Fiduciary Standards Checklist RETIREMENT INVESTMENT CONCEPTS

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1 RETIREMENT INVESTMENT CONCEPTS Fiduciary Standards Checklist For Prudent Practices for Investment Stewards This checklist suggests appropriate actions based on accepted fiduciary standards. These actions may serve to decrease fiduciary liability. You can get more information about these practices in Fiduciary 360 s book, Prudent Practices for Investment Stewards. Organize Practice 1.1 Get your docs in a row Investments are managed in accordance with applicable laws, trust documents and a written investment policy statement (IPS). Have ready access to, review and analyze: The IPS Applicable trust documents Custodial and brokerage agreements All service agreements (money managers, investment consultants, accountants, actuaries, attorneys) Information on all investment managers, specifically the prospectus for each mutual fund or comparable document for separately managed accounts Investment performance reports All written minutes and files from investment committee meetings Practice 1.2 Know your role The roles and responsibilities of all involved parties (fiduciaries and nonfiduciaries) are defined, documented and acknowledged. All parties involved in the investment process should have their duties and requirements detailed in the IPS or otherwise documented in writing. For investment policy committee members, this can be done in the form of a letter of acceptance of fiduciary duty, which should be signed and filed with other relevant investment committee documentation. Other fiduciaries should sign an acknowledgement of their responsibilities; the duties and responsibilities of nonfiduciaries (for instance, professional money managers or investment advisers) should be detailed in the IPS. Practice 1.3 Do the right thing Fiduciaries and parties-in-interest are not involved in self-dealing. Create policies and procedures for overseeing and managing potential conflicts of interest. Have all fiduciaries acknowledge on an annual basis the organization s ethics policies. 1

2 Organize (continued) Practice 1.4 Put it in writing Service agreements and contracts are in writing and do not contain provisions that conflict with fiduciary standards of care. Create written agreements that define the scope of the various parties duties and responsibilities, including that the portfolio is to be managed in accordance with the written documents that govern the investment strategy, so all parties have a clear understanding of their roles and responsibilities. All agreements and contracts should be reviewed periodically by legal counsel. Consider putting vendor contracts out for bid every three to five years. Practice 1.5 Protect from theft or embezzlement Assets are within the jurisdiction of courts and are protected from theft or embezzlement. Invest all assets so that they are under the purview of the relevant judicial system. This ensures that a regulatory agency can step in and seize assets if the agency deems it is in the best interest of the participants and beneficiaries. In the case of an ERISA plan, secure the appropriate surety bond and be sure the coverage amount is up to date for the current assets under management (should be done annually). Formalize Practice 2.1 Establish a time horizon An investment time horizon has been identified. To determine an appropriate time horizon, you ll need to look at the time horizons of the plan participants. A plan where the majority of participants are in their late 50s will have a much different time horizon than one whose participants are mostly in their mid 20s. Practice 2.2 Choose the right amount of risk A risk level has been identified. Make sure the overall risk level of the investments you choose is appropriate for your participant population. Participants approaching retirement should have access to lower risk fixed-income investments, while those far from retirement should have access to more aggressive investments. Practice 2.3 Set expectations An expected, modeled return to meet investment objectives has been identified. When establishing criteria for investment review, be sure the expected return for each investment is for a suitable time frame at least one full market cycle. Practice 2.4 Keep it consistent Selected assets are consistent with the identified risk, return and time horizon. For participant-directed plans, choose investment options that provide each participant the opportunity to construct a portfolio that meets his personal time horizon and risk/return profile. Practice 2.5 Keep an eye on it Selected asset classes are consistent with implementation and monitoring constraints. Don t overdo it _ while it may seem easiest in terms of meeting all criteria to make a large number of investments available, doing so can confuse participants, create a large review burden for the investment committee and increase plan costs. Ensure the number and type of investments chosen for the plan is appropriate for the investment-knowledge level of the participants and the available time for regular review of the investment committee members. 2

