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A HANDBOOK FOR RETIREMENT PLAN SPONSORS AND FIDUCIARIES Written by Financial Service Standards, LLC Donald J. Settina, CFP®, AIFA®, PPC™ Sharon A. Pivirotto, AIF®, PPC™ Foreword by J. Richard Lynch, Executive Director, Foundation for Fiduciary Studies

The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. The development of the 401k Service Solution™ was based on the above guidance by the Department of Labor and further defined by The Foundation for Fiduciary Studies. The goal of this Handbook is to: 1) Educate sponsors and fiduciaries on how to affectively address the key

issues involved in setting up and managing an employer-sponsored plan;

2) Provide a process for making fiduciary decisions; 3) Educate sponsors and fiduciaries on the methods and tools available

for documenting their decisions; and 4) Provide useful resources to assist in all aspects of plan setup,

management, and review.

the 401k Service SOLUTION™

HANDBOOK

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© Copyright 2006-2008 Financial Service Standards, LLC. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any manner whatsoever without written prior permission from Financial Service Standards, LLC, except in the case of brief quotations embodied in critical articles and reviews. For information, address Financial Service Standards, LLC, 2652 Hidden Valley Drive, Suite 100A, Pittsburgh, PA 15241. Financial Service Standards, LLC publications may be purchased for educational, business, or sales promotional use. For information, please write: Handbook Requests, Financial Service Standards, LLC, 2652 Hidden Valley Drive, Suite 100A, Pittsburgh, PA 15241. Copies of this Handbook may be obtained from: Financial Service Standards, LLC www.financialservicestandards.com 2652 Hidden Valley Drive, Suite 100A Pittsburgh, PA 15241 FIFTH EDITION Printed in the United States of America Published in 2007 by Financial Service Standards, LLC. Pittsburgh, Pennsylvania Library of Congress Control Number: 2005936058 ISBN: 978-1-4116-8248-1

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TABLE OF CONTENTS

FOREWORD BY J. RICHARD LYNCH ......................................................................................4 INTRODUCTION ................................................................................................................6 THE 401K SERVICE SOLUTION OVERVIEW .............................................................................7

SOLUTION #1 THE VISION SESSION—DEFINING YOUR VISION OF PLAN SUCCESS..............................................8 SOLUTION #2 A SOLID FOUNDATION—USING AN INVESTMENT POLICY STATEMENT EFFECTIVELY........................10 SOLUTION #3 THE LEAD FIDUCIARY PRACTICE—MEETING YOUR FIDUCIARY RESPONSIBILITIES ........................... 12 SOLUTION #4 DUE DILIGENCE REVIEW—COMPARING PLANS AND REVIEWING EXPENSES...................................14 SOLUTION #5 THE ADVANCED INVESTOR SERIES—DEVELOPING AN EFFECTIVE EMPLOYEE EDUCATION PROGRAM ......................................................................................................16 SOLUTION #6 THE PEAK ADMINISTRATION GUIDE—STAYING INFORMED AND EDUCATED ABOUT YOUR PLAN .....................................................................................................................18 CONCLUSION ................................................................................................................. 20 WHAT TO LOOK FOR IN A SERVICE PROVIDER

UNDERSTANDING PROFESSIONAL DESIGNATIONS .................................................. 22 SELECTING AN INVESTMENT PROFESSIONAL.......................................................... 23 WORKING WITH A PROFESSIONAL PLAN CONSULTANT............................................ 24 RESOURCES PRUDENT INVESTMENT PRACTICES ..................................................................... 26

DOL............................................................................................................ 28 ERISA.......................................................................................................... 29 ERISA SECTION 404(C) .................................................................................. 30 FIDUCIARY IMPORTANCE ................................................................................... 31 THE PENSION PROTECTION ACT OF 2006 ........................................................... 34 EDUCATION VS. ADVICE .................................................................................. 36 SERVICE PROVIDER OPTIONS............................................................................. 37 RETIREMENT PLAN TYPES ................................................................................. 38 MAXIMUM BENEFIT AND CONTRIBUTION LIMITS ...................................................40 RETIREMENT PLAN TABLES.................................................................................41 PLAN PROVISIONS...........................................................................................44 IN-SERVICE DISTRIBUTION OPTIONS................................................................... 45 COMPLIANCE CALENDAR .................................................................................. 46 FEES AND EXPENSES........................................................................................ 47 INDEX OF TERMS ............................................................................................48 TOOLS AND RESOURCES...................................................................................60

SOURCE CREDITS............................................................................................................ 64

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FOREWORD

“Fiduciaries have the most important, yet most misunderstood role in the

investment process: to manage the investment practices, without which the

other components of the investment plan can be neither defined,

implemented or evaluated…”

- Foundation for Fiduciary Studies

2003 Prudent Investment Practices Handbook

In an industry where the retirement plan participants have become

increasingly skeptical of those who are managing their financial assets, there

is a real need for clarity on how best to ensure that a prudent investment

process is being followed. As spectacular as the scandals like Enron,

WorldCom, and Tyco were; the money lost through the illegal activity and

greed that was prevalent in these cases pales in comparison to that which is

lost regularly through simple mismanagement of retirement plan assets. In

the vast majority of cases, it is not a matter of willful misconduct on the part

of the fiduciary, but simply a lack of understanding of how best to manage

their responsibility.

The Practices developed by the Foundation for Fiduciary Studies provide the

framework for a prudent investment process. They were written with the

expectation that forward-thinking organizations like Financial Service

Standards, LLC would provide more specific guidance on how best to

implement them. The 401k Service Solution applies practical experience and

expertise to provide detailed, comprehensive guidance on how to establish

and properly maintain a retirement plan. It is information that is critical to

both the plan fiduciaries and the professionals that advise them. We are very

pleased to be associated with Don Settina and Sharon Pivirotto as they work

to advance proper fiduciary conduct. I encourage all who have or share

responsibility for the management of retirement plan assets to become

familiar with their message and heed their advice.

J. Richard Lynch Executive Director, Foundation for Fiduciary Studies

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The legislative act that forms the basis for establishing general guidelines for the prudent management of a qualified retirement plan is ERISA—the Employee Retirement Income

Security Act.

The most widely accepted reference guide that explains the practices that define a prudent process for investment

fiduciaries is the Prudent Investment Practices Handbook (by The Foundation for Fiduciary Studies www.fi360.com).

The Prudent Investment Practices Handbook states that “by following a structured process based on these Practices, the fiduciary can be confident that critical components of an investment strategy are being properly implemented.”

The 401k Service Solution™ was developed to provide that

structured process as it relates to the management of a qualified plan.

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Consider the origin of the word “fiduciary.” It stems from the Latin “fiducia” meaning “trust” and is closely related to the words “faith” and “fidelity.” These roots reflect proper fiduciary conduct in a retirement plan. Plan sponsors and fiduciaries have a unique and increasingly complex set of issues that must be properly addressed in order to show prudence in the management of their qualified plan. With more attention being paid to the practice of ‘fiduciary compliance,’ it is important to follow a structured process that shows the steps you are taking to meet the established guidelines set forth by ERISA. The 401k Service Solution™ was developed to provide sponsors the structured process necessary to fill the gap between practical knowledge and practical application. (It is one thing to know what must be done; it is another to actually do it and document your decisions and decision-making process.) Each step in The 401k Service Solution™ addresses a critical issue faced by plan sponsors and fiduciaries. The first step, The Vision Session (defining your vision of plan success), is intended to be the starting point to help you understand the key issues and begin to document the reasons behind the decisions made on your plan. The remaining steps are intended to:

1) Educate sponsors and fiduciaries on the key issues; 2) Provide a process for making fiduciary decisions; 3) Provide the tools to document those decisions; and 4) Provide guidance for the ongoing compliance as it relates to plan

setup, management, and review. Each step addresses several of the Practices (as defined by the Prudent Investment Practices Handbook), and together they provide sponsors and fiduciaries the tools to help show that the critical components of an investment strategy are being properly implemented. It is recommended that plans go through each step, starting with the Vision Session. If there are any issues not currently being addressed by your plan (service and fiduciary issues), the summary from the first step will reveal this and guide you to the additional steps that should be completed. If you are setting up a new plan or changing plans, it is recommended that each step be completed to fully document your decisions as they relate to each issue. (This handbook is not meant to be an interpretation of the regulations outlined by ERISA, nor is it meant to provide legal or investment advice. The purpose of the handbook is to educate and provide an overview of a structured process that can help sponsors meet ERISA’s guidelines.)

INTRODUCTION

Professional Plan Consultant

Educate. Advise. Guide.

This handbook is intended to give you an overview of the steps that

make up The 401k Service Solution™, as well as bring together the key issues and

resources you should be aware of as you look to run a successful

and compliant employer-sponsored plan.

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THE 401K SERVICE SOLUTION OVERVIEW

The 401k Service Solution™ is a program designed to guide Plan Sponsors and Fiduciaries through plan development and design, investment management selection, employee education, legislative changes, and ongoing plan administration and monitoring. Each step takes you through a unique process to educate you on the key issues, identify your plan’s particular needs, help you document your decisions, and create a clear course of action for the ongoing management of your plan in accordance with the guidelines set forth by ERISA. First, each step has an education guide that addresses a specific subject of importance to plan sponsors and fiduciaries. These guides are designed to educate you on the important issues and walk you through methods to identify your plan’s needs as they relate to those issues. Second, each step has a workbook of accompanying forms that allow you to document your company’s specific needs and your decision-making process. Finally, the worksheets in the workbook are used to compile a summary report that provides you with the documentation behind the decisions made on your plan, an action plan for moving forward on your decisions, and checklists to ensure continued compliance as it relates to the guidelines set forth by ERISA. This handbook describes the processes that make up The 401k Service Solution. The steps that make up each process are described to give you a brief overview of the information presented in the education guides. The education guides and accompanying handbooks are available by contacting a Professional Plan Consultant™ (PPC™). A PPC™ is a financial service professional that has made a commitment to education and service excellence in the retirement plan industry. This professional has completed an extensive training program, exam, experience requirements, and has signed off on a code of ethics. Professional Plan Consultants have access to the tools to take you through each process, assist you in documenting your decisions, and compile the summary report that serves to record your plan decisions and guide you on the future compliance of your plan. To find a PPC™ near you, log on to www.401kservicesolution.com.

Education Guide

Workbook Summary & Checklists

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SOLUTION 1—THE VISION SESSION

PROCESS OVERVIEW “The starting point for the fiduciary is to analyze and review all of the documents pertaining to the establishment and management of the investments. As in managing any business decision, the fiduciary has to set definitive goals and objectives that are consistent with the portfolio’s current and future resources; (and) the limits and constraints of applicable trust documents and statutes…” Prudent Investment Practices Handbook Fiduciary360 (www.fi360.com) The Vision Session is a process to assist fiduciaries in determining the needs of the plan and its participants, and in defining the plan’s goals and objectives. As you review an existing plan or look to set up a new one, it is critical to define what it is you are trying to accomplish by offering an employer-sponsored plan. You must also define your vision of plan success. What makes a retirement plan successful? The answer depends entirely on your idea of success. What makes an employer-sponsored plan successful cannot be measured by investment performance or participation rates alone. Success depends on what objectives an employer has when establishing the plan. It depends on how much sponsors understand about the plan and the amount of work required from HR to manage it. Success also depends a great deal on how much the employees understand the benefit that is provided to them. It depends on if they take advantage of the benefit and feel like their plan is providing the resources to help prepare them for retirement. This first step is the most extensive as it touches on each issue you must address as you set up and manage your plan. This step is designed to gauge what you want from your plan, define your plan’s needs and your participants’ needs, and give you an idea of how well what you are currently doing matches your vision. The Practice associated with this process (as defined by The Prudent Investment Practices Handbook by The Center for Fiduciary Studies): 1.4

Defining Your Vision of Plan Success

1 Report of the Working Group on Optional Professional Management In Defined Contribution Plans November 7, 2003. ERISA Advisory Board.

Fiduciaries are required to determine whether the investments are suitable and appropriate for the needs of the plan

and its participants.

As stated by the Liss v. Smith court: "[fiduciaries] have an obligation to ...

select the provider whose service level, quality and fees best match the fund's needs and financial situation." [991 E Supp. 278, 300 (S.D.N.Y. 1998)] For example, fiduciaries should ensure

that their expert will take into account the investment abilities of

the participants and will give proper consideration to the plan's needs.1

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SOLUTION 1—THE VISION SESSION

STEP-BY-STEP

The following steps make up the process in The Vision Session: 1. REVIEW WHAT MAKES A PLAN SUCCESSFUL

Everyone has a different idea of what success means. While many companies share some of the same basic goals in setting up a plan, not every plan is “successful.” This step evaluates plan set-up and management issues that could hinder plan success.

2. UNDERSTAND THE REGULATIONS GUIDING QUALIFIED PLANS The Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire. The Department of Labor is responsible for enforcing ERISA. In some ways, the DOL has responsibilities similar to that of a plan fiduciary—it keeps a close eye on employers to ensure that the interests of plan participants are adequately served.

3. UNDERSTAND THE EIGHT KEY ISSUES REQUIRED FOR A SUCCESSFUL PLAN These issues involve meeting the basic requirements of ERISA for the prudent management of a qualified plan, as well as issues critical to both you and your employees.

1. Documenting Plan Goals and Objectives 2. Developing a Statement of Investment Policy 3. Monitoring Plan Assets 4. Documenting Fiduciary Standards of Care 5. Selecting and Monitoring Service Providers 6. Understanding Plan Expenses 7. Understanding Participant Communication Guidelines 8. Staying Informed of Changes that Affect 401(k) Plans 4. IDENTIFY RESOURCES AVAILABLE TO PLAN SPONSORS

There are many issues to address in order to run an effective and compliant plan. Here you will find a variety of resources and tools to assist you as you work toward defining a vision of success for your plan.

5. REVIEW THE TOOLS PROVIDED BY THE 401K SERVICE SOLUTION The 401k Service Solution is a complete set of resources designed to meet the needs and requirements of managing a successful employer-sponsored plan. Through the Vision Session process, you will: 1. Review what makes a plan successful 2. Define your vision of success 3. Determine how well you are fulfilling your plan management responsibilities 4. Identify service shortfalls in your plan 5. Identify solutions to help you achieve plan success

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Prudent Investment Practices Handbook Fiduciary360 (www.fi360.com)

SOLUTION 2—A SOLID FOUNDATION

PROCESS OVERVIEW “The preparation and maintenance of the Investment Policy Statement (“IPS”) is one of the most critical functions of the fiduciary. The IPS should be viewed as the business plan and the essential management tool for directing and communicating the activities of the portfolio.” The foundation of every employer-sponsored plan should be a written document that outlines how you intend to select and manage the investments in your plan. How do you limit liability on your retirement plan? While you cannot eliminate liability, you can limit it with the USE of an Investment Policy Statement. ‘USE’ is emphasized because while most plans will admit to having an Investment Policy Statement, seldom is the IPS reviewed or actively engaged while monitoring plan investments. In many cases, adopting a formal policy that is not appropriate or complete, or adopting a policy and not using it to manage your plan is worse than not having a formal policy. Formalizing a policy for your plan and referencing it as you monitor your investments is perhaps the biggest step you can take toward showing prudence in carrying out your responsibilities as a fiduciary. Prudence focuses on the process for making fiduciary decisions. One way fiduciaries can demonstrate that they have carried out their responsibilities properly is by documenting the processes used to carry out their fiduciary responsibilities. The Investment Policy Statement serves as your documentation for managing your plan and limiting liability. The Practices associated with this process (as defined by The Prudent Investment Practices Handbook by The Center for Fiduciary Studies): 1.1, 1.2, 2.1, 2.2, 2.3, 2.4, 2.5, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7

Using an Investment Policy Statement Effectively

According to the U.S. Department of Labor, the statement of investment policy must be referred to both by

fiduciaries who manage plan assets, and fiduciaries who appoint and monitor those who manage plan

assets. It is not a document to be created, then filed away and ignored.

