Your Fiduciary Responsibilities Under ERISA For Defined Contribution Plans [Sellery Investment Consulting], UBS Financial Services Inc. Important Information It is important that you understand the ways in which we conduct business and the applicable laws and regulations that govern us. As a firm providing wealth management services to clients in the U.S., we are registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services. Though there are similarities among these services, the investment advisory programs and brokerage accounts we offer are separate and distinct, differ in material ways and are governed by different laws and separate contracts. It is important that you carefully read the agreements and disclosures that we provide to you about the products or services we offer. While we strive to ensure the nature of our services is clear in the materials we publish, if at any time you seek clarification on the nature of your accounts or the services you receive, please speak with your Financial Advisor. For more information, please visit our website at www.ubs.com/workingwithus 2 Important Information This presentation and any documentation delivered to you in connection with this presentation are not intended as, and do not constitute, legal advice. The purpose is to provide a general description of the rules applicable to a fiduciary under the Employee Retirement Income Security Act (ERISA); fiduciaries should seek the advice of their attorneys as to their precise duties, responsibilities and liabilities in specific situations. Neither UBS Financial Services Inc. nor any of its employees provide legal or tax advice. You should consult with your legal or tax advisor regarding your circumstances. 3 Being a Plan Sponsor As a plan sponsor: You’ve established a retirement plan to help employees prepare for a secure financial future. You believe your plan is a key benefit that can help attract and retain talented employees. You care about how your plan is progressing, potentially including whether: — It’s attracting maximum participation among employees — Participants are contributing as much as they can — Investment options are performing up to expectation 4 Fiduciary Responsibilities Under ERISA Establish prudent process for selecting investments and service providers Select investment alternatives that are prudent and adequately diversified Monitor investment alternatives and service providers once selected to see that they continue to be appropriate choices Ensure fees paid to service providers and other expenses of the plan are reasonable in light of the level and quality of services provided It is important that you: ✓ Understand what is expected of you ✓ Know how to fulfill those expectations ✓ Consult with professionals who can help you with your ERISA responsibilities Fortunately, your fiduciary responsibilities can be manageable with the right support Source: DOL/EBSA: "A Look at 401(k) Plan Fees" 5 Who Is a Plan Fiduciary? Under ERISA, a fiduciary is anyone who: Exercises discretionary authority or control over the management of a retirement plan (“Plan”) or any authority or control over the management or disposition of its assets; or Regularly renders investment advice to the Plan pursuant to a mutual agreement or understanding that such advice will serve as a primary basis for Plan investment decisions, or has any authority or responsibility to do so; or Has discretionary authority or responsibility in the administration of a Plan. UBS Financial Services Inc. and its Financial Advisors do not act as fiduciaries to your Plan unless otherwise agreed in a written contract under a UBS investment advisory program. 6 Which Individuals Can Be Plan Fiduciaries? Certain company employees, including: — Officers — Members of plan administrative committees with certain discretionary responsibilities — Investment committee members who exercise control over Plan assets In contrast , employees who merely carry out non-discretionary day-to-day plan administration activities are not considered fiduciaries. Certain individuals outside the company, including: — Plan trustees and investment managers who have control over Plan investment decisions Many outside parties who provide services to a plan will not be considered fiduciaries. For example, third-party recordkeepers, brokers, financial advisors, actuaries, accountants and attorneys who do not have or exercise discretion or responsibility in the management or administration of a Plan, are typically not fiduciaries. 7 Business Decisions vs. Fiduciary Decisions Often, the company employees responsible for making business decisions concerning a retirement plan also serve as Plan fiduciaries — Not every decision they make regarding the Plan, however, involves exercising their fiduciary function. — ERISA distinguishes between certain decisions made on behalf of the business as opposed to decisions made by the same person in their role as a fiduciary. “Settlor” Decisions vs. Fiduciary Decisions — Certain business decisions made by a person concerning a plan are referred to as “settlor” decisions and are not subject to ERISA’s fiduciary standards. Settlor decisions include, for example, decisions to: – Establish a plan – Change the benefits offered under a plan – Terminate a plan — On the other hand, decisions to hire service providers or add/modify investment options are fiduciary decisions that must comply with ERISA standards. 