Fiduciary responsibility An employer s guide Your source for a successful retirement plan FOR PLAN SPONSOR USE ONLY. NOT FOR GENERAL DISTRIBUTION.
Contents Introduction...................... 3 A reservoir of knowledge: how John Hancock helps..... 4 Annual Contract Review Investment options Lifecycle portfolios Lifestyle portfolios Fiduciary Standards Warranty Audit Package SAS 70 Reporting Form 5500 and accompanying schedules Separate accounts annual report The source: laws and regulations......... 11 ERISA 404(c) Department of Labor Keeping it running: the plan fiduciary............ 12 Who is a plan fiduciary? The plan sponsor s fiduciary responsibilities Select an investment provider A. Keep a due diligence file B. Establish other plan fiduciaries C. Evaluate plan needs D. Create an Investment Policy Statement E. Compare and select an investment provider F. Finalize plan features, including investment options Communicate to employees Monitor investment options and plan operations Crystal clear results........... 21
An overview John Hancock works with you and your advisers to help you gain the knowledge and tools you may need to fulfill your fiduciary responsibilities. The features of the John Hancock group annuity contract, together with the tools we have developed for use with your third party administrator, legal counsel or other advisers, will help you with your compliance responsibilities. Here s what you ll find in this kit: How John Hancock helps you fulfill your fiduciary responsibilities An overview of ERISA Section 404(c) and the Department of Labor (DOL) and their role in qualified retirement plans Who is a plan fiduciary The plan sponsor s fiduciary responsibilities Select an investment provider and investment options Communicate to employees Monitor investment options and plan operations Why you need to keep a due diligence file and what should be in it Why you need an Investment Policy Statement (IPS), and a sample IPS Steps for monitoring investment options and plan operations A checklist for compliance and due diligence If you would like more information about your group annuity contract, investment options available to your plan, or the services we offer to help make your plan administration run more smoothly, contact your local John Hancock representative. This booklet is not intended to be an exhaustive review of fiduciary responsibilities or ERISA Section 404(c). It highlights key issues that plan fiduciaries should be aware of, in particular those required to obtain relief under Section 404(c). John Hancock is not in a position to provide you with legal advice concerning your plan or your role as plan fiduciary, and the information included in this booklet should not be taken as such. If legal advice or other expert assistance is required, please consult your legal counsel. 1
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Introduction By offering employees the opportunity to plan for their future through your company s qualified retirement plan, you ve taken on certain responsibilities to ensure that the plan functions correctly. John Hancock Retirement Plan Services wants to help you understand your role as plan fiduciary and the duties and responsibilities associated with it as a result of ERISA Section 404(c), which says a plan fiduciary may be relieved of fiduciary liability for investment decisions made by plan participants if certain requirements are satisfied. You have a team in place to help make it easy for you to run your 401(k) plan. Working with your financial representative, third party administrator (TPA) and John Hancock, you ll have help with your 401(k) plan, so that you can concentrate on running your business. A well thought out 401(k) plan offers your employees a great opportunity to build their retirement savings. As a plan fiduciary, you have a responsibility to ensure your qualified retirement plan offers quality services and investment options for your participants. If you are starting a 401(k) plan, this guide provides you with some general information about your duties as plan fiduciary. If you already have a 401(k) plan, then this guide should be useful in examining the processes you have in place to help meet your fiduciary responsibilities. There are strict laws and regulations that govern the operation of 401(k) plans. They can be complicated and confusing. It s important for you to understand the rules and to keep accurate records of plan decisions. Although we do not offer legal or investment advice to your plan, we can assist you with your fiduciary responsibilities by providing comprehensive tools and information to help you make informed plan decisions. 3