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SOLUTION 2—A SOLID FOUNDATION

STEP-BY-STEP The following steps make up the process in A Solid Foundation: 1. REVIEW THE DUTIES OF A FIDUCIARY UNDER ERISA

Before you create your IPS, you should review the duties under ERISA of those responsible for investment decisions involving plan assets. The Employee Retirement Income Security Act of 1974, or ERISA, is a federal law that sets minimum standards for pension plans in private industry. This step outlines ERISA’s function, what it requires from fiduciaries, the significance of being a fiduciary, and how to limit liability on your plan.

2. TEST YOUR IPS IQ The amount of information and knowledge necessary to prudently manage a qualified plan can be intimidating. Each person named as a fiduciary on your plan bears a responsibility to ensure they understand and comply with the regulations outlined by ERISA. How much plan fiduciaries understand in relation to their management responsibilities is integral to determining whether a plan is successful and how open it is to liability issues.

3. REVIEW THE KEY COMPONENTS OF AN IPS While every plan has specific needs that dictate what goes into your formal IPS, there are some general topics that should be included in a typical IPS. The best way to make sure your IPS fulfills its intent to limit liability, is to structure one around your particular plan’s needs.

4. DEVELOP YOUR OWN POLICY Your customized IPS provides several important benefits: • A tool to provide guidance throughout the investment process; • A basis to discuss and establish investment guidelines and retirement expectations

with your investment professional; • A basis for measuring investment success or failure through clearly defined

guidelines; • A structured “business plan” for the direction of all investment assets; • Long-term investment direction; • Portfolio management and accountability; and • The documentation necessary to guard against participants who may not understand

or agree with decisions made on their plan. 5. UNDERSTAND HOW TO USE AN IPS TO LIMIT LIABILITY

An IPS is not effective unless it is formally adopted and used to guide the management of the plan. Once you create your Investment Policy Statement, several things must happen in order for your IPS to be an effective tool to limit liability. First, it is recommended that you have it reviewed by your attorney before you use it. Second, this document must be reviewed and signed by all fiduciaries on the plan to acknowledge their understanding of the guidelines set forth and their intention to manage the plan in compliance with those guidelines. Third, your IPS must become an integral part of monitoring your plan’s investments as it sets the criteria for doing so, and failure to monitor your investments against the guidelines set forth in this document can be a breach of fiduciary responsibility.

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SOLUTION 3—THE LEAD FIDUCIARY PRACTICE

PROCESS OVERVIEW “Critical Concept: Liability is not determined by investment performance, but rather on whether prudent investment practices were followed. “Fiduciaries have the most important, yet most misunderstood role in the investment process: to manage the investment practices, without which the other components of the investment plan can be neither defined, implemented or evaluated.” Prudent Investment Practices Handbook Fiduciary360 (www.fi360.com) How well are you fulfilling your FIDUCIARY obligations? With the responsibility of overseeing participants’ retirement plan assets comes the obligation of a fiduciary to not only select and monitor the plan’s investment options, but also to stay informed about what regulatory standards must be adhered to and to document the fact that they are observing procedural prudence. Being a fiduciary is a matter of complying with the requirements outlined in ERISA—the Employee Retirement Income Security Act of 1974—which governs the management and operation of retirement plans and protects the interests of those invested in the plan. Corporate officers who appoint fiduciaries must "ensure that the appointed fiduciary clearly understands his obligations, that he has at his disposal the appropriate tools to perform his duties with integrity and competence, and that he is appropriately using those tools." Martin v. Harline, 15 EBC 1138, 1149 (D. Utah 1992) This Lead Fiduciary Practice is designed to educate you on the basic requirements outlined in ERISA, evaluate your fiduciary management structure, and implement a Fiduciary Risk Management program to help document the steps you are taking to meet your fiduciary responsibilities. The Practices associated with this process (as defined by The Prudent Investment Practices Handbook by The Center for Fiduciary Studies): 1.4, 1.5, 1.6, 4.1, 4.3, 4.4, 5.1, 5.2, 5.3, 5.4, 5.5

Reviewing Your Plan’s Investments

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SOLUTION 3—THE LEAD FIDUCIARY PRACTICE

STEP-BY-STEP The following steps make up the process in The Lead Fiduciary Practice: 1. UNDERSTAND THE ROLE OF A FIDUCIARY

A plan fiduciary must act solely in the interest of plan participants and beneficiaries. In ensuring that the plan provides the participants and beneficiaries with the benefits due them and in defraying reasonable plan expenses, a plan fiduciary must follow the basic responsibilities defined by ERISA.

2. REVIEW ERISA GUIDANCE FOR PLAN FIDUCIARIES Any investment fiduciary who has the legal responsibility for managing someone else’s money needs to fully understand what is required.

3. UNDERSTAND HOW TO MEET INDUSTRY ‘BEST PRACTICES’ Uniform Fiduciary Standards of Care make up the foundation that guides a fiduciary as the traditional investment management process is carried out. (As defined by Prudent Investment Practices—a Handbook for Investment Fiduciaries, written by the Foundation for Fiduciary Studies.)

4. FORM AN INVESTMENT COMMITTEE An effective Retirement Plan Committee is the cornerstone of a successful employer-sponsored plan. A committee assists in implementing a process to help manage the key fiduciary responsibilities. It also helps to ensure that your plan remains competitive while continually offering a solid array of investment options.

5. IMPLEMENT A SET OF TOOLS TO DOCUMENT YOUR FIDUCIARY PROCESS To help you document the steps you are taking toward fiduciary compliance, a set of tools called the Fiduciary Risk Management Kit is provided, including sample meeting minutes, bylaws, and fiduciary appointment and acknowledgement letters, as well as ongoing plan monitoring checklists covering all aspects of plan management.

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SOLUTION 4—DUE DILIGENCE REVIEW

PROCESS OVERVIEW

“Custodial selection is a very important fiduciary function. Most fiduciaries abdicate the decision to a vendor, advisor, or money manager. Yet, as with other prudent practices, there are a number of important decisions that need to be managed. “The fiduciary must establish procedures for controlling and accounting for investment expenses in order to fulfill the obligation to manage investment decisions with the requisite level of care, skill, and prudence; and to fulfill the specific obligation of the fiduciary to pay only reasonable and necessary expenses.” Prudent Investment Practices Handbook Fiduciary360 (www.fi360.com) How do you SELECT a plan provider and how do you know if the EXPENSES being paid on your plan are ‘reasonable’? The Department of Labor makes it very clear that a plan fiduciary must conduct a thorough and diligent investigation and a rigorous analysis of relevant information when selecting and reviewing plan providers and investment options. As a retirement plan sponsor and fiduciary, you are responsible for selecting and monitoring providers for your company’s plan. You need to have either a single provider or a combination of providers that offer: • A broad selection of quality investments; • Recordkeeping and administration options that meet your needs; • An effective participant communications program that meets the

guidelines outlined by ERISA as well as the needs of plan participants; and

• An expense structure appropriate for your plan and service options. Most companies do not have a system in place to compare their existing plan against what is available in the marketplace. Companies reviewing proposals for a new or takeover plan have a difficult time comparing proposals on a level playing field because each provider has a different format for presenting the information. This process was developed to provide a structured method to review and compare plans and expenses. The Practices associated with this process (as defined by The Prudent Investment Practices Handbook by The Center for Fiduciary Studies): 2.1, 2.2, 2.3, 2.4, 2.5, 4.1, 4.3, 4.4, 5.4, 5.5

Comparing Plans and Reviewing Expenses

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SOLUTION 4—DUE DILIGENCE REVIEW

STEP-BY-STEP The following steps make up the process in the Due Diligence Review: 1. REVIEW THE KEY FEATURES OF RETIREMENT PLANS

Qualified plans are not one-size-fits-all. Comparing plan options based on expenses and past performance alone does not meet the fiduciary responsibility of prudence. Important decisions surrounding a plan’s features, provisions, and investments should be made according to your company’s unique goals and objectives.

2. REVIEW THE BENEFITS OF OFFERING AN EMPLOYER-SPONSORED PLAN A retirement plan can provide valuable benefits to both a company and its employees, including the ability to attract and retain qualified employees. A retirement plan can also provide an incentive benefit for key personnel and valuable tax benefits to the company setting up the plan.

3. REVIEW AND COMPARE THE TYPES OF RETIREMENT PLANS Your company’s specific needs, goals, and objectives play a critical role in determining which type of plan is best for your organization. There are several types of plans from which to choose, including: • Defined Benefit Plan • Defined Contribution Plan • Simplified Employee Pension Plan (SEP) • Profit Sharing Plan or Stock Bonus Plan • 401(k) Plan • Employee Stock Ownership Plan (ESOP) • Money Purchase Plan • Cash Balance Plan

4. UNDERSTAND PLAN FEES AND EXPENSES Having the cheapest plan or the best performing investments is not necessarily a good measurement of a successful retirement plan. When it comes to meeting your fiduciary responsibility, having a plan whose service level, quality, and fees meet the needs of your company and your employees is the main objective. Once you’ve made your decision, you can adopt your new plan with the confidence that you have taken the steps to help satisfy ERISA's standards of prudence for the selection of your plan provider. If your comparison report is for an existing plan, you may find changes need to be made in order to reduce expenses or enhance what you have to better meet your company’s needs.

5. DOL GUIDANCE FOR SELECTING AND MONITORING PLAN PROVIDERS As sponsors of workplace plans, business owners generally are responsible for ensuring that their plans comply with Federal law, including the Employee Retirement Income Security Act (ERISA). Employers should establish and follow a formal review process at reasonable intervals to determine whether it is in the best interest of their plans to continue using the current service providers or look for replacements. The Department of Labor and the Employee Benefits Security Administration offer guidance to assist business owners in the prudent selection and monitoring of service providers.

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SOLUTION 5—THE ADVANCED INVESTOR SERIES

PROCESS OVERVIEW “If you don’t provide education, you open yourself to liability, because you

haven’t provided sufficient support to participants who must make

investment choices.”

David L. Wray

President - Profit Sharing Council of America

One of the ways to limit potential liability is to set up your plan to give participants control of the investments in their accounts. For participants to have control, they must have sufficient information on the specifics of their investment options. If properly executed, this type of plan limits your liability for the investment decisions made by participants. Whether you intend to meet ERISA Section 404(c) requirements or retain the liability for participant investment decisions, providing a quality education program is essential. ERISA has guidelines for certain communication that you are required to provide employees. Educating them on their plan features and benefits is equally as important. A retirement plan cannot be considered successful if employees do not understand the benefit being offered and do not participate in the plan. Most employees do not fully understand the benefit provided to them in their company retirement plan. When it comes to educating participants, each location has a unique set of education and demographic needs that must be understood to make any program effective. This process takes you through several steps to help you understand exactly what is required communication from the direction of DOL and ERISA, what your company’s unique education challenges are, and what participants want and need to empower them to take control of their own retirement.

Developing an Effective Employee Education Program

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SOLUTION 5—THE ADVANCED INVESTOR SERIES

STEP-BY-STEP

The following steps make up the process in The Advanced Investor Series: 1. DEVELOP A SUCCESSFUL PARTICIPANT EDUCATION PROGRAM

An employee education program is a great tool to help increase participation and create better overall understanding and satisfaction among employees—but it can also be used to help you decide whether to add new features to your plan and when to make changes. Each company has a unique set of educational and logistics issues that must be understood when developing an education program for participants. Specific circumstances that should be considered include:

• Language barriers • Demographics • Shift work • Industry cycles • Location

2. UNDERSTAND PARTICIPANT NEEDS Employees often have interests and needs that are not adequately addressed by their employer’s retirement plan. A successful plan requires a thorough understanding of the issues that are important to your employees.

3. REVIEW AND SELECT EDUCATION FORMATS AND TOPICS When designing a program and selecting topics, there are basic guidelines. One—you need to address the standards set forth by the Financial Industry Regulatory Authority (FINRA), the Department of Labor (DOL), and ERISA Section 404(c) of the Internal Revenue Code. Two—you want your employees to have a good understanding of how the plan works and how it benefits them. Three—you want to meet the needs identified by your employees. And four—you want to give your employees enough information to help them make good financial decisions.

4. REVIEW PARTICIPANT COMMUNICATION GUIDELINES Certain standards must be met for the investment communication materials you distribute to plan participants. Standards to follow include those set forth by FINRA, DOL, and ERISA.

5. REVIEW ERISA REQUIREMENTS ERISA requires plans to provide participants with information about the plan, including important information about plan features and funding. Some materials must be provided to participants regularly and automatically; others are to be provided upon request, free of charge, or for copying fees.

6. IMPLEMENT AND MONITOR YOUR PROGRAM Implementing an education program is simple with the use of a well-prepared and carefully thought-out plan. But how will you know if your plan is effective? How do you monitor the results of the efforts put forth and material provided? You cannot call a program successful unless you have a method for monitoring the results.

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SOLUTION 6—THE PEAK ADMINISTRATION GUIDE

PROCESS OVERVIEW Administering a plan and managing its assets require certain actions and involve specific responsibilities. The vast amount of information necessary to effectively manage a qualified plan can be daunting. Change is constant. How do you stay informed and keep up with the changes that affect your company retirement plan?

For most plan sponsors, the amount of time available to devote to the management of your employer-sponsored retirement plan is minimal compared to other areas of employee benefit management. However, as a fiduciary, you have an obligation to ensure your plan is compliant with the legislative acts that govern it.

All of those involved in the management of a qualified plan must understand the critical issues that affect their plan, including being aware of IRS regulation changes and having a thorough understanding of all plan documents. This step helps identify the sources of information affecting your plan and lays the groundwork for keeping up with the administrative changes in a proactive manner.

This is perhaps one of the most important processes a fiduciary can complete. Without a clear understanding of what the regulations are, you cannot show prudence in the management of your qualified plan. This process helps to educate sponsors and fiduciaries on the regulations that govern qualified plans and keeps you updated on issues critical to plan management.

By completing this step, you receive a checklist that helps you address each issue that might pose a liability to the plan. As a fiduciary, you have the ability to implement an education program specific to those areas where you feel you need a clearer understanding. This process also allows you to take a proactive approach in getting updates from ERISA and the Department of Labor that impact the management of your employer-sponsored plan.

