Fiduciary Guide. Helping to protect your plan. MetLife Resources

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1 Fiduciary Guide Helping to protect your plan. MetLife Resources

2 Table of Contents Introduction MetLife s Commitment Know Your Fiduciary Responsibilities ERISA Plan Fiduciary Checklist Disclosure Regulation Requirements Qualified Default Investment Alternative (QDIA) Investment Policy Statement (IPS) ERISA Section 404(c) Employer Guidelines Sample ERISA Section 404(c) Employee Information Sheet Fiduciary responsibility has been a growing concern among sponsors of qualified retirement plans over the past several years. Government agencies such as the Internal Revenue Service and Department of Labor (DOL) issue rules and regulations that must be followed in order for plans to operate in a non-discriminatory manner and to ensure employees rights are protected. This booklet is for general information only and is not a substitute for qualified professional advice from a tax adviser and/or legal counsel. The rules as to who is a fiduciary and what standards they are subject to are subject to change. For additional information, take a look at the DOL's ERISA Fiduciary Advisor campaign at: Certain plans are exempt from ERISA, such as plans maintained by governmental and some church employers. 403(b) plans that only permit salary reduction contributions may also be exempt from ERISA. Plans that are exempt from ERISA may be subject to state law fiduciary requirements.

3 Introduction The Employee Retirement Income Security Act (ERISA) protects your plan s assets by requiring that those persons or entities who exercise discretionary control or authority over plan management or plan assets, anyone with discretionary authority or responsibility for the administration of a plan or anyone who provides investment advice to a plan for compensation or has any authority or responsibility to do so are subject to fiduciary responsibilities. Plan fiduciaries include, for example, plan trustees and members of a plan s investment committee. Established Requirements 1) The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. 2) Fiduciaries must act prudently and must diversify the plan s investments in order to minimize the risk of large losses. 3) In addition, the plan fiduciary must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. 4) The plan fiduciary must also avoid conflicts of interest. In other words, they may not engage in transactions on behalf of the plan with, or that will benefit, parties related to the plan, such as other fiduciaries, services providers or the plan sponsor. Fiduciary Guide 1

4 MetLife commitment. MetLife Resources is a division of Metropolitan Life Insurance Company ( MetLife ) that specializes in providing retirement plan products and other financial products and services to healthcare, educational, governmental and other nonprofit employers and their employees. Celebrating more than 140 years, MetLife is a leading provider of insurance, annuities and employee benefit programs serving 90 million customers in over 40 countries. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and the Middle East. Expanding on a history of excellence established by MetLife, MetLife Resources is dedicated to providing clients with world-class service, innovative products and customized retirement services. We recognize the importance and complexity of your role as a plan fiduciary, and that you must meet your obligations to ensure that your plan satisfies the requirements of ERISA. We are committed to providing you with the ongoing support needed to help you satisfy your fiduciary responsibilities and delivering educational tools for your employees so they can make informed investment decisions. Understanding and properly executing your fiduciary responsibilities may reduce your risk of fiduciary liability.