A reservoir of knowledge: how John Hancock helps Annual Contract Review * We prepare an Annual Contract Review (ACR) that gives you some of the important information you ll need to assess the overall health and performance of your plan and fulfill your ongoing fiduciary responsibilities. This tool includes statistics that will provide insight into your contract at a plan and participant level, as well as information that will allow you to monitor your plan s investment selections. The ACR also allows you to review the various services and features available to your contract and understand how participants are allocating their contributions to the investment options made available to them. Detailed performance and cost information is also presented for the various investment options you have selected. All of this information is available to help you fulfill your fiduciary responsibility. You can retain the ACR document in your due diligence file for future reference. Investment options Part of your fiduciary responsibility is to select a broad range of investment options for your participants. John Hancock offers a wide range of Funds that makes it easy for you to choose investment options that are right for your employees through our group annuity contract. We do the upfront work, with in-house and external professionals, in order to make it easier for you to design your plan s investment lineup. We scour a large universe of Funds, applying our proprietary selection process to bring you a select group of investment choices that meet very stringent criteria. The resulting investment options help your participants build broadly diversified portfolios that are consistent with their risk tolerance. As part of our investment selection process, John Hancock Investment Management Services performs ongoing monitoring and review of each investment option we offer. This entails a comprehensive examination of each Fund based on their performance, return and style consistency, qualitative characteristics and annual face-to-face meetings with fund managers.twice per year, you will receive our award-winning FundCheck Fund Review and Scorecard**, which presents the results of our most recent due diligence analysis of all the investment options offered through your plan. It also highlights any Fund changes impacting your plan. FundCheck can help you meet your fiduciary requirements of evaluating and monitoring your investment options. 4 * For contracts that meet the minimum asset requirements. ** League of American Communications Professionals 2007 Spotlight awards. FundCheck is a trademark of John Hancock Life Insurance Company (U.S.A.), used under licence by John Hancock Life Insurance Company of New York.
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Our due diligence process is strategically positioned to analyze the following factors: Depth and breadth of portfolio management experience Consistency of performance through different market cycles Clarity of a manager s investment style Discipline of the investment process Our asset allocation options are expertly managed portfolios that provide your participant with the benefits of sophisticated asset allocation, diversification and management by a team of experienced professionals. These portfolios make it as easy as possible for participants to select investments that may meet their needs so that they may save enough to fulfill their retirement goals. Lifecycle portfolios These portfolios are a convenient choice for participants who may want minimal involvement in the selection of, and ongoing monitoring of their investments. John Hancock s Lifecycle portfolios are our date-based funds that give your plan participants an easy way to choose investment options for their retirement savings. Participants simply choose the fund that best matches their desired retirement date. Portfolios with dates farther in the future have a higher equity allocation and then as the retirement date nears, the mix is automatically adjusted to include a larger fixed income component. Lifestyle portfolios John Hancock s Lifestyle portfolios are our risk-based funds that give your plan participants a smart yet simple way to reduce confusion around investment selection and provide an option for everyone. These portfolios are a suitable choice for participants who may want slightly more involvement in the selection and ongoing monitoring of their investments. By completing our Risk Quiz, participants can determine their risk tolerance and choose from five Lifestyle portfolio options that correspond to that risk level. Some of the analysis is based on the past performance of the portfolios and asset managers. Past performance does not guarantee future results. 6
Fiduciary Standards Warranty + We understand that one of your biggest concerns as a plan sponsor is your fiduciary responsibility. That s why we offer the John Hancock Fiduciary Standards Warranty. The Warranty offers plan sponsors and fiduciaries greater confidence by providing specific assurances regarding our investment lineup. If your 401(k) plan qualifies, we promise to pay litigation costs and restore any losses to the plan related to the suitability of our investment process and Fund lineup. To qualify your plan needs to have a Fund in each of the designated assets classes plus all Lifecycle portfolios or all five Lifestyle portfolios. Your plan can also add any other additional Funds from our Fund lineup. John Hancock Fiduciary Standards WARRANTY CERTIFICATE In selecting and monitoring the investment options that we make For our Warranty to apply, the investment options offered for Plan available to qualified retirement plans that are subject to ERISA (the participants must, at a minimum and at all times, include all nine Lifecycle Plans ), we apply generally accepted investment theories and prevailing funds or all five lifestyle funds, plus at least one fund from each of the investment industry practices. Those are the same standards as ERISA following classes of funds offered by John Hancock: 1 imposes on fiduciaries for satisfying their investment duties under ERISA s Equity Funds prudent man rule. While we are not acting as a fiduciary for the Plan in selecting and monitoring the investment options in our offering, we stand behind our products. Our Fiduciary StandardsWarranty If the Plan fiduciaries satisfy the conditions set forth herein below, and subject to the provisions set forth below under Conditions and Limitations on Our Fiduciary Standards Warranty : 1. John Hancock Life Insurance Company ( John Hancock or we ) hereby represents, warrants and covenants that the investment options that the Plan fiduciaries select to offer to Plan participants: Will satisfy the prudence requirement of section 404(a)(1)(B) of ERISA that the investment options be selected according to prevailing investment industry practices and generally accepted investment theories (the prudence requirement ), Will satisfy the requirement set forth in the United States Department of Labor regulation under section 404(c) of ERISA relating to participant-directedretirementplans, 29 C.F.R. 2550.404c-1(b)(3), that such plans offer a broad range of investment alternatives (the broad range requirement ), and Will be appropriate for long-term investing, such as investing for retirement benefits by participants. 2. In the event of a claim that the investment options selected by the Plan fiduciaries from John Hancock s investment line-up, contrary to our representations,warranties and covenants, (a) fail to satisfy the prudence requirement, (b) fail to satisfy the broad range requirement,or (c) are not appropriate for long-term investing (a Claim ), and as a result the Plan suffers loss, damage, expenses or liabilities not reimbursed by insurance or any other source ( Loss ), John Hancock will: Indemnify and make the Plan whole for any un-reimbursed Loss resulting from breach of John Hancock s representations, warranties and covenants as set forth in the preceding paragraph 1, as determined in a final, binding and valid adjudication; and Bear the reasonable costs, including attorneys fees, of defending a Claim that is subject to our Warranty. Large-Cap US Stocks: Value Small-Cap US Stocks: Value Large-Cap US Stocks: Blend* Small-Cap US Stocks: Blend* Large-Cap US Stocks: Growth Small-Cap US Stocks: Growth Mid-Cap US Stocks: Value International/Global: Value Mid-Cap US Stocks: Blend* International/Global: Blend* Mid-Cap US Stocks: Growth International/Global: Growth Fixed-Income Funds AssetAllocationPortfolios High Quality: Short-Term all 9 different lifecycle funds or High Quality: Intermediate-Term all 5 different lifestyle funds The Responsibilities of Plan Fiduciaries Our Warranty does not relieve the Plan fiduciaries of their responsibilities. With respect to the investments we make available, the Plan fiduciaries remain responsible for the following: Review our investment selection and monitoring practices and, if approved, adopt them as part of the due diligence process for the selection of investment alternatives for the Plan; Review the materials we provide about the investment options we offer; Evaluate the needs and abilities of the Plan and its participants and tailor the investment line-up of the Plan to those needs and abilities by selecting, from among the investment alternatives we offer, the investments that are suitable for the particular needs of the Plan and its participants. Once your plan qualifies, a Warranty certificate is available for your due diligence file and can be accessed from the John Hancock plan sponsor website. 1 In the event that our investment line-up does not offer an investment option under one of the equity asset categories, the selection of an index fund correspondingtothatequity asset category will satisfy the above requirement. *The correspondingindex funds can be used to satisfy fund requirements. Note: Plan fiduciaries are still required to properly discharge their responsibilities in determining that John Hancock s investment process and fund lineup is appropriate for their plan. Also, plan fiduciaries must select investments that are suitable for the particular needs of the plan and its participants. John Hancock does not guarantee that any investment option will yield a positive return. The Warranty does not extend to claims that any expenses paid directly or indirectly by the plan are unreasonable. John Hancock will only indemnify the plan for losses that are not reimbursed by fiduciary liability insurance or any other source, which will be considered the primary coverage for the plan and its fiduciaries. + The John Hancock Fiduciary Standards Warranty is offered solely by John Hancock USA and John Hancock New York, and no distributing firms share any liability with regard to it. The Warranty is available only to defined contribution plans as defined in section 3(34) of ERISA and is subject to certain terms, conditions, and limitations. You should read the Warranty Certificate carefully and make sure you understand it. You should also note that, since past performance is not a guarantee of future results, we cannot warrant or guarantee that any investment options we offer will yield any specific return, or even that it will yield a positive return. In addition, the Warranty covers the general prudence of the investment options for longterm investing (such as retirement investing); it does not guarantee that any particular investment option is suited to the needs of any individual plan participant and, thus, does not cover any claims by any individual participant based on the needs of, or suitability for, such participant. 7
