CSC SNL 401(k) Webinar Marcia S. Wagner, Esq. .

Duty to Monitor In Tibble v. Edison International, the United States Supreme Court confirmed that a fiduciary has a continuing duty to monitor investments and remove imprudent ones.

Duty to Monitor - Continued Committee meetings every quarter should suffice, with a possible exception for extraordinary cases such as Madoff and PIMCO. One of the key elements in mitigating the risk of litigation is the fiduciary’s process. Detailed committee minutes are critical in establishing a contemporaneous consideration of why actions were or were not taken.

Duty to Monitor - Continued Initially, very large 401(k) plans were the targets of litigation, but recently actions have been brought against mid-size 401(k) plans.

Plaintiff Allegations These allegations from a recent class action law suit - White v. Chevron Corporation - are typical of those found in complaints in class action litigation challenging the manner in which investments are managed under 401(k) plans: selecting of a money market fund as a capital preservation fund, rather than a stable value fund providing “retail” investment options rather than the lower cost “institutional versions” of the same investment options providing mutual funds, rather than other lower cost investment options such as collective trusts or separate accounts failing to put plan administrative services out for competitive bidding on a regular basis, and as a result paying excessive recordkeeping fees through revenue sharing

Plaintiff Allegations - Continued retaining a particular fund as an investment option despite its underperformance prepared to its benchmark, peer-group, and lower cost investment alternatives failing to monitor its appointees’ performance and fiduciary process failing to ensure that the appointees had a fiduciary process in place failing to remove appointees whose performance was inadequate

Actions to Avoid Tussey v ABB, a Court Of Appeals decision from the Eighth Circuit, is a good illustration of how not to administer a 401(k) plan’s investments. A failure to monitor recordkeeping costs and negotiate rebates The plan fiduciaries failed to follow the terms of the IPS which would have required revenue sharing to be used for the benefit of participants. The outside consultant to the plan warned the fiduciaries that they were overpaying for recordkeeping fees, and using the revenue sharing to subsidize corporate expenses. Additionally, the fiduciaries made no effort to determine if the fees were reasonable, or whether the recordkeeper’s pricing was competitive. The fiduciaries also removed a Vanguard Wellington fund and replaced it with a Fidelity fund because that decision benefited ABB and Fidelity, not plan participants.

Actions to Avoid - Continued Defendants ultimately prevailed on this latter issue because plaintiffs could not establish damages, but plan fiduciaries can not count on that happening in subsequent cases.

403(b) Plans There are 3 categories of 403(b) plans, only the third of which is subject to ERISA’s fiduciary rules: governmental plans and non-electing church plans safe harbor plans under DOL regulations, although with the revised statutory treatment of403(b)plans, the number of plans eligible for this exception has decreased significantly plans of not-for-profit employers

403(b) Plans - Continued Plans in the first two categories are not exempt from state law requirements that in some instances are substantially the same as the requirements under Title I of ERISA. The historical background of 403(b) plans provides additional challenges for fiduciaries monitoring the investments of 403(b) plans.

Recent 403(b) Plan Litigation Over the past few months, a series of lawsuits has been brought against major colleges and universities with respect to their 403(b) plans Large plans - $1-4 billion in assets, 20,000-30,000 in participants.BP Similar strategy as with 401(k) plans - commencing litigation with large plans,BP In part because of the historical background of these plans, may have focused less on fiduciary issues than 401(k) plans BP Any non-profit sponsoring a 403(b) plan is a potential target.

403(b) Plan Allegations Some elements of the complaints are the same as in 401(k) litigation-the recordkeeping and investment costs are too high, and expensive funds have underperformed. Some aspects are unique to 403(b) plans - the large number of investment options because of legacy holdings (between 100 and 400) dilutes the bargaining power of these institutions and results in duplicative investment menus that are confusing to plan participants.

Novant Litigation   The Novant case, which was settled, asserted that the 403(b) plan of a non- profit hospital paid excessive recordkeeping and investment costs. Assertion that cap on recordkeeping should be $35 per participant. Recently filed complaints make the same allegation of a $35 per participant fee.

Novant Litigation - Continued Having multiple recordkeepers may be difficult to defend.

Important Information This presentation is intended for general informational purposes only, and it does not constitute legal, tax, or investment advice from The Wagner Law Group. Financial advisors and other plan service providers should consult with their own legal counsel to understand the nature and scope of their responsibilities under ERISA and other applicable law.

99 Summer Street, 13th Floor CSC SNL 401(k) Webinar Marcia S. Wagner, Esq. 99 Summer Street, 13th Floor Boston, MA 02110 (617) 357-5200 www.wagnerlawgroup.com marcia@wagnerlawgroup.com