Joseph Trainor Mark Wetzel Senior VP for Finance & CFO President

1. Plan Sponsor Fiduciary Roles and Responsibilities:Best Practices for Overseeing 403(b) Plan Investments Joseph Trainor Mark Wetzel Senior VP for Finance & CFO President University of the Sciences Fiduciary Investment Advisors, LLC

2. Agenda The 403(b) Landscape Fiduciary Roles & Responsibilities Single vs. Multiple Provider Models Sample Lineups & Fee Analysis Case Studies Conclusion

3. Where We’ve Been Historically, 403(b) Plans: Have had little employer involvement Have had little to no formalized oversight Have often been simply a payroll function Have been the responsibility of the human resources staff Have relied upon their investment & recordkeeping vendor to drive fund menu decisions, fee & revenue discussions, etc.

4. The Final 403(b) Regulations 403(b) plan sponsors must now operate their plans much more like 401(k) plans: Written Plan Document Requirement Form 5500 Filing Requirement Plan Audit Requirement (generally for plans over 100 participants) Heightened Fiduciary Scrutiny

5. Plan Sponsor Goals 403(b) Sponsors and their Fiduciaries are looking to: Manage their Fiduciary Risk Construct a Best-in-Class 403(b) Benefit to attract, retain and reward valued faculty and staff Improve their Participant Outcomes Sound simple?

6. Fiduciary Roles & Responsibilities

7. “ERISA’s prudent standard is not that of a prudent lay person but rather that of a prudent fiduciary with experience dealing with a similar enterprise.” - Marshall v. Snyder 1EBC 1878, 1886 (E.D.N.Y. 1979)

8. Who is a Fiduciary? Under ERISA, a Fiduciary is a person who: Exercises any discretionary authority over the management of a benefit plan or plan investments, Has any discretionary authority or discretionary responsibilities in the administration of a plan, and/or Directly or indirectly renders investment advice for compensation.

9. Overview of ERISA Fiduciary Duties Under ERISA, a Fiduciary is required to discharge duties*: Solely in the interest of the participants & beneficiaries; For the exclusive purpose of: Providing benefits to participants & beneficiaries; Defraying reasonable expenses of administering the plan. With the care, skill, prudence & diligence that a prudent person would use. * “Avoiding the Breach,” Diversified Investment Advisors, 2009

10. Fiduciary Liability Potential liability for breaches of fiduciary responsibility: Personal liability Civil action Monetary penalties & excise taxes Criminal penalties Audit exposure

11. The Process of Managing Fiduciary Risk Establish an oversight committee & committee charter Review bonding & fiduciary insurance Implement written Investment Policy Statement Hire independent third party Review quarterly performance Communicate with participants/beneficiaries Work with an ERISA attorney

12. Committee Charter A strong committee charter establishes the following: The purpose(s) of the committee Guidelines for appointing and removing committee members Frequency of committee meetings Duties and powers of the committee Voting procedures

13. Bonding and Fiduciary Insurance Fiduciary liability insurance covers claims for alleged failure to prudently act within the meaning of the Pension Reform Act of 1974. Fidelity bonds are required by law & cover claims involving dishonesty by administrators or trustees. Employee liability insurance covers claims for administrative errors or omissions. D&O Insurance typically does not cover ERISA related matters.

14. Investment Policy Statement A strong investment policy statement should: Contain detail to define, implement & manage investment strategy; Define the duties & responsibilities of all parties; Define diversification; Define due diligence criteria for selecting investment options; Define monitoring criteria for investment options.

15. Third Party Oversight A strong advisor should provide the following: A comprehensive committee charter & investment policy statement; Clear goals, objectives & methodology; Guidance in designing a diversified fund menu; A method to objectively evaluate performance.

16. Third Party Oversight ctd. A strong advisor should provide the following: A basis for evaluating fee structures; Improved participant outcomes; A comprehensive fiduciary governance process; Confidence that you are meeting your obligations as a fiduciary.

17. Quarterly Performance Review A quarterly performance review should cover the following: Performance against a benchmark and/or peer group. Fees relative to other similar investments. Organizational changes.

