Fiduciary Checklist The following are areas of review that retirement plan fiduciaries may want to consider in fulfilling their fiduciary responsibilities. Plan sponsors and plan officials are encouraged to consult their ERISA attorneys, service providers, advisors, or consultants for additional guidance and information. Century Retirement Solutions Fiduciary Source troweprice.com/centuryplan
1 ROLES AND RESPONSIBILITIES With assistance from an ERISA attorney, determine the identity of all plan fiduciaries and ensure that they are aware of and understand their fiduciary responsibilities. 1 Provide fiduciary education for new fiduciaries as well as continuing education for all fiduciaries. Identify in the plan or trust agreement or written investment policy statement (as appropriate) the specific roles of each fiduciary, including areas of responsibility and oversight. INVESTMENTS Adopt an Investment Policy Statement Consider adoption of a written investment policy statement (IPS), 2 which evaluates the specific needs of the plan and its participants and defines the following: The identity of each fiduciary and service provider to the plan, including the investment committee, investment consultant, investment custodian/trustee, and investment manager (for separate accounts, not applicable for mutual funds); Investment objectives and goals; Classes of investments authorized; Styles of investments authorized; Criteria for reviewing/selecting investment options and investment manager performance, including periodic performance against an appropriate index, peer group, and IPS objectives; Criteria for reviewing fees for investment management and other plan services and the reasonableness of such fees in light of services provided; Restrictions on investments; Standards for reviewing use of directed brokerage arrangement; Proxy voting procedures; and Reporting standards applicable to investment managers and other advisors. If an IPS has been adopted, make sure that all terms of policy (e.g., scheduled meetings, investment lineup reviews, etc.) are being complied with by appropriate fiduciaries. Review Investment Options Review the plan s investments at least annually and, to the extent applicable, in accordance with the requirements of the plan s written investment policy statement. Potential due diligence criteria for reviewing/selecting investment options include the following: Performance relative to peers; Performance relative to assumed risk; Inception date of product; Correlation to specified peer group; Total assets in the product; Holdings consistent with style; Expense ratios or fees; and Stability of organization. 1 The publication Meeting Your Fiduciary Responsibilities, available from the DOL s Web site (http://www.dol.gov/ebsa/ publications/fiduciaryresponsibility.html) may be helpful for this purpose. 2 While a plan is not required to have an investment policy statement, ERISA encourages fiduciaries to get a policy in writing for the selection and monitoring of investment options.
2 Conclude that plan maintains a broad, well-diversified investment lineup that covers the risk/return spectrum and any applicable requirements of the plan s written investment policy. If plan is intended to comply with ERISA Section 404(c), ensure that investment lineup includes investment options that give participants a reasonable opportunity to: materially affect both the potential return and degree of risk relating to his or her accounts; choose from at least three core investment alternatives each of which is diversified and satisfies certain other requirements; and diversify his or her investment to minimize the risk of large losses. If the plan intends to receive fiduciary protection for default investments under ERISA Section 404(c)(5), ensure participants have received QDIA notices and are aware of their investment options. Document the above reviews along with the relevant investment options information, including discussions and decisions regarding the evaluation and replacement of investment options that do not meet required criteria. Maintain this documentation in a central due diligence file. ADMINISTRATION Conduct an annual (or more frequently, as needed) meeting with the retirement committee and plan fiduciaries. Record detailed minutes of these meetings, including all decisions made by the committee. Ensure that committee members have been selected in accordance with the terms of the plan and confirm that they have appropriate experience. Review the process for collecting employee contributions and loan repayments, forwarding contributions and loan repayments to the service provider, and investing the contributions and loan repayments in a timely manner. 3 Ensure compliance with the applicable Internal Revenue Code tests, such as: 401(a)(4)-2 rate group testing; 401(a)(4)-4 availability of benefits, rights, and features; 401(k)/ADP test; 401(m)/ACP test; 402(g) contribution limit; 410(b) coverage testing; 414(s) compensation ratio testing; 415(c)(3) annual additions contribution limit; and 416 top-heavy testing. Conduct an annual review of outside experts and service providers (including investment advice providers, 4 plan consultants, trustees, and/or recordkeepers, etc.) to ensure that service and performance standards are being met. Document the review/meetings and issues discussed, as well as any decisions made during or as a result of the review/meetings. 3 DOL regulations provide that participant contributions become plan assets as of the earliest date that they can reasonably be segregated from the employer s assets. 4 The plan sponsor has the fiduciary responsibility to select and monitor the performance of any investment advice (or guidance) service provider whose services are being offered to participants.
