner in which some or all of the assets in the account are invested NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

28 Significance of ERISA Section 404(c) If Section 404(c) applies, then: – a participant is not deemed a fiduciary by reason of his or her exercise of control; and – no person who is otherwise a fiduciary will be liable under the ERISA fiduciary responsibility rules for any loss, or by reason of any breach, which results from the participant’s exercise of control NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

29 Fiduciary Aspects Of Plan Investment Management DOL “... the act of limiting or designating investment options which are intended to constitute all or part of the investment universe of an ERISA 404(c) plan is a fiduciary function which, whether achieved through fiduciary designation or express plan language, is not a direct or necessary result of any participant direction of such plan.” Plan fiduciary must offer a core fund lineup in order to discharge its fiduciary duty Fiduciary need not provide investment advice NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

30 Best Practices Summary for Participant- Directed Investment Plans Coordinate the plan design with fiduciary considerations Review and understand what protection ERISA Section 404(c) does and does not afford Always have a core portfolio Within core portfolio, have a broad range of investment alternatives Understand and monitor plan’s QDIAs Be able to execute fiduciary responsibilities on alternative investments NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE

31NFM-13312AO FOR USE WITH THE PUBLIC. 1-Hour of CE Prudent Practices in Plan Operation Know what your plan documents say Assign responsibilities among fiduciaries and service providers Document assignments and delegations Establish sound processes and procedures in writing Initial and recurrent training of fiduciaries Distinguish roles of each fiduciary position and maintain separate records Establish an accountability system of checks and balances Maintain written (electronic) records for a minimum of 6 years