18. Communication Communication with participants & beneficiaries can include: Targeted campaigns; Communications focused on retirement readiness; Formal employee education. Communication can occur: In person; Via mail; Electronically.

19. Single vs. Multiple Provider Model

20. Single vs. Multiple Provider Model Multiple provider model is the most prevalent, but it is changing. Sponsors are reexamining retirement plan providers through a well-documented RFI or RFP process. There are significant benefits to utilizing a single provider.

21. Benefits of a Single Provider Model One provider = fewer investment choices to monitor; Increased purchasing power; Less confusion for the average participant; Improved administrative efficiencies.

22. Obstacles in Moving Toward a Single Provider Liquidity Politics Communications Resistance to Change

23. Sample Lineups and Fee Analysis

24. TIAA-CREF Annuity Menu DomesticEquity Money Mkt / SV Bond Balanced Int’l / Global / Other

25. Fidelity Unconstrained Investment Menu Money Mkt / SV Bond Balanced Intl /Global Other Fidelity Nordic Fidelity Int’l Cap Apprec Fidelity Overseas Fidelity Pacific Basin Fidelity Southeast Asia Fidelity Diversified Int’l Fidelity Japan Fidelity Canada Fidelity Europe Spartan Int’l Idx Inv Fidelity Emerging Mkts Fidelity Int’l Real Estate Fidelity China Region Fidelity Int’l Discovery Fidelity Japan Smaller Co Fidelity Int’l Sm Cap Fidelity Latin America Fidelity Global Balanced Fidelity Select: Leisure Medical Del Healthcare Energy Med Equip Sys Technology Comm Equip Natural Gas Cons Staples Energy Svcs Defense Gold Materials Financial Natural Resources Pharmaceutical Environment Fidelity Real Estate Invs Fidelity Telecom Util Fidelity Convertible Sec Fidelity Real Estate Income Fidelity US Gov’t Res Fidelity Cash Reserve Fidelity Ret Gov’t Money Mkt Fidelity Rtmt Money Mkt Fidelity Money Mkt Fidelity US Treas Money Mkt Fidelity US Gov’t Money Mkt Fidelity Sel Money Mkt Fidelity High Income Fidelity US Bond Idx Fidelity Cap Income Fidelity Ginnia Mae Fidelity Invt Grade Bond Fidelity Interm. Bond Fidelity Gov’t Income Fidelity Strategic Income Fidelity New Mkt Income Fidelity Mortgage Sec Fidelity Short Term Bond Fidelity Inflation Prot Bond Fidelity Inter Gov’t Inc Fidelity Asset Mgr 20% Fidelity Freedom Funds Fidelity Balanced Fidelity Puritan Fidelity Asset Mgr 50% Fidelity Asset Mgr 70% Fidelity Strat Real Ret

26. Sample Optimized Fund Menu DomesticEquity Cap. Preserv. Fixed Income Hybrid Int’l / Global / Other

27. Qualified Default Investment Alternative Lifecycle / Target Date Fund Balanced Fund Professionally-Managed Account Capital Preservation Product (for the first 120 days of participation)

28. “ERISA’s test of prudence…is one of conduct and not a test of the result of performance of the investment. The focus of the inquiry is how the fiduciary acted in his selection of the investment, and not whether his investment succeeded or failed.” - Donovan v. Cunningham 716F. 2d 1455, 1467 (5th Cir. 1983)

29. Understanding Vendor Fees & Revenue 12b-1 Fees Subtransfer Agency Fees Revenue Sharing Arrangements Recordkeeping Costs / Vendor “Required Revenue” Fiduciaries must benchmark plan fees & revenue structures to determine reasonableness and competitiveness of the services.

30. Fee Transparency A fiduciary’s obligations are: To know & understand all charges; To ensure they are reasonable; To evaluate all revenue sharing agreements, disclosure of 12b-1, sub-transfer agency or other commission-based fees and all contract charges, surrender charges & other fees that participants or the plan may incur.

31. Fee Transparency Fiduciaries should establish a required revenue benchmark: This benchmark acts as the basis for determining if any excess revenue exists in the plan. Excess revenue may be used to enhance participant services, access lower cost share classes for participants or pay for other plan-related costs.