5 Fiduciary Responsibilities Know your fiduciary responsibilities some basic rules and risks Offering a retirement plan can be one of the most challenging, yet rewarding, decisions an employer can make. The employees participating in the plan, their beneficiaries and the employer benefit when a retirement plan is in place. Administering a plan and managing its assets, however, require certain actions and involve specific responsibilities. To meet your fiduciary responsibilities the plan fiduciary needs to understand some basic rules, specifically ERISA. ERISA sets standards of conduct for those who manage designated employee benefit plans and its assets (called fiduciaries). What are the essential elements of a plan? Each plan involves certain key elements. These include: A written plan document that describes the benefit structure and the parties responsible for the plan (fiduciaries) and guides day-to-day operations; A trust fund to hold the plan s assets, unless all assets are held in insurance company contracts or custodial accounts; A recordkeeping system to track the flow of monies going to and from the retirement plan; and Documents to provide plan information to employees participating in the plan and to the government. Employers often hire outside professionals (often called third-party service providers) or, if applicable, use an internal administrative committee or human resources department to manage some or all of a plan s day-today operations. Indeed, there may be one or a number of persons (or entities) with responsibility for administering the plan or managing its assets. These entities may also be the plan fiduciaries. Who is a fiduciary under ERISA? ERISA defines a fiduciary as anyone who: Exercises authority over plan assets; Renders investment advice for a fee; or Has discretionary authority in the administration of the plan. The DOL is developing new rules expanding the definition of who is considered a fiduciary. What are the duties of a fiduciary? The fiduciary must: Act solely in the interest of plan participants and their beneficiaries; Prudently administer the plan and manage its assets; Follow the plan document; Diversify plan investments to minimize the risk of large losses; and Paying only reasonable plan expenses. What are the risks of being a fiduciary? The financial risks of fiduciary status can be significant. In summary, a plan fiduciary: Is personally liable to the plan for losses and lost opportunity costs resulting from breaches of duty; May be required to pay the affected participant(s) or the participant s attorney fees; and May be subject to Department of Labor civil fines or excise taxes. Must I be bonded? As an additional protection for plans, those who handle plan funds or other plan property generally must be covered by a fidelity bond. A fidelity bond is a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond. For plans that do not hold employer securities, ERISA requires a bond equal to 10% of plan assets or $500,000, whichever is less. If the plan does hold employer securities, the amount of the bond is 10% of plan assets or $1 million, whichever is less Now that you have a better understanding of the basics of fiduciary responsibilities, use the questions in the checklist to determine how well you are meeting them. Fiduciary Guide 3

6 Fiduciary Responsibilities Know your fiduciary responsibilities some basic rules and a checklist The plan fiduciary has the responsibility of selecting and monitoring the plan s investments. You may find the checklist on the next page to be a valuable reference tool in meeting these responsibilities. If you have any questions on any of the items covered in the checklist, or if you would like additional information, please contact your MetLife Representative. A Fiduciary Checklist Under ERISA Sec. 404(c), in order for you to reduce fiduciary liability with respect to participants investment selections, participants and beneficiaries must exercise control in fact. The exercise of control over plan assets requires that participants and beneficiaries be allowed to exercise decisions concerning their plan account: Investment Choice Choose among a broad range of investment alternatives consisting of at least three diversified core investment options representing a wide range of risk/return characteristics. Code Section 403(b) requires that investments generally be limited to mutual fund shares held in custodial accounts or under annuity contracts that satisfy Code Section 403(b)(1). Investment Diversification Diversify investments generally both among and within the three core investment categories; Investment Change Frequency Transfer among the three designated core funds as frequently or as appropriate for the particular option, but at least quarterly; and Investment Information Receive sufficient specific information to make informed investment decisions. Your Retirement Plan May Need a Written Investment Policy Though not required under ERISA, it is prudent that each plan should have an investment policy statement that reflects the plan s specific goals and objectives. Like all fiduciary-related documents, an investment policy statement should be carefully drafted and thoroughly reviewed by the fiduciary and the plan s advisors and consultants. What is Section 404(c)? Effective January 1, 1994, the ERISA Sec. 404(c) regulations helps to shield fiduciaries from potential liability exposure by shifting the responsibility for investing among plan investments in certain individual account plans directly to plan participants and beneficiaries. Compliance with ERISA Sec. 404(c) is not mandatory in order to maintain an ERISA retirement plan. You could, therefore, choose to operate your plan without regard to ERISA Sec. 404(c). Please refer to page 12 for more information relating to this topic. How do I know if I m fulfilling my fiduciary responsibilities? It is easier than you might think to measure how well you re doing. Consider the checklist that follows. Fiduciary Guide 4

