HunterMaclean ERISA and employee benefits attorney Rebecca Sczepanski made this presentation at the 2015 Savannah Fiduciary Seminar. Her presentation covered a summary of the legal issues regarding fiduciary status, including how to identify ERISA and state law fiduciaries. She provided tips for avoiding or mitigating risks associated with defined plan fiduciary status as well as an update on major fiduciary litigation.

1. SAVANNAH tel 912.236.0261
BRUNSWICK tel 912.262.5996
H U N T E R M A C L E A N . C O M
Meeting Fiduciary Duties,
Reducing Liabilities, and
Improving Effectiveness
401(k) & Defined Contribution Plans
April 30, 2015
Rebecca L. Sczepanski, C.P.A., J.D.

2. Legal Issues
• Who is a Plan Fiduciary?
• Developments in Litigation & Regulation
• 8th Circuit/USSC - Tussey v. ABB
• 9th Circuit/USSC – Tibble v. Edison Int’l
• 6th Circuit – Stiso v Int’l Steel
• New Proposed Fiduciary Regulations
• Fiduciary Risk Management
• Helpful Tips for Fiduciaries

3. ERISA Fiduciary Definitions
Three statutory definitions:
1) ERISA 3(38) Investment Manager
 Investment Discretion
2) ERISA 3(21) Fiduciary
 Investment Advice
 Administrative Discretion or Control
3) ERISA 3(16) Plan Administrator
 Administrative Discretion

4. ERISA 3(38) Investment Manager
[A]ny fiduciary (other than a trustee or named
fiduciary):
A. who has the power to manage, acquire, or dispose
of any asset of a plan;
B. is a registered investment adviser under the
Investment Advisers Act of 1940…[or] the laws
of the State, or is a bank or qualified insurance
company; and
C. has acknowledged in writing that it is a fiduciary
with respect to the plan.

5. ERISA 3(21) Fiduciary
Any person who exercises any discretionary authority
or control over the management of the plan or the
management or disposition of assets, renders
investment advice for a fee, or has discretionary
authority or responsibility to administer a plan.
NOTE: there is a special exemption for mutual funds, their
investment advisers, and their principal underwriters. These entities
are not fiduciaries just because plan assets are invested in the mutual
fund.

6. ERISA 3(16) Fiduciary
ERISA designates the Plan administrator as a fiduciary. The
plan document must designate an administrator; if it does not,
the administrator is the plan sponsor/employer. This means:
• The Plan administrator can only formally act through its
board of directors or other governing body;
• If the company wants to formally delegate this authority, it
has to do it according to applicable corporate law, e.g. a
board resolution. Otherwise the company remains liable
for anything done by the employee who’s doing the day-to-
day work.
Many providers are now offering this service. Exercise care in
choosing such a provider.

7. ERISA 3(16) Fiduciary
Designating a third party to act as your plan administrator
means:
• Employer retains the responsibility for monitoring the provider’s
performance.
• Employer may reduce duties and obligations, but loses some control
over the plan.
• Employers who do this must carefully read through the contract
before signing to ensure that the provider assumes liability as well as
responsibility for performance, and that the proper standard of care
is specified.
• Employers must also review the experience and qualifications of the
provider and its personnel, and be able to demonstrate why (if fees
are paid from plan assets) this is both reasonable and in the best
interests of plan participants.

8. The Fiduciary Universe
These three definitions are the ERISA definitions. Other definitions
exist and may apply, especially with respect to investments.
• ERISA fiduciary standard of care
• LOYALTY: Act in the sole interest of the participants
• PRUDENT EXPERT STANDARD: Highest duty under the law
• EXCLUSIVE BENEFIT: Act with exclusive purpose of providing benefits
to plan participants; incidental benefits to the employer are permitted
• Investment advisor fiduciary standard of care
• Act in the best interest of investors
• Broker/dealer standard of care
• Must recommend “suitable” investments; rarely fiduciaries
• New proposed regulation, just issued by DOL/EBSA, would change this
substantially
• SEC is also expected to weigh in on this issue for broker/dealers

10. LITIGATION UPDATE
8th Circuit, 2014 – Tussey v. ABB, Inc.
FACTS:
• Fidelity provided recordkeeping and other services for the
401(k) plan and the defined benefit pension plan as well as
handling the company’s payroll and insurance brokerage.
• Fidelity was paid from 12(b)(1) fees and other indirect fees
received from the 401(k) plan mutual funds.
• ABB did not monitor the fees charged, which were
calculated as a percentage of plan assets; Fidelity was paid
increasing amounts each year as assets in the plan grew.