The Practices associated with this process (as defined by The Prudent Investment Practices Handbook by The Center for Fiduciary Studies): 1.5, 4.2

Staying Informed and Educated About Your Plan

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SOLUTION 6—THE PEAK ADMINISTRATION GUIDE

STEP-BY-STEP

The following steps make up the process in The Peak Administration Guide: 1. UNDERSTAND RETIREMENT PLAN ADMINISTRATIVE ISSUES

When you actually step back and review all that is involved in setting up, managing, and monitoring a qualified plan, it is little wonder why plan sponsors turn to retirement plan consultants for help. Even with assistance understanding the information, plan fiduciaries are still responsible for acting prudently in the active management of their plan, which means dealing with many issues.

2. UNDERSTAND BASIC PLAN PROVISIONS It is imperative that you have a thorough understanding of the details in your plan documents as well as a comprehensive understanding of each plan option.

3. REVIEW SOURCES OF CHANGE In order to keep up with changes affecting your plan, you must understand what the changes are and who initiates them.

4. TAKE A PROACTICE APPROACH Oftentimes, changes that you need to be aware of are presented to you by your plan advisor, trustee, accountant, or administrator. Many sponsors find it helpful to proactively receive information regarding changes and updates directly from the source, and there are a variety of ways to do this.

5. DEVELOP A PLAN MANAGEMENT CALENDAR The following items should be included in your Planning Calendar:

• Quarterly Plan Reviews • Topic Specific Conference Calls • Participation in Regular Email Update Programs • Annual Plan Reviews

6. IMPLEMENT A PLAN MANAGEMENT PROCESS Being proactive is a prudent way to show your intent to comply with fiduciary regulations. By using a checklist, you invite all those associated with your plan to inform you of updates or changes that could affect your plan. This checklist provides documentation that you have sought information regarding any issues that may affect how your plan is managed.

20

CONCLUSION

There is no way to eliminate the potential liability that comes with being a fiduciary. There is no way to pass 100% of the fiduciary responsibility to others, as the mere action of appointing another fiduciary is, in and of itself, a fiduciary act. There are, however, steps you can take to limit your liability. ERISA offers some solutions such as allowing participants to direct their own investments and provides guidance for demonstrating that prudent practices were followed in the management of your plan. The Center for Fiduciary Studies outlines twenty-seven Practices that, when used to guide your actions, can help to show that a sound investment strategy was followed. The 401k Service Solution™ provides structured processes to follow to document your decisions and show prudent practices are being followed in the setup, management, and review of your qualified plan. The education guides take you through each process step-by-step, educating you on the key issues and having you document your plan’s decisions in the accompanying workbooks. Based on your documented decision-making process, a summary is prepared for you to show that you are following prudent practices. Guidance is provided to help you address any service and fiduciary shortfalls, and an ongoing program is implemented to help you continue to show fiduciary compliance. To learn more about how to take your plan through The 401k Service Solution™ six-step program, contact a Professional Plan Consultant™ by visiting:

www.401kservicesolution.com.

21

CONCLUSION

Corporate officers who appoint fiduciaries must "ensure that the

appointed fiduciary clearly understands his obligations, that he has at his disposal the appropriate

tools to perform his duties with integrity and competence, and that he

is appropriately using those tools." Martin v. Harline, 15 EBC 1138, 1149

(D. Utah 1992)

Professional Plan Consultant

Educate. Advise. Guide.

22

Investors can sometimes become confused by the many designations used by investment professionals. You should be careful judging anyone's qualifications from a set of initials following a name. Some credentials can, however, let you know that a professional has received training specific to retirement plan management. These programs include: • Accredited Investment Fiduciary (AIF) • Accredited Investment Fiduciary Auditor (AIFA) • Certified Employee Benefit Specialist (CEBS) • Certified Pension Consultant (CPC) • Certified Retirement Administrator (CRA) • Certified Retirement Counselor (CRC) • Professional Plan Consultant (PPC) • Qualified 401(k) Administrator (QKA) • Qualified Plan Administrator (QPA) • Registered Employee Benefits Consultant (REBC) (This list is not meant to be all inclusive or imply endorsement of any specific designation listed.) Each program has certain experience levels, training, and continuing education requirements. To learn more about these designations, you can go to the FINRA website and view a list of professional designations to better understand what education and experience requirements are necessary for a designation and whether the granting organization mandates continuing education, offers a public disciplinary process, provides a means to check a professional's status, and otherwise ensures that a professional designation is more than just a string of letters. You can view this listing in a printer-friendly chart by going to www.finra.org and following links to ‘Understanding Professional Designations.’ FINRA does not endorse any professional designation. Please read the disclaimer on their site (www.finra.org) for important information. Other Terms Used by Investment Professionals Financial Analyst, Financial Adviser (Advisor), Financial Consultant, Financial Planner, Investment Consultant or Wealth Manager are generic terms or job titles used to refer to investment professionals. Anyone can use these terms without registering with securities regulators or meeting any educational and experience requirements.

WHAT TO LOOK FOR IN A SERVICE PROVIDER

In Liss v. Smith, the court said, "where the trustees lack the

requisite knowledge, experience and expertise to make the

necessary decisions with respect to investments, their fiduciary

obligations require them to hire independent professional

advisors." [991 F. Supp 278, 297 (S.D.N.Y. 1998)]

Understanding Professional Designations

23

WHAT TO LOOK FOR IN A SERVICE PROVIDER Selecting an Investment Professional

As sponsors of 401(k) and other types of pension plans, business owners generally are responsible for ensuring that their plans comply with Federal law—including the Employee Retirement Income Security Act (ERISA). Many businesses rely on other professionals to advise them and assist them with their employee benefit plan duties. For this reason, selecting competent service providers is one of the most important responsibilities of a plan sponsor. The process of selecting service providers will vary depending on the plan and services to be provided. To assist business owners in carrying out their responsibilities under ERISA to prudently select and monitor plan service providers, the Employee Benefits Security Administration has prepared the following tips which may be a helpful

• Consider what services you need for your plan – legal, accounting, trustee/custodial, recordkeeping, investment management, investment education or advice.

• Ask service providers about their services, experience with employee benefit plans, fees and expenses, customer references, or other information relating to the quality of their services and customer satisfaction with such services.

• Present each prospective service provider identical and complete information regarding the needs of your plan. You may want to get formal bids from those providers that seem best suited to your needs.

• You may also wish to consider service providers or alliances of providers who provide multiple services (e.g., custodial trustee, investment management, education or advice, and recordkeeping) for a single fee. These arrangements are often called “bundled services.”

• Ask each prospective provider to be specific about which services are covered for the estimated fees and which are not. Compare the information you receive, including fees and expenses to be charged by the various providers for similar services. Note that plan fiduciaries are not always required to pick the least costly provider. Cost is only one factor to be considered in selecting a service provider. More information on pension plan fees and expenses can be found in Understanding Retirement Plan Fees and Expenses and the 401(k) Fee Disclosure Form, located at www.dol.gov/ebsa.

• If the service provider will handle plan assets, check to make sure that the provider has a fidelity bond (a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts).

• If a service provider must be licensed (attorneys, accountants, investment managers or advisors), check with state or federal licensing authorities to confirm the provider has an up-to-date license and whether there are any complaints pending against the provider.

• Make sure you understand the terms of any agreements or contracts you sign with service providers and the fees and expenses associated with the contracts. In particular, understand what obligations both you and the service provider have under the agreement and whether the fees and expenses to be charged to you and plan participants are reasonable in light of the services to be provided.

• Prepare a written record of the process you followed in reviewing potential service providers and the reasons for your selection of a particular provider. This record may be helpful in answering any future questions that may arise concerning your selection.

• Receive a commitment from your service provider to regularly provide you with information regarding the services it provides.

• Periodically review the performance of your service providers to ensure that they are providing the services in a manner and at a cost consistent with the agreements.

• Review plan participant comments or any complaints about the services and periodically ask whether there have been any changes in the information you received from the service provider prior to hiring (e.g., does the provider continue to maintain any required state or Federal licenses).

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WHAT TO LOOK FOR IN A SERVICE PROVIDER

The information in this handbook was compiled by Financial Service Standards, LLC (FSS)—a Pittsburgh company devoted to identifying and raising the service standards of financial professionals. The mission of FSS is to be the ruler by which service excellence is measured in the financial industry. Our goal is to define the minimum standards of service and provide solutions that exceed those standards. Striving to meet our mission objectives for the retirement plan market, Financial Service Standards, LLC sponsors The 401k Service Training Program™ at the School of Adult and Continuing Education at Robert Morris University. The Professional Plan Consultant™ designation is awarded to those that successfully complete The 401k Service Training Program™, including passing a final course exam. This designation signifies a commitment to education and service excellence in the qualified plan industry. The 401k Service Training Program™ is the only course that sets service standards in the retirement plan industry and imparts professionals with not only the knowledge, but the tools needed to meet (and exceed) those standards. Those awarded the designation of Professional Plan Consultant™ have successfully completed a specialized program on the service issues facing everyone involved in the development, management, and monitoring of a qualified plan, and have subsequently passed a comprehensive examination. Designees must be able to understand and articulate the six critical issues faced by plan sponsors and fiduciaries and the unique service challenges faced in addressing those issues. They must further be able to implement the processes taught in the course and use them to effectively meet the service challenges faced. Equally as important, they must commit to using the service model in a manner consistent with its development to demonstrate superior service in the retirement plan market. To earn the PPC™ designation, a candidate must satisfy requirements involving:

· Professional experience, · Coursework, · Final exam, · Business character, and · Continuing education.

Working with a Professional Plan Consultant™

Fiduciaries are required to engage in prudent processes when selecting and monitoring

competent advisors (which, for investments, might include

investment advisors, consultants, and brokers). The court in Bussian

v. RJR Nabisco, Inc., explained: "whether a fiduciary's reliance on an expert advisor is justified is

informed by many factors, including the expert's reputation and experience, the extensiveness and thoroughness of the expert's

investigation, whether the expert's opinion is supported by relevant

material, and whether the expert's methods and assumptions are appropriate to the decision at

hand." [223 R3d 286, 301 (5th Cir. 2000)]

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WHAT TO LOOK FOR IN A SERVICE PROVIDER

Those awarded the designation of Professional Plan Consultant™ are given exclusive access to the licensing rights to offer The 401k Service Solution™ set of processes to plan sponsors and fiduciaries. By having access to these tools, a PPC™ can assist you in understanding what is required, provide the means for documenting your plan’s decisions and decision-making process, and provide you with a comprehensive course summary. Each summary provided by a PPC™ includes your documented worksheets, a results page that outlines the decisions made, and various checklists for the ongoing management and review of your plan in accordance with the regulations set forth by ERISA. By following the processes that make up The 401k Service Solution™, which are based in part on the Practices as defined by The Prudent Investment Practices Handbook (Fiduciary360), you should feel confident that the critical components of an investment strategy are being properly implemented. Monitoring A Service Provider The Department of Labor provides the following guidance on how to monitor those who help you with your plan: An employer should establish and follow a formal review process at reasonable intervals to decide if it wants to continue using the current service providers or look for replacements. When monitoring service providers, an employer may take various actions to ensure the agreed-upon services are being performed, including:

• Reviewing the service providers’ performance; • Reading any reports they provide; • Checking actual fees charged; • Asking about policies and practices (such as trading, investment turnover, and proxy

voting); and • Following up on participant complaints.

Professional Plan Consultant

Educate. Advise. Guide.

26

RESOURCES

Uniform Fiduciary Standards of Care1 The Uniform Fiduciary Standards of Care are seven standards that are common to the three legislative acts that shape investment fiduciary standards. (The three legislative acts that shape investment fiduciary standards are: ERISA, UPIA, and MPERS.) 1. Know standards, laws, and trust provisions. 2. Diversify assets to specific risk/return profile of client. 3. Prepare investment policy statement. 4. Use “prudent experts” (money managers) and document due diligence. 5. Control and account for investment expenses. 6. Monitor the activities of “prudent experts.” 7. Avoid conflicts of interest and prohibited transactions. These standards make up the foundation that guides a fiduciary as the traditional investment management process is carried out. Prudent Investment Practices, a Handbook for Investment Fiduciaries, is a tool that Financial Service Standards, LLC believes every plan sponsor should have on hand and should refer to as you strive to meet the standards set forth by ERISA. The 401k Service Solution™ was developed, in part, based on the Practices outlined in the Handbook, to provide the process to accomplish what The Center for Fiduciary Studies outlines as key elements in a prudent management practice. The Prudent Investment Practices Handbook covers twenty-seven Practices that define a prudent investment management process from beginning to end. The following list is a brief description of each of the twenty-seven Practices as defined by The Center for Fiduciary Studies: 1.1 Investments are managed in accordance with applicable laws, trust documents, and written investment policy statements. 1.2 Fiduciaries are aware of their duties and responsibilities. 1.3 Fiduciaries and parties in interest are not involved in self-dealing. 1.4 Service agreements and contracts are in writing, and do not contain provisions that conflict with fiduciary standards of care. 1.5 There is documentation to show timing and distribution of cash flows, and the payment of liabilities. 1.6 Assets are within the jurisdiction of U.S. courts, and are protected from theft and embezzlement. 2.1 A risk level has been identified. 2.2 An expected, modeled return to meet investment objectives has been identified. 2.3 An investment time horizon has been identified.

1 Fiduciary 360 - www.fi360.com

Prudent Investment Practices

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RESOURCES

2.4 Selected asset classes are consistent with the identified risk, return, and time horizon. 2.5 The number of asset classes is consistent with portfolio size. 3.1 There is detail to implement a specific investment strategy. 3.2 The Investment Policy Statement defines the duties and responsibilities of all parties involved. 3.3 The Investment Policy Statement defines diversification and rebalancing guidelines. 3.4 The Investment Policy Statement defines due diligence criteria for selecting investment options. 3.5 The Investment Policy Statement defines monitoring criteria for investment options and service vendors. 3.6 The Investment Policy Statement defines procedures for controlling and accounting for investment expenses. 3.7 The Investment Policy Statement defines appropriately structured, socially responsible investment strategies (when applicable). 4.1 The investment strategy is implemented in compliance with the required level of prudence. 4.2 The fiduciary is following applicable “Safe Harbor” provisions (when elected). 4.3 Investment vehicles are appropriate for the portfolio size. 4.4 A due diligence process is followed in selecting service providers, including the custodian. 5.1 Periodic reports compare investment performance against appropriate index, peer group, and IPS objectives. 5.2 Periodic reviews are made of qualitative and/or organizational changes of investment decision-makers. 5.3 Control procedures are in place to periodically review policies for best execution, soft dollars, and proxy voting. 5.4 Fees for investment management are consistent with agreements and with the law. 5.5 “Finder’s fees,” 12b-1 fees, or other forms of compensation that have been paid for asset placement are appropriately applied, utilized, and documented.

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RESOURCES

The following is the stated mission of the DOL:

The Department of Labor fosters and promotes the welfare of the job seekers, wage earners, and retirees of the United States by improving their working conditions, advancing their opportunities for profitable employment, protecting their retirement and health care benefits, helping employers find workers, strengthening free collective bargaining, and tracking changes in employment, prices, and other national economic measurements. In carrying out this mission, the Department administers a variety of Federal labor laws including those that guarantee workers’ rights to safe and healthful working conditions; a minimum hourly wage and overtime pay; freedom from employment discrimination; unemployment insurance; and other income support.

