F IDUCIARY R ESPONSIBILITIES R. S COTT G ARDNER, CIMA S ENIOR I NVESTMENT A DVISOR P ACIFIC P ORTFOLIO C ONSULTING, LLC

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 2 Agenda  Overview of Plan Governance  Elements of a plan  Who are the plan fiduciaries?  Significance of being a fiduciary  Fiduciary duties  Limiting Liability  Selecting a service provider  Monitoring service providers

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 3 Overview of Plan Governance Custodian Custodies Assets Executes Investment Trades Manages Cash Flow Advisor Co-Fiduciary to Plan Evaluate Capital Markets Provides Investment Options RK\TPA Administers Plan Documents Maintain Participant Records Host Participant Website Trustee Committee

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 4 Elements of a Plan  Written plan that describes the benefit structure and guides day-to-day operations.  A trust fund to hold the plan’s assets.  A recordkeeping system to track the flow of monies going to and from the retirement plan.  Documents to provide plan information to employees participating in the plan. Source: U.S. Department of Labor, Employee Benefits Security Administration

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 5 Who is a Plan Fiduciary  Fiduciary status is based on the functions performed for the plan, not just a person’s title.  A plan must have at least one fiduciary (person or entity) named in the written plan.  Anyone who takes discretionary action to manage and administer the plan or exercise control over plan assets.  A plan’s fiduciaries ordinarily include the:  Trustee  Investment consultants/advisors  Individuals exercising discretion in the administration of the plan  Members of the plan’s administrative committee  Members of the plan’s investment committee Source: U.S. Department of Labor, Employee Benefits Security Administration

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 6 Significance of Being a Fiduciary  Fiduciaries act on behalf of participants in a retirement plan  Have important responsibilities  Subject to standards of conduct  Important responsibilities  Acting solely in the interest of plan participants and their beneficiaries  Carrying out duties prudently  Following plan documents  Diversifying plan investments  Keeping plan expenses reasonable Source: U.S. Department of Labor, Employee Benefits Security Administration

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 7 Duties of a Fiduciary  Fiduciaries are held to the highest standard of conduct imposed by law.  Fiduciary standards applicable to non-ERISA plans are in need of clarification.  Non-ERISA plans are governed by state law whose fiduciary standards are very similar to ERISA.  Most legal counsel typically advise public sector plan sponsors to manage their non-ERISA plans as if they were covered by ERISA  There is more guidance around ERISA  ERISA is the highest standard Source: Center for Due Diligence

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 8 Duties of a Fiduciary  There are five duties of a fiduciary that must be carried out in accordance with the plan documents  Loyalty  Documentation  Prudence  Diversification  Reasonable plan expenses Source: IMCA

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 9 Loyalty  Also called the “exclusive benefit rule”  Plan fiduciaries must act:  Solely in the best interests of the plan participants.  For the exclusive purpose of providing plan benefits.  Fiduciaries cannot put employer interests before those of plan participants.  Avoid conflicts of interest.  Ensure that expenses for administering the plan are reasonable. Source: IMCA

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 10 Documentation  Maintain up to date, signed documents including:  Plan documents and summary plan materials.  Trust agreement.  Plan forms, rules, and procedures.  Service agreements.  Third party contracts.  Investment contracts.  Investment Policy Statement.  Amendments to the above documents.  Committee meeting minutes. Source: IMCA

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 11 Prudence  Requires fiduciaries to act with the care, prudence, skill and diligence a knowledgeable person would use in administrating the plan.  Prudence requires good judgment and sound processes in every plan activity undertaken by the fiduciaries.  More than just an obligation to be competent and careful in your conduct, prudence is careful, diligent, thorough decision-making process:  Gather, examine and give appropriate consideration to relevant information.  Implement the decision.  Periodically monitor performance to ensure your decisions continue to be in the best interest of the plan and the participants.  Retain third parties to assist you if necessary. Source: IMCA

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 12 Diversification  Investments must be diversified to minimize the risk of large losses  There must be at least three different investment options that offer different risk/return characteristics  Evaluate Liquidity, Diversification, Return & Safety of investment offerings  Election choices must allow diversification with materially different risk and return characteristics Source: IMCA, U.S. Department of Labor, Employee Benefits Security Administration

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 13 Diversification  Most plans offer  Equity Funds  Bond Funds  Money Market Funds  Other plans offer  Target date funds  Model allocations  Brokerage windows Source: IMCA

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 14 Reasonable Plan Expenses  Fees are just one of several factors fiduciaries need to consider when selecting investments and service providers  Law does not specify permissible level of fees, but fees must be “reasonable”  Plan’s fees should be monitored on an ongoing basis to ensure they remain reasonable  Take into account level and quality of service, not just bottom line cost  When comparing services and fees between vendors, make sure you compare apples-to-apples  Information provided by service providers should include all forms of compensation Source: U.S. Department of Labor, Employee Benefits Security Administration

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 15 Limiting Liability  With these responsibilities there is potential for liability  Fiduciaries can limit liability by  Properly documenting processes  Providing diversified investments  Providing participants with sufficient information to make choices  Hiring third party vendors when fiduciary doesn’t have expertise Source: U.S. Department of Labor, Employee Benefits Security Administration

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 16 Hiring a Service Provider  Hiring a service provider is a fiduciary function  Provide each prospective provider with the same information  Document the selection process  Service providers must provide information to you about the services they will provide and the compensation they will receive  When hiring a provider, consider the provider’s  Financial condition  Experience with retirement plans of similar size and complexity  Quality of service  Recent litigation against the firm  Description of business practices Source: U.S. Department of Labor, Employee Benefits Security Administration

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 17 Monitoring Service Providers  Establish and follow a formal review process  Evaluate any notices from service provider regarding upcoming changes to service or compensation  Review the service provider’s performance  Review actual fees charges  Confirm provider’s policies and procedures  Follow up on participant complaints Source: U.S. Department of Labor, Employee Benefits Security Administration

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 18 Tips for Employers with Retirement Plans  Identify your plan fiduciaries and ensure they are clear about their responsibilities.  If participants make their own decisions, provide them with enough information to make informed decisions.  Know the schedule to deposit participants’ contributions in the plan. Make sure it complies with the law.  If hiring a third party service provider, look at a number of providers, give each potential provider the same information, and consider the reasonableness of their fees.  Document the third party service provider hiring process.  Identify parties in interest to the plan and monitor transaction with them.  Review your plan document and make necessary updates. Provide participants with an updated Summary Plan Description.  Confirm that individuals handling plan funds have a fidelity bond. Source: U.S. Department of Labor, Employee Benefits Security Administration

Not for reproduction and/or distribution. All data obtained from sources believed to be reliable. 19 Questions?