11. LITIGATION UPDATE
8th Circuit, 2014 – Tussey v. ABB, Inc.
FACTS (cont’d):
• ABB hired a consultant who told it the fees were excessive,
then ignored the consultant’s advice and did nothing
• Fidelity provided services to the defined benefit plan and
to the company, e.g. insurance, at far less than market rates
because the payments from the 401(k) plan were so high
• ABB was sued for breaches of fiduciary duty to the 401(k)
plan. The case was brought in the mid-2000s; almost 10
years later, it still has not been finally resolved.

12. LITIGATION UPDATE
8th Circuit, 2014 – Tussey v. ABB, Inc.
District Court:
• ABB should pay $13.4 million for failing to control
record-keeping costs.
• ABB should pay $21.8 million for mapping Vanguard’s
Wellington Fund to Fidelity’s Target Date fund series.
• ABB should pay the plaintiffs’ attorney fees of $13.4
million.
• Fidelity should pay $1.7 million for retaining “float”
income on payments, without disclosure, as fiduciary.

13. LITIGATION UPDATE
8th Circuit, 2014 – Tussey v. ABB, Inc.
In March 2014, the Court of Appeals:
• Upheld the judgment for $13.4 million for failing to control record-
keeping costs.
• Reversed the $21.8 million in “mapping” damages for reconsideration of
damages calculation method. The liability finding was not disturbed
• Reversed the plaintiffs’ attorney fee award of $13.4 million for
reconsideration of fee calculation method. The liability finding was not
disturbed.
• Reversed Fidelity’s judgment entirely, saying it was not a fiduciary
because the assets generating the float income were not plan assets.
U.S. Supreme Court refused certiorari of the decision. It’s now just a
matter of calculating damages.

14. LITIGATION UPDATE
9th Circuit, 2013 – Tibble v. Edison International
FACTS:
• Edison included retail share classes of at least three
mutual funds in its 401(k) plan investment menu
without even investigating availability of cheaper
institutional classes
• This was an ERISA 404(c) plan – participants were
responsible for their investment decisions, but the
sponsor was responsible for the funds made available
on the investment menu

15. LITIGATION UPDATE
9th Circuit, 2013 – Tibble v. Edison International
ISSUES:
• What standard of review applied – de novo, deferential, or
arbitrary & capricious (as for determining benefit claims)?
• Did ERISA §404(c) protect the employer regarding the
funds made available on the investment menu?
• When did the statute of limitations begin running – e.g.,
when the funds were first added to the investment line-up,
or did the violation continue when they weren’t
reviewed/removed when they arguably should have been?

16. LITIGATION UPDATE
9th Circuit, 2013 – Tibble v. Edison International
RULINGS:
• 9th Circuit generally favorable to sponsor – e.g., rejected the “continuing
violation” theory extending the statute of limitations, deferential review
of sponsor’s actions, rejected claim that payment of revenue sharing
from the mutual funds violated the plan document and was a conflict of
interest
• Despite all this, the court still found Edison liable
• Case was appealed to the U.S. Supreme Court, which agreed to
hear the statute of limitations issue only. Oral arguments were
heard in March, and a decision is expected before the end of term
in June. On the whole, pundits expect some modification, if not an
outright reversal, of the 9th Circuit’s statute of limitations holding.

17. LITIGATION UPDATE
6th Circuit, 2015 – Stiso v Int’l Steel
• Fully insured LTD plan, with an “indexing” provision for “pre-
disability income” used for reducing benefits under a work-
incentive program.
• SPD essentially omitted a separate definition for “indexed pre-
disability income,” using the plain term “pre-disability income” to
describe the index’s effect on future benefit calculations.
• Plan document (insurance contract) contained both definitions
and more carefully described how these interacted.
• Result: lower court solidly for defendant sponsor & insurance
company. 6th Circuit reversed across the board. SPD was
“misleading,” and its distribution a fiduciary breach.