John Hancock Fiduciary Standards Warranty minimum Fund requirements Equity Funds Value Blend/Index ** Growth Large-Cap U.S. Stocks Mid-Cap U.S. Stocks Small-Cap U.S. Stocks International / Global Asset Allocation Portfolios all 9 different lifecycle funds or all 5 different lifestyle funds Fixed-income Funds Short-Term Intermediate Term High Quality ** The corresponding Index funds can be used to satisfy fund requirements. The John Hancock Fiduciary Standards Warranty provides the investment selection assurance both plan sponsors and fiduciaries want. This security and flexibility is available at no additional cost. 8
Audit package The audit package helps you save time and money on plan administration. It consolidates the information a third party administrator or auditor will need to complete the Form 5500 series for investment options offered through our group annuity contract on a convenient CD. A guide in the audit package provides a line-by-line explanation of what information is required and where to find it on the appropriate John Hancock reports. SAS 70 Reporting The Statement on Auditing Standards (SAS) No. 70 is an auditing standard developed by the American Institute of Certified Public Accountants (AICPA). SAS 70 is a widely recognized standard that allows service organizations like John Hancock to have an independent auditing firm examine our control objectives and activities. This report is given to your auditors so they can have a detailed accounting of all the processes and procedures we have in place and an explanation of how effective those controls are. The report covers areas such as: corporate governance and monitoring compliance with the DOL, IRS and ERISA; product descriptions; financial transaction processing controls; recovery and backup awareness; asset management. As a general rule, only plans with 100 or more participants would need to file a CPA audit with Form 5500 (subject to some exceptions). Form 5500 and accompanying schedules The Guide to Filing Form 5500 was developed to save you money. It assists your third party administrator with annual filings. The guide offers a line-by-line explanation of what information is required and where to find it on the reports that John Hancock provides. It contains most of the financial information an auditor needs to complete a plan audit for the assets held in our group annuity contract. Separate accounts annual report This report details the financial position of the Funds in our investment lineups. It includes the results of their operations and the changes in Fund balances for the year, conforming with accounting principles generally accepted in the United States. It also includes a description of the objectives of each Fund. 9
Even though your plan complies with the rules of ERISA Section 404(c), it doesn t mean that you are relieved of liability. www.dol.gov/ebsa 10
The source: laws and regulations ERISA 404(c) When it comes to fiduciary responsibilities, the laws are complex and the regulations can be confusing. But these rules are there to protect both you and your participants. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that regulates employersponsored retirement and welfare benefit plans. It lays out the roles and responsibilities of plan fiduciaries. Under ERISA Section 404(c), a plan fiduciary may be relieved of fiduciary liability for investment decisions made by plan participants if the plan satisfies all the applicable requirements. Generally, such a plan is required to: Permit participants to exercise control over the investment of their accounts, and allows them to give instructions about each core investment alternative at least once in any three-month period Offer a broad range of investment alternatives (at least three diversified core investment categories) Provide participants the opportunity to make independent investment choices Supply participants with information to make informed investment decisions Other conditions apply. If all the 404(c) requirements are met, participants cannot hold the plan fiduciaries liable for disappointing returns on their investments. The fiduciary is still responsible for the selection of the investment alternatives, and for monitoring them over time. Department of Labor (DOL) The DOL is the watchdog for the American workforce. It is responsible for the administration and enforcement of over 180 federal statutes, including ERISA and its rules and guidelines for the administration of employersponsored retirement and welfare benefit plans. Some of the things that the DOL is heavily involved in include: Making sure plan participants are adequately informed Policing the use of plan assets Policing the actions of those in charge of qualified employersponsored and welfare benefit retirement plans Interpreting and issuing guidance on legislation 11
