Your Role as a Retirement Plan Fiduciary: 3 Steps to Becoming Better Prepared

Today’s Presenters Patty Jurgeson, QKA Compliance Analyst 816.751.2243 pjurgeson@lockton.com Sam Henson, JD, CEBS, RPA, GBA Vice President Director of Legislative & Regulatory Affairs 816.751.2245 shenson@lockton.com

Getting Started: Why You Need to Understand Your Duty “Direct” liability for a breach involving your responsibility “Co-fiduciary” liability for another’s breach 37%1 of retirement committee members believe they are not fiduciaries CONSEQUENCES: Fine Personally liable to restore plan losses Removal from fiduciary position Ban on future service as fiduciary Imprisonment 1Alliance Bernstein, 2015

Plan Sponsor Fiduciary Risk is Significant Regulator Penalties & Litigation Settlements Regulatory Action Settlements = Expense2 Especially Costly: Fee Settlements3 $823.2 million1 was reimbursed to benefit plans and participants based on DOL investigations in 2014 3,9281 civil investigations the DOL were closed in 2014 65%1 of those investigations resulted in monetary compensation or other corrective action $140 Median Settlement: $15M Sources: 1www.plansponsor.com/dol-explains-drop-in-2014-collections-number/, 2015 2Annual Workplace Class Action Litigation Report: 2015 Edition, Seyfarth Shaw LLP, 2015 3Stuck in the Mud or Road to Success? DC Plans and Fee Lawsuits, Callan, 2015

Three Steps to Becoming a Prepared Fiduciary 1 Assemble your Retirement Committee. 2 Create the rules for plan governance. 3 Remain vigilant.

Step One: Assemble the Committee 1 2 3 Assemble your Retirement Committee. Create the rules for plan governance. Remain vigilant.

Who Should Serve on a Retirement Committee? HR, Finance, Operations, Legal, Accounting Someone who understands capital markets—a CEO or CFO Permanent (CEO, CFO, or HR VP) Non-permanent (rotated in staggered years) Odd number—3 to 5 (not too large)

Which Committee Members are Fiduciaries?  Fiduciaries are identified by their actions, not their titles. Anyone who exercises discretionary authority or control over the management of the plan’s assets is a fiduciary. 

Do Your Fiduciaries Know Who They Are? CLICK BELOW FOR A SAMPLE FIDUCIARY ACCEPTANCE FORM

What are a Fiduciary’s Responsibilities?  Act only for the benefit of participants/beneficiaries Exclusive Purpose Rule (Duty of Loyalty) Perform duties with the care, skill, and diligence of a subject matter expert Prudent Person Standard (Duty of Care) Follow the terms of the plan  

Can Fiduciary Committee Members Outsource Their Duties? A fee-based investment advisor— ERISA Section 3(21) A discretionary investment manager—ERISA Section 3(38) Other named fiduciaries Plan Administrator Trustee   

Are There Other Ways Fiduciaries can Mitigate Their Risk? Insures plan against losses due to fraud or dishonesty on the part of persons handling plan assets—required by ERISA Fidelity Bond Insures plan, fiduciaries, and/or company against losses resulting from breach of a fiduciary duty Fiduciary Liability of Plan Fiduciaries Company agrees to compensate fiduciary for personal loss resulting from fiduciary act Indemnification

How Does the Committee Prepare Its fiduciaries? Plan fiduciaries should be able to answer these questions correctly: Who are the trustees and named fiduciaries? Is the plan 404c compliant and how? Do you clearly understand the plan expenses and articulate why they are reasonable? What is your formal process for decision making? Is there a clear paper trail for your decision making? Who has the authority to make decisions?

Step Two: Make the Rules 1 2 3 Assemble your Retirement Committee. Create the rules for plan governance. Remain vigilant.

What Information Do Fiduciaries Need to Review? Governance Plan Administration Communications Prudent Oversight Committee Charter Purpose Roles Membership Meeting Minutes Signed Fiduciary Acceptance Forms ERISA Fidelity Bonds Plan Documents Procedure Manuals Loan Activity Reports IRS Form 5500s and Schedules Audit Reports Government / Regulatory Required Communications Participant Education Materials Journals and Ledgers – 404c Compliance Service Provider Contracts Investment Reviews Fee Disclosures Service Benchmarking Reviews

How Should the Committee Think About Fees? Separate Settlor vs. Fiduciary Decisions   Settlor Functions Fiduciary Functions Overview Business related decisions not subject to a fiduciary standard Decisions on behalf of plan participants and subject to a higher standard of care Paying Plan Expenses If the employer primarily benefits, the expense cannot be paid by the plan: Discretionary Amendments Establishment Termination If the plan primarily benefits, the expense can be paid by the plan: Plan Audit Recordkeeping Legal Communications Required Amendments Any expense paid by the plan must be necessary and reasonable.

Step Three: Vigilance 3 1 2 Assemble your Retirement Committee. Create the rules for plan governance. Remain vigilant.

How Does an Effective Committee Meeting Run? Hold 2 to 4 per year Set an agenda Appoint a chair Distribute materials in advance Consider inviting legal counsel Document discussions thoroughly Retain reports and meeting minutes in your Fiduciary Files Discuss how to communicate decisions

What About Vendors? Service providers offer expertise, but still require oversight. Regularly monitor: Adherence to service levels Quality and accuracy Organizational and service offer changes Conduct formal market reviews every three to five years to benchmark: Credentials Conflicts of interest Fees Insurance coverage Competitiveness of service offer Applies to all service providers

How Can the Committee Continue to Succeed?  Include new fiduciary topics as part of ongoing learning Introduce new committee members with new expertise Learn from legislative, regulatory, and judicial activity  

Disclosures Securities offered through Lockton Financial Advisors, LLC a registered broker-dealer and member FINRA, SIPC. Investment advisory services offered through Lockton Investment Advisors, LLC, a SEC registered investment advisor. For California, Lockton Financial Advisors, LLC, d.b.a. Lockton Insurance Services, LLC, license number 0G13569.