The Department of Labor (DOL) administers and enforces more than 180 federal laws. These mandates and the regulations that implement them cover many workplace activities for about 10 million employers and 125 million workers.

The Employee Retirement Income Security Act (ERISA) regulates employers who offer pension or welfare benefit plans for their employees. Title I of ERISA is administered by the Employee Benefits Security Administration (EBSA) (formerly the Pension and Welfare Benefits Administration) and imposes a wide range of fiduciary, disclosure and reporting requirements on fiduciaries of pension and welfare benefit plans and on others having dealings with these plans. These provisions preempt many similar state laws. Under Title IV, certain employers and plan administrators must fund an insurance system to protect certain kinds of retirement benefits, with premiums paid to the federal government's Pension Benefit Guaranty Corporation (PBGC). EBSA also administers reporting requirements for continuation of health-care provisions, required under the Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA) and the health care portability requirements on group plans under the Health Insurance Portability and Accountability Act (HIPAA).

The DOL has a comprehensive website with resources and publications that can assist plan sponsors and fiduciaries navigate through the decision-making process as it relates to their retirement plans. To view these resources, visit www.dol.gov.

It is the responsibility of the DOL to enforce ERISA. In some ways,

the Department of Labor has similar responsibilities to that of a plan fiduciary—it keeps a close eye on employers to ensure that plan participants’ best interests

are adequately served.

The Department of Labor (DOL)

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RESOURCES

WHAT IS ERISA?1

The Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire.

ERISA is a federal law that sets minimum standards for pension plans in private industry. For example, if an employer maintains a pension plan, ERISA specifies when an employee must be allowed to become a participant, how long they have to work before they have a non-forfeitable interest in their pension, how long a participant can be away from their job before it might affect their benefit, and whether their spouse has a right to part of their pension in the event of their death. Most of the provisions of ERISA are effective for plan years beginning on or after January 1, 1975.

ERISA does not require any employer to establish a pension plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit.

ERISA does the following:

• Requires plans to provide participants with information about the plan including important information about plan features and funding. The plan must furnish some information regularly and automatically. Some is available free of charge, some is not.

• Sets minimum standards for participation, vesting, benefit accrual, and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and to have a non-forfeitable right to those benefits. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your plan.

• Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan.

• Gives participants the right to sue for benefits and breaches of fiduciary duty.

• Guarantees payment of certain benefits if a defined plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation.

1www.dol.gov.

ERISA

30

RESOURCES

How can sponsors reduce their liability? - Section 404(c) Guidelines By adhering to regulations under Section 404(c) of the Employee Retirement Income Security Act (ERISA), plan sponsors can protect themselves from liability for their employee’s investment decisions. The guidelines for complying with Section 404(c) include informing your employees that they are responsible for the investment results of their directed accounts and providing them with: Diversified Investment Choices Employees must be given at least three choices with materially different risk/reward attributes. Transfer Flexibility Employees must have the ability to move their account balances from one investment option to another at least once quarterly (more often if the investment option is unstable). Named Fiduciaries Section 404(c) requires that the plan specify who is responsible for providing investment information to plan participants and who is responsible for receiving and processing participant investment direction. Notice of Intent to be a Section 404(c) plan The ERISA Section 404(c) regulation requires Notice be given to participants of the plan’s intent to have no liability for the results of participants directing the investments of their accounts. Investment Information Employees must receive adequate information to make informed investment decisions. This information includes:

• A description of the investment alternatives available under the plan, including investment objective and risk and return characteristics.

• A copy of the most recent full prospectus for each fund in which the participant invests (to be provided either immediately before or after a participant initially invests).

• An explanation of how and when participants may give investment instructions.

• A description of any transaction fees and expenses, including any commissions or sales loads, redemption or exchange fees.

• Information about voting rights and who can exercise them. Adhering to the regulations in Section 404(c) does not absolve the plan sponsors from liability. Responsibility for selecting and monitoring plan investments remains with the plan sponsor. To limit liability, a plan sponsor must comply with the specific requirements of 404(c).

ERISA Section 404(c)

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RESOURCES Fiduciary Importance

Who is considered a fiduciary? The following excerpts are from a Department of Labor booklet “Meeting Your Fiduciary Responsibilities”—May 2004: Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control. Thus, fiduciary status is based on the functions performed for the plan, not just a person’s title. A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or a company’s board of directors. A plan’s fiduciaries will ordinarily include the trustee, investment advisers, all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials. Attorneys, accountants, and actuaries generally are not fiduciaries when acting solely in their professional capacities. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan. A number of decisions are not fiduciary actions but rather are business decisions made by the employer. For example, the decisions to establish a plan, to determine the benefit package, to include certain features in a plan, to amend a plan, and to terminate a plan are business decisions. When making these decisions, an employer is acting on behalf of its business, not the plan, and, therefore, is not a fiduciary. However, when an employer (or someone hired by the employer) takes steps to implement these decisions, that person is acting on behalf of the plan and, in carrying out these actions, is a fiduciary. A fiduciary should be aware of others who serve as fiduciaries to the same plan, since all fiduciaries have potential liability for the actions of their co-fiduciaries. For example, if a fiduciary knowingly participates in another fiduciary’s breach of responsibility, conceals the breach, or does not act to correct it, that fiduciary is liable as well.

If a person no longer wishes to be a plan fiduciary, the DOL provides the following guidance: Fiduciaries who no longer want to serve in that role cannot simply walk away from their responsibilities, even if the plan has other fiduciaries. They need to follow plan procedures and make sure that another fiduciary is carrying out the responsibilities left behind. It is critical that a plan has fiduciaries in place so that it can continue operations and participants have a way to interact with the plan.

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RESOURCES

What is the significance of being a fiduciary? Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include:

• Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;

• Carrying out their duties prudently; • Following the plan documents (unless inconsistent with

ERISA); • Diversifying plan investments; and • Paying only reasonable plan expenses.

Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them: Sponsors can show their intention toward meeting this responsibility by understanding and documenting their understanding of the ‘interests of plan participants.’ The Vision Session and The Advanced Investor Series both provide the tools to document this information. Another way sponsors can fulfill this responsibility is by understanding what ERISA deems ‘prohibited practices.’ These include the sale, exchange, or lease between the plan and party-in-interest; lending money or other extension of credit between the plan and party-in-interest; and furnishing goods, services, or facilities between the plan and party-in-interest.

Carrying out their duties prudently: Prudence focuses on the process for making fiduciary decisions; therefore, it is wise to document decisions and the basis for those decisions. Each process in The 401k Service Solution provides the tools to allow you to document your decisions and decision-making process.

Prudent Investor Rule ERISA Section 403(c) also states that “A fiduciary shall discharge their duties with respect to a plan with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”

Following the Plan Documents: Following the terms of the plan document is also an important responsibility. The document serves as the foundation for plan operations. Employers will want to be familiar with their plan document, especially when it is drawn up by a third-party service provider, and periodically review the document to make sure it remains current. The Peak Administration Guide process has plan sponsors review their plan documents and sign off that this has been done. The documented summary resulting from this process also includes a checklist to ensure all fiduciaries are familiar with and review plan documents on at least an annual basis (more often if changes are made).

ERISA holds plan fiduciaries to a high legal standard. The

responsibilities of fiduciaries have been described as "the highest known to the law." [Donovan v.

Bierwirth, 680 F.2d 263, 272 (2d Cit. 1982)] When fiduciaries do

not have the skills needed to satisfy these high standards,

ERISA permits fiduciaries – in fact requires them, to get help in those

areas where they lack expertise.

Fiduciary Importance

www.dol.gov

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RESOURCES

The significance of being a fiduciary continued... Diversifying Plan Investments: Diversification – another key fiduciary duty – helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio. Once again, fiduciaries will want to document their evaluation and investment decisions. This is accomplished in the Lead Fiduciary Practice. In this process, a complete plan investment review is conducted and a strategy for the ongoing monitoring of plan assets, including reviewing plan and participation allocations, is implemented. Paying only Reasonable Plan Expenses: The Due Diligence Review process walks sponsors through the steps necessary to evaluate their plan expenses and compare their plan to other plans with similar investment and administrative options. This process assists sponsors in determining what is reasonable and documenting their plan review to comply with this responsibility. Exclusive Benefit Rule ERISA Section 403(c) states that, “The assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purpose of providing benefits to participants in the plan and their beneficiaries, and defraying reasonable expenses of administering the plan.” It is important to understand what could be considered a breach of fiduciary duties: • Failure to offer a diversified selection if investment choices. • Failure to monitor the plan’s investment options and, if necessary, replace investment options

that aren't producing adequate returns over time. • Conducting self-dealing transactions, using plan assets for your own or the company’s benefit

(e.g., untimely remittance to the plan trustee of employee contributions, or receiving pay OR benefits for selecting a particular investment or financial representative).

• Allowing party-in-interest transactions (e.g., loans or other extensions of credit; any sales, exchange, or leasing of property; or furnishing goods or services) between the plan and any person connected to the plan, including plan administrator, trustee, officer, custodian, counsel, employer, employee and /or relatives of any of those mentioned.

• Making payments that might be considered duplicative, excessive, or unnecessary. Co-fiduciaries may be held responsible for the actions of one another as well. If you knowingly participate in or conceal any fiduciary misconduct, or discover another fiduciary's breach of conduct and fail to take steps to correct it, you could be liable. Penalties for noncompliance might include: • Civil actions—in addition to suits filed by individual participants and others, DOL itself imposes

a 20% civil penalty for certain fiduciary breaches. • Payment of attorneys’ fees. • Payment of possible excise taxes. • Surrendering any profits made by you from the plan. • Criminal penalties of up to $100,000 for individual fiduciaries ($500,000 for corporations) and

up to 10 years in prison. • Monetary penalties for failure to properly disclose information to plan participants. • Having to restore/reimburse losses incurred by the plan and put back any money that the plan

might otherwise have made under normal circumstances, possibly even restoring the balances of each participant’s account.

Fiduciary Importance

34

Phased Retirement The Act provides that defined benefit pension plans can provide for in-service distributions to participants who are age 62 or older.

Automatic Enrollment in 401(k) Plans The Act removes any perceived state-law impediments to automatic enrollment in 401(k) plans and includes new rules to encourage their adoption.

Nondiscrimination Safe Harbor The Act creates an optional nondiscrimination safe harbor for automatic enrollment plans. A plan is deemed to satisfy the nondiscrimination rules for elective deferrals and matching contributions if it provides a minimum match of 100% of elective deferrals up to 1% of compensation, plus 50% of elective deferrals between 1% and 6% of compensation.

Other Automatic Enrollment Rules An employee who is automatically enrolled may be given a 90-day window to elect out of the plan and withdraw the contributions made on his or her behalf and the earnings related to those amounts.

Diversification Requirements The Act requires any defined contribution plan that holds publicly traded employer securities (or non-traded tracking stock related to the performance of a subsidiary of a public company) to permit participants to diversify account balances invested in those securities.

Investment Advice to Participants For ERISA-covered, employer-sponsored plans, a fiduciary that is a registered investment company, bank, insurance company, or registered broker-dealer will be allowed to give investment advice to participants without engaging in a prohibited transaction if either (1) its fee does not vary depending on the investment choices that participants make or (2) its recommendations are based on a computer model certified by an independent third party.

Modifications to the Prohibited Transactions Rules A new exemption permits service providers that are not fiduciaries and have no other relationship to a plan to engage in sales, exchanges, leases, and loans with plans, as long as the plan receives adequate consideration.

ERISA Provisions The required bond for plan officials is increased from $500,000 to $1 million for plans holding employer securities effective for plan years beginning after 2007.

THE PENSION PROTECTION ACT OF 2006 Overview of the Act’s Impact on 401(k) Plans

Most of the changes enacted by the Pension Protection Act of 2006 relate to the funding of defined benefit plans and become effective in 2008. However, the PPA also requires changes in the administration of defined contribution plans, such as 401(k) plans, beginning in 2007. The following are the most relevant aspects of the Act.

35

THE PENSION PROTECTION ACT OF 2006 Overview of the Act’s Impact on 401(k) Plans

Roth 401(k) Plans

The Act permanently extends a provision allowing plan participants to qualify for the favorable tax treatment of a Roth feature in a 401(k) or 403(b) plan. A Roth feature allows an employee to make after-tax contributions, which, along with earnings, qualify for tax-free distribution if certain conditions are satisfied.

Vesting The Act changes the vesting rules for employer non-elective (e.g., discretionary employer or profit sharing) contributions made to defined contribution plans. Beginning after December 31, 2006, all employer contributions must be 100% vested after no more than 3 years, or must vest at a rate of at least 20% a year from 2 to 6 years under a graded schedule.

Changes Affecting Plan Administration Simplification The Act also made permanent a number of administrative simplifications introduced by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), including: ● Shortening from one year to six months the required suspension period for individuals who

take hardship distributions from a 401(k) or 403(b) plan ● Disregarding rollover accounts for the purpose of determining whether a participant’s account

balance did not exceed $5,000 and, therefore, could be distributed automatically without the participant’s consent

● Easing the top-heavy rules (which require minimum contributions on behalf of non-key employees covered by top-heavy plans) through changes that reduce the likelihood that a plan will meet the criteria for top-heavy status

Benefit Statements Beginning with plan years after December 31, 2006, individual account plans (including 401(k) plans) must provide participant benefit statements at least quarterly to participants who have the right to direct investments, and to other participants and beneficiaries who have their own account under the plan at least annually. Quarterly statements to participants who have the right to direct investments must contain information about the importance of account diversification. Defined benefit plans must furnish a benefit statement at least once every three years to a participant with a non-forfeitable accrued benefit who is employed by the employer maintaining the plan at the time the statement is to be furnished. Alternatively, at least annually, defined benefit plans must provide notice to each such participant of the availability of the pension benefit statement and how to obtain it.

Investment Safe Harbor Fiduciary Liability: Section 404(c) of ERISA has shielded plan sponsors from lawsuits stemming from the investment choices made by plan participants provided (i) plan sponsors took the steps needed to be 404(c) compliant, and (ii) the investment choices provided by the plan sponsor were prudent. This liability shield, however, did not extend to default investment elections which were made where participants failed to direct their investments. However, effective for plan years after December 31, 2006, if certain requirements are met, plan fiduciaries will be shielded from liability for certain legal actions arising out of investment results where a participant has failed to make an election and the participant's account is invested in a default investment. The plan must provide participants with notice explaining the participant's right to invest his account and how the account will be invested if the participant fails to make an affirmative investment election. The default account cannot be a money market or stable value fund. Rather, it must be a diversified fund of one of three types: a lifecycle or targeted retirement fund that changes asset allocations as the participant ages, a balanced fund for long-term appreciation and capital preservation, or an investment fund management service that allocates assets according to the participant's age, retirement date, and life expectancy.

36

RESOURCES

Department of Labor's Interpretive Bulletin 96-1 Employers have a fiduciary responsibility to provide employees with access to fund performance and investment education and tools to ensure they make informed decisions related to their contributions. The good news is there is a lot you can provide your employees, without taking on the liability of providing advice. During your annual plan review, it is recommended that employers evaluate their educational programs to determine the following:

• Education is free of bias or conflict of interest; • Delivery methods meet the needs of employee population (online,

telephone, printed materials); • Marketing and communication of educational resources are

effective; • Employees are making use of educational resources; and • Topics address the needs of employee population.