Keeping it running: the plan fiduciary Who is a plan fiduciary? Plan fiduciaries generally have responsibility for the administration of the plan, the selection of the investment options and the selection of the service providers. A fiduciary can include: The sponsoring employer The employer s board of directors Officers of the employer who are responsible for plan decisions If applicable, a plan committee that has been given responsibility for administering the plan and managing its investments. A fiduciary can also be anyone who takes control of the plan, even if they re not authorized to do so. Every plan must have at least one or more named fiduciary. For example, if a plan committee has been given authority to make investment decisions, but the Chief Financial Officer (CFO), who is not on the committee, actually makes the decisions, then both the CFO and plan committee members are fiduciaries. In this example, the CFO becomes a functional fiduciary, while the committee is the named fiduciary. Fiduciaries are not required to be experts in every area. They can hire outside advisers such as attorneys, accountants, administrators and investment managers. Under ERISA, a named fiduciary is a fiduciary who is named in the employee benefit plan or who, because of a procedure specified in the plan, is identified as a fiduciary by the employer, an employee organization, or both. A fiduciary can be selected by the board of directors of the company and can also be replaced by the board. When making such appointments, the board of directors are also acting as fiduciaries and have potential liability as well. Their fiduciary duties require that they prudently select the fiduciary (such as the plan committee members) and monitor their performance. A trustee is a party that holds the legal title to assets in trust for the benefit of a beneficiary or beneficiaries. Under ERISA, plan trustees are always fiduciaries. The plan administrator is a person or organization responsible for administering an employee benefit plan. Ordinarily, the named plan fiduciary (for example the employer) serves as the plan administrator. However, the named fiduciary can appoint an agent such as a plan committee to act on its behalf. The plan administrator should not be confused with a third party administrator (TPA). The TPA is an outside company that provides administrative services to the plan; typically they are not fiduciaries. 12
The plan sponsor s fiduciary responsibilities Here are some compliance requirements to consider at the three main stages of qualified retirement plan implementation: Select an investment provider and investment options A. Keep a due diligence file for fiduciary decisions B. Appoint other plan fiduciaries, as needed C. Evaluate plan needs D. Create an Investment Policy Statement E. Compare and select an investment provider F. Finalize plan features, including investment options and services Communicate to employees Monitor investment options and plan operations 13
1 Select an investment provider and investment options A. Keep a due diligence file for fiduciary decisions Your first step is to open a due diligence file. From the very beginning, document everything. Your due diligence file should contain more than just investment information. Take notes and keep minutes of meetings. Get your questions answered in writing. Keep a record of: What you are going to do Why you are doing it And when you ve done it. This is proof that you have satisfied your monitoring requirements. Keep this information for at least six years. For a detailed list of suggested documentation for your due diligence file, see insert in back pocket, Your compliance and due diligence checklist. B. Appoint other plan fiduciaries The plan fiduciary needs to appoint other people who will take on fiduciary tasks such as the trustee, investment committee members, etc. Once the fiduciaries have been appointed, decide what their responsibilities are, and write them down. For example: Who selects the investments for the plan? Do they need the help of an adviser? Will a plan committee be set up to oversee the operation of the plan? If so, who will be on the committee? What are their qualifications for the job? Who is/are the trustee(s)? Make sure that each role and all of the responsibilities are clearly spelled out in writing so that the document can be referred to if there are any concerns or questions. C. Evaluate plan needs (i) Analyze your company s workforce Before you select the investment provider and the investment-related plan features, work with your financial consultant to analyze your company s workforce. Consider the employee demographics and the size of your workforce. Look at your eligible employees and assess their investment knowledge and the amount of time until their retirement. 14
