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