The Department of Labor's Interpretive Bulletin 96-1 outlines educational activities that will not constitute "investment advice." There are four general categories of investment-related information and materials that you can provide employees. 1. Plan Information Employers should provide information and materials that inform employees about the benefits of plan participation, the benefits of increasing plan contributions, the impact of pre-retirement withdrawals on retirement income, and the terms and operations of the plan. Employers may also include information that is described in the regulations under Section 404(c) of ERISA on investment alternatives in the plan. 2. General Financial and Investment Information The information you provide cannot directly reference any of the investment options available to employees and must be general in nature to satisfy the education safe harbor. Examples of this type of information include: general financial and investment concepts such as risk and return, diversification, dollar cost averaging, compounded return, and tax-deferral; historic rates of return between different asset classes based on standard market indices; the effects of inflation; estimating future retirement income needs; determining investment time horizons; and assessing risk tolerance. 3. Asset Allocation In order to help your employees understand how to allocate their funds, you may also provide them with model portfolios showing different asset allocations for different time horizons and risk profiles. These models must be based on generally accepted investment theories that take into account historic returns of different asset classes over defined periods. All material facts and assumptions on which the models are based must accompany the models. 4. Interactive Investment Materials This category includes questionnaires, worksheets, software, and similar materials that provide employees with the means to estimate future retirement income needs.

Education vs. Advice

According to the definition by the Department of Labor, here’s the difference between education

and advice:

Education offers choices—Advice offers recommendations.

Guide the discussion instead of

the decision.

37

RESOURCES Service Provider Options

There are three main models used to deliver qualified plan services to plan sponsors. When doing a provider search, it is important that you understand the strengths and weaknesses of each because each model will have a different affect on your workload, plan expenses, and the way services are delivered to you and your employees. BUNDLED The bundled model is where one single vendor provides all investment, recordkeeping, administration, and education services. This model generally requires at least some investment in their proprietary funds. Bundled service providers are able to provide the entire range of administrative services to a plan sponsor from within a "one-stop-shop." Examples include mutual fund companies, banks, insurance companies, and brokerage firms. Costs are generally lower because the vendor is able to offset recordkeeping and administrative costs from investment management fees. Bundled services are most prevalent among small plans. UNBUNDLED In this model, the plan sponsor becomes the "bundler." Plan sponsors use services through a combination of in-house staff and independent service providers for each critical task. It allows for maximum control and the ability to pick service providers that are the "best of the best," including investment options. This model usually includes mutual fund companies, banks, insurance companies, and/or brokerage firms in addition to Third Party Administrators. This model is most prevalent among larger plans that have adequate resources to manage such a plan. Independent consultants are often hired to help construct and manage unbundled plans. ALLIANCE This model combines features from both the bundled and unbundled models. The vendor generally provides recordkeeping, administration, and education services just like the bundled provider, but forms one or more alliances with partners to provide a wide array of investment options and other specialty services. The cost of providing recordkeeping and administration services is often subsidized by the alliance partners through 12b-1 fees or other revenue sharing. This makes the alliance model cost competitive with the bundled model. This is one of the fastest growing models in the marketplace among all plan sizes.

38

RESOURCES

The Employee Retirement Income Security Act (ERISA) covers two types of pension plans: defined benefit plans and defined contribution plans. A defined benefit plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service — for example, 1 percent of average salary for the last 5 years of employment for every year of service with an employer. The benefits in most traditional defined benefit plans are protected, within certain limitations, by federal insurance provided through the Pension Benefit Guaranty Corporation (PBGC). A defined contribution plan, on the other hand, does not promise a specific amount of benefits at retirement. In these plans, the employee or the employer (or both) contribute to the employee's individual account under the plan, sometimes at a set rate, such as 5 percent of earnings annually. These contributions generally are invested on the employee's behalf. The employee will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of the account will fluctuate due to the changes in the value of the investments. Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit sharing plans. A Simplified Employee Pension Plan (SEP) is a relatively uncomplicated retirement savings vehicle. A SEP allows employees to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. SEPs are subject to minimal reporting and disclosure requirements. Under a SEP, an employee must set up an IRA to accept the employer's contributions. Employers may no longer set up Salary Reduction SEPs. However, employers are permitted to establish SIMPLE IRA plans with salary reduction contributions. If an employer had a salary reduction SEP, the employer may continue to allow salary reduction contributions to the plan. A Profit Sharing Plan or Stock Bonus Plan is a defined contribution plan under which the plan may provide, or the employer may determine, annually, how much will be contributed to the plan (out of profits or otherwise). The plan contains a formula for allocating to each participant a portion of each annual contribution. A profit sharing plan or stock bonus plan includes a 401(k) plan. An Employee Stock Ownership Plan (ESOP) is a form of defined contribution plan in which the investments are primarily in employer stock. A Money Purchase Pension Plan is a plan that requires fixed annual contributions from the employer to the employee's individual account. Because a money purchase pension plan requires these regular contributions, the plan is subject to certain funding and other rules.

Retirement Plan Types

39

RESOURCES Retirement Plan Types

A 401(k) Plan is a defined contribution plan that is a cash or deferred arrangement. Employees can elect to defer receiving a portion of their salary which is instead contributed on their behalf, before taxes, to the 401(k) plan. Sometimes the employer may match these contributions. There are special rules governing the operation of a 401(k) plan. For example, there is a dollar limit on the amount an employee may elect to defer each year. An employer must advise employees of any limits that may apply. Employees who participate in 401(k) plans assume responsibility for their retirement income by contributing part of their salary and, in many instances, by directing their own investments. Safe Harbor Provisions: Every 401(k) must pass mandated compliance testing every year. The tests compare the participation rates of different classes of employees. Employers can choose to skip the tests and instead make a requisite contribution to their so-called non-highly compensated employees' 401(k) accounts. This is called the safe harbor method of plan administration. The safe harbor method of plan operation lets 401(k) plans skip their annual 401(k) nondiscrimination testing so long as the sponsoring employer meets certain employer 401(k) contribution requirements designed to ensure broad participation in the company plan and provides 100% immediate vesting of the contributions.

• To qualify a 401(k) plan as a safe harbor plan, an employer must make matching contributions that fulfill the below requirements or make non-elective contributions equal to 3% of each eligible employee's compensation.

• Non-elective contributions are made to all eligible employees, regardless of whether the employees participate in the company 401(k) plan. Matching contributions, on the other hand, being based upon salary deferral amounts, are made only to active 401(k) participants' accounts.

• If the employer chooses to make safe harbor matching contributions, those contributions must meet two requirements: First, each non-highly compensated employee must receive a dollar-for-dollar match on salary deferrals up to 3% of compensation and a 50¢ to the dollar match on salary deferrals from 3% to 5% of compensation. Second, the rate of any matching contributions being made to highly compensated employees cannot exceed that being made to non-highly compensated employees.

• See also the Nondiscrimination Safe Harbor rules enacted in the Pension Protection Act as outlined on page 34 of this handbook. (The Act creates an optional nondiscrimination safe harbor for automatic enrollment plans.)

• The employer must provide annual information to employees explaining the 401(k) plan's safe harbor provisions and benefits, including that safe harbor contributions cannot be distributed before termination of employment and that they are not eligible for financial hardship withdrawal.

• Employers can decide as late as 30 days before the end of each plan year whether or not to take the safe harbor route. However, if, as its safe harbor contribution, the employer wants to make matching contributions rather than the flat 3% of compensation contribution, the employer must define the matching formula well ahead of those 30 days; in fact, any safe harbor matching contribution must be defined and communicated to employees no later than 30 days before the START of the applicable plan year so employees have plenty of time to adjust their contribution rates accordingly.

40

RESOURCES Maximum Benefit and Contribution Limits

Maximum Benefit and Contribution Limits for 2007-2008 As published by the Internal Revenue Service:

The Elective Deferral Limit is the maximum contribution that can be made on a pre-tax basis to a 401(k) or 403(b) plan (Internal Revenue Code section 402(g)(1)). Some still refer to this as the $7,000 limit (its original setting in 1987).

The 457 Deferral Limit is a similar restriction, applied to certain government plans (457 plans).

The Annual Benefit Limit is the maximum annual benefit that can be paid to a participant (IRC section 415). The limit applied is actually the lesser of the dollar limit above or 100% of the participant's average compensation (generally the high three consecutive years of service). The participant compensation level is also subject to the Annual Compensation Limit.

The Annual Contribution Limit is the maximum annual contribution amount that can be made to a participant's account (IRC section 415). This limit is actually expressed as the lesser of the dollar limit or 100% of the participant's compensation, applied to the combination of employee contributions, employer contributions, and forfeitures allocated to a participant's account.

In calculating contribution allocations, a plan cannot consider any employee compensation in excess of the Annual Compensation Limit (401(a)(17)). This limit is also imposed in determining the Annual Benefit Limit. In calculating certain nondiscrimination tests (such as the Actual Deferral Percentage), all participant compensation is limited to this amount, for purposes of the calculation.

The Highly Compensated Threshold (section 414(q)(1)(B)) is the minimum compensation level established to determine highly compensated employees for purposes of nondiscrimination testing.

The SIMPLE Contribution Limit is the maximum annual contribution that can be made to a SIMPLE (Savings Incentive Match Plan for Employees) plan. SIMPLE plans are simplified retirement plans for small businesses that allow employees to make elective contributions, while requiring employers to make matching or non-elective contributions.

SEP Coverage Limit is the minimum earnings level for a self-employed individual to qualify for coverage by a Simplified Employee Pension (SEP) plan (a special individual retirement account to which the employer makes direct tax-deductible contributions).

The SEP Compensation Limit is applied in determining the maximum contributions made to the plan.

Catch-up Contributions, SIMPLE Catch-up deferral: Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), certain individuals age 50 and over can now make so-called 'catch-up' contributions, in addition to the above limits.

EGTRRA also added the Top-heavy plan key employee compensation limit.

2008 2007

Elective Deferrals (401(k) & 403(b) plans)

$15,500 $15,500

Annual Benefit Limit $185,000 $180,000

Annual Contribution Limit $46,000 $45,000

Annual Compensation Limit $230,000 $225,000

457 Deferral Limit $15,500 $15,500

Highly Compensated Threshold

$105,000 $100,000

SIMPLE Contribution Limit

$10,500 $10,500

SEP Coverage $500 $500

SEP Compensation Limit

$230,000 $225,000

Income Subject to Social Security

$102,000 $97,500

Top-Heavy Plan Key Employee Comp

$150,000 $145,000

Catch-Up Contributions

$5,000 $5,000

SIMPLE Catch-Up Contributions

$2,500 $2,500

41

RESOURCES

Retirement Plan Tables

FEATURE 401(K) 401(K) SAFE HARBOR PROFIT SHARING 401(K) SIMPLE SIMPLE IRA

MAXIMUM EMPLOYEE DEFERRAL

$15,500 - 2008 $15,500 - 2008 No employee $10,500 - 2008 $10,500 - 2008

$15,500 - 2007 $15,500 - 2007 contributions $10,500 - 2007 $10,500 - 2007

MAXIMUM EMPLOYEE CATCH-UP

CONTRIBUTION

$5,000 - 2008 $5,000 - 2008 No employee $2,500 - 2008 $2,500 - 2008

$5,000 - 2007 $5,000 - 2007 contributions $2,500 - 2007 $2,500 - 2007

EMPLOYER CONTRIBUTION

Discretionary. Mandatory. Discretionary. Mandatory. Mandatory.

Match and/or profit sharing

Tiered Match: 100% up to 3% and 50% of

the next 2%, 4% maximum; or non-

elective contribution of 3% to all eligible

participants

The lesser of 25% of compensation or $45,000 in 2007 / $46,000 in 2008

100% up to 3% or 2% non-elective contribution

100% up to 3% or 2% non-elective contribution

VESTING

Immediate, Immediate for Tiered Match or non-elective

contribution Options available Immediate Immediate

3-year cliff or 6-year graded

Profit-sharing options available

LOANS Yes Yes Yes Yes No

ADP/ACP TESTING

Yes No No No No

TOP-HEAVY TESTING

Yes Generally satisfied Yes No No

INVESTMENT PROVIDERS

Choice of several Choice of several Choice of several Choice of several Single offering

42

RESOURCES Retirement Plan Tables

May permit loans and hardsh ip withdrawals.

H ardsh ip withdrawals may be subject to a possible 10%

penalty if participant is

under age 59 1/2 .

Payment of benefits generally

at retirement.

DEFIN E D B EN E FIT

SEP- IRAPAY ROLL

DEDU CTION IRA

S IMPLE -IRA 4 01(k )PROFIT

S H ARIN G

Must be offered to all employees at least 2 1 years of

age who worked at least 1,000 hours in prev ious year.

Must be offered to all employees at least 2 1 years of age who worked

at least 1,000 hours in prev ious

year.

Must be offered to all employees at least 2 1 years

of age who worked at least 1 ,000 hours in previous year.

W ITH DRAW ALS , LOAN S AND P AYM EN TS

Withdrawals at anytime; subject to

curren t federal income taxes and a

possible 10% penalty if the

participan t is under age 59 1/2 .

W ithdrawals at anytime; subject to

curren t federal income taxes and

a possible 10% penalty if the participan t is

under age 59 1/2 .

W ithdrawals at any time. If employee is under age 59

1/2 , may be subject to a 25% penalty if

taken w ith in the first 2 years of

participation and a possible 10% penalty if taken

afterwards.

MIN IMU M EMPLOY EE COVE RAGE

REQU IREME NTS

Must be offered to all employees who are at least 2 1 years of age, employed

by the business for 3 of last 5 years and

earned at least $400 in a year.

Should be made available to all

employees.

Must be offered to all employees who

have earned at least $5,000 in

previous 2 years.

Cannot take withdrawals un til a

specified even t, such as reach ing

59 1 /2 , death , separation from serv ice or other

even t as iden tified in plan . May

permit loans and hardship

withdrawals. W ithdrawals may be subject to a possible 10%

penalty if participan t is

under age 59 1 /2 .

Payment of benefits generally

at retirement, may offer

participan t loans.

CON TRIBU TORS OPTION S

Employer can decide whether or

not to make contribu tion year

to year.

Employee can decide how much to contribu te at

any time.

Employee can decide how much

to contribu te. Employer must make match ing

contribu tions or con tribu te 2% of each employee's

salary up to the set maximum.

Employee makes contribu tion as set

by plan option . The employer may

match .

Employer makes contribu tion as

set by plan terms.

Employer makes contribu tions as

set by plan terms.

$500

43

RESOURCES Retirement Plan Tables

KEY ADVANTAGE

Set up arrangements for

employees to make payroll deduction

contributions. Transmit

contributions for employees to

funding vehicle.

There is no model form to establish a plan. Advice from

a financial institution or

employee benefit advisor would be

necessary.

There is no model form to establish a plan. Advice from

a financial institution or

employee benefit advisor would be

necessary.

There is no model form to

establish a plan. Advice from a

financial institution or

employee benefit advisor would be

necessary.

There is no model form to establish a plan. Advice from

a financial institution or

employee benefit advisor would be

necessary.

No employer tax filing required.

