Who is the Plan Fiduciary? Employment Law Briefing June 25, 2018 CUPA HR Conference 2

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Basically, any person who: Exercises any discretionary authority or control concerning the management of the plan Exercises any authority or control over the management or disposition of

1 Who is the Plan Fiduciary? June 25, 2018 Jacksonville Presented by: Robert S. Ellerbrock Paul Owen (CAPTRUST Advisors) Employment Law Briefing June 25, 2018 CUPA HR Conference 1 Who is a Fiduciary? Basically, any person who: Exercises any discretionary authority or control concerning the management of the plan Exercises any authority or control over the management or disposition of the plan s assets Renders investment advice with respect to plan funds for a fee or other compensation (investment professional/advisor) Has discretionary authority or responsibility in the administration of the plan Discretion is key one who exercises discretion concerning the plan will be a fiduciary Employment Law Briefing June 25, 2018 CUPA HR Conference 2 1

2 Is It Me? Employer/Plan Sponsor is the ultimate plan fiduciary Fiduciaries may be named in the plan or policies Trustee Investment Manager Plan Administrator may be an individual, the employer, or subsidiary (not to be confused with TPA) Corporate Officers may be fiduciaries by virtue of their office and decision making authority Selection of service providers Design of the plan benefits Hiring of investment managers Selection of funds Employment Law Briefing June 25, 2018 CUPA HR Conference 3 Is It Me? Employment Law Briefing June 25, 2018 CUPA HR Conference 4 2

Main Fiduciary Duties Under ERISA 1. Act prudently 2. Diversification rule 3. Exclusive benefit rule 4. Act in accordance with plan documents 5. Ensure Plan expenses are reasonable 6.

that a prudent person acting in a like capacity and familiar with such matters would use If fiduciaries act prudently in selecting and monitoring the investment funds, this will generally fulfill

3 Main Fiduciary Duties Under ERISA 1. Act prudently 2. Diversification rule 3. Exclusive benefit rule 4. Act in accordance with plan documents 5. Ensure Plan expenses are reasonable 6. Avoid engaging in prohibited transactions Employment Law Briefing June 25, 2018 CUPA HR Conference 5 Act Prudently Fiduciaries must carry out all duties with the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use If fiduciaries act prudently in selecting and monitoring the investment funds, this will generally fulfill their fiduciary obligations Not concerned with results, but whether the fiduciary s actions were prudent Actions showing procedural prudence should be documented Employment Law Briefing June 25, 2018 CUPA HR Conference 6 3

4 Diversification Rule Fiduciaries should diversify plan assets to minimize the risk of large losses, unless it is clearly prudent not to do so Select a broad range of investment options Each investment must be prudently selected Avoid investing in a single security or securities dependent upon the success of one enterprise Employment Law Briefing June 25, 2018 CUPA HR Conference 7 Exclusive Benefit Rule (Duty of Loyalty) Fiduciary duties must be performed for the sole purpose of providing plan benefits to participants and their beneficiaries while limiting reasonable plan expenses Plan assets must not be used for fiduciary s own benefit, even if it benefits plan participants Conflicts of interest must be avoided Employment Law Briefing June 25, 2018 CUPA HR Conference 8 4

5 Act in Accordance with Plan Documents Fiduciaries must follow the terms and provisions of the plan document and other documents governing plan administration Fiduciaries should be familiar with the terms of the plan documents May hire outside counsel to assist with this requirement, but duty still remains with fiduciary Employment Law Briefing June 25, 2018 CUPA HR Conference 9 Ensure Plan Expenses are Reasonable Fiduciaries should determine the services needed by the plan and fees related to these services Accounting services Legal services Recordkeeping Compliance Fiduciary services Service agreements with providers must disclose these fees Ensure these fees are reasonable Are services adequate Plan committees must engage in a prudent process to evaluate these issues Employment Law Briefing June 25, 2018 CUPA HR Conference 10 5

Ensure Plan Expenses are Reasonable Helpful items Request for proposals (RFP) Benchmarking Nature, quality and quantity of services Negotiate costs and compensation Share classes Expense recapture

6 Ensure Plan Expenses are Reasonable Helpful items Request for proposals (RFP) Benchmarking Nature, quality and quantity of services Negotiate costs and compensation Share classes Expense recapture accounts Employment Law Briefing June 25, 2018 CUPA HR Conference 11 Avoid in Engaging in Prohibited Transactions Fiduciaries must not engage in any prohibited transactions under ERISA Certain transactions between the plan and certain parties are prohibited, even if it would benefit the plan Prohibits various transactions between a plan and party ininterest Sale, exchange or lease Lending money or other extension of credit Furnishing goods, services or facilities Transfer of plan assets to party in interest Also prohibits any self dealing dealing with plan assets for own account, acting on behalf of party adverse to plan or participants, or receiving consideration for transaction involving plan assets Employment Law Briefing June 25, 2018 CUPA HR Conference 12 6