3 Formalize (continued) Practice 2.6 Remember the importance of an IPS There is an IPS that contains the details to define, implement and manage a specific investment strategy. The IPS is probably the most important document to plan fiduciaries and investment committee members. It should define the duties and responsibilities of all involved parties; set forth diversification guidelines consistent with specified risk, return and time horizon parameters; and create due diligence criteria for selecting and monitoring investment options and service vendors. Ensure your IPS covers all these facets and that the investment committee members are committed to following the guidelines set forth in the IPS and properly documenting all procedures. Practice 2.7 Be socially responsible The IPS defines appropriately structured, socially responsible investment strategies when applicable. If the plan sponsor has deemed it important to invest in socially responsible investment strategies, the parameters and definition of socially responsible should be outlined in the IPS, and measures of success should also be clearly defined. Implement Practice 3.1 Be prudent The investment strategy is implemented in compliance with the required level of prudence. This item relates to implementation of the due diligence for selecting and monitoring investment options. Criteria such as minimum track record (number of years fund has been in existence), minimum assets under management, minimum number of years the portfolio manager has been with the fund and minimum return relative to benchmark need to be specifically spelled out in the IPS and then reviewed on a regular basis, the frequency of which must also be written in the IPS. Practice 3.2 Follow safe harbor provisions Applicable safe harbor provisions are followed (when elected). Safe harbor provisions are strictly voluntary; however, fiduciaries that choose not to follow safe harbor rules will not benefit from ERISA 404(c) s protective relief from fiduciary liability for losses resulting from investment decisions made by employees or beneficiaries in participant-directed individual account plans, such as profit sharing or 401(k) plans. For more information on ERISA 404(c) safe harbor provisions, see page 36 of Prudent Practices for Investment Stewards. Practice 3.3 Find the right vehicle Investment vehicles are appropriate to the portfolio size. Assure that decisions regarding separately managed accounts vs. mutual funds, active vs. passive management, and wrap accounts are all documented, and that the chosen alternative is appropriate given the size of the plan. Practice 3.4 Ensure due diligence A due diligence process is followed in selecting service providers, including the custodian. Choose the appropriate service providers and custodian for your plan. At the retail level, the custodian is usually a brokerage firm. The assets are generally held in street name and commingled with other assets of the firm, which carries adequate insurance to protect the assets. Institutional investors often choose trust companies as custodians and pay an additional fee. The advantage of a trust company is that the assets are held in a separate account, not commingled. Whichever choice you make, be sure to have a procedure for selection in the IPS. 3

4 Monitor Practice 4.1 Check the index Periodic reports compare investment performance against the appropriate index, peer group and IPS objective. Consider purchasing one of the available programs that can help investment committee members review investments on a regular basis. Be sure that the investment committee has access to suitable benchmarking reports. Practice 4.2 Watch more than performance Periodic reviews are made of qualitative and/or organizational changes of investment decision-makers. The investment committee should determine how often they should review other aspects of the chosen investment managers for instance, any changes to the objective or management team of the mutual fund, or any pending legal or regulatory issues the company may be facing. Practice 4.3 Stay in control Control procedures are in place to review policies for best execution, soft dollars and proxy voting. Establish control procedures then review them annually to ensure adherence and appropriateness. Practice 4.4 Document expenses and fees Fees for investment management are consistent with agreements and all applicable laws. Document all fees paid, and review them periodically to determine their reasonableness. The new form 5500 should serve as an excellent source of documentation of fees charged and paid. Practice 4.5 Track finder s fees Finder s fees or other forms of compensation that may have been paid for asset placement are appropriately applied, used and documented. Finder s fees should be monitored and documented in the same way other fees and expenses are. Practice 4.6 Watch yourself There is a process to periodically review the organization s effectiveness in meeting its fiduciary responsibilities. On a regular basis, review all policies and procedures (including all those spelled out in the IPS) and make sure they re still appropriate and effective. Consider the investment objectives, risks, and charges and expenses carefully. For this and other information about AIM funds, obtain a prospectus from your financial adviser and read it carefully before investing. Note: Not all products, materials or services available at all firms. Advisers, please contact your home office. invescoaim.com FSC-BRO-1 01/10 Invesco Aim Distributors, Inc.

5 Supplemental Information On or about April 30, 2010, Invesco Aim Distributors, Inc. becomes Invesco Distributors, Inc., Invesco Aim Investment Services, Inc. becomes Invesco Investment Services, Inc., and AIM funds become Invesco funds. In addition, invescoaim.com becomes invesco.com. On or about April 30, 2010, Invesco replaces AIM in the fund name. On or about April 30, 2010, AIM Trimark Fund becomes Invesco Global Fund. On or about April 30, 2010, AIM Trimark Endeavor Fund becomes Invesco Endeavor Fund. On or about April 30, 2010, AIM Trimark Small Companies Fund becomes Invesco Small Companies Fund. On or about April 30, 2010, AIM V.I. PowerShares ETF Allocation Fund becomes Invesco V.I. Global Multi-Asset Fund. After the close of business on Dec. 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc., which was renamed Invesco Advisers, Inc. Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their advisers for a prospectus/summary prospectus or visit invesco.com/fundprospectus. Note: Not all products, materials or services available at all firms. Advisers, please contact your home office. invesco.com AIM-INS-2 04/10 Invesco Distributors, Inc.