Employee Education Webinar Sept 09

What Fiduciaries Should Do In a Time of Rocky Markets

September 10, 2009

Your Presenters Linda Lauer – Thompson Dunavant Employee Benefit Plan Services Jeff Barnes – Barnes Retirement Plan Specialists, Inc. David Thornton – Bass Berry & Sims Sue Ellen Lovejoy – Lovejoy Associates

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Today’s Focus  What safe harbors are afforded to plan fiduciaries?  Best practices for compliance with ERISA 404(c)  Legislation outlook, regulatory guidance, litigation  How to more effectively communicate the plan’s features and benefits – its value – to all eligible participants 3

You May Be A Fiduciary If You…  Have implementation authority to adopt, amend, merge, freeze, or terminate a plan  Have decision-making authority in the selection and retention of plan fiduciaries  Give investment advice with respect to plan assets for compensation  Make discretionary decisions under the plan such as whether a hardship withdrawal may be made, etc.  Select plan providers – Investment platforms, record-keepers, TPAs, brokers, etc. 4

What Is At Risk?  All plan fiduciaries are jointly and severally liable – All plan fiduciaries are personally liable  Unless afforded through safe-harbor, fiduciaries are liable for 100% of investment losses, measured against what assets would have otherwise grown to; fiduciaries are also liable for the legal expenses and professional fees for the defense. 5

Overview of ERISA 404(a) and 404(c)

404(a):

404(c):

Fiduciary Duties

Protections for Participant Investment Decisions

Investment Policy Statement (IPS)

Broad Range of Investment Options

Quantitative/Qualitative Fund Analysis

Sufficient Investment Information/Education

Select Investments

Description of Fees and Expenses

Implement Results

Policy Statement and Employee Notice

Monitor Investments

Copy of Prospectus

Follow Plan Document

Voting and Tender Rights

Limited Liability Relief Under 404(c)

Yes

Does plan meet all of the standards of 404(c)?

No

Plan is exempt from responsibility for participant’s asset allocation decision

Plan Sponsor is responsible for every participant's asset allocation decision

Plan fiduciaries are not responsible for investment losses that result from participant investment decisions

For Example … John Doe retires with $250,000 instead of $400,000 because he invested in a money market fund with a 3% return instead of a more appropriate asset allocation with a 7% return … The plan sponsor may be held liable for the $150,000 shortfall, if the plan fails to meet all of the 404(c) requirements.

Identify areas where plan is not 404(c) compliant and address/correct deficiencies

What’s your approach?  Good – Can withstand a lawsuit. Recent Lawsuits related to 404c –  LaRue vs. DeWolff, Boberg & Associates, Inc  Tullis vs. UMB Bank, N.A.  Hecker vs. Deere  In re Tyco Int'l Ltd. Multidistrict Litigation (2009)

 Better – Can easily withstand a Department of Labor audit  Best – Higher than average participation, higher than average savings rates -- emphasis on successful outcome for participants

ERISA 404(c) Requirements - To comply The reality - The participant has an opportunity to obtain written confirmation of his instructions. - The person to whom the instructions are given is an identified plan fiduciary who is obligated to comply with the instructions. - The participant is provided by an identified plan fiduciary with the following: (1) An explanation that the plan is intended to be a 404(c) plan; (2) An explanation that the fiduciaries of the plan may be relieved of liability for losses; (3) A description of the investment alternatives available under the plan; (4) A general description of the investment objectives and risk and return characteristics of each designated alternative; (5) Identification of any designated investment managers; (6) An explanation about giving investment instructions; (7) A description of any transaction fees and expenses which affect the participant’s account balance; (8) The name, address and phone number of the plan fiduciary responsible for providing information; (9) Specified information regarding employer securities; (10) A copy of the most recent prospectus provided to the plan for investment alternatives subject to the Securities Act of 1933; (11) Any materials provided to the plan relating to the exercise of voting, tender or similar rights.