(ii) Identify the core needs Your financial representative can help you decide what the plan needs to meet participant and plan sponsor objectives. It s important to fulfill the needs of your participants, but of course the cost must also be reasonable. (iii) Assign relative values to identified needs Not all features are equally important to a plan. To help you compare providers, rank the importance of features and services so you can evaluate their combined costs. That way you can select the combination of products and services that best meets your plan s needs at a cost that s reasonable. D. Create an Investment Policy Statement Once you have decided on the objectives of your plan, draw up an Investment Policy Statement (IPS). Although it is not a legal requirement, it s interesting to note that if you are audited by the DOL, one of the first things they ll ask for is your IPS, and then evidence that you use and adhere to it. The IPS establishes the objectives for the management of the plan s investments. It clearly defines how the investment options in your retirement plan are selected and monitored, and how their performance is evaluated. Your advisers can help you prepare a document that provides the performance measures and guidelines. Just because you ve selected an assortment of investment options in various asset classes, and you ve taken pains to ensure your plan is ERISA 404(c) compliant, it doesn t mean you are automatically relieved of fiduciary responsibility. ERISA 404(c) only offers protection to plan fiduciaries for the results of investment choices made by participants. The plan fiduciaries remain responsible for the selection and monitoring of funds for the plan. Even if employee satisfaction is high, there will always be participants who feel they just have to have a particular fund. Having an IPS will help protect you against any passing investment fads. Once your IPS is in place, you need to monitor how your plan s investment options perform against the benchmarks you have specified. Make sure you review your IPS from time to time to ensure it continues to be appropriate for your plan and your participants. If you don t have an Investment Policy Statement, you can t assess whether your investment selections are appropriate. For a detailed example of an Investment Policy Statement, see insert in back pocket, The importance of an Investment Policy Statement. E. Compare and select an investment provider Investment providers offer a wide range of investments and services. Compare the quality of those offerings, as well as their costs. A variety of factors can affect the price of particular plan features, such as participant communications and education, website access, or personal brokerage accounts. Evaluate these costs, relative to the needs of your plan. 15
Cost may not always be the most important consideration. For example, one plan might be less expensive, but it may not offer the level of participant communications necessary to meet the needs of your workforce. When you evaluate your plan needs, you might rank certain features high on your list. However, these features may be more costly. It s important to consider all these factors when comparing and selecting your investment provider. Monitor the investment provider Once you ve selected the right provider for your plan, set up periodic monitoring. Together with your advisers, examine all aspects of plan operation and investments to see how well they are meeting the needs of participants and the plan. An Investment Policy Statement protects you. John Hancock helps you do this by providing you with the: Annual Contract Review* FundCheck TM our semi-annual due diligence review and scorecard of your plan s investment options Fund information on our secure plan sponsor website Fund characteristics information to help evaluate investment options Regular reports As the fiduciary, you are responsible for changing any investment option if it is no longer prudent to offer that option. Fiduciaries should collect and analyze the information necessary to make knowledgeable and informed decisions. Then that information should be kept in the plan s due diligence file. If you remove Funds or make any changes to the investment lineup, make sure you document the reasons for your decision. That information should also be included in your due diligence file. F. Finalize plan features, including investment options Once you have spelled out the objectives of the plan in an Investment Policy Statement you will have a guide for selecting investment options as well as a policy for adding or removing them. Offer a broad range of investment alternatives. John Hancock s investment platform provides a broad selection of investment options from a wide range of asset classes and investment styles. Your participants will find options consistent with their levels of risk tolerance and investment knowledge. To get the fiduciary protection offered by 404(c), a plan must offer a broad or diverse range of investment alternatives. Participants must have a reasonable opportunity to: Materially affect the potential return on their account and the degree of risk Choose from at least three core investment alternatives Diversify the investments to minimize the risk of large losses, taking into account the nature of the plan and the size of accounts 16 * For contracts that meet the minimum asset requirements.