8 What Are Your Duties as an ERISA Fiduciary? ERISA governs fiduciary actions and conduct in the form of five principal rules: Duty of Loyalty Exclusive Benefit Rule Duty of Prudence Duty of Diversification Duty to Act in Accordance with Plan Documents 9 Example of a Fiduciary Action: Selecting and Monitoring a Service Provider Selection of a service provider to a plan (e.g., administrator, recordkeeper, trustee or broker) is a fiduciary act. Thus, it must be performed: — Solely in the interest of the plan participants and beneficiaries — Free of other considerations (e.g., business relationships of the plan sponsor) — For the exclusive purposes of providing benefits to participants and beneficiaries — In accordance with the documents and instruments governing the Plan — With the care, skill and diligence that a prudent person acting in such a matter would use Monitoring the provider’s performance: — Through a formal review process at reasonable intervals to determine whether ongoing retention of the service provider is prudent. It may include, for example: – Reviewing the service provider’s general performance – Reviewing reports – Reviewing actual fees charged — Failure to monitor a service provider may place the fiduciary at risk of being personally liable for the losses caused by the service provider 10 Liabilities for Breaches of Fiduciary Duty Failure to comply with ERISA’s fiduciary standards may subject the fiduciary to personal liability, both civil and criminal. A fiduciary that breaches his or her duties to a plan may be required to: Reimburse the Plan for any losses resulting from such breach Restore to the Plan any profits made by the fiduciary through the use of plan assets Step down as a fiduciary Provide other relief deemed appropriate by a court Pay a 20% penalty to the DOL on any amount due Serve a prison term of up to 10 years and pay a fine of up to $100,000 11 Minimizing Exposure to Liability While it may be impossible to prevent every claim of a fiduciary breach, certain steps can be taken to minimize the risk: Procedural prudence – — Perform proper methods of investigation — Give appropriate considerations to the relevant facts and circumstances — Act in a manner consistent with others who are familiar with such matters — Exercise independent judgment when making a decision Delegation of duties to other persons as permitted by the Plan document – — Delegation in itself is a fiduciary act that must be performed in accordance with ERISA — If a proper delegation is completed, the fiduciary will not be liable for the acts or omissions of the person to whom fiduciary duties have been delegated — Fiduciary must monitor the person to whom fiduciary duties have been delegated 12 ERISA 404(c) – Another Way to Limit Liability Under ERISA Section 404(c), a plan fiduciary may limit fiduciary liability for investment decisions by complying with certain rules while giving participants control over the investments in their accounts. There are two core requirements: Broad range of investment alternatives: — Investment alternatives that satisfy the “broad range” requirement are considered a plan’s “core” investment alternatives — Participants must have the opportunity to materially affect the potential return and investment risk on the assets in their accounts Opportunity to exercise control: — Participants must have a reasonable opportunity to give investment instructions to a party who is obligated to comply with these instructions — Participants must have the opportunity to obtain sufficient information to make informed decisions about the investment options available under the Plan 13 Insurance Fiduciary Liability Insurance — Covers liability or losses resulting from a fiduciary’s acts or omissions, provided the fiduciary continues to remain liable for a breach of their fiduciary obligations — Generally available and often purchased by the employer as a rider or in connection with directors and officers insurance to protect employees who serve as plan fiduciaries Bonding — Required by ERISA for every fiduciary of an employee benefit plan and every individual who handles Plan assets — Serves as a form of insurance that will reimburse the Plan for dishonest acts of these individuals 14 Prohibited Transactions Party in Interest Transactions — A fiduciary may not cause a plan to engage in certain prohibited transactions with a party in interest, such as plan fiduciaries, the employer or its affiliates, and service providers Self-Dealing and Conflict of Interest Transactions — A fiduciary is prohibited from dealing with Plan assets in its own interest or for its own account or that of one of its affiliates, or acting in any other transaction involving Plan assets that may raise a conflict of interest Employer Securities and Employer Real Property — ERISA prohibits a plan from acquiring or holding employer securities or employer real property in certain circumstances Under ERISA, a civil penalty can be imposed on a fiduciary who violates any of these prohibited transaction provisions. 15 Reporting/Disclosure Obligations Extensive reporting and disclosure requirements exist under both ERISA and the Internal Revenue Code. These obligations can be divided between: Annual tasks — Form 5500 to the IRS – reports information about the Plan and its operation — Summary Annual Report to participants – outline of financial information from Form 5500 — Form 1099-R to participants and IRS – report concerning distributions from the Plan Event-based tasks — Summary Plan Description to participants – explanation of the Plan — Summary of Material Modification to participants – notice of changes to the Plan — Benefit Statements to participants – information about account balances and vested benefits — Blackout Notices to participants – advance notification of blackout periods 16 Defined Contribution Plan Fiduciary Kit The Defined Contribution Plan Fiduciary Kit was developed for our clients who sponsor defined contribution plans. Serving two functions, the kit: Offers information designed to help plan sponsors understand and address their fiduciary responsibilities under ERISA Provides a convenient place for plan sponsors to keep important documents The kit’s components include: Fiduciary Guide — An overview that discusses the plan fiduciary’s responsibilities and possible consequences of not meeting these responsibilities Tabs for organizing materials such as: — — — — — — — Investment Policy Statement (sample statement included) Benefit Committee Meeting Minutes (sample minutes included) Board of Directors Resolutions (sample resolution included) 404(c) Checklist (included) Plan Administration Checklist (included) Summary Plan Description Plan Documents 17 ab