You recognize that your retirement plan is a critical benefit that can help your company attract and retain quality employees.

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3 You recognize that your retirement plan is a critical benefit that can help your company attract and retain quality employees. Beyond Gravity Federated s Beyond Gravity toolkit helps financial advisers train investment committee members how to conduct a fiduciary orientation program, prepare for plan sponsor meetings, proactively schedule fiduciary actions, educate clients on the proper documentation for meetings and provide an annual fiduciary to-do list for committees to track activities. That means your plan must meet the expectations of your plan participants. It also means you must meet the regulatory expectations as well. We developed this Fiduciary Planning Process guide to help plan sponsors understand their fiduciary roles and responsibilities. It will walk you through a review of your fiduciary responsibilities following a five-step process. This guide complements other Federated materials available through your adviser, including Beyond Gravity A Guide for Fiduciary Meetings and DOL Investigation Preparedness. Gold Signature Award Winner DOL Investigation Preparedness Federated s Department of Labor Investigation Preparedness guide helps plan sponsors understand what happens in a typical DOL investigation. Gold Signature Award Winner Bronze Signature Award Winner This guide and any support tools you might be provided are general in nature and should not be considered legal, tax, or investment advice or a guarantee that following them will ensure your plan will comply with ERISA Section 404(c) and other applicable laws. This guide is intended to be a resource for you as you work with your adviser and legal counsel to ensure your plan s compliance. It is not intended to be a comprehensive guide explaining all fiduciary responsibilities Federated s Fiduciary Planning Process, Beyond Gravity and DOL Investigation Preparedness guides were awarded the Fiduciary and Plan Decision Resources Signature Award from Plan Sponsor Council of America in 2013, 2012 and 2013 respectively. This award acknowledges marketing literature designed to provide retirement plan committees with the information they need to act with care, skill and prudence as they manage their retirement plans. 1

4 About the Authors Eugene F. Maloney serves as executive vice president and corporate counsel of Federated Investors. Since he joined the company in 1972, he has provided legal, regulatory and management counsel to Federated s sales divisions. His expertise includes regulatory and legal requirements relating to the use of mutual funds in banks, wealth management, broker-dealer, retirement and investment adviser environments. The Hon. Bradford P. Campbell is a nationally recognized figure in employer-sponsored retirement plans. The former Assistant Secretary of Labor for Employee Benefits and head of the Employee Benefits Security Administration (EBSA), Mr. Campbell served as ERISA s former top cop and primary federal regulator. As an attorney in private practice, Mr. Campbell advises financial service providers and plan sponsors with insight and knowledge across a broad range of ERISA plan-related issues. Mr. Campbell is a frequent keynote speaker at business, professional and trade association events, has testified extensively on employee benefits issues before the Congress, and has been consistently nominated for 401kWire s 401(k) Industry s Most Influential. Ann Schleck s career in the retirement industry has spanned almost 30 years serving as a plan sponsor, service provider and industry consultant. Ann Schleck & Company LLC is an independent consulting firm providing industry research, adviser practice management and strategic consulting services to investment management firms and retirement service providers. The firm has built a proprietary practice management database that tracks trends and best practices for retirement specialist advisers. Ann is a frequent speaker at industry conferences. She has been recognized in 401kWire s 401(k) Industry s Most Influential, and she was also named a top-rated consultant in Global Investors Magazine. 2

5 Five-Step Process Review your fiduciary roles and goals with our five-step process STEP ONE Establish and document fiduciary goals STEP TWO Understand your role as a fiduciary STEP THREE Review the past year s committee minutes, your investment policy statement (IPS) and existing committee charter and bylaws STEP FOUR Develop a fiduciary calendar for the coming year STEP FIVE Monitor the investments and key fiduciary activities with a checklist to ensure your fiduciary house is in order 3

6 Step One: Establish and document fiduciary goal Establish fiduciary committee goals 4

7 Establish and Document Fiduciary Goals Let s take a few minutes to set your fiduciary goals for the coming year Goal categories Fiduciary roles and responsibilities Fiduciary governance Investment oversight Participant communications Fee and service reviews Regulatory updates New tools and resources 5

8 Establish Fiduciary Committee Goals They re all important. But which ones to focus on in the coming year? TOPIC PRIORITY LEVEL COMMENTS Understand Fiduciary Roles & Responsibilities Review plan sponsor roles Review outside adviser/consultant roles Review Fiduciary Governance & Bylaws Develop/review meeting bylaws Audit existing governance procedures to ensure process is defined Review Committee Meeting Topics & Process Modify meeting format and topics Review frequency and method of conducting meetings Develop a better process for documenting minutes and action items Investment Oversight Review and update the Investment Policy Statement Document the history of fund changes Review fund menu design: options, asset classes, etc. Change the frequency of conducting fund performance reviews Participant Communication Program Develop a participant communication policy Document materials delivered to participants Provider Management Document service provider fees and services Conduct a due diligence review of service providers Benchmark plan fees to industry norms Monitor Regulatory Changes Understand new regulations affecting the plan Review fee disclosure rules and requirements Plan Sponsor Resources, Tools & Training Conduct annual fiduciary training Review tools and resources available to plan management Other 6

9 Step Two: Understand your role as a fiduciar Who is a fiduciary? What are duties of a fiduciary? Consequences of fiduciary breach ERISA bond and fiduciary coverage requirements 7

10 Who is a Fiduciary? ERISA says a person is a fiduciary with respect to a plan to the extent that he/she: (i) (ii) (iii) exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets; renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority of such plan, or has any authority or responsibility to do so; or has any discretionary authority or discretionary responsibility in the administration of such a plan. Types of fiduciaries Anyone who exercises discretion or control with regard to the plan may be a fiduciary: Plan sponsors Investment committees Investment consultants, if they render investment advice Investment managers, if they have the control over the management and disposition of the assets Each plan must have a named fiduciary identified in the plan document 8

