Retirement Services University Fiduciary Issues Peter Welsh, Sr. VP The Ritz-Carlton, San Francisco, California May 14-16, 2003

Retirement Services University 2 401(k) Basics The Plan Each Plan must have at least one named fiduciary who serves as the Plan Administrator. See Labor Reg.§ The Trust ERISA, generally speaking, requires that all assets of an employee benefit plan be held in trust by one or more trustees. ERISA Sec. 403(a).

Retirement Services University 3 401(k) Fiduciary Responsibility Who’s an investment fiduciary under ERISA? A person who… –has discretionary authority over plan assets –exercises any control over plan assets –gives investment advice for compensation The Plan Administrator automatically has fiduciary status solely on the basis of his role as plan administrator because, by the very nature of the position, plan administrators have discretionary authority or discretionary responsibility in the administration of the plan.

Retirement Services University 4 401(k) Investment Fiduciaries Who are the Investment Fiduciaries? Trustee, Plan Committee, Board of Directors Officers responsible for investments –Discretionary authority –Authority to Direct –Functional Fiduciaries “ A person’s belief or formal title is irrelevant in determining his fiduciary status under ERISA.” “The definition includes persons having authority and responsibility with respect to the matter in question, regardless of formal title.”

Retirement Services University 5 401(k) Investment Fiduciaries Who are the Investment Fiduciaries? An “Investment Fiduciary” is one who has any authority or control of the management or disposition of Plan Assets. ERISA employs the concept of “Functional Fiduciary” People responsible for the selection and retention of other plan fiduciaries exercise discretionary authority and control with respect to the management of the plan and are therefore themselves fiduciaries. ERISA Reg. §

Retirement Services University 6 401(k) Investment Fiduciaries What are the Responsibilities of Investment Fiduciaries? Exclusive Benefit Rule Select Investments with the Care, Skill, Prudence, and Diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. ERISA 404(a)(1). Diversify Operate in accordance with Plan Documents

Retirement Services University 7 401(k) Investment Fiduciaries Procedural Prudence Fiduciary should give appropriate consideration to those facts and circumstances that the fiduciary should know are relevant and; Fiduciary acts accordingly. Preamble to 404(c) regulations states that fiduciary has a residual responsibility to monitor investments to periodically determine if investments should continue to be available as participant investment offerings

Retirement Services University 8 Investment Monitoring Transamerica’s Co-Fiduciary Role Transamerica-Selected Investments We are a fiduciary because of our discretionary authority over these assets TI-Selected Investment We aggressively monitor, review, and recommend fund changes as necessary

Retirement Services University 9 Investment Analysis Due Diligence Performed on Each Investment Offered Russell/Mellon reviews: ►Style Orientation ►Performance Analysis ►Benchmarks Returns ►Regression Statistics

Retirement Services University 10 Reporting Quarterly Fund Monitoring Review Annual Product Review Investment Policy Statement Annual Fiduciary Review Meeting Agenda

Retirement Services University 11 Institutional Trustees Unless trustee assumes the role of the Plan Administrator, the existence of an institutional trustee does not have any effect on the employer’s potential liability to administer the plan Discretionary Trustees might relieve some liability for losses due to imprudent investments made by Discretionary Trustee, however, most Institutional Trustees are Directed Trustees “It is by now well-established that the power to appoint plan trustees confers fiduciary status,” Tomasso, 682 F. 1300, 1305.

Retirement Services University 12 Institutional Trustees But Trustees are always fiduciaries, right? “Where the plan instrument does not accord the Trustees any discretionary authority over investment decisions of the plan and the plan does not name the trustees as fiduciaries, such trustees may not be considered fiduciaries.” Arakelian v. National Western Life Ins. Co., 748 F. Supp. 17 (DC D.C. 1990). Thus whether fiduciary status exists with respect to a particular office or position is dependent upon the facts and circumstances and whether the office or position performs the functions described in ERISA Sec. 3(21)(A).

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