3 Review the fees received from or charged by all outside experts and service providers to the plan (direct and indirect) to ensure complete understanding of all costs and services associated with those fees and whether inherent conflicts exist that may impact the objectivity of the advice received. Refer to DOL publication, Understanding Retirement Plan Fees and Expenses (http://www.dol. gov/ebsa/publications/undrstndgrtrmnt.html) for a description of how to evaluate your plan s fees and expenses; DOL also makes available a 401(k) Plan Fee Disclosure Tool on its Web site at http://www.dol. gov/ebsa/fiduciaryeducation.html, which provides a convenient way to compare and contrast fees and administrative costs; and The DOL publication, Selecting and Monitoring Pension Consultants Tips for Plan Fiduciaries, http://www.dol.gov/ebsa/newsroom/fs053105.html, provides a list of questions that are intended to assist plan fiduciaries in better understanding inherent conflicts of interest that may affect the objectivity of the advice that plan sponsors and other fiduciaries receive from plan consultants and other service providers. Review contracts with experts and service providers, making sure the contracts: Are in writing; Do not contain provisions that conflict with fiduciary standards of care; and Do not authorize fees that are in excess of reasonable compensation. Check the fidelity bond to ensure that it provides an appropriate coverage amount, 5 and that it covers fiduciaries, as well as other employees or third parties involved with the retirement plan. Ensure completion and filing of all required government reporting, such as Forms 5500 and 1099R. Periodically review any administrative procedures adopted by the committee to ensure they are consistent with the plan document. Document all procedures and decisions and maintain the documents in a central due diligence file. 5 In general, the amount of the bond is 10% of plan assets (up to $500,000).
4 PLAN AUDIT If your plan requires an audit, have an ERISA attorney review the plan document to ensure that it has been updated for all required legislative provisions (e.g., PPA, EGTRRA, etc.). Maintain a summary plan description (SPD), updated for all plan design changes, and distribute to all employees (ERISA requires that SPDs, summaries of material modification, and summary annual reports are automatically disclosed to participants/beneficiaries). Confirm that written procedures for all plan transactions are consistent with the plan document and applicable regulations. Verify that the plan covers the right employees, or does not exclude employees who may be entitled to participate in the plan. Verify that the plan s definition of an eligible employee is consistent with the way the plan is being administered. Check the plan documents and trust agreements to ensure that the plan fiduciaries have been appointed properly. Review the definition of compensation as defined in the plan document, and verify that the correct compensation amounts are being sent to the service providers and being used for the correct purpose. If a plan includes an automatic enrollment plan feature, verify that the default investment option is selected using a prudent process consistent with ERISA. Confirm contributions are invested in the default option and that participants were provided with communications regarding the default. Make sure that the plan prototype document is IRS-approved and has been amended as required by IRS procedures. Review the process for making plan loans and verify that the processing of a loan by the service provider is consistent with the written procedures of the plan. If the plan is intended to comply with ERISA Section 404(c), evaluate with an ERISA attorney the plan s compliance with the statute and the regulations issued thereunder. 6 6 The determination of whether the requirements under Section 404(c) have been met requires a complex review of multiple facets of plan operation and available investments and should be reviewed with the assistance of ERISA counsel.
5 PARTICIPANT COMMUNICATIONS Provide ongoing communication on investments and plan features (e.g., loans, distributions, contributions, etc.). Communication and education efforts should be focused on the demographics of the participants. Make sure that all communications are accurate and not misleading. Distribute information to all eligible employees regarding the investment options available under the plan. Conduct educational meetings, and provide general financial/investment information on the following topics: Participation in the plan; Saving for retirement; Diversification; Asset allocation, including asset class characteristics and historical return differences; Dollar cost averaging; Advantages of tax deferral; Risk/return concepts; Impact of inflation; Compounding; and Market behaviors (recession, etc.). If the plan is intended to comply with ERISA Section 404(c), confirm that participants receive the following communications before investing: Notification that the plan intends to comply with 404(c); A description of each investment alternative; A description of the rights and procedures for directing investments in the plan, along with limitations on those rights; A description of any transaction fees or expenses charged; Contact information for the fiduciary responsible for providing participants with 404(c) information on request; A copy of the prospectus for mutual funds the first time a participant invests in that fund. Confirm that participants receive the following items upon request: A description of the annual operating expenses of each investment alternative; Copies of any prospectus, financial statements, reports, and other materials provided to the plan about the investment option; If the investment option is not a mutual fund, a list of assets making up the option s portfolio; Information concerning the value of shares or units in the investment option, including past and current performance information; and Information concerning the value of shares or units held in a participant s individual account.
6 Maintain samples of all participant communications, including the date provided and to whom provided. In addition, maintain a record of the administrative procedures used to distribute the required disclosures. Provide mandatory participant communication materials: Summary plan description; Summary of material modifications; Summary annual report; Participant account statements; Blackout period notice if the plan is closing an investment option or suspending transactions even temporarily; Default investment notices, if applicable; Notice for mapping investments, if applicable; Notice for automatic enrollment, if applicable; and ADP/ACP design-based safe harbor notice, if applicable. LIMITING LIABILITY Review and ascertain compliance with checklist items described above. Obtain fiduciary liability insurance (errors and omissions insurance). Use qualified experts (individuals, firms, and sources with advanced knowledge and experience with qualified plans and fiduciary responsibilities) to assist plan fiduciaries. Establish operating procedures for committees and follow them. If it doesn t currently, consider having the plan comply with ERISA Section 404(c). Provide the warning notice added by the Pension Protection Act to those participants with more than 20% of their account balance in any stock, and ensure that diversification of employer-matching and nonelective contributions complies with the Pension Protection Act.
05169-1303 83654 05/09 Fiduciary Source troweprice.com/centuryplan