Fiduciary Responsibilities For Employee Retirement Plans Kathy Lindahl, AVP Finance & Operations, Michigan State University Anne N. Fish, Director of Benefits, Northwestern University Kelley F. Snook AIF ®, President – Consulting Group, StraightLine Michael F. Bisaro AIF ®, Vice President – Participant Services, StraightLine

 403(b) Plans and Fiduciary Liability?  Fiduciary Liability lies with the Chief Business Officer….when it goes wrong, we’re liable not the vendors!  So what does that mean?  We knew we needed some help to get it done efficiently…  Independent, unbiased guidance combining Institution and faculty/staff needs  MSU went through a process of learning “we didn’t know what we didn’t know” What Chief Business Officers Need To Know 2

 Opportunity to Optimize Plan Performance  Plan Design – ‘Best of the Best’ for Institution & Participants  Vendor Reduction, Optimal Investments, Cost Redirection  Employees Confused - Product-Based Sales with Appropriate Financial Advice  Unbiased Employee Financial Advisement  Enhanced Education, Technology, & Employee Tools  Retirement Investment Advisory Committee (RIAC)  Refocus RIAC Charter, Purpose, Controls and Oversight The Enlightenment Period! 3

 The goal of every Retirement Plan, ERISA and NON- ERISA, must be to quantifiably improve the retirement outcome of every participant  Time to put the “School” back into the Plan  Independent Perspective vs. Vendor Perspective  All of this driven by our Fiduciary Responsibility Keep The End Game In Mind 4

Participant Services Plan Services The Process For Plan Success 5 O V E R S I G H T F I D U C I A R Y F I D U C I A R Y O V E R S I G H T

Participant Services Plan Services The Process For Plan Success 6 O V E R S I G H T F I D U C I A R Y F I D U C I A R Y O V E R S I G H T

The Evolution Of The 403(b) 7

 Exercise discretionary control/authority over plan management or plan assets  Have discretionary authority or responsibility for plan administration  Provide investment advice to a plan for compensation or have authority or responsibility to do so  e.g. Plan Trustees, Plan Administrators, Committee Members 8 Who is a Fiduciary

 Know Standards, Laws and Document Provisions  Select and Diversify Investments  Use Prudent Experts  Loyalty to Beneficiaries and Account for Plan Expenses  Written Process; Documented Application  Avoid Conflicts of Interest 9 What is a Fiduciary Process

10  Plan Document  Investment Policy Statement (IPS)  Education Policy Statement (EPS) Aggregate Information  Form 5500  Audit  Compliance Know Standards, Laws, & Document Provisions Consolidation is Inevitable!

**The fund companies noted above represent only a small portion of available fund companies from which you may choose. 11 Select & Diversify Investments

 ERISA section 404(a)(1)(B) Act Prudently—fiduciaries must act “with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent [person] acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 12 Use Prudent Experts

 Duty of Loyalty and Reasonableness Discharge duties with respect to a plan solely in the interest of the participants and beneficiaries. Defray reasonable expenses of administering the plan 13 Loyalty to Beneficiaries & Account For Plan Expenses

“While fiduciaries have a duty to understand revenue-sharing, there is no corresponding duty imposed on nonfiduciary service providers to provide that information.” “In effect, the law creates a curious circumstance where the people with the least knowledge about a subject (i.e., plan sponsors) have the legal responsibility to evaluate it, while the people who are most knowledgeable about the same subject (i.e., 401(k) providers) have no legal duty to disclose it.”* C. Frederick Reish, Partner and ERISA Specialist Drinker Biddle & Reath, LLP, Los Angeles *2008 Article for Plan Sponsor Magazine 14 Duty of Reasonableness

 Unbundle to Understand What You Are Paying Costs Investment Management Record- keeping Technology Services Compliance Employee Communications Retirement Plan 15 Duty of Reasonableness

16  Understand what is reasonable Duty of Reasonableness

Investment Management Fee 12b-1 Fees Shareholder Servicing Fees Sub-TA (Agency Transfer Fees) 17 Duty of Reasonableness  Understand How You Are Paying

Written Process; Documented Application  Establish  Follow  Document  Measure  Repeat! 18 “Excellence is the gradual result of always striving to do better” - Pat Riley

 Know Standards, Laws and Document Provisions  Select and Diversify Investments  Use Prudent Experts  Loyalty to Beneficiaries and Account for Plan Expenses  Written Process; Documented Application  Avoid Conflicts of Interest 19 What is a Fiduciary Process

Participant Services Plan Services The Process For Plan Success 20 O V E R S I G H T F I D U C I A R Y O V E R S I G H T F I D U C I A R Y

 Concerns Those employed in the higher education community are growing more nervous about their ability to retire comfortably, yet few are acting on their concerns 62% are less confident about living comfortably in retirement 36% have never calculated their retirement income needs 40% have never changed their retirement account allocation  Shocking Statistics Web-based survey commissioned by ING and conducted by Synovate via a national internet consumer panel between October 14 th and October 19 th, Respondents included 301 individuals in the U.S. currently employed in higher education who participate in their employer’s DC plan. 21 Higher Education Employee Study

 Insufficient Diversification  Inertia  Fund Overlap  Misuse of Target Date Funds  Nonexistent or Infrequent Rebalancing  Lack of Plan Understanding  403(b) vs. 457, Roth Savings, etc.  Insufficient Savings Rates 22 Common Employee Behaviors

 Product Sales vs. Financial Literacy & Fiduciary Advice  Lack of Objective Resources to Provide Desired Education and Advice  Inherent Conflicts of Interest  Plan Providers NOT Fiduciaries  No Opportunity for Professional, Ongoing Management 23 Pitfalls With Current Participant Help

 Employee Inattention  Retirement Success = Income Replacement  Enhanced Strategies  Professional Management Options  Impact More People  Make It Easier 24 Focus Efforts on the Real Challenges

Employee Adoption Fee Methods & Adoption Rates 25

26 “ERISA Bucket”  Possibility For Fee Integration From Excess Revenue

Participant Services Plan Services The Process For Plan Success 27 O V E R S I G H T F I D U C I A R Y F I D U C I A R Y O V E R S I G H T

Every program and platform should be designed to quantifiably improve each participant’s chance at retirement success 28 Fiduciary Responsibilities with Employee Retirement Plans

Questions? 29

Kathy Lindahl AVP Finance & Operations Michigan State University (517) Kelley F. Snook Jr. AIF ® President – Consulting Group StraightLine (877) Michael F. Bisaro AIF ® Vice President – Participant Services StraightLine (877) Anne N. Fish Director of Benefits Northwestern University (847) Contact Information 30