11 ERISA Fiduciary Duties Act in the best interest of participants Discharge your plan duties solely in the interest of the participants and beneficiaries and for the exclusive purpose of: Providing benefits to participants and their beneficiari Defraying reasonable expenses of administering the plan Act with care, skill, prudence and diligence 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 Avoid prohibited transactions and be free from conflict You must refrain from specific prohibited transactions including: Furnishing of goods, services or facilities between the plan and an interested party An interested party includes any plan fiduciary and any person providing services to the plan You can t deal with the assets of the plan for your own account Or receive compensation from any party dealing with the plan in a transaction involving plan assets Diversify the investment options to minimize the risk of large losses The only exception is if, under the circumstances, it is clearly prudent not to do so, and The burden of proof as to whether it is clearly prudent is on you, the fiduciar Follow the plan documents and instruments governing the plan Insofar as they re consistent with ERISA, but Not if following the documents would be imprudent 9

12 ERISA Fiduciary Duties Consequences of fiduciary breach You re personally liable to the plan to make good any losses resulting from the breach, and To restore any profits you might have made by improperly using plan assets You may also be subject to other penalties a court may impose, such as: An excise tax of 15% of the amount per year until correction, and An additional 100% on uncorrected transactions, and A potential additional penalty of 20% if the Department of Labor (DOL) is involved in the case Co-fiduciary liability for participating in, concealing or not stopping the breach of another fiduciary ERISA fiduciary bond and errors & omissions (E&O) insurance coverage A fiduciary bond provides insurance protection against the possibility of fraud or embezzlement by a fiduciary ERISA requires that every fiduciary of, and every person who handles funds or other property of, an employee benefit plan be bonded So if the loss is greater than $500,000, all the fiduciaries of the plan may have co-fiduciary liability for the loss Every fiduciary of an ERISA plan should consider having additional fiduciary liability insurance For ERISA purposes the fiduciary bond is limited to 10% of plan assets at the beginning of the calendar year, up to $500,000 (up to $1,000,000 if employer securities are a plan option) 10

13 Step Three: Manage your committee meetings, processes and bylaws Committee meeting roles Setting the committee meeting agenda Recommended agenda 11

14 A Formal Committee Structure & Meeting Process Are Essential to Fiduciary Governance Consultant role in committee oversight Prepare the agenda Facilitate the meeting Document the minutes Communicate outstanding items Role of the committee members Review the minutes Follow the guidelines specified in the Investment Policy Statement Make decisions regarding investments in the plan Monitor the performance of service providers Your meeting agenda Based on your goals Topics of interest to each committee member A typical meeting covers the following topics Review minutes of previous meeting Provide an update on the economy and markets Review the performance of plan investments including funds on the watch list Present plan trends Update and review the fiduciary checklis And the following topics once per year in the annual review Review of the plan s Investment Policy Statement Review of service provider fees and services Committee governance process review Fiduciary training and education 12

15 Discuss Committee Meeting Topics of Interest 1 Review potential meeting topics 2 Pick the ones that are relevant to you Contact your adviser for an online version of this tool. 13

16 Step Four: Develop an annual fiduciary calendar Key dates for your plan 14

17 Fiduciary Calendar Contact your adviser for an online version of this tool. 15

18 Step Five: Investment monitoring and oversight process 16 Investment Policy Statement (IPS) Investment fund menu design and selection Ongoing investment monitoring process Monitoring fees for reasonableness Keeping fiduciaries on track with a fiduciary checklist

19 The Investment Policy Statement (IPS) What it does & why it s important Outlines the process that a plan sponsor intends to use in selecting and monitoring investments within the company s retirement plan Outlines the issues and criteria used in creating a prudent investment philosophy Serves as a benchmark for a plan sponsor in overseeing the investment policy on an ongoing basis Provides objective criteria for removing a fund, which takes the emotion out of the decision and makes it truly objective By continually comparing the plan to the original goals and assumptions laid out within the IPS, the plan sponsor can be assured that the goals of the plan are fulfilled The elements of an effective IPS Statement of purpose and rules for amending Roles, responsibilities and procedures Plan investment philosophy Select and monitor investment options Select and monitor performance of service providers Coordinate with plan documents 17

20 Risk/Return Spectrum Investment fund menu design and selection High A diversified fund menu covers investments across the risk and return spectrum Small Cap International Single funds Mid Cap Return Balanced Large Cap Target 2050 Model portfolios Bond Target 2040 Stable Value Target 2030 Money Market Target 2020 Low Risk High 18

21 The Ongoing Investment Monitoring Process for Your Plan Universe of Funds Quantitative Screen Qualitative Screen Short List 19

22 Monitoring Fees for Reasonableness In order to exist, 401(k) plans require a variety of services to be performed by: > Plan administrators > Recordkeepers > Custodians > Investment advisers > Consultants > Broker-dealers Generally, in order to be reasonable, fees must match the services provided and must not be duplicative or excessive To an unknown extent the dynamic marketplace helps ensure that fees are reasonable DOL disclosure requirements help with fee transparency The DOL website includes a detailed worksheet that enables plan sponsors to evaluate and compare fees of 401(k) vendors A fiduciary has an ongoing duty to monitor fees to ensure they remain reasonable and to provide plan participants with sufficient information about fees to enable the to make informed investment decisions 20

23 The Annual Fiduciary Checklist Contact your adviser for an online version of this tool. 21

24 ederated Federated Investors, Inc. Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA Contact us at FederatedInvestors.com or call (4/16) Federated Securities Corp. Federated is a registered trademark of Federated Investors, Inc Federated Investors, Inc.