7 Liability For a Breach of Duty Can be held personally liable to make good any losses or to restore any profits related to a breach Penalty of up to 20% of amount recovered as a result of violation Willful violations can result in criminal penalties of up to $5,000 and up to one year in prison If a fiduciary conceals, enables, or knows of breach by another fiduciary and fails to remedy it, he or she may be liable for the cofiduciary s breach Employment Law Briefing June 25, 2018 CUPA HR Conference 13 How to Avoid Personal Liability Act solely in the interest of the participants and beneficiaries and for their benefit while ensuring expenses related to the plan are reasonable The benefit plan should be in writing The investment policy must be in writing Employment Law Briefing June 25, 2018 CUPA HR Conference 14 7

How to Avoid Personal Liability 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

8 How to Avoid Personal Liability 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 with like aims Diversify investments to reduce risk of substantial loss Ensure that all responsibilities are carried out in accordance with the plan document Employment Law Briefing June 25, 2018 CUPA HR Conference 15 What Plans are Covered by ERISA? Pension Plans 401(k) plans Defined benefit plans Defined contribution plans Money purchase pension plans Profit sharing plans Target benefit plans Welfare Benefit Plans Day care plans Death and disability funds Dental plans Medical plans Prepaid legal service plans Scholarship funds Unemployment plans Vacation benefit plans Workers compensation Employment Law Briefing June 25, 2018 CUPA HR Conference 16 8

Five Questions to Ask Yourself Employment Law Briefing June 25, 2018 CUPA HR Conference 17 1 Do I know all the third parties that are acting in a fiduciary capacity to our plan or plan participants,

9 Five Questions to Ask Yourself Employment Law Briefing June 25, 2018 CUPA HR Conference 17 1 Do I know all the third parties that are acting in a fiduciary capacity to our plan or plan participants, and what conflicts do these third parties have? Advisors Have they expressly agreed to be a fiduciary If your advisor has a potential conflict, you should understand why, for what, and how 18 Employment Law Briefing June 25, 2018 CUPA HR Conference 9

2 What are these third parties compliance policies and procedures that will ensure these conflicts do not influence the advice they are

Now that you understand their conflicts, you must understand how they will prevent their conflicts from influencing their advice Fiduciary

10 2 What are these third parties compliance policies and procedures that will ensure these conflicts do not influence the advice they are providing our plan or our participants? Now that you understand their conflicts, you must understand how they will prevent their conflicts from influencing their advice Fiduciary duty to avoid prohibited transactions 19 Employment Law Briefing June 25, 2018 CUPA HR Conference 3 What is my perspective on investment advice? Activities which were previously guidance may now be advice Providers previously serving your plan, or plan participants in a non fiduciary capacity, may now be doing so in a fiduciary capacity through the BIC Are you comfortable with your participants receiving advice from someone with conflicts of interest? 20 Employment Law Briefing June 25, 2018 CUPA HR Conference 10

11 4 What is our benefit philosophy regarding terminated participants? Even though the Fiduciary Rule is currently off the table, many expect that the rule as proposed may still result in fewer third parties soliciting rollovers The result may be more participants wishing to stay in your plans You should evaluate your philosophy surrounding your terminated participants staying in your plan 21 Employment Law Briefing June 25, 2018 CUPA HR Conference 5 Should we update our plan design to align with our philosophy on terminated participants? If you re supportive of terminated participants staying in the plan, you may wish to reevaluate your plan design and plan offerings to ensure they align with this philosophy, including: Supporting roll ins and consolidation of other qualified assets Offering partial distributions, specifically systematic payments Exploring guidance or advice offerings Evaluating planning tools and calculators Adding investment options or solutions designed for income generation 22 Employment Law Briefing June 25, 2018 CUPA HR Conference 11

12 Current Activity An increasing number of lawsuits asserting Employee Retirement Income Security Act (ERISA) fiduciary claims with regard to 403(b) plan Generally, the lawsuits claim Excessive fees for record keeping and administration of the plans; Too many investment options, many of which were duplicative, unnecessary, confusing to participations, and contained obscure fees; The use of retail instead of institutional mutual funds (retail funds typically have much higher fees); Asset based recordkeeping fees funded by revenue sharing; and Failure to adequately monitor the plans. Also an increased focus by the Department of Labor (DOL) on fiduciary matters 23 Employment Law Briefing June 25, 2018 CUPA HR Conference Best Practices Monitor Service Providers Review service provider performance Review service agreement Review reports provided Review fees charged Ask about policies and practices Follow up on participant complaints Review SAS 70 of recordkeeper and/or custodian Document everything Employment Law Briefing June 25, 2018 CUPA HR Conference 24 12

Best Practices Review plan investments and policies statements and document such review Hold regular meetings with Retirement Plan Committee or Investment Committee or those charged with plan

13 Best Practices Review plan investments and policies statements and document such review Hold regular meetings with Retirement Plan Committee or Investment Committee or those charged with plan governance and document accordingly Document Document Document Employment Law Briefing June 25, 2018 CUPA HR Conference 25 Questions Employment Law Briefing June 25, 2018 CUPA HR Conference 26 13

14 Presented by: Who is a Plan Fiduciary? Is It Me? June 25, 2018 Jacksonville Robert S. Ellerbrock Robert.Ellerbrock@ogletreedeakins.com Paul Owen (ext ) Paul.Owen@captrustadvisors.com Employment Law Briefing June 25, 2018 CUPA HR Conference 27 14

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