7 ERISA Plan Fiduciary Checklist Your third party administrator, retirement plan provider or qualified professional can help guide you and go through a more detailed checklist with you. Do you understand ERISA Sec. 404(c) requirements? If you have an existing plan, do you fully understand your plan document and design? Do your plan fiduciaries meet regularly and keep notes from these meetings? Does your plan have a written investment policy statement? Does your plan offer at least three core diversified investments? Does your plan provide asset allocation funds or models for employees who lack investment knowledge? Have you reviewed the investments available in your plan in the last 12 months? Do you understand the investment costs within your plan? Do you understand the costs associated with these services? Does your plan provide employee enrollment programs that explain the importance of participation? Does your plan provide employee communications that explain the plan benefits, investment options and expenses? Have you met with your ERISA legal counsel to review your fee disclosure strategy to ensure you are meeting the DOL s Service Provider Fee Disclosure 408b-2 Regulation and Participant Fee Disclosure 404a-5 Regulation requirements? Have you met with your approved plan service provider(s) to discuss the availability and retrieval of the investment-related and fee and expense information? Have you taken the necessary steps to ensure that plan participants and beneficiaries are notified of plan investment performance and fee information, as required by the DOL's Participant Fee Disclosure 404a-5 Regulation requirements. Do you understand the services provided by the various people and companies who service your plan?

8 Regulation Requirements Disclosure Regulation Requirements Fiduciary Guide 6 The Department of Labor (DOL) has issued new regulations on service provider and participant fee disclosures that apply to ERISA plan sponsors. The purpose is to provide greater fee transparency so that both plan sponsors and participants can make more informed decisions regarding plan services and participant investment options. Acting as a plan fiduciary, you have important responsibilities and must act in the best interests of your participants and their beneficiaries. These responsibilities include: Carrying out your duties prudently Following the terms of your plan documents Diversifying plan investment choices Paying reasonable plan expenses The ability to determine the reasonableness of plan fees has historically been a difficult one. Recognizing this challenge, in 2010 the Department of Labor provided new regulations intended to help you meet this important responsibility. Beginning in 2012, important requirements impact the manner and degree of fee disclosure by covered service providers to plan fiduciaries and by plan administrators to plan participants and beneficiaries. Service Provider Fee Disclosure On February 3, 2012, the DOL issued the final regulation ("Section 408(b)(2) Regulation"). It defined what information plan service providers must furnish to plan fiduciaries regarding their fees and services. Affected plan service providers must deliver the required disclosure documents annually. The disclosure is necessary to ensure that plan fiduciaries have enough information to evaluate whether the arrangements for services are reasonable, whether the fees associated with such services are reasonable and to determine if there are any conflicts of interest that may affect a provider's performance of its duties. The following bullets can help ensure your plan is prepared to meet these Disclosure Regulation requirements: Make sure you receive required disclosure(s) from all covered service providers under your plan on a timely basis. Establish a policy for ongoing fee review as part of your fiduciary process. When considering plan fund selection, in addition to fund fees, also consider other factors such as investment fund performance, characteristics, quality, risk, manager tenure and volatility. Include investment cost analysis as one of your criteria in your annual plan and/or investment review. Document your oversight activities. Participant Fee Disclosure ERISA plan sponsors or administrators of participant-directed individual account plans are now responsible for delivering plan fee information to their eligible employees, current participants and plan beneficiaries. The initial participant fee disclosure must be delivered by the plan sponsor to the affected persons annually. For plans with multiple service providers, plan administrators must provide disclosures for each service provider simultaneously and in a manner that facilitates comparison of the core investment information. Consult with your legal counsel to discuss the new regulation and your specific obligations and responsibilities under it. Understand the different components of information that must be disclosed. Meet with your service provider(s) and begin discussions on the availability and retrieval of the investment-related and expense information. Research your data sources to make sure you can identify all participants, eligible employees and beneficiaries that need to receive the disclosures. Consider the additional costs that may need to be incurred to fulfill the annual notice requirement. Develop a communication program and secure resources to help you execute the program.

