e e eratd d

44826 4/6/2016 6:15 AM Page 2

44826 4/6/2016 6:15 AM Page 3

1

Beyond GravityFederated’s Beyond Gravity toolkit helps financial advisers train investment committee members how to conduct a fiduciary orientation program, prepare for plan sponsor meetings, proactively schedule fiduciary actions, educate clients on the proper documentation for meetings and provide an annual fiduciary to-do list for committees to track activities.

This guide and any support tools you might be provided are general in nature and should not be considered legal, tax, or investment advice or a guarantee that following them will ensure your plan will comply with ERISA Section 404(c) and other applicable laws. This guide isintended to be a resource for you as you work with your adviser and legal counsel to ensure your plan’s compliance. It is not intended to be a comprehensive guide explaining all fiduciary responsibilities

Federated’s Fiduciary Planning Process, Beyond Gravity and DOL Investigation Preparedness guides were awarded the Fiduciary and Plan Decision Resources Signature Award from Plan Sponsor Council of America in 2013, 2012 and 2013 respectively. This award acknowledges marketing literature designed to provide retirement plan committees with the information they need to act with care, skill andprudence as they manage their retirement plans.

You recognize that your retirementplan is a critical benefit that can helpyour company attract and retain quality employees.That means your plan must meet the expectations of your plan participants. It also means you must meet the regulatory expectations as well. We developed this Fiduciary Planning Process guide to help plan sponsors understand their fiduciary roles and responsibilities. It will walk you through a review of your fiduciary responsibilities following a five-step process. This guide complements other

Federated materials available through your adviser, including Beyond Gravity—A Guide for Fiduciary Meetings and DOL Investigation Preparedness.

Gold Signature Award Winner

Gold Signature Award WinnerBronze Signature Award Winner

DOL Investigation PreparednessFederated’s Department of Labor Investigation Preparedness guide helps plan sponsors understand what happens in a typical DOL investigation.

44826 4/6/2016 6:15 AM Page 4

2

Eugene F. Maloney serves as executive vice president and corporate counsel of Federated Investors. Since he joined the company in 1972, he has provided legal, regulatory and management counsel to Federated’s sales divisions. His expertise includes regulatory and legal requirements relating to the use of mutual funds in banks, wealth management, broker-dealer, retirement and investment adviser environments.

The Hon. Bradford P. Campbell is a nationally recognized figure in employer-sponsored retirement plans. The former Assistant Secretary of Labor for Employee Benefits and head of the Employee Benefits Security Administration (EBSA), Mr. Campbell served asERISA’s former “top cop” and primary federal regulator. As an attorney in private practice, Mr. Campbell advises financial serviceproviders and plan sponsors with insight and knowledge across a broad range of ERISA plan-related issues. Mr. Campbell is a frequentkeynote speaker at business, professional and trade association events, has testified extensively on employee benefits issues before theCongress, and has been consistently nominated for 401kWire’s “401(k) Industry’s Most Influential.”

Ann Schleck’s career in the retirement industry has spanned almost 30 years serving as a plan sponsor, service provider and industryconsultant. Ann Schleck & Company LLC is an independent consulting firm providing industry research, adviser practice managementand strategic consulting services to investment management firms and retirement service providers. The firm has built a proprietarypractice management database that tracks trends and best practices for retirement specialist advisers. Ann is a frequent speaker at industry conferences. She has been recognized in 401kWire’s “401(k) Industry’s Most Influential,” and she was also named a top-ratedconsultant in Global Investors Magazine.

About the Authors

44826 4/6/2016 6:15 AM Page 5

Five-Step ProcessReview your fiduciary roles and goals with our five-step process

STEP ONE Establish and document fiduciary goals

STEP THREE Review the past year’s committeeminutes, your investment policystatement (IPS) and existing committee charter and bylaws

STEP FIVE Monitor the investments and key fiduciary activities with a checklist to ensure your fiduciary house is in order

STEP TWO Understand your role as a fiduciary

STEP FOUR Develop a fiduciary calendar for the coming year

3

44826 4/6/2016 6:15 AM Page 6

4

Step One:Establish and document fiduciary goal

• Establish fiduciary committee goals

44826 4/6/2016 6:15 AM Page 7

5

Let’s take a few minutes to set your fiduciary goals for the coming year

Goal categories• Fiduciary roles and responsibilities

• Fiduciary governance

• Investment oversight

• Participant communications

• Fee and service reviews

• Regulatory updates

• New tools and resources

Establish and Document Fiduciary Goals

44826 4/6/2016 6:15 AM Page 8

6

TOPIC PRIORITY LEVEL COMMENTS

Understand Fiduciary Roles & Responsibilities • Review plan sponsor roles• Review outside adviser/consultant roles

