1. SOLUTIONS FOR THE UNION WORKPLACE SPECIALTY INSURANCE | INVESTMENTS Lessons for Governmental Fund Trustees from the Financial Crisis and How to Protect Yourself Daniel Aronowitz President, Ullico Casualty Company

2. 2 May 2011 NCPERS Annual Conference 2011 Introduction 2

3. 3 May 2011 NCPERS Annual Conference 2011 Lesson #1: Indemnification Gaps Governmental plan trustees often have two dangerous misconceptions: –That ERISA fiduciary standards do not apply to them; and –That they are protected by sovereign immunity The reality: –Governmental trustees are held to high fiduciary standards similar to the federal ERISA duties; and –State law contains significant limits on indemnification protections for governmental fiduciaries 3

4. 4 May 2011 NCPERS Annual Conference 2011 Indemnification Gaps 4

5. 5 May 2011 NCPERS Annual Conference 2011 Lesson #2: You are a Target Governmental trustees are increasingly a target of fiduciary claims: –Imprudent investments, including real estate and alternative investments –Breaches of fiduciary duty in selecting and monitoring a service provider –Social investing –Insufficient funding –Dishonesty claims/Pay to Play 5

6. 6 May 2011 NCPERS Annual Conference 2011 You are a Target 6

7. 7 May 2011 NCPERS Annual Conference 2011 Lesson #3: Delegate Fiduciary Responsibility Whenever Possible 7

8. 8 May 2011 NCPERS Annual Conference 2011 Delegate Fiduciary Responsibility Whenever Possible 8

9. 9 May 2011 NCPERS Annual Conference 2011 Lesson #4: Lower Your Expectations 9

10. 10 May 2011 NCPERS Annual Conference 2011 Lesson #5: Due Diligence Matters 10

11. 11 May 2011 NCPERS Annual Conference 2011 Lesson #6: Don’t be a Turkey – Protect Yourself 11

12. 12 May 2011 NCPERS Annual Conference 2011 Purchase Comprehensive Fiduciary Liability Insurance Critical policy features: –Claims-Made Coverage – Do You Have Full Prior Acts Coverage? –What is the Date of Your Prior and Pending Litigation Exclusion? –Do You Have Coverage for Administration Errors In Addition to Fiduciary Duties? –Do You Control Your Defense? –Do You Have the Right to Select Defense Counsel? –Do You Have Severability of the Application and Exclusions to Protect “Innocent” Trustees? 12

13. 13 May 2011 NCPERS Annual Conference 2011 Critical policy features continued: –Do You Have to Pay a Claim Deductible Out of Your Own Pocket? –When Will You Be Reimbursed? –How Much Insurance Should Your Fund Buy? –What Claims are Covered? DOL Audits? –How Can You Lock in Coverage for Potential Claims? –What Penalty Coverage Do You Have? CAP; 502(c); HIPAA? –Does Your Policy Require a QPAM for Real Estate Investments? Purchase Comprehensive Fiduciary Liability Insurance 13

14. 14 May 2011 NCPERS Annual Conference 2011 Questions Daniel Aronowitz President 1625 Eye Street, NW Washington, DC 20006 202.682.4992 daronowitz@ullico.com John V. O’Brien Vice President, Marketing 1625 Eye Street, NW Washington, DC 20006 202.962.2980 jobrien@ullico.com 14