ACCE Benefit Trust Spring Meeting Fiduciary Training ACCE Benefit Trust Spring Meeting May 18, 2018 David C. Kaleda, Principal

Governance Overview Benefits Trust is the sponsor of the Association of Chamber of Commerce Executives Profit Sharing Plan BT, through its Board, runs the Plan The Board Members - act in a settlor, non-fiduciary capacity in some respects; and act in a fiduciary capacity in other respects

“Settlor” vs. Fiduciary Activities It is important to understand the distinction between “settlor” and fiduciary activities. Importantly, when acting as a settlor, ERISA’s fiduciary standards do not apply. “Settlor” activities (e.g., employer business decisions relating to plan establishment and design) are not fiduciary activities. But plan assets cannot be used to pay for “settlor” activities.

“Settlor” vs. Fiduciary Activities On the other hand, fiduciary activities include – Appointing and monitoring other plan fiduciaries (including investment managers and investment advisors). Selecting and monitoring service providers (TPAs, insurers, consultants). Making claims decisions. Paying plan expenses. Plan investment decisions. Plan assets can be used to pay for fiduciary activities.

Definition of “Fiduciary” A person is a “fiduciary” to a plan to the extent that person – Has any authority or control over the management of plan assets, Has discretionary authority over plan administration, OR Renders investment advice to the plan for a fee. “Named Fiduciaries” ERISA also requires that every plan have a “named fiduciary,” which means that certain fiduciaries must be identified (or identifiable pursuant to a procedure described) in the plan document.

Definition of “Fiduciary” The definition is “functional” This means that you can be a fiduciary regardless of whether you’re identified as a fiduciary in any document or whether you accept fiduciary status. Your conduct—not your official role or duties—determine whether you are a fiduciary.

Settlor vs. Fiduciary Activities The BT engages in the following settlor & fiduciary activities Settlor/Non-fiduciary Decisions regarding whether to offer a plan and to whom. Decisions regarding plan design (types of contributions, types of distributions/loans, etc.). Termination of Plan. Fiduciary Operation/administration of a plan. Selection of investment options available to participants. Hiring of service providers (FBI, Principal, HR Investment Consultants, BKD, Groom, etc.). Using plan assets to pay for expenses.

ERISA Overview ERISA governs the operation and administration of private pension and welfare benefit plans. ERISA includes – Fiduciary Responsibility Provisions Liability & Enforcement Provisions Reporting & Disclosure Rules

ERISA Overview Fiduciary Responsibility Administrative Requirements ERISA imposes the “highest” fiduciary duty under law. This standard is supplemented by ERISA’s prohibited transaction rules. Administrative Requirements ERISA has a number of rules regarding reporting and disclosure, plan documentation and governance, claims procedures, and rules governing custody and control of “plan assets.” Liability and Enforcement ERISA has an extensive liability and enforcement regime, which includes personal liability of fiduciaries, as well as co-fiduciary liability.

Who is a Fiduciary? Plan administrator. Administrative and investment committees. Trustee. Investment managers and investment advisors. Claims decision-makers. Functional fiduciaries: Anyone who exercises discretion over plan investments or administration.

Who is a Fiduciary of the Plan? Board members. Principal as directed trustee. Principal as discretionary trustee to collective investment trusts (but, not mutual funds) Principal as investment manager of the Plan’s collective investment trusts. HR Investment Consultants as investment advisor to the Committee

Who is not a fiduciary to the Plan? FBI/ACCE Marketing Third party administration Vendor relations support Principal – recordkeeper Groom Law – attorney BKD – CPA/auditor Advisers to Mutual Funds

Overview of Fiduciary Duties ERISA § 404 requires fiduciaries to — Act prudently; Act solely in the interest of the plan’s participants and beneficiaries (duty of loyalty); Use plan assets only to pay plan participants and beneficiaries and “reasonable” plan expenses; Diversify plan investments to avoid large losses; and Comply with governing plan documents.

Participant Directed Plans “Safe Harbor” Relief under ERISA § 404(c) ERISA limits fiduciary liability for plans that permit participant direction for investment decisions. But the requirements of ERISA § 404(c) must be met. Among other things – Broad range of investment alternatives must be offered. Participants must have the opportunity to exercise control over their accounts. Required disclosures must be made. Sufficient information about investments, including fees. Notice that plan is intended to meet 404(c) requirements and that fiduciary liability is limited.