Annual filing of IRS Form 5500 required. Also

requires special testing to ensure

plan does not discriminate in favor of highly compensated employees.

Annual filing of IRS Form 5500 is

required.

Annual filing of IRS Form 5500. Actuary must

determine funding

obligations.

Annual filing of IRS Form 5500 is

required.

SEP-IRAPAYROLL

DEDUCTION IRA

SIMPLE-IRA 401(k)PROFIT

SHARINGDEFINED BENEFIT

MONEY PURCHASE PLAN

Easy to set up and maintain.

Easy to set up and maintain.

Salary reduction plan with little administrative paperwork.

Permits employee to contribute more

than in other options.

Permits employer to create large

account balances for employees.

Provides a fixed, pre-established

benefit for employees.

Permits employer to make a larger

contribution than through other

Defined Contribution

Plans.

EMPLOYERS WHO CAN

PROVIDE THIS OPTION

Any business that does not currently maintain any other retirement plan.

Any business with one or more employees.

Any business with 100 or fewer

employees that does not currently maintain any other retirement plan.

Any business with one or more employees.

Any business with one or more employees.

Any business with one or more

employees.

Any business with one or more employees.

EMPLOYERS DUTIES

Set up plan by completing IRS

Form 5305-SEP. No employer tax filing

required.

Set up by completing IRS

Form 5304-SIMPLE or 5305-

SIMPLE. No employer tax filing required. Bank or

financial institution does

most of the paperwork.

FUNDING RESPONSIBILITY

Employer contributions only.

Employee contributions

remitted through payroll deduction.

Employee salary reduction

contributions and/or employer contributions.

Employee salary reduction

contributions and/or employer contributions.

Employer contribution level

can be determined year

to year.

Primarily employer; may

require or permit employee

contributions.

Employer contributions only.

44

RESOURCES Plan Provisions

VESTING Employee salary deferrals are immediately 100 percent vested—that is, the money that an employee has put aside through salary deferrals cannot be forfeited. When an employee leaves employment, he/she is entitled to those deferrals, plus any investment gains (or losses) on the deferrals. In SIMPLE 401(k) plans and Safe Harbor 401(k) plans, all required employer contributions are always 100 percent vested. In Traditional 401(k) plans, all employee deferrals are 100 percent vested. You can design your plan so that employer contributions become vested over time, according to a vesting schedule. CONTRIBUTIONS A 401(k) can accept the following types of contributions: • Elective contributions (sometimes referred to as employee pre-tax

contributions or salary deferrals). This type of contribution is made on a pre-tax basis and is immediately 100 percent vested. This contribution allows participants to save for their retirement.

• Catch-up contributions (employee contributions above and beyond the

legal limit for elective contributions available to participants who are at least 50 years of age as of the end of the plan year). This type of contribution allows participants who are at least age 50 during the year to make pre-tax salary deferrals over a limit imposed by the law or by the plan on a pre-tax basis.

• Employee after-tax contributions may be offered in addition to pre-tax

deferrals in a 401(k) plan. • Employer matching contributions (contributions expressed in terms of

participants’ deferral amounts) provide an incentive to participants to make pre-tax contributions to the plan. Matching contributions may be made on pre-tax deferrals or employee after-tax contributions and may be discretionary (determined by the employer each year), or the formula may be defined in the plan document.

• Employer non-elective contributions (contributions that are typically

expressed in terms of participants’ compensation and are often called discretionary employer or profit sharing contributions). This type of contribution may be used to provide performance incentives and/or to share company profits with eligible participants. Non-elective contributions may be discretionary or may be defined in the plan document.

45

RESOURCES In-Service Distribution Options

Although 401(k) plans are meant to be long-term savings vehicles, participants cannot leave money in a 401(k) account indefinitely: • Plan participants generally MUST begin taking withdrawals from their 401(k) accounts when they

reach age 70½. • Plan participants CAN begin taking withdrawals from their 401(k) accounts as soon as they reach

age 59½. • Earlier withdrawals can be made without penalty if the participant dies or incurs a qualifying

permanent disability. • At any time, a plan participant leaving the company can remove his or her 401(k) money without

subjecting it to early withdrawal penalties by rolling the money over into a Rollover IRA or new employer's qualified retirement savings plan—401(k) or other.

Outside of these general instances, there are only two ways for participants to withdraw money from a 401(k) account while employed: hardship withdrawal and 401(k) loan. The table below gives you a side-by-side comparison of the features of each withdrawal option. (There are specific issues and, in some cases, exceptions, to each bullet point listed above. Presented on this page is a simple overview of the basic rules surrounding an in-service withdrawal. Be sure to review any withdrawal requests with a service professional to identify whether there may be additional options available.)

HARDSHIP WITHDRAWAL 401(k) LOAN

Does NOT have to be paid back. Must be paid back within the agreed-upon time (within 6 months if the participant leaves the company).

No interest. Bears interest (market rate or thereabouts).

Substantial federal early withdrawal penalties. No federal early withdrawal penalties, unless the loan defaults.

Six-month suspension of 401(k) participation upon taking a hardship withdrawal. No participation suspension.

Substantial long-term negative effect on the compounding growth of the 401(k) account.

Less substantial long-term effect on the compounding growth of the 401(k) account, but still a significant negative effect.

There can be liquidation fees. There can be liquidation fees.

Plan participant generally ends up with about 1/2 of the amount withdrawn (the remainder goes to taxes and federal early

withdrawal penalties).

Plan participant generally ends up with most of the amount withdrawn.

Withdrawn money is taxed as income for the year. No tax consequences (unless participant defaults on loan).

Does not have to be included in 401(k) plans. Does not have to be included in 401(k) plans.

Generally involves nominal administrative processing costs. Generally involves nominal administrative processing costs.

Participant must exhaust all other resources to qualify. Qualifications much less stringent.

46

Compliance Calendar

Deadline

Sample Date for 1/1 Anniversary

PlansExplanation of Compliance

Deadline

1-Apr 1-Apr

Initial minimum distributions due for members who are age 701/2 and have either retired or are 5% owners

15-Apr 15-AprRefund of excess deferrals due

Last day of 7th month after plan year-end 31-Jul

Form 5500 Series Annual Report due to IRS unless an extension has been filed

6 months after corporate tax filing deadline 15-Sep

Form 5500 Series Annual Report due to IRS if corporate or federal income tax filing extension has been filed

9 months after plan year-end 30-Sep

Make Summary Annual Report available to all plan participants

2 ½ months after original 5500 deadline 15-Oct

Form 5500 Series Annual Report due to IRS if Form 5558 extension has been filed

Prior to plan Year-end Mid December

Receive Data Collection Package

Plan year-end 31-DecAll plan amendments must be signed

Plan year-end 31-Dec401(k)/(m) refunds due to avoid plan disqualification

Plan year-end 31-DecReview top-heavy test for accuracy

31-Dec 31-Dec

Minimum distributions due for members who are age 70 1/2 and have either retired or are 5% owners

November

When determining your employer contributions for plan year-end, remember to discuss 404(a) deduction limits with your tax advisor.

December

April

July

September

October

Deadline

Sample Date for 1/1 Anniversary

PlansExplanation of Compliance

Deadline

Prior to plan Year-end Mid December

Receive Data Collection Package

Plan year-end 31-DecAll plan amendments must be signed

Plan year-end 31-Dec401(k)/(m) refunds due to avoid plan disqualification

Plan year-end 31-DecReview top-heavy test for accuracy

31-Dec 31-Dec

Minimum distributions due for members who are age 70 1/2 and have either retired or are 5% owners

31-Jan 31-JanDeadline for you to furnish Form W-2 to your employees

31-Jan 31-Jan

Deadline for Provider to send Form 1099-R to members who received distributions

1-Feb 1-FebCompliance Disk due to your Plan Administrator

2 ½ months after plan year-end 15-Mar

Top-heavy minimum contribution due if no corporate tax filing extension

2 ½ months after plan year-end 15-Mar

401(k)/(m) refund deadline to avoid the 10% employer tax

31-Mar 31-Mar

Information for IRS Form 5500 Series Annual Report Due to Plan Administrator

15 months after plan year-end 31-Mar

Form 5330 due to the IRS to pay 10% excise tax for any 401(k)/(m) refunds made more than 2 1/2 months after the end of your plan year

December - Current Year

January

February

March

The calendar on this page shows the various plan reporting deadlines associated with a plan that has a January 1st anniversary.

RESOURCES

47

RESOURCES

What are the types of plan fees and who pays for them? There are a variety of plan fees and expenses that may affect your retirement plan. The following is an overview of some of those fees and expenses and the different ways in which they may be charged. Plan fees and expenses generally fall into three categories: • Plan Administration Fees. The day-to-day operation of a plan involves expenses for basic administrative

services—such as plan recordkeeping, accounting, legal, and trustee services—that are necessary for administering the plan as a whole. In addition, a profit sharing or 401(k) plan also may offer a host of additional services, such as telephone voice response systems, access to a customer service representative, educational seminars, retirement planning software, investment advice, electronic access to plan information, daily valuation, and online transactions.

• In some instances, the costs of administrative services will be covered by investment fees that are deducted directly from investment returns. In other instances, when the administrative costs are billed separately, they may be borne, in whole or in part, by the employer or charged directly against the assets of the plan. In the case of a 401(k), profit sharing, or other similar plan with individual accounts, administrative fees are either allocated among individual accounts in proportion to each account balance (e.g., participants with larger account balances pay more of the allocated expenses – a “pro rata” charge) or passed through as a flat fee against each participant’s account (a “per capita” charge). Generally the more services provided, the higher the fees.

• Investment Fees. By far, the largest component of plan fees and expenses is associated with managing plan investments. Fees for investment management and other related services generally are assessed as a percentage of assets invested. Employers should pay attention to these fees. They are paid in the form of an indirect charge against the participant’s account or the plan because they are deducted directly from investment returns. Net total return is the return after these fees have been deducted. For this reason, these fees, which are not specifically identified on statements of investments, may not be immediately apparent to employers.

• Individual Service Fees. In addition to overall administrative expenses, there may be individual service fees associated with optional features offered under an individual account plan. Individual service fees may be charged separately to the accounts of those who choose to take advantage of a particular plan feature. For example, fees may be charged to a participant for taking a loan from the plan or for executing participant investment directions.

What fees are associated with the investment choices in a retirement plan? Apart from fees charged for administering the plan itself, there are two basic types of fees that may be charged in connection with plan investments or investment options made available to participants and beneficiaries. These fees, which can be referred to by different terms, include: • Sales charges (also known as loads or commissions). These are basically transaction costs for buying and

selling shares. They may be computed in different ways, depending on the particular investment product. • Management fees (also known as investment advisory fees or account maintenance fees). These are

ongoing charges for managing the assets of the investment fund. They are generally stated as a percentage of the amount of assets invested in the fund. Sometimes management fees may be used to cover administrative expenses. You should know that the level of management fees can vary widely, depending on the investment manager and the nature of the investment product. Investment products that require significant management, research, and monitoring services generally will have higher fees. Be aware that higher investment management fees do not necessarily mean better performance.

Fees and Expenses

48

RESOURCES

401(k) Plan: A defined contribution plan that permits employees to deduct a portion of their salary from their paycheck and contribute to an account before taxation. Employers may also make contributions to a participant’s account, called a company match. Federal (and sometimes state) taxes on contributions and investment earnings are "deferred" (i.e., postponed) until the participant takes money out of the plan in a distribution (typically at retirement). 403(b) Plan: Also known as a tax sheltered annuity (TSA), a 403(b) provides a tax shelter for 501(c)(3) tax exempt employers (which include public schools). Employers qualifying for a 403(b) plan may defer taxes on contributions to certain annuity contracts or custodial accounts. Actual Deferral Percentage (ADP): An anti-discrimination test that compares the amount deferred by highly compensated employees to the deferrals of non-highly compensated employees. Administration/Recordkeeping Fee: Fee for providing recordkeeping and other plan participant administrative type services. For start-up or takeover plans, these fees typically include charges for contacting and processing information from the prior service provider and “matching up” or mapping participant information. Annual Audit: Federal law requires that all ERISA-covered plans with more than 100 participants be audited by an independent auditor. It is also common to refer to a DOL or IRS examination of a plan as a plan audit. Annual Report: A report that public companies are required to file annually which describes the preceding year’s financial results and plans for the upcoming year. Annual reports include information about a company’s assets, liabilities, earnings, profits, and other year-end statistics. Annuity: A contract by which an insurance company agrees to make regular payments to someone for life or for a fixed period in exchange for a lump sum or periodic deposits. Asset Allocation: The process of dividing your money between different types of assets—such as stocks, bonds, cash, and real estate—in a combination intended to generate the overall return you need, while minimizing your overall risk. Asset Class: A group of assets with similar risk and reward characteristics. Cash, debt instruments, real estate, and equities are all examples of asset classes. Within a general asset class, such as equities, there are more specific asset classes such as large and small companies, and domestic and international companies. Asset Allocation Fund: Mutual fund that holds varying percentages of stock, bonds, and cash within its portfolio. Asset Allocation Model: Combining various asset classes in quantities intended to generate a risk-adjusted return based on a specified risk and time horizon. Automatic Deferral Default Percentage: The percentage of pay that is taken pre-tax and put into a plan when an employee is enrolled via an automatic enrollment feature. The typical automatic deferral default percentage is 3 percent of pay. Participants can generally choose to defer an amount other than the default percentage.

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Automatic Enrollment: The practice of enrolling all eligible employees in a plan and beginning participant deferrals without requiring the employees to submit a request to participate. Plan design specifies how these automatic deferrals will be invested. Employees who do not want to make contributions must actively file a request to be excluded from the plan. Participants can generally change the amount of pay that is deferred and how it is invested. Balanced Fund: Mutual fund that holds bonds and/or preferred stock in a certain proportion to common stock in order to obtain both current income and long-term growth of principal. Bear Market: Term used to describe a prolonged period of declining stock prices. Before (Pre)-Tax Dollars: Money contributed to a tax-deferred savings plan that you do not have to pay income tax on until withdrawal at a future date. Beneficiary: A person, persons, or trust designated to receive the plan benefits of a participant in the event of the participant’s death. Beta: A measure of a stock’s volatility; the average beta for all stocks is +1. Blackout Period: Also called a lockdown, transitional period, or quiet period. This refers to the time when plan participants cannot access their accounts. These periods can be caused by a number of events, including a change in plan record keepers, a change in plan trustees, a change to daily valuation from monthly valuation, or a company merger or acquisition. Blue-Chip Stock: Term, derived from the most expensive chips in a poker game, used to indicate the stock of companies with long records of growth and profitability. Bond: A debt instrument or IOU issued by corporations or units of government. Bond Fund: Mutual fund that holds mainly municipal, corporate, and/or government bonds. Broker: A professional who transfers investors’ orders to buy and sell securities to the market and generally provides some financial advice. Bull Market: Term used to describe a prolonged period of rising stock prices. Bundled Services: Arrangements whereby plan service providers offer 401(k) plan establishment, investment services, and administration for an all-inclusive fee. Bundled services by their nature are priced as a package and cannot be priced on a per service basis. Buy and Hold: A strategy of purchasing an investment and keeping it for a number of years. Capital Appreciation: An increase in market value of an investment (e.g., stock). Cash investment: A very short-term loan to a borrower with a very high credit rating. Examples of cash investments are bank certificates of deposit (CDs), Treasury Bills (T-Bills) and money market funds. A cash investment typically offers investors great principal stability, but little long-term growth. Certificate of Deposit (CD): An insured bank product that pays a fixed rate of interest (e.g., 5 percent) for a specified period of time.

