Qualified Retirement Plans Understanding Your Fiduciary Duty

1. Qualified Retirement Plans Understanding Your Fiduciary Duty

2. “When the refs change the rules of the game, the players will be forced to change the way they play the game” Page | 2

3. Outline • Qualified Plan Landscape • Who is a Fiduciary? • What Liability Do I Have? • ERISA Compliance • How Do I Limit Liability? • Current Case Law • Q&A

4. Qualified Plan Landscape • ERISA- Federal law that governs retirement plans • Recent Regulatory Changes (Fee Transparency) • July 16th, 2010 – Interim Final Regulations expanding on • 408(b)(2) & 404(a)(5) • July 1st, 2012 – Effective Date of Changes • Why the Change? • Social Security • Scarcity of Pension Plans • There is no 3 legged stool anymore • Implications on Plan Sponsors/Fiduciaries Page | 4

5. Who is a Fiduciary? • You are a Fiduciary under ERISA if you: • Exercise discretion and control over plan management or disposition of assets • Render investment advice • Have authority over plan administration • Are a named Fiduciary • Are a fiduciary by functions of your responsibilities (not just by name) • Fiduciary status is based on functions performed for the plan, not a person’s title Page | 5

6. What Liability Do I Have? • Fiduciaries can be held personally liable to make good any losses or to restore any profits made through their use of plan assets resulting from a breach in fiduciary duties • Penalties of up to 20% for any amount recovered as a result of an ERISA violation can be assessed • Penalties can be assessed up to six years after fiduciary violations or three years after the party bringing suit had knowledge of the breach • Willful violations carry personal criminal penalties of up to $5000 ($100,000 for corporations)and up to one year in prison Page | 6

7. Statistics • 141 million Americans covered • Approximately 684,000 private retirement plans • 2.4 million health plans • $7.8 trillion in assets • 2012: • 3,566 Civil Investigations; • 318 Criminal Investigations (117 indictments); • 1,884 VFCP Applications Processed; • 22 CPA Firm Inspections

8. ERISA Compliance The Employee Retirement Income Security Act (ERISA) requires plan fiduciaries, when selecting and monitoring service providers and plan investments, to act prudently and solely in the interest of the plan’s participants and beneficiaries. Responsible plan fiduciaries also must ensure that arrangements with their service providers are “reasonable” and that only “reasonable” compensation is paid for services. Fundamental to the ability of fiduciaries to discharge these obligations is obtaining information sufficient to enable them to make informed decisions about an employee benefit plan’s services, the costs of such services, and the service providers. Page | 8

9. How Do I Limit Liability? • ERISA requires prudent decision making not successful outcomes • Fiduciaries should implement a process by which it monitors the selection of investments, the selection of service providers(investment advisors, TPA’s, and providers of participant education) and the decision to continue offering investments or using service providers (phase known as monitoring) • Key elements of a prudent process: – Duty to investigate – Duty to maintain records –Duty to obtain expert assistance where necessary • The above steps lead to the required outcome: An informed and reasoned decision Page | 9

10. How Fees Are Paid

11. Components of Plan Costs

12. Share Classes Defined • Many mutual funds offer the identical money manager with several different investment management expense options varying the revenue sharing shared with third parties • Each investment management expense option is a different share class

13. Share Class Matters

14. Benchmarking

15. Participant Education • Fiduciaries should ensure that plan participants are educated and well informed • “We don’t need more information, we need advice”

16. Fiduciary Outsourcing • ERISA permits plan sponsors to delegate fiduciary functions of the plan to service providers • ERISA Section 3(21) Co-Fiduciary • ERISA Section 3(38) Investment Manager • ERISA Section 3(16) Fiduciary • Proper delegation requires service providers must explicitly acknowledge in writing that it is a fiduciary • Upon delegation, fiduciaries of the plan still have a responsibility to monitor the providers

17. Current Case Law • Tussey v ABB Inc – Initial Rulings • ABB fiduciaries failed to calculate recordkeeping fees paid to Fidelity through revenue sharing arrangements it had with ABB investments • Also ruled ABB failed to investigate the market price for similar recordkeeping services and did not benchmark the cost of recordkeeping fees prior to entering the relationship with fidelity • Failed to follow the Investment Policy Statement (IPS)- IPS required rebates associated with investments would be used to offset plan cost. In this case, they were retained by fidelity • Ruled that a breach of the IPS occurred in the selection of funds • Ruled that they were allowing one plan to subsidize another • Float Income- Interest was earned when unallocated balances were held in overnight accounts and not credited to the plan

18. Questions Clayton Smith Retirement Plan Advisor www.wealthpartnersnfp.com

19. Disclosures • Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), member FINRA/SIPC. WealthPartners, LLP is a member of PartnersFinancial, an affiliate of NFPSI. WealthPartners, LLP and NFPSI are not affiliated. • Any decisions whether to implement these ideas should be made by the client in consultation with professional financial, tax and legal counsel. • Hypothetical investment results are illustrative only and should not be deemed representative of past or future investment experience. • The information contained herein is based on data you may have provided, our interpretation of the existing Internal Revenue Code, and the application of relevant statures, regulations, court rulings, and familiarity with this material as it currently exists. • This proposal contains proprietary information of WealthPartners and possession of this information is not deemed a waiver of our rights. In addition, this proposal has been created for your exclusive use, and distribution of this information to a non-affiliated party is strictly prohibited. • This may contain information from fixed and variable life insurance and annuity sales illustrations. Refer to the disclosures in the actual illustrations. • There are issues to consider before replacing life insurance, such as commissions, fees, expenses, surrender charges, premiums and new contestability period. There may also be unfavorable tax consequences caused by surrendering an existing policy, such as a potential tax on outstanding policy loans. Please discuss your situation with your financial advisor.