Fiduciary Duties - Prudence Process, process, process . . . Fiduciaries are not required to guarantee successful results—rather, they must employ a prudent decision-making process. A prudent procedure is one employed by a “prudent expert” and not a “prudent layman.” It is necessary to document procedural prudence.

Fiduciary Duties - Prudence Identify the necessary information. Obtain information from a reliable source. Consult with experts, as necessary. Document underlying basis for decision. Make Informed decision

Fiduciary Duties - Loyalty ERISA requires fiduciaries to act solely in the interest of participants and beneficiaries. But Board members may “wear two hats.” Employer “settlor” hat. Fiduciary hat.

Fiduciary Duties – Prohibited Transactions ERISA’s general fiduciary provisions are supplemented by “prohibited transaction” rules. ERISA and the Code prohibit certain transactions between a plan and “parties in interest” and “disqualified persons” to the plan. These include fiduciaries, the plan sponsor, service providers, and certain of their affiliates. ERISA prohibits self-dealing and other certain transactions involving fiduciary conflicts. But ERISA provides certain statutory exemptions and allows administrative exemptions to overcome these prohibitions.

Fiduciary Duties – Services and Fees Decisions about the disposition of plan assets, including whether to pay expenses are “fiduciary.” Fiduciaries may only pay “reasonable” plan expenses – For services that are appropriate and helpful to the plan, e.g., administrative/investment expenses (but not for settlor expenses). But fees must be “reasonable” in amount (compared to fees charged by other providers of similar services). Reimbursement of reasonable fiduciary expenses (e.g., travel, meetings) is permitted.

Liability and Enforcement Remember – A fiduciary that breaches any of his/her fiduciary duties may be personally liable for plan losses. A fiduciary may be liable for a breach of fiduciary duty by another fiduciary (“co-fiduciary”). ERISA allows fiduciaries, participants, beneficiaries and the DOL authority to sue for violations of ERISA. Participants can sue for benefit claims and equitable relief. ERISA also provides for civil money penalties as well as criminal penalties. ERISA generally preempts state lawsuits.

Key Areas of Compliance Use of Plan Assets Payments from BT bank account Not plan assets May be used to pay for settlor, fiduciary, administrative activities, & other services necessary to the operation of the Plan Payments from PRA established at Principal Treated as plan assets May be used for fiduciary, administrative services, & other services necessary to the operation of the Plan

Key Areas of Compliance Payment of Plan Expenses Amounts paid from PRA must be “reasonable” in amount for services “necessary” to the operation and administration of the Plan PRA used to pay – FBI/ACCE – administrative services HR Investment Consultants – advisory services Trust Administrators LLC – administrative services BKD – audit fees Board – travel expenses PRA cannot be used to pay settlor expenses – marketing, amendment of plan, etc.

Key Areas of Compliance Selection and retention of service providers Selection & retention of investment options and investment managers

Checklist of Key Fiduciary Issues Oversight Responsibilities Monitor investments, including fees and performance. Consider types of investments used (e.g., mutual fund share class, collective investment funds, separately managed accounts, fund of funds). Consider special issues for target date funds, default investments (QDIA), stable value funds, and fund substitutions/eliminations. Monitor service providers (e.g., trustee, recordkeeper, investment consultant), including fees and performance. Stay apprised of and continually monitor other plan expenses. Fiduciary Process Board members should be selected based on relevant expertise and availability, and should be formally appointed. Board should meet regularly and minutes should be prepared to document discussions and decisions. Board records should be maintained and readily accessible. Board should have access to outside experts (e.g., investment advisors, legal counsel), as necessary. Proper delegations should be made when allocating/delegating fiduciary responsibility. General Plan Operation Plan governing documents should be up-to-date (e.g., SPDs). Plan governing documents should be consistent with each other and avoid conflicts. Process should be consistent with documentation. Required disclosures and filings should be made (e.g., participant disclosures, Form 5500s).

Questions? David C. Kaleda dkaleda@groom.com (202) 861 0166