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Class A Shares: Mutual fund shares that incur a front-end sales charge upon purchase. Class B Shares: Mutual fund shares that incur a back-end sales charge (also known as a contingent deferred sales charge or CDSC) if sold within five to six years of purchase. Class C Shares: Mutual fund shares that incur higher management and marketing fees than Classes A and B, but no sales or redemption charges upon purchase or sale. Cliff Vesting: A vesting schedule that gives an employee 100 percent ownership of company contributions after a specified number of years of service. (See also vesting.) Closed-End Fund: An investment company that issues a limited number of shares that can be bought and sold on market exchanges. Collective Investment Fund: A tax-exempt pooled fund operated by a bank or trust company that commingles the assets of trust accounts for which the bank provides fiduciary services. Common Stock: Securities that represent a unit of ownership in a corporation. Composite Indices: Stock market indices comprised of stocks traded on major stock exchanges: * New York Stock Exchange Composite (index of stocks traded on New York Stock Exchange), * American Stock Exchange Composite (index of stocks traded on American Stock Exchange), * NASDAQ Composite (index of stocks traded over the counter in the quotation system of the Financial Industry Regulatory Authority (FINRA)). Compound Interest: Interest credited daily, monthly, quarterly, semi-annually, or annually on both principal and previously credited interest. Contract Administration Charge: An omnibus charge for costs of administering the insurance/annuity contract, including costs associated with the maintenance of participant accounts and all investment-related transactions initiated by participants. Contract Termination Charge: A charge to the plan for “surrendering” or “terminating” its insurance/annuity contract prior to the end of a stated time period. The charge typically decreases over time. Conversion: The process of changing from one service provider to another. Corporate Bonds: Debt instruments issued by for-profit corporations. Defined Benefit Plan: An employer-sponsored retirement plan for which retirement benefits are based on a formula indicating the exact benefit that one can expect upon retiring. Investment risk and portfolio management are entirely under the control of the company. There are restrictions on when and how you can withdraw these funds without penalties. Defined Contribution Plan: A retirement plan wherein a certain amount or percentage of money is set aside each year for the benefit of the employee. There are restrictions as to when and how you can withdraw these funds without penalties. Determination Letter: Document issued by the IRS formally recognizing that the plan meets the qualifications for tax-advantaged treatment.

Index of Terms Index of Terms

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RESOURCES

Index of Terms

Disclosure: Plan sponsors must provide access to certain types of information for participants, including summary plan descriptions, summary of material modifications, and summary annual reports. Discrimination Testing: Tax qualified retirement plans must be administered in compliance with several regulations requiring numerical measurements. Typically, the process of determining whether the plan is in compliance is collectively called discrimination testing. Distribution Expense: The costs typically associated with processing paperwork and issuing a check for a distribution of plan assets to a participant. May include the generation of IRS Form 1099R. This fee may apply to hardship and other in-service withdrawals as well as to separation-from-service or retirement distributions. Diversification: The policy of spreading assets among different investments to reduce the risk of a decline in the overall portfolio from a decline in any one investment. Dividend: A distribution of income from investments to shareholders. Dividend Reinvestment Plans (DRIPs): Plans that allow investors to automatically reinvest any dividends a stock pays into additional shares. Dollar Cost Averaging: Investing equal amounts of money (e.g., $50) at a regular time interval (e.g., quarterly) regardless of whether securities markets are moving up or down. This practice reduces average share costs to investors, who acquire more shares in periods of lower securities prices and fewer shares in periods of higher prices. Dow Jones Industrial Average: The most widely used gauge of stock market performance. Also know as "The Dow," it tracks 30 stocks in large well-established U.S. companies. Eligible Employee: Any employee who is eligible to participate in and receive benefits from a plan. Expense Ratio: The cost of investing and administering assets, including management fees, in a mutual fund or other collective fund expressed as a percentage of total assets. Employee stock ownership plan (ESOP): A qualified, defined contribution plan in which plan assets are invested primarily or exclusively in the securities of the sponsoring employer. Excludable Employees: The employees that may be excluded from the group being tested during 401(k) nondiscrimination testing. The following are excludable employees: certain ex-employees; certain airline pilots; non-resident aliens with no U.S. source of income; employees who do not meet minimum age and length of service requirements; and, employees whose retirement benefits are covered by collective bargaining agreements. Exclusive Benefit Rule: A rule under ERISA that says the assets in an employee account may be used for the exclusive benefit of the employee and his/her beneficiaries. ERISA: The Employee Retirement Income Security Act is a 1974 law governing the operation of most private pension and benefit plans. The law eased pension eligibility rules, set up the Pension Benefit Guaranty Corporation, and established guidelines for the management of pension funds.

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Equity Investing: Becoming an owner or partial owner of a company or a piece of property through the purchase of investments such as stock, growth mutual funds, and real estate. Federal Deposit Insurance Corporation (FDIC): Federal agency that insures bank deposits up to $100,000. Investments purchased at banks are not FDIC-insured. FICA: The Federal law that taxes employee wages for Social Security and other programs. Fidelity Bond: Protects participants in the event a fiduciary or other responsible person steals or mishandles plan assets. Fiduciary: A fiduciary is a person who occupies a position of trust in relation to someone else such that he is required to act for the latter's benefit within the scope of that relationship. In business or law, it generally means someone with specific duties, such as those that attend a particular profession or role, e.g., investment advisor or trustee. A fiduciary relationship must also have a dramatic difference in power between the two parties. This differential is often brought about by one party having a great deal more expertise. A fiduciary owes a duty of "utmost good faith." Fiduciary Insurance: Insurance that protects plan fiduciaries in the event that they are found liable for a breach of fiduciary responsibility. Fixed Annuity: An investment vehicle, often used for retirement accounts, that guarantees principal and a specified interest rate. Fixed annuity earnings grow tax-deferred until withdrawal. Forfeiture: Plan assets surrendered by participants upon termination of employment before being fully vested in the plan. Forfeitures may be distributed to the other participants in the plan or used to offset employer contributions. Full-Service Broker: A broker that charges commissions based on the type and amount of securities traded. Full-service brokers typically charge more than discount brokers but also provide more extensive services (e.g., research and personalized advice). Front-End Load: Sales charges incurred when an investment in a mutual fund is made. GNMAs or Ginnie Maes: An investment in a pool of mortgage securities backed by Government National Mortgage Association (GNMA). Growth Fund: Mutual fund that invests in stocks exhibiting potential for capital appreciation. Growth Stocks: Stock of companies that are expected to increase in value. Graduated or Graded Vesting: A vesting schedule in which the employee earns the right to employer contributions gradually over a period of years, for example 25 percent ownership each year for four years. (See also vesting.) Guaranteed Investment Contract (GIC): Fixed-income investments, offered in many tax-deferred employer retirement plans, that guarantee a specific rate of return for a specific time period. Hardship or In-Service Distribution: When a participant withdraws plan funds prior to retirement, at the employer’s option. Eligibility for such distributions exists when financial hardship is present. These distributions are taxable as early distributions and are subject to a ten percent early withdrawal federal income tax penalty if the participant is under age 59½.

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Highly Compensated Employee (HCE): An employee who received more than $100,000 in compensation in 2007 ($105,000 in 2008; this amount is indexed annually) or is a 5 percent owner in the company. Individually Managed Account: An investment account managed for a single plan. Index: An unmanaged collection of securities whose overall performance is used as an indication of stock market trends. An example of an index is the widely quoted Dow Jones Industrial Average, which tracks the performance of 30 large company U.S. stocks. Index Fund: Mutual fund that attempts to match the performance of a specified stock or bond market index by purchasing some or all of the securities that comprise the index. Income Fund: Mutual fund that invests in stocks or bonds with a high potential for current income, either interest or dividends. Income Stocks: Stock of companies that expect to pay regular and relatively high (compared to growth stocks) dividends. Individual Retirement Account (IRA): A retirement savings plan that allows individuals to save for retirement on a tax-deferred basis. The amount that is tax deductible varies according to an individual’s access to pension coverage, income tax filing status, and adjusted gross income. Installation Fee: One-time fee for initiating a new plan or initiating new services. Interest Rate Risk: The risk that, as interest rates rise, the value of previously issued bonds will fall, resulting in a loss if they are sold prior to maturity. Investment Objective: The goal (e.g., current income) of an investor or a mutual fund. Mutual fund objectives must be clearly stated in their prospectus. Investment Transfer Expense: Fee associated with a participant changing his or her investment allocation, or making transfers among funding accounts under the plan. Leased Employee: An individual employed by a leasing organization that provides contract services for the company for the period of more than one year. Liquidity: The quality of an asset that permits it to be converted quickly into cash without a significant loss of value. Load: A commission charged by the sponsor of a mutual fund upon the purchase or sale of shares. Loan Maintenance and Repayment Tracking Fee: Fee charged to monitor outstanding loans and repayment schedule. Loan Origination Fee: Fee charged when a plan loan is originally taken. Loan Processing Fee: Fee charged to process a plan loan application. Lump-Sum Distribution: The distribution at retirement of a participant’s entire account balance within one calendar year due to retirement, death, or disability.

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MPERS: Uniform Management of Public Employee Retirement Systems Act. Management Fee: The amount paid by mutual funds to their investment advisers. Marginal Tax Rate: The rate you pay on the last (highest) dollar of personal or household (if married) earnings. Market Value: The current price of an asset, as indicated by the most recent price at which it traded on the open market. If the most recent trade in ABC stock was at $25 for example, the market value of the stock is $25. Matching Contribution: A contribution made by the company to the account of the participant in ratio to contributions made by the participant. Material Modification: A change in the terms of the plan that may affect plan participants, or other changes in a summary plan document (SPD). Maturity: The date on which the principal amount of a bond, investment contract, or loan must be repaid. Median Market Cap: An indicator of the size of companies in which a fund invests. Money Market Fund: A mutual fund seeking to generate income for participants through investments in short-term securities. Moody’s Investors Service: A rating agency that analyzes the credit quality of bonds and other securities. Mortality Risk and Administrative Expense (M&E Fee): Fee charged by an insurance company to cover the cost of the insurance features of an annuity contract, including the guarantee of a lifetime income payment, interest and expense guarantees, and any death benefit provided during the accumulation period. Mutual Fund: An investment company that pools money from shareholders and invests in a variety of securities, including stocks, bonds and money market securities. Net Asset Value: The market value of a mutual fund’s total assets, after deducting liabilities, divided by the number of shares outstanding. Net Worth: The dollar value remaining when liabilities (what you owe) are subtracted from assets (what you own). Example: $200,000 of assets - $125,000 of debt = a $75,000 net worth. Nondiscrimination Testing Expense: Tax qualified retirement plans must be administered in compliance with several regulations requiring numerical measurements. The fee charged for the process of determining whether the plan is in compliance is collectively called nondiscrimination testing expense. Named Fiduciary: The plan document must name one or more fiduciaries, giving them the authority to control and manage the operation of the plan. The named fiduciary must also be identified as a fiduciary by a procedure specified in the plan document. Nondiscrimination Rules: IRS rules that prohibit the plan or plan sponsor from giving disproportionately larger benefits to highly compensated employees (HCEs). Specific nondiscrimination testing must be done to determine if plans have broken this rule and are top-heavy.

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Non-elective Contribution: An employer contribution that cannot be withdrawn or paid to the employee in cash. This contribution is neither a matching contribution nor an elective contribution. Online Investing: The purchase of securities from brokerage firms via the Internet using a computer and modem. Open-End Fund: An investment company that continually buys and sells shares to meet investor demand. It can have an unlimited number of investors or money in the fund. Participant: Person who has an account in the plan and any beneficiaries who may be eligible to receive an account balance. Participant Directed Account: A plan that allows participants to select their own investment options. Participant Education Materials/Distribution Expenses: All costs (including travel expenses) associated with providing print, video, software and/or live instruction to educate employees about how the plan works, the plan investment funds, and asset allocation strategies. There may be a one-time cost associated with implementing a new plan, as well as ongoing costs for an existing program. Party-In-Interest: Those who are a party-in-interest to a plan include: the employer; the directors, officers, employees, or owners of the employer; any employee organization whose members are plan participants; plan fiduciaries; and plan service providers. Penny Stocks: Stocks that sell for $5 per share or less. Pension and Welfare Benefits Administration (PWBA): This branch of the Department of Labor protects the pensions, health plans, and other employee benefits of American workers. The PWBA enforces Title I of ERISA, which contains rules for reporting and disclosure, vesting, participation, funding, and fiduciary conduct. Pension Benefit Guaranty Corporation (PBGC): A federal agency established by Title IV of ERISA for the insurance of defined benefit pension plans. The PBGC provides payment of pension benefits if a plan terminates and is unable to cover all required benefits. Plan Administrator: The individual, group, or corporation named in the plan document as responsible for day-to-day operations. The plan sponsor is generally the plan administrator if no other entity is named. Plan Document: The parameters under which a retirement plan will be operated must be outlined in the plan document. This document must be given to employees upon request. Plan Document/Determination Letter Fee (Filing Fee): Fee charged for a written plan document. Fee can also include the costs associated with preparing and filing IRS required documentation, including the request for a determination letter (document issued by the IRS stating whether the plan meets the qualifications for tax advantaged treatment). Plan Loan: The law allows participants to borrow from their accounts up to prescribed limits. This is an optional plan feature. Plan Sponsor: The entity responsible for establishing and maintaining the plan. Plan Year: The calendar, policy, or fiscal year for which plan records are maintained.

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Portability: This occurs when, upon termination of employment, an employee transfers pension funds from one employer's plan to another without penalty Portfolio: The combined holding of stocks, bonds, cash equivalents, or other assets by an individual or household, investment club, or institutional investor (e.g., mutual fund). Preferred Stock: A type of stock that offers no ownership or voting rights and generally pays a fixed dividend to investors. Price/Earnings (P/E) Ratio: The price of a stock divided by its earnings per share (e.g., $40 stock price divided by $2 of earnings per share = a P/E ratio of 20). Principal: The original amount of money invested or borrowed, excluding any interest or dividends. Product Termination Fee: Investment-product charges associated with terminating one or all of a service provider’s investment products. Prohibited Transaction: Activities regarding treatment of plan assets by fiduciaries that are prohibited by ERISA. This includes transactions with a party-in-interest, including sale, exchange, lease, or loan of plan securities or other properties. Profit Sharing Plan: Company-sponsored plan funded only by company contributions. Company contributions may be determined by a fixed formula related to the employer’s profits, or may be at the discretion of the board of directors. Prospectus: An official booklet that describes a mutual fund. It contains information as required by the U.S. Securities and Exchange Commission on topics such as the fund’s investment objectives, investment restrictions, purchase and redemption policies, fees, and performance history. Prudent Man Rule: ERISA fiduciary law that requires all fiduciaries to conduct the business of the plan with prudence and care. Any fiduciary violating this law is liable to the plan and its participants for all losses. Qualified Plan: Any plan that qualifies for favorable tax treatment by meeting the requirements of section 401(a) of the Internal Revenue Code and by following applicable regulations. Includes 401(k) and deferred profit sharing plans. Qualified Domestic Relations Order (QDRO): A judgment, decree or order that creates or recognizes an alternate payee’s (such as a former spouse, child, etc.) right to receive all or a portion of a participant’s retirement plan benefits. Real Estate: Land, permanent structures on land, and accompanying rights and privileges, such as crop or mineral rights. Real Estate Investment Trust (REIT): A portfolio of real estate-related securities in which investors can purchase shares that trade on major stock exchanges. Risk: Exposure to loss of investment capital (i.e., amount of money invested). Risk Management: Actions taken (e.g., purchase of insurance) to provide protection against catastrophic financial losses (e.g., disability and liability). Risk management is an important investing prerequisite.