2 Choose core investments that satisfy a broad range of investment alternatives by taking the following steps. Decide on the: Asset classes (i.e. stocks, bonds and cash equivalencies) and Investment styles (i.e. large cap U.S. equity growth fund, small cap U.S. equity value fund). Next, select the specific diversified investment lineup that covers the chosen categories of asset classes and styles. Communicate to employees One of the requirements of ERISA is to explain the plan to your employees. Participants will have more realistic expectations of their benefits if they have a clear understanding of how the plan works. One of the important steps in employee communications is to provide your participants with investmentrelated materials. John Hancock makes it easier for participants to choose the options that match their goals and risk tolerance. We color code our investment options based on their risk and return characteristics. Aggressive Growth Growth Growth & Income Income Conservative John Hancock s color-coding will also help you identify where you may want to offer additional options, based on the makeup of your employee group. For a list of John Hancock s participant communications, see the insert in back pocket: Participant communications with a purpose. HIGH potential risk/return LOW Color coded categories simplify your choices. Aggressive Growth Seeks maximum growth of principal Growth Seeks growth of principal Growth & Income Seeks a balance between growth and safety of principal Income Seeks to protect principal and provide some growth Conservative Seeks to protect principal and provide small growth 17
Summary Plan Description The other vehicle for communicating the plan to your employees is the Summary Plan Description (SPD). The SPD is a key document to help you obtain 404(c) protection and is usually prepared by your third party administrator. The SPD should be given to your employees shortly after they begin participating; it should be updated periodically. Generally, the SPD should include the following specific information for 404(c) purposes: If the plan wants to protect its fiduciaries under ERISA 404(c), an explanation that the plan intends to comply with ERISA 404(c) and that such compliance may relieve the fiduciaries of liability for investment decisions made by plan participants Name, address and telephone number of the plan fiduciary from whom the participants can obtain investment information Other information required by 404(c) that should be given to participants in writing includes: Description of the plan s investment alternatives and of their investment objectives and risk and return characteristics Explanation of when and how participants can give investment instructions, including any limitations on trading restrictions or short term holding periods Description of any transaction fees and expenses in connection with making or changing investments in a participant s account A description of the information that participants may obtain on request through the plan s fiduciary for investment information Your participants also have the right to request additional information. You need to inform them about the information that they can request: Description of the annual operating expenses of each of the plan s investment options Copies of any materials provided to you relating to the investment options in the plan A list of holdings in the portfolio of each investment option, the value of those holdings and, if your plan offers a fixed rate investment contract, the term and the rate of return on that contract Information concerning the values of the investment options and the investment performance of those alternatives Information concerning the value of the investment options in their accounts 18
3 Monitor investment options and plan operations Steps for monitoring Once the plan is established you need to periodically monitor all aspects, from fees and services to how well investments are performing. Here are some steps to follow for investment monitoring. Gather information to analyze and compare investment options being offered. Compare other investment alternatives that are available to the plan. These are some of the factors you may want to consider: Comparison against the objectives in the plan s Investment Policy Statement (if applicable), benchmarks and information on other investment alternatives Returns from 1, 3, 5 and 10 years against the appropriate benchmarks, such as index and peer group performance Standard Deviation measurement for 3, 5 and 10 years (where possible) Overall performance in a variety of market conditions Style and asset class, portfolio changes and consistency of style over time Additional characteristics such as size of Fund(s) managed; assets under management; size and depth of underlying fund company; stability and integrity of underlying fund company; changes in fund managers or in fund company ownership. Review the materials, making sure to study the comparison of the performance and expense of each investment option relative to appropriate peers. Assess the appropriateness of an investment option, and if questionable, make a decision and act on it. Remove the option, or put it on watch and document the reason for the decision. Decide on a future follow-up date or any further actions required. Place all accumulated information, including any notes or minutes that were part of your review, into your due diligence file. Retain this file for at least six years. You should also include documentation in your due diligence file that proves you have examined the operation of the plan. Are the services and information provided meeting the needs of participants? Is the plan administered in accordance with its provisions (i.e. loans, hardship requirements)? If appropriate, does it qualify for ERISA Section 404(c) relief? 19