Review Fiduciary Governance & Bylaws• Develop/review meeting bylaws• Audit existing governance procedures to ensure process is defined

Review Committee Meeting Topics & Process• Modify meeting format and topics• Review frequency and method of conducting meetings• Develop a better process for documenting minutes and action items

Investment Oversight• Review and update the Investment Policy Statement • Document the history of fund changes• Review fund menu design: options, asset classes, etc.• Change the frequency of conducting fund performance reviews

Participant Communication Program• Develop a participant communication policy• Document materials delivered to participants

Provider Management• Document service provider fees and services• Conduct a due diligence review of service providers• Benchmark plan fees to industry norms

Monitor Regulatory Changes• Understand new regulations affecting the plan• Review fee disclosure rules and requirements

Plan Sponsor Resources, Tools & Training• Conduct annual fiduciary training• Review tools and resources available to plan management

Other

Establish Fiduciary Committee GoalsThey’re all important. But which ones to focus on in the coming year?

12

3

4

5

6

789

44826 4/6/2016 6:15 AM Page 9

7

Step Two:Understand your role as a fiduciar

• Who is a fiduciary?

• What are duties of a fiduciary?

• Consequences of fiduciary breach

• ERISA bond and fiduciary coverage requirements

44826 4/6/2016 6:15 AM Page 10

8

Who is a Fiduciary?

ERISA says a person is a fiduciary with respect to a planto the extent that he/she:(i) exercises any discretionary authority or discretionary

control respecting management of such plan or exercisesany authority or control respecting management ordisposition of its assets;

(ii) renders investment advice for a fee or other compensation,direct or indirect, with respect to any moneys or otherproperty of such plan, or has any authority of such plan,or has any authority or responsibility to do so; or

(iii) has any discretionary authority or discretionary responsibilityin the administration of such a plan.

Types of fiduciaries

Anyone who exercises discretion or control with regard to the plan may be a fiduciary:

• Plan sponsors

• Investment committees

• Investment consultants, if they renderinvestment advice

• Investment managers, if they have the controlover the management and disposition of the assets

Each plan must have a named fiduciary identified in the plan document

44826 4/6/2016 6:15 AM Page 11

9

Act in the best interest of participantsDischarge your plan duties solely in the interest of the participants and beneficiaries and for the exclusive purpose of:

• Providing benefits to participants and their beneficiari

• Defraying reasonable expenses of administering the plan

Act with care, skill, prudence and diligence• … that a prudent person acting in a like capacity and familiar

with such matters…

• … would use in the conduct of an enterprise of a likecharacter and with like aims

Avoid prohibited transactions and be free from conflictYou must refrain from specific “prohibited transactions”including:

• Furnishing of goods, services or facilities between the plan and an interested party

• An interested party includes any plan fiduciary and any person providing services to the plan

• You can’t deal with the assets of the plan for yourown account

• Or receive compensation from any party dealing withthe plan in a transaction involving plan assets

Diversify the investment options to minimize the risk of large losses• The only exception is if, under the circumstances, it is “clearly

prudent” not to do so, and

• The burden of proof as to whether it is clearly prudent is onyou, the fiduciar

Follow the plan documents and instruments governingthe plan• Insofar as they’re consistent with ERISA, but

• Not if following the documents would be imprudent

ERISA Fiduciary Duties

44826 4/6/2016 6:15 AM Page 12

10

Consequences of fiduciary breach• You’re personally liable to the plan to make good any losses

resulting from the breach, and

• To restore any profits you might have made by improperly using plan assets

• You may also be subject to other penalties a court may impose, such as:

• An excise tax of 15% of the amount per yearuntil correction, and

• An additional 100% on uncorrected transactions, and

• A potential additional penalty of 20% if the Department of Labor (DOL) is involved in the case

• Co-fiduciary liability for participating in, concealing or not stopping the breach of another fiduciary

ERISA fiduciary bond and errors & omissions (E&O) insurance coverage• A fiduciary bond provides insurance protection against the

possibility of fraud or embezzlement by a fiduciary

• ERISA requires that every fiduciary of, and every person who handles funds or other property of, an employee benefit plan be bonded

• So if the loss is greater than $500,000, all the fiduciaries of the plan may have co-fiduciary liability for the loss

• Every fiduciary of an ERISA plan should consider having additional fiduciary liability insurance

ERISA Fiduciary Duties

For ERISA purposes the fiduciary bond is limited to 10% of plan assets at the beginning of the calendar year, up to $500,000 (up to $1,000,000 if employer securities are a plan option)