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Rollover: The action of moving plan assets from one qualified plan to another or to an IRA within 60 days of distributions, while retaining the tax benefits of a qualified plan. Safe Harbor Rules: Provisions that exempt certain individuals or kinds of companies from one or more regulations. Salary Deduction: Also known as payroll deduction. When a plan participant arranges to have pre-tax contributions made directly from their paycheck, it is arranged through salary deduction. Savings Incentive Match Plan for Employees (SIMPLE): A type of defined contribution plan for employers with 100 or fewer employees in which the employer matches employee deferrals up to 3 percent of compensation or provides non-elective contributions up to 2 percent of compensation. These contributions are immediately and 100 percent vested, and they are the only employer contribution to the plan. SIMPLE plans may be structured as individual retirement accounts (IRAs) or as 401(k) plans. Securities: A term used to refer to stocks and bonds in general. Securities and Exchange Commission (SEC): Federal agency created to administer the Securities Act of 1933. Statutes administered by the SEC are designed to promote full public disclosure about investments and protect the investing public against fraudulent and manipulative practices in the securities markets. Securities Investor Protection Corporation (SIPC): A nonprofit corporation that insures investors against the failure of brokerage firms, similar to the way that the Federal Deposit Insurance Corporation (FDIC) insures bank deposits. Coverage is limited to a maximum of $500,000 per account, but only up to $100,000 in cash. SIPC does not insure against market risk, however. Separate Account: An asset account established by a life insurance company, separate from other funds of the life insurance company, offering investment funding options for pension plans. Service Provider: Defined contribution plan in which employers make contributions to individual employee accounts (similar to IRAs). Employees may also make pre-tax contributions to these accounts. As of January 1997, no new SEP plans may be formed. Service Provider Termination Charge: Plan administrative costs associated with terminating a relationship with a service provider, with the permanent termination of a plan, or with the termination of specific plan services. These may be termed “surrender” or “transfer” charges. Signature Ready Form 5500: Fee to prepare Form 5500, a form which all qualified retirement plans (excluding SEPs and SIMPLE IRAs) must file annually with the IRS. Standard & Poor’s Corporation: A rating agency that analyzes the credit quality of bonds and other securities. Standard & Poor’s 500 Index: An index that is widely replicated by stock index mutual funds. Also known as the S&P 500, it consists of 500 large U.S. companies. Start-up/Enrollment Expense: Costs associated with providing materials to educate employees about the plan, and enrolling employees in the plan. This may be part of, or included in, the education programs. There may be a one-time cost associated with implementing a new plan, as well as ongoing enrollment costs. Stock: Security that represents a unit of ownership in a corporation.

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Stock Bonus Plan: A defined contribution plan in which company contributions are distributable in the form of company stock. Summary Annual Report: A report that companies must file annually on the financial status of the plan. The summary annual report must be automatically provided to participants every year. Summary Plan Description (SPD): A document describing the features of an employer-sponsored plan. The primary purpose of the SPD is to disclose the features of the plan to current and potential plan participants. ERISA requires that certain information be contained in the SPD, including participant rights under ERISA, claims procedures and funding arrangements. Summary of Material Modifications: A document that must be distributed to plan participants summarizing any material modifications made to a plan in which 60 percent of account balances (both vested and non-vested) are held by certain highly compensated employees. Tax Deferral: Investments where taxes due on the amount invested and/or its earnings are postponed until funds are withdrawn, usually at retirement. Tax-Exempt: Investments (e.g., municipal bonds) where earnings are free from tax liability. Total Return: The return on an investment including all current income (interest and dividends), plus any change (gain or loss) in the value of the asset. Trustee: The individual, bank, or trust company having fiduciary responsibility for holding plan assets. Trustee Services: Fees charged by the individual, bank, or trust company with fiduciary responsibility for holding plan assets. Turnover Rate (of a fund): A measure of the trading activity in a mutual fund. 12b-1 Fee: A charge to shareholders to cover a mutual fund’s shareholder servicing, distribution, and marketing costs, or used to offset employer contribution. UPIA: Uniform Prudent Investor Act. Unit Investment Trust (UIT): An unmanaged portfolio of professionally selected securities that are held for a specified period of time. U.S. Treasury Securities: Debt instruments issued by the federal government with varying maturities (bills, notes, and bonds). VRU: Voice Response Unit. Value Stock: A stock with a relatively low price compared to its historical earnings and the value of the issuing company’s assets. Vesting: The participants’ ownership right to company contributions.

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Vesting Schedule: The structure for determining participants’ ownership right to company contributions (see matching contributions). In a plan with immediate vesting, participants own all company contributions as soon as they are deposited into individual accounts. In cliff vesting, company contributions will be fully owned (i.e., vested) only after a specific amount of time, and employees leaving before the allotted time are not entitled to any company contributions (with certain exceptions for retirees). In plans with graduated or graded vesting, vesting occurs in specified increments. Volatility: The degree of price fluctuation associated with a given investment, interest rate, or market index. The more price fluctuation that is experienced, the greater the volatility. Wrap Fee: An inclusive fee generally based on the percentage of assets in an investment program, which typically provides asset allocation, execution of transactions, and other administrative services. Zero-Coupon Bonds: Debt instruments issued by government or corporations at a steep discount from face value. Interest accrues each year but is not paid out until maturity.

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BOOKS: Prudent Investment Practices—A Handbook for Investment Fiduciaries, 2003 by the Foundation for Fiduciary Studies. www.fi360.com Helping Employees Achieve Retirement Security, 1997 by Theodore Benna, Investor Press, Inc. How to Write an Investment Policy Statement by Jack Gardner The Management of Investment Decisions by Don Trone The New Fiduciary Standard: The 27 Prudent Investment Practices for Financial Advisers, Trustees, and Plan Sponsors by Tim Hatton PUBLICATIONS: The Department of Labor (www.dol.gov) offers the following (highly recommended) publications: Meeting Your Fiduciary Responsibilities - To meet their responsibilities as plan sponsors, employers need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries). This publication provides an overview of the basic fiduciary responsibilities applicable to retirement plans under the law. Understanding Retirement Plan Fees And Expenses - This booklet will help retirement plan sponsors better understand and evaluate their plan's fees and expenses. While the focus is on fees and expenses involved with 401(k) plans, many of the principles discussed in the booklet also will have application to all types of retirement plans. 401(k) Plan Fee Disclosure Tool - A form that provides employers with a handy way to make cost-effective decisions and compare the investment fees and administrative costs of competing providers of plan services. Selecting An Auditor For Your Employee Benefit Plan - Federal law requires employee benefit plans with 100 or more participants to have an audit as part of their obligation to file the Form 5500. This booklet will assist plan administrators in selecting an auditor and reviewing the audit work and report. Reporting and Disclosure Guide for Employee Benefit Plans - This guide is intended to be used as a quick reference tool for certain basic reporting and disclosure requirements under ERISA.

Tools and Resources

RECOMMENDATIONS FROM FINANCIAL SERVICE STANDARDS, LLC With all that is required from plan sponsors and fiduciaries in the setup, management, and review of a qualified plan, these are a few of the resources we have found to be helpful:

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OTHER HELPFUL RESOURCES: Useful Reports from The Department of Labor Website—www.dol.gov

401(k) Plans for Small Businesses Reporting and Disclosure Guide for Employee Benefit Plans Troubleshooters Guide to Filing the ERISA Annual Report (Form 5500) Pension Plans and ERISA - FAQs that describe the provisions of the federal pension law. Frequently Asked Questions on the Small Pension Plan Audit Waiver Regulation - FAQs on how to determine whether a small plan has met the conditions for the audit waiver requirements under the amended regulation. Exemption Procedures Under Federal Pension Law EXPRO Exemptions Under Prohibited Transaction Exemption 96-62 Individual Exemptions Under Title I of ERISA DFVC Fact Sheet VFCP Fact Sheet DOL Report of the Working Group on Optional Professional Management In Defined Contribution Plans

The Profit Sharing Council of America - www.psca.org PSCA's Profit Sharing and 401(k) Plan Cost Disclosure Worksheet - Worksheet to help you disclose costs associated with starting, maintaining, and terminating a profit sharing or 401(k) plan.

Reish, Luftman, Reicher & Cohen - www.reish.com Article on The Fiduciary Duty to Ask for Help NEWSLETTERS: Employee Plans News - A publication of the Employee Plans office of the Tax Exempt and Government Entities Operating Division of the IRS. This quarterly newsletter provides information about current developments and upcoming events within the retirement plans arena. (www.dol.gov) Department of Labor: DOL offers additional updates through its website at www.dol.gov. By voluntarily subscribing to E-mail Updates, OCA will send you an email when significant Compliance Assistance activities occur or when DOL adds new, valuable information to the Compliance Assistance Web pages. You can subscribe to all OCA mailings or narrow the mailings by selecting from individual web pages. It’s DOL’s way of keeping you informed of new developments in Compliance Assistance programs and employment law resources. Internal Revenue Service - The IRS also offers a newsletter for sponsors that includes regulatory updates at www.irs.gov. They offer two different newsletters:

Employee Plans News Geared toward retirement plan practitioners - attorneys, accountants, actuaries, and others - this newsletter presents information about retirement plans. View their current edition, browse the newsletter archive, or subscribe to future editions. Retirement News for Employers Designed for employers and business owners, this newsletter provides practical retirement plan information. View their current edition, browse the newsletter archive, or subscribe to future editions.

Plan Sponsor Magazine - They offer an email program called News Dash—‟the latest news for plan sponsors delivered to your inbox everyday.” (www.plansponsor.com) Profit Sharing Council of America offers Legislative & Regulatory Updates. PSCA’s Executive Report, a monthly legislative newsletter and compliance bulletin provides members with concise information on Washington’s most recent events. (www.psca.org)

Tools and Resources Continued...

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ADDITIONAL TOOLS AVAILABLE: Investment Policy Statement Software: Rowe Decision Analytics (www.myinvestmentpolicy.com) Fiduciary360 and The Center for Fiduciary Studies (www.Fi360.com) Plan Tools (www.plantools.com) Investment Review Software: Fiduciary360 and The Center for Fiduciary Studies (www.Fi360.com) Plan Tools (www.plantools.com) The Center for Due Diligence (www.401kduediligence.com) Morningstar (www.morningstar.com) Fitch Ratings (www.fitchratings.com) The 401k Exchange (www.401kexchange.com) Fact Set for Investment Managers (www.factset.com) PUBLICATIONS: Pensions & Investments Magazine (www.pionline.com) Employee Benefit News (www.benefitnews.com) Plan Sponsor Magazine (www.plansponsor.com) Employee Benefits Journal (www.ifebp.org) ORGANIZATIONS: National Association of Government Defined Contribution Administrators

(NAGDCA) Employee Benefit Research Institute (EBRI) Public Retirement Institute (PRI) Pension Research Council (PRC) International Foundation of Employee Benefit Plans (IFEBP) International Association for Financial Planning Profit Sharing 401(k) Council of America (PSCA) American Savings Education Council (ASEC) National Pre-Retirement Education Association (NPEA) OTHER: BenefitsLink 401kHelpCenter Mention of a trademark, product, or commercial firm in text or figures does not constitute an endorsement by Financial Service Standards, LLC and does not imply approval to the exclusion of other suitable products or firms. Neither does it imply an endorsement or approval on their behalf of the services provided by Financial Service Standards, LLC.

Tools and Resources Continued...

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The 401k Service Solution™ was formalized by Financial Service Standards, LLC based on the processes Donald J. Settina had been using in his existing retirement plan practice. These processes were a result of his experience and education, incorporating input from his existing plan clients, and in accordance with applicable legislative guidance. While the development of these courses did not include specific guidance from The Foundation for Fiduciary Studies, after completing the Accredited Investment Fiduciary™ course, it was discovered that Mr. Settina’s existing process could provide the documented solution to the practical application of the Practices, as defined by the Prudent Investment Practices Handbook for Investment Fiduciaries 2003 (written by the Foundation for Fiduciary Studies). Because the work that The Foundation for Fiduciary Studies is doing to advance the understanding of the practice standards of care is so critical to running a compliant retirement plan, we felt it was important to provide more information on this foundation and how it can help plan sponsors and fiduciaries. “The Foundation for Fiduciary Studies (Foundation) is a nonprofit organization that was established to develop and advance practice standards of care (practices) for investment fiduciaries, which includes trustees and investment committee members, as well as brokers, bankers, and investment advisors. It is independent of any ties to the investment community and, therefore, positioned to be a crucible for advancing the practice standards of care.

“There are an estimated five million people who have the legal responsibility for managing someone else’s money, yet there is a surprising lack of detailed information that defines the investment management process they should follow. Legislation, case law and regulatory opinion letters provide the skeleton – the role of the Foundation is to put muscle, skin and hair on that skeleton and to help bring the body to life. For example, fiduciary legislation clearly requires that a due diligence process be followed in selecting an investment option, yet the industry has not defined what constitutes a minimum due diligence process.” (fi360.com)

For more information on The Foundation for Fiduciary Studies, The Center or Fiduciary Studies, or the services and tools they have available, go to www.fi360.com.

We recommend all sponsors and fiduciaries use the Prudent Investment Practices Handbook as a working reference tool during the management of your employer-sponsored plan. You can get a copy of this handbook by going to www.fi360.com.

Tools and Resources Continued...

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SOURCE CREDITS

The information in this handbook was compiled from a variety of sources, including:

The 401k Service Solution™ set of processes, courtesy of Don Settina, Inc.

The Department of Labor online guidance

ERISA legislation: The Employee Retirement Income Security Act of 1974

Wikipedia

Investopia.com

Rutgers Cooperative Extension

The Prudent Investment Practices Handbook by The Foundation for Fiduciary Studies

As the law and regulations continue to change, it is important to be aware of those changes and how they affect you and your plan. The information contained in this handbook is provided for research and educational purposes. It is believed to be reliable at the time of printing, but Financial Service Standards, LLC makes no claim to the accuracy of the information collected from outside sources. This handbook is not intended to be legal or tax advice. Rather, it is intended only as a general summary, in non-technical terms, of certain basic concepts applicable to 401(k) plans and, in some cases, certain other types of tax-qualified retirement plans. Although this material concentrates on 401(k) plans, it is not intended to provide a comprehensive discussion of 401(k) plans or other types of tax-qualified retirement plans. Plan sponsors should consult their attorneys about the application of any law to their retirement plans.