1. Copyright 2009. Moody, Famiglietti & Andronico, LLP. All Rights Reserved. Russell A. Gaudreau, Jr. The Wagner Law Group Understanding Your Fiduciary Responsibilities

2. 2 Goals EDUCATION The law requires that plan fiduciaries become educated. “A pure heart and an empty head” is not an adequate defense. (See Appendix A for specific examples) ACTION Identify action steps that protect plan fiduciaries. DOCUMENTATION Document all Fiduciary Activities

3. 3 What Is At Risk? All plan fiduciaries are personally liable. Bank Accounts Stock Options Investments Homes Unless protected by a safeharbor, fiduciaries are liable for 100% of investment losses, measured against what assets would have otherwise grown to; fiduciaries are also liable for the legal expenses and professional fees for the defense.

4. 4 Who Is a Fiduciary? Examples of Fiduciaries:  Plan Sponsor  Retirement Plan Committee Members  Trustees  Board of Directors  Company Officers  HR Director  Retirement Plan Advisors Generally not Fiduciaries:  Attorneys  Accountants  Actuaries  Anyone making business decisions (whether to establish, amend, freeze, or terminate the plan) – These individuals are acting on behalf of the business and not the plan in making these decisions “Functional Fiduciary” – No express appointment or delegation of fiduciary authority, but is functionally considered in control or in possession of authority over the plan’s management, assets, or administration

5. 5 Fiduciary Responsibility Under 404(a) Exclusive Benefit: A fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries Prudent Man: A fiduciary shall perform his duties with a high standard of care, skill, prudence, and diligence – Hiring service providers – Hiring investment advisers Diversification Requirement: A fiduciary shall diversify the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so Act in in accordance with the governing plan documents

6. 6 General Requirement of Plan Fiduciaries At the heart of ERISA compliance is the duty of the plan sponsor (fiduciary) to act prudently. “Procedural Prudence” is achieved in three ways : Take action – Do what is required to keep the plan in compliance Research and understand your responsibilities Document all compliance-related activities

7. 7 Fiduciary Responsibility Under 404(c) 404(c) PLANS REQUIRE THAT PARTICIPANTS: Have the opportunity to choose from a broad range of investment alternatives (which are adequately diversified) Can give investment instruction with a frequency which is appropriate Can obtain sufficient information to make informed investment decisions

8. 8 Prohibited Transactions “Parties in interest” are prohibited from doing business with the plan – Employer – Union – Fiduciaries – Service Providers – Statutorily defined owners – Officers – Some relatives “Certain transactions are prohibited under the law to prevent dealings with parties who may be in a position to exercise improper influence over the plan.” ~ [Department of Labor]

9. 9 Fiduciary Litigation Qualified retirement plans are the newest targets for plaintiffs attorneys – Typically class action suits for plan-wide lawsuits – LaRue v. DeWolff, Boberg & Associates opened judicial system to individual lawsuits where only a single participant is affected by fiduciary breach Deep pockets of the company, directors, and officers Easier to litigate than fraud causes of action due to lower legal standards that are defined in ERISA A “[plaintiff law firm’s erisafraud.com] website lists 14 separate class suits pending against 401(k) plan fiduciaries, as well as 23 other “investigations” the firm is conducting. The site requests the assistance of anyone with knowledge about the companies under investigation or, for that matter, about “any other possible ERISA case.” ~ [Pensions & Investments, 2/19/08]

10. 10 Fiduciary Litigation – The First Wave (Company Stock) Regulatory and Legislative reactions  DOL issued prohibited transaction class exemption for litigation settlements  PPA diversification requirements Participants with at least 3 years of service (or beneficiary thereof) must be allowed to diversify out of company stock Must have at least 3 diversified alternative options available Divestment/reinvestment just be allowed at least quarterly Atypical restrictions or conditions on divestment may not exist on company stock

11. 11 Fiduciary Litigation – The Second Wave (Expenses) Fiduciary responsibilities: – Understanding and comparing or benchmarking fees and expenses – Disclosing fees to participants and beneficiaries – Defraying reasonable expenses of plan administration “The Securities and Exchange Commission confirmed that it has begun a broad based inquiry into 401(k) fees …” ~ [OC Register, 7/11/04] “Fourteen months after the first round of 401(k) fee lawsuits was filed, five cases are awaiting trial and lawyers are laying groundwork for more suits alleging ERISA violations involving defined contribution plans.” ~ [Pension & Investments, 2/18/08]