Erisa Section 404(c) Checklist

ERISA section 404(c) checklist

Putnam Retirement Services

This ERISA section 404(c) checklist provides a handy tool for you to compare your plan against best practices described in the Fiduciary Planning Guide. Completing the checklist may highlight areas where additional steps are needed to improve ERISA section 404(c) compliance. ERISA section 404(c) relieves the plan sponsor and other fiduciaries from liability for losses resulting from participants’ direction of their investments. This protection applies only to participant-directed investments, and not to investments required under the plan or directed by the plan sponsor. To take advantage of ERISA section 404(c), the plan must satisfy three categories of requirements:

Investment menu requirements

Plan design and administrative requirements

Information and disclosure requirements

INVESTMENT MENU REQUIREMENTS ERISA section 404(c) generally requires a plan to offer a “broad range of investment alternatives.” This is satisfied by meeting the following specific requirements: The investments available under the plan are sufficient to provide the participant a chance to materially affect (i) the potential returns in his or her account and (ii) the degree of risk to which it is subject The plan offers at least three investment alternatives that: Are diversified Have materially different risk and return characteristics Enable the participant to achieve a portfolio with aggregate risk and return characteristics at any point within the range appropriate for the participant When combined with the others, each tends to minimize risk to the portfolio through diversification

Comments: It is generally understood that this requirement is satisfied by having the investment menu include a diversified fund from each of the following asset classes: equity, fixed income, and capital preservation. The Pension Protection Act of 2006 provides a major set of rules that provide guidance on how plan sponsors may be shielded from fiduciary liability if they invest participant assets in a qualified default investment alternative (QDIA), which includes life-cycle or targeted-retirement-date funds; risk-appropriate balanced funds or portfolios; or managed accounts. Participants are given the opportunity to diversify their accounts sufficiently to avoid large losses Comment: In practice, this means participants must be able to allocate their accounts among the three investment alternatives in increments that let them diversify their accounts appropriately.

PLAN DESIGN AND ADMINISTRATIVE REQUIREMENTS Under the terms of the plan, participants are given the opportunity to give investment instructions to an identified fiduciary who is obligated to follow those instructions (except in certain defined circumstances, such as prohibited transactions, etc.) If participants do not give investment instructions in writing, they must be given an opportunity to receive a written confirmation of their instructions

Participants have the ability to change investments with a frequency appropriate in light of the volatility of the investments Comments: The rules do impose a minimum on the frequency of changes among the three core investment options, requiring at least quarterly changes. However, the general rule, basing frequency of changes on volatility, in many circumstances will require the ability to make more

This checklist is provided for informational purposes only. It is not intended to provide authoritative guidance or legal advice. You should consult your own attorney or other advisor for guidance on your particular situation. ERISA section 404(c) checklist

frequent changes. Some take the view, for example, that for a single — rather than a diversified — investment such as company stock, daily changes are required. A plan that permits daily changes for all investments clearly satisfies this rule.

If company stock is offered, the following requirements must be satisfied: The company stock is publicly traded The company stock is traded with sufficient frequency and volume so participants’ instructions to buy or sell can be executed promptly

Participants are provided information given to shareholders of company stock generally Voting, tendering, and similar rights are passed through to participants The plan designates a fiduciary to ensure information regarding the purchase, sale, and holding of company stock, and the exercise of voting, tendering, and similar rights is maintained with procedures to keep it confidential An independent fiduciary is appointed to address any situations where the fiduciary responsible for confidentiality determines there is a potential for undue influence on a participant’s decision to vote or tender shares

INFORMATION AND DISCLOSURE REQUIREMENTS There are two categories of information and disclosures: (1) items required to be provided to participants automatically in advance of investment and (2) items required to be provided only on participant request.

Information and disclosures required to be provided automatically: A statement that the plan is intended to be an ERISA 404(c) plan, with an explanation that this will relieve plan fiduciaries of liability for losses resulting from the participant’s investment directions. This can be provided in the summary plan description A description of each investment alternative under the plan, including (1) a general description of investment objectives and risk/return characteristics and (2) information about the type and diversification of assets in the investment alternative The identity of any ERISA investment managers A description of the rights and procedures for directing investments in the plan, along with any limitation on those rights A description of any transaction fees or expenses charged to the participant for purchases or sales (e.g., commissions or sales loads) The identity and contact information for the fiduciary responsible for providing participants with section 404(c) information “on request” If company stock is an investment fund, a description of the procedures established to protect the confidentiality of information regarding participants’ purchase, sale,

holding, voting, or tendering of company stock, as well contact information for the fiduciary responsible for monitoring those procedures For mutual funds in which the participant invests for the first time, a copy of the prospectus provided to the plan (may be provided before or immediately after the investment) If pass-through voting or similar rights are provided to participants, any materials provided to the plan regarding those rights

Information and disclosures required to be provided only on request: A description of the annual operating expenses of each investment alternative (e.g., investment management fees), which reduce the rate of return to participants, and the aggregate amount of these expenses, expressed as a percentage of average net assets Copies of any prospectuses, financial statements, reports, and other materials about the investment alternative provided to the plan If the fund is not a mutual fund (e.g., a group trust or separate account), a list of assets making up the investment alternative’s portfolio (additional specific information is required for fixed-rate instruments issued by a bank or insurance company) Information concerning the value of shares or units in the investment alternatives, as well as past and current investment performance Information concerning the value of shares or units held in a participant’s individual account

This checklist is provided for informational purposes only. It is not intended to provide authoritative guidance or legal advice. You should consult your own attorney or other advisor for guidance on your particular situation. ERISA section 404(c) checklist

A relationship that can make all the difference In a world of rapidly changing markets and complicated legislative issues, choosing to work with a financial advisor is one of the wisest decisions you can make. Your advisor can help you determine the right investments for you or your company’s plan and, depending on your situation, identify educational opportunities. Even experienced investors may benefit from the counsel of a financial advisor who can offer timely information and expertise. So whether you are investing for yourself or your company, build a strong partnership with a financial advisor. Together, you can make a solid investment plan even better.

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This material is for informational purposes only. It should not be considered tax advice. You should consult your financial advisor to determine what may be best for your individual needs. Investments in mutual funds are not guaranteed and involve risk of loss. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus containing this and other information for any Putnam fund or product, call your financial advisor or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing.

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