44826 4/6/2016 6:15 AM Page 13

11

• Committee meeting roles

• Setting the committee meeting agenda

• Recommended agenda

Step Three:Manage your committee meetings, processes and bylaws

44826 4/6/2016 6:15 AM Page 14

12

Consultant role in committee oversight• Prepare the agenda

• Facilitate the meeting

• Document the minutes

• Communicate outstanding items

Role of the committee members• Review the minutes

• Follow the guidelines specified in the InvestmentPolicy Statement

• Make decisions regarding investments in the plan

• Monitor the performance of service providers

Your meeting agenda• Based on your goals

• Topics of interest to each committee member

A typical meeting covers the following topics• Review minutes of previous meeting

• Provide an update on the economy and markets

• Review the performance of plan investments including funds on the watch list

• Present plan trends

• Update and review the fiduciary checklis

And the following topics once per year in the annual review• Review of the plan’s Investment Policy Statement

• Review of service provider fees and services

• Committee governance process review

• Fiduciary training and education

A Formal Committee Structure & Meeting Process Are Essential to Fiduciary Governance

44826 4/6/2016 6:15 AM Page 15

13

Discuss Committee Meeting Topics of Interest

Contact your adviser for an online version of this tool.

1 Review potential meeting topics

2 Pick the ones that are relevant to you

44826 4/6/2016 6:15 AM Page 16

14

Step Four:Develop an annual fiduciary calendar

• Key dates for your plan

44826 4/6/2016 6:15 AM Page 17

15

Contact your adviser for anonline version of this tool.

Fiduciary Calendar

44826 4/6/2016 6:15 AM Page 18

16

Step Five:Investment monitoring and oversight process

• Investment Policy Statement (IPS)

• Investment fund menu design and selection

• Ongoing investment monitoring process

• Monitoring fees for reasonableness

• Keeping fiduciaries on track with a fiduciary checklist

44826 4/6/2016 6:15 AM Page 19

17

What it does & why it’s important• Outlines the process that a plan sponsor intends to use in selecting and monitoring investments

within the company’s retirement plan

• Outlines the issues and criteria used in creating a prudent investment philosophy

• Serves as a benchmark for a plan sponsor in overseeing the investment policy on an ongoing basis

• Provides objective criteria for removing a fund, which takes the emotion out of the decision andmakes it truly objective

• By continually comparing the plan to the original goals and assumptions laid out within the IPS,the plan sponsor can be assured that the goals of the plan are fulfilled

The elements of an effective IPS • Statement of purpose and rules for amending

• Roles, responsibilities and procedures

• Plan investment philosophy

• Select and monitor investment options

• Select and monitor performance of service providers

• Coordinate with plan documents

The Investment Policy Statement (IPS)

44826 4/6/2016 6:15 AM Page 20

18

Risk/Return SpectrumInvestment fund menu design and selection

A diversified fund menu covers

investments across the risk and

return spectrum

Low

Retu

rn

High

High

Risk

Money Market Target 2020

Stable Value

Bond

Balanced

Large Cap

Mid Cap

Small Cap

International

Target 2030

Target 2040

Single funds

Target 2050Model portfolios

44826 4/6/2016 6:15 AM Page 21

19

The Ongoing Investment Monitoring Process for Your Plan

Universeof Funds

ShortList

QuantitativeScreen

QualitativeScreen

44826 4/6/2016 6:15 AM Page 22

20

• In order to exist, 401(k) plans require a variety of services to be performed by:

> Plan administrators

> Recordkeepers

> Custodians

> Investment advisers

> Consultants

> Broker-dealers• Generally, in order to be reasonable, fees must match the services provided and must

not be duplicative or excessive

• To an unknown extent the dynamic marketplace helps ensure that fees are reasonable

• DOL disclosure requirements help with fee transparency

• The DOL website includes a detailed worksheet that enables plan sponsors to evaluate and compare fees of 401(k) vendors

• A fiduciary has an ongoing duty to monitor fees to ensure they remain reasonableand to provide plan participants with sufficient information about fees to enable theto make informed investment decisions

Monitoring Fees for Reasonableness

44826 4/6/2016 6:15 AM Page 23

The Annual Fiduciary Checklist

Contact your adviser for an online version of this tool. 21

44826 4/6/2016 6:15 AM Page 24

e e eratd dFederated Investors, Inc. Federated Investors Tower1001 Liberty AvenuePittsburgh, PA 15222-3779

Contact us at FederatedInvestors.com or call 1-800-341-7400.

44826 (4/16)

Federated Securities Corp.

Federated is a registered trademark of Federated Investors, Inc.  

2016 ©Federated Investors, Inc.

44826 4/6/2016 6:15 AM Page 1