ERISA 404(c) Requirements - Continued  The participant is able to obtain upon request: (1) A description of the annual operating expenses of each designated investment alternative; (2) Copies of any prospectuses, financial statements and reports provided to the plan; (3) A list of the assets comprising the portfolio of each designated investment alternative; (4) Information concerning the value of shares or units in designated investment alternatives; (5) Information concerning the value of shares or units in designated investment alternatives held in the account of the participant.  Plan permits participants to give investment instructions with a frequency which is appropriate in light of market volatility.  The core investment alternatives, constituting a broad range, permit instructions at least once within any three-month period.

Start with Plan Demographics  Set some goals for participation and savings rate  Must know what they are now  How many employees are actively deferring?  How much as a % of pay?

 Compare – Benchmark to other firms in similar industries and or of similar size  How are investments spread among participants?  By age?  By balance?

How to reach goals – consider…  Participation  Auto-enroll  Make sure to include all eligible but not participating at scheduled enrollments

 Savings Increase  Provide statement readings  Offer savings “disconnect” analysis – called Gap analysis

Investment Education  On-going process (should have been happening prior to and during the recent downturn)  Have assets been moved into cash, Gov’t securities and guaranteed accounts?  Are allocations still reflective of a participant’s long term goals/desires?

 Recent upturn in market may bring participants back to less emotional decision making

Additional Safe Harbors under PPA 2006?  New term “fiduciary adviser” – a person or organization providing specific investment advice to plan participants.  Fiduciary Advisor must have “level comp” or “fee neutral” – meaning the advisor’s compensation cannot be dependent upon the fund the participant chooses.  Can use a computer-driven model.

 Qualified Default Investment Alternative  Target Date, Risk Based or Balanced Funds  Investment Manager Services

Employee Education Specialists  Lovejoy & Associates – National network of 50 professional retirement plan educators located in major metropolitan areas across the United States  Backgrounds in financial services, human resources, banking, or third party administration.  On-site group meetings, one-on-one sessions, and online presentations for employees.  Translation Services and Financial Literacy workshops http://www.LovejoyAssociates.com

Estimates of Employee Behaviors  26% Don’t participate  50% Do not allocate appropriately for their age and risk tolerance  48% “cash out” when changing jobs  Only 10% contribute the maximum allowed under the plans provisions Alicia Munnell, “Coming Up Short”

On-Going Targeted Education Campaign  Personalize your education campaign  Consider employee demographics such as age, range of positions, and levels of financial sophistication.  Make it a collaborative effort with providers,  designing topics of most concern and/or  interest to employees or to plan sponsor

On-Going Targeted Education Campaign  Presentations – targeted to specific employee groups with specific objectives appropriate to them, and topics of interest:  Newly hired/newly eligible employees  Current participants with low deferral rates  Current participants over the age of 50  Female employees - Significant gender issues exist regarding life expectancy, level of earnings, investment behaviors, investment sophistication  Employees within 5 years of retiring  Employees who have opted out of the plan  Understanding Recent Market and Economic Factors  Managing Your Account - Demonstration of website - a "how to" lesson

FINANCIAL LITERACY TOPICS  Budgeting - What's That?  Who Can Save In This Economy?  Credit Makeover - How To Monitor and Improve Your Report  401(k) Loans - The Good, Bad, and Ugly  What Do Asset Classes Have To Do With Me?  Take A Deep Breath And Open Your 401(k) Statement Strategies For Volatile Markets

Summary  Safe Harbors are available – Use them  Build a strong case against litigants  Build a strong case to withstand a DOL audit

 Document everything! Keep minutes.  Review your plan provider contracts  Promote a culture of engaged savers

Closing If you are interested in receiving a copy of the presentation, please visit:

www.barnesretirement.com Securities and investment advisory services offered through Financial Telesis, Inc. Barnes Retirement Plan Specialists, Inc. and Financial Telesis, Inc. are not affiliated

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