18. REGULATORY UPDATE
New Proposed Regulations, Issued April 14, 2015
• If adopted, proposal could be a game-changer. Includes:
• Updated definition of “fiduciary” regulation for those
providing investment advice to ERISA plans
• Targeted updates of existing prohibited transaction
exemptions to change some, eliminate others, and add a few
new ones
• Aimed at eliminating or mitigating the effects of conflicts of
interest in ALL retirement plans, including IRAs – big shift in
focus from 2010 proposal
• Any “recommendation” for compensation triggers fiduciary
status, and “recommendation” includes anything that triggers
current “suitability” requirement

19. REGULATORY UPDATE
New Proposed Regulations, Issued April 14, 2015
• Old rule - fiduciary if you:
• Render advice regarding value or advisability of buying,
selling, or investing in securities and other property
• On a regular basis
• Pursuant to a mutual agreement, written or otherwise
• That the services will serve as a primary basis for
investment decisions
• Advice given is individualized to the plan.

20. REGULATORY UPDATE
New Proposed Regulations, Issued April 14, 2015
• Proposed new rule - fiduciary if you:
• Make a recommendation (even one) regarding buying,
selling, managing, hiring managers/advisors for, rolling
over, or valuing plan assets to a plan, plan fiduciary, plan
participant or beneficiary, IRA, or IRA owner
• Pursuant to a written or verbal agreement
• That the advice is given for consideration in making
investment or management decisions
• Advice given is individualized or specifically directed
to the advice recipient

22. RISK MANAGEMENT
Fiduciary Protections: Process, Procedure,
Documentation
• Identify all plan fiduciaries, and if necessary, formally
delegate authority and discretion
• Adopt an investment policy, review it annually, make any
necessary changes, and document your process.
• Determine the level of fiduciary responsibility you wish to
delegate, then use a prudent process to select the provider.
• Read and understand all service contracts before you sign
them to ensure they properly reflect the relationship and
the providers take appropriate levels of responsibility

23. RISK MANAGEMENT
Fiduciary Protections: Process, Procedure,
Documentation
• Monitor the performance of each of the plan’s service
providers on at least an annual basis and document
your process and conclusions
• Monitor fees and expenses, negotiating reductions in
costs when assets grow and the market changes. Do a
competitive benchmarking process every 3 years, at a
minimum, so you understand the market for services
• Carefully review your insurance coverage to determine
if your policy covers ERISA fiduciary liability and plan
administrative failures

24. RISK MANAGEMENT
Fiduciary Protections: Process, Procedure, Documentation
• Know and understand what your plan says, and ensure it agrees
with how it is being administered
• If you have mutual funds in your plan, understand the share
classes being used; investigate whether cheaper classes are
available and/or appropriate, and whether any of the fees can be
recaptured for the participants’ benefit
• Document what services the plan is receiving in exchange for the
fees that are directly or indirectly being paid from plan assets
• Review documents and notices prepared by service providers
before distributing to employees and participants – one size does
not fit all

26. HELPFUL TIPS
Understand the corporate structure of the plan sponsor
• Standardized prototype plans for controlled groups
• Different rules apply for most benefits purposes, e.g. testing and service
counting; 50% ownership or control for maximum benefit contributions
• Family trusts, voting control, ESOPs, options
Question “free” services
• E.g., fiduciary warranty provided to sponsors, paid for from plan assets
Be aware of “non-traditional” investments in 401(k) plans
• Increased ERISA bond or audit requirements
• Non-discrimination issues if not offered to all participants on an equal
basis
• Liquidity and valuation issues

27. HELPFUL TIPS
DON’T:
• Acknowledge you’re paying too much for your plan – in front
of your employees
• Tell your employees that the IRS let you fix a mistake that
would have given them a lot more money
• Make any decision regarding your 401(k) plan based on the
benefit to the company
• Assume that what you’ve always done is good enough, just
because no one’s ever challenged you or the IRS/DOL gave you
a clean audit
• Accept service provider statements without question
• Hire service providers based on who you like personally or
who’s the cheapest, without considering qualifications

28. IMPACT OF BENEFITS

29. SAVANNAH tel 912.236.0261
BRUNSWICK tel 912.262.5996
H U N T E R M A C L E A N . C O M
Rebecca L. Sczepanski, C.P.A., J.D.