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Crystal clear results Know the rules, and make sure you follow them Don t make assumptions Ask questions and get the answers in writing Document, document, document A properly administered qualified retirement plan is a valuable benefit for you and your workforce. It helps attract and retain employees. It motivates them. It provides your company with a tax deduction for contributions and potential earnings growth on a tax deferred basis. It also sends a strong message that you are a responsible employer who cares about providing employees with an opportunity to help prepare for retirement. Being a fiduciary isn t easy. Although the laws and regulations are complex, you can run a successful retirement plan. Ask questions and get the answers. When it comes to the specifics of your plan and your employees needs, don t make any assumptions. Reduce the amount of risk you re exposed to by creating a paper trail of your decisions. If you don t have that, how can you prove you ve had a diligent policy in place? Although the fiduciary responsibility for the plan lies with you, the plan sponsor, you can count on the John Hancock team to provide you with tools and information to help you fulfill your responsibilities. Working together with your local third party administrator, your financial representative and the asset managers in our lineup, we deliver products and customer service to help you navigate the waters of fiduciary responsibility. 21
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A Lifestyle Portfolio ( Fund ) is a fund of funds which invests in a number of underlying funds.the Fund s ability to achieve its investment objective will depend largely on the ability of the subadviser to select the appropriate mix of underlying funds and on the underlying funds ability to meet their investment objectives. There can be no assurance that either a Fund or the underlying funds will achieve their investment objectives. A Fund is subject to the same risks as the underlying funds in which it invests, which include the following risks. Stocks can decline due to market, regulatory or economic developments. Investing in foreign securities is subject to certain risks not associated with domestic investing such as currency fluctuations and changes in political and economic conditions. The securities of small capitalization companies are subject to higher volatility than larger, more established companies. High Yield bonds are subject to additional risks such as the increased risk of default (not applicable to Lifestyle Aggressive Portfolio). For a more complete description of these risks, please review the underlying fund s prospectus, which is available upon request. Diversification does not ensure against loss. A Lifecycle Portfolio ( Fund ) is a fund of funds which invests in a number of underlying funds.the Fund s ability to achieve its investment objective will depend largely on the ability of the subadviser to select the appropriate mix of underlying funds and on the underlying funds ability to meet their investment objectives. There can be no assurance that either a Fund or the underlying funds will achieve their investment objectives. A Fund is subject to the same risks as the underlying funds in which it invests. Each Fund invests in underlying funds which invest in fixed-income securities (including in some cases high yield securities) and equity securities, including foreign securities and engage in Hedging and Other Strategic Transactions (derivatives) which could involve a loss to the fund if the transaction is not successful and may involve a small investment of cash relative to the magnitude of the risks assumed. Certain of these transactions also have the risk of loss if the counterparty does not perform as promised.to the extent the Fund invests in these securities directly or engages in Hedging and Other Strategic Transactions, the Fund will be subject to the same risks. For a more complete description of these risks, please review the underlying fund s prospectus, which is available upon request. 24
Both John Hancock Life Insurance Company (U.S.A.) and John Hancock Life Insurance Company of New York do business under certain instances using the John Hancock Retirement Plan Services name. Group annuity contracts are issued by John Hancock Life Insurance Company (U.S.A.), 601 Congress Street, Boston, MA 02116, which is licensed and offers products in all states, except New York. Product features and availability may differ by state. Group annuity contracts and administrative services or record keeping agreements issued in New York are only issued by John Hancock Life Insurance Company of New York, 100 Summit Lake Drive, Valhalla, New York 10595, which is licensed in New York. John Hancock Investment Management Services, LLC, a registered investment adviser, provides investment information relating to the contracts. NOT FDIC INSURED MAY LOSE VALUE NOT BANK GUARANTEED NOT INSURED BY ANY GOVERNMENT AGENCY 2008 John Hancock. All rights reserved. PS 13791-SB-GE 01/08-14094 GA1204079421