32. Sample Full Fee Disclosure Worksheet – TIAA-CREF

33. Sample Full Fee Disclosure Snapshot – TIAA-CREF

34. Fiduciary Duty to Monitor Other fiduciary duties: Hold committee meetings at regular intervals; Maintain detailed meeting minutes; Monitor investment options; Establish investment, fee & revenue benchmarks; Evaluate benchmarks periodically; Document all decisions.

35. Case Studies

36. Case Study #1 University of the Sciences 403(b) ERISA plans Two plan vendors – TIAA-CREF (Annuity Menu) & Vanguard (Limited Fund Menu) ___________________________________________________ Sponsor Goals: Manage fiduciary risks and work to improve participant outcomes.

37. Case Study #1 University of the Sciences Process: RFP for independent plan consultant / Established structure Evaluated Decided Documented Implemented

38. Case Study #2 Prominent University 403(b) and 401(a) plans – both ERISA plans Two plan vendors – Fidelity (Unconstrained Fund Menu) & TIAA-CREF (Annuity Menu) ___________________________________________________ Sponsor Goals: Manage fiduciary risks and work to improve participant outcomes.

39. Case Study #2 Case Study #2 Process: Established structure RFP for independent plan consultant Revised structure Evaluated Decided Documented Implemented

40. Case Study #2 Where They Were: Offered entire lineup of Fidelity Funds – approximately 175 investments. Offered the full suite of TIAA-CREF annuity accounts. ____________________________________________________ Where They Are: Reduced menu of core TIAA-CREF accounts. Offer a core lineup of Fidelity Funds, including Target Date Retirement Funds. Offer a self-directed brokerage window.

41. Results A well-managed fiduciary process. A well-designed “best-in-class” fund menu – highly simplified, yet still offering broad diversification opportunities. Improved participant outcomes.

42. Well-Publicized Decisions Purdue University Consolidated vendors down to one (Fidelity) Incorporated a 4-Tier Investment Menu Stanford University Incorporated a 4-Tier Investment Menu with a decidedly indexed approach (Vanguard) Pepperdine University Consolidated from four vendors to one (Diversified Investment Advisors)

43. An Ongoing Fiduciary Process

44. Fiduciary Governance: Annual Checklist • RecordkeeperSvcs Update • Plan Demographic Review • Education & Advice Plan • Plan Design Benchmarking • Investment Menu Review • Asset Class Updates • Trends & Best Practices • QDIA Analysis Investment Review Administrative Fee Review Investment Expense Analysis Benchmarking & Trends Recordkeeper Negotiations IPS Review Regulatory/Legislative Update Committee Best Practices Bonding & Fiduciary Insurance

45. In Closing Overall Considerations: Establish a fiduciary committee and appoint members; Adopt a written committee charter; Review bonding & fiduciary insurance; Adopt a comprehensive Investment Policy Statement (IPS); Evaluate service providers & document your findings; Hold regular committee meetings & maintain meeting minutes.

46. In Closing When evaluating service providers: View investment management fees; Understand your vendor’s revenue structure; Monitor investments; Benchmark for reasonableness and competitiveness; Consider employing an RFI or RFP process.

47. “There is risk in doing nothing.” - TIAA-CREF, “Investment Menu Construction,” NACUBO, July 2010

48. Questions?

49. Contact Information Joseph Trainor, University of the Sciences j.trainor@usciences.edu, 215.596.8862 Mark Wetzel, Fiduciary Investment Advisors, LLC mwetzel@fiallc.com, 860.697.7410

50. Joe is Senior Vice President of Finance for University of the Sciences. USciences is a healthcare and science focused institution founded as the first college of pharmacy in North America. USciences has a current enrollment of 2,850 students in undergraduate, professional and graduate programs and is located in the University City section of Philadelphia. In 1997 he became the founding Treasurer for the University City District. The UCD is a special service district formed to focus upon commercial revitalization and quality of life in the areas surrounding the various universities and healthcare campuses in West Philadelphia. He is also a CPA who received his Bachelor of Science degree from The Pennsylvania State University. He has served various nonprofit organizations including EACUBO and The Savoy Company. The latter is the oldest amateur theater company in the world dedicated solely to the production of the works of Gilbert and Sullivan. Joseph Trainor