9 DOL Regulation Participant Fee Disclosure Regulation Responsibilities for Participant-Directed Individual Account Plans As an ERISA plan sponsor or administrator of a participant-directed plan, you have to comply with Participant Fee Disclosure 404a-5 Regulation requirements issued by the Department of Labor (DOL). To assist you with complying, outlined below are timing and responsibilities relating to the participant fee disclosure regulation. The temporary enforcement policy outlined in the DOL's Field Assistance Bulletin No ("FASB ") on July 22, 2013 allows plan sponsors to reset the timing for the annual distribution of the investment comparative chart that they are required to furnish to plan participants and beneficiaries. Plans operating on a calendar year basis had to furnish their first chart no later than August 30, 2012, and their second chart within the next 12-month period. This one-time reset effectively gives these plan sponsors 18 months following the date of the initial disclosure to furnish the subsequent "2013 comparative chart" disclosure to participants and beneficiaries. Disclosure Requirement Frequency MetLife Responsibilities Plan Sponsor Responsibilities Initial and Annual Disclosure of Plan and Investment Information Annually MetLife will provide a fee disclosure document that contains the information outlined in the regulations. Plan Sponsors should review MetLife s document and decide if they will use it or create a customized document. You should consult with your plan attorney(s) and other plan advisors before determining if you will use the MetLife prepared document or create a customized document. Plan Sponsors must furnish the required fee disclosure information to eligible employees, current participants and plan beneficiaries. New Participant Disclosure of Plan and Investment Information Must be furnished to participants on or before the date they first direct their contributions to a particular investment. MetLife will provide the participant fee disclosure document to plan sponsors. We recommend that you review the document with your legal counsel as MetLife and its agents and representatives may not give legal or tax advice. Disclosing plan fee and investment information to new participants is the Plan Sponsor s responsibility. You may wish to consider including the most current version of your fee disclosure document with the plan enrollment information provided to new hires. Fiduciary Guide 7

10 DOL Regulation (continued) Participant Fee Disclosure Regulation Responsibilities for Participant-Directed Individual Account Plans For example, if a plan administrator furnished the first comparative chart on August 25, 2012, the DOL indicates it will take no enforcement action based on timeliness if the plan administrator furnishes the "2013 comparative chart" by February 25, Some plan administrators may have already furnished the required disclosures to participants in a "2013 comparative chart" by the 2013 deadline. In this instance, FASB indicates that the DOL will take no enforcement action based on timeliness if the plan administrator furnishes the "2014 comparative chart" no later than 18 months after furnishing the "2013 comparative chart." Disclosure Requirement Frequency MetLife Responsibilities Plan Sponsor Responsibilities Update of Plan Information (General Plan and Investment Option Information and Plan Administrative Expenses) Participants must be given updated information at least 30 days, but not more than 90 days prior to any changes. It is the Plan Sponsor s responsibility to notify participants if any plan information disclosed in the new participant or annual disclosure changes. Quarterly Statements Must be sent quarterly and be reflective of the preceding quarter. Quarterly statements must describe the actual dollar amount of the administrative and individual expenses charged to participants accounts during the preceding quarter. MetLife will provide the quarterly statements with fee and expense information to participants of ERISA plans on an ongoing quarterly basis. Participant Requests Upon participant request. MetLife provides supplemental information that plan sponsors can use to fulfill participant requests. Examples include: the prospectuses and the participant fee disclosure document that MetLife provides. The Plan Sponsor must provide requested information relating to the plan s investment options. Fiduciary Guide 8

11 Qualified Default Investment Alternative ( QDIA ) The DOL Qualified Default Investment Alternative ( QDIA ) regulations are designed to encourage plan sponsors of individual account plans to adopt automatic enrollment and default investment plan design features. Impact of Regulations Generally, the regulations provide that a plan fiduciary will not be liable for any investment loss as a result of automatically investing participant assets in a default investment vehicle that is a QDIA. However, the QDIA vehicle must be prudently selected and monitored, and certain disclosure and other requirements must be met, including the requirement that plan participants must be given the opportunity to provide investment direction, but have not done so. The DOL has acknowledged that relief in connection with using a QDIA is not limited to automatic enrollment, and could apply whenever there is a failure of a participant to provide investment instructions. QDIA Requirements Relief from fiduciary liability is available under the QDIA Regulation if: (1) Participants' assets are in investments that constitute a QDIA. (2) Participants are given an opportunity to affirmatively direct their investments, but fail to do so. (3) Participants are given both an initial and an annual notice. (4) Participants defaulted into a QDIA receive the same information that is passed through to participants who elect to direct their investments under the plan. (5) Participants defaulted into a QDIA have the opportunity to transfer out of the QDIA, in whole or in part, at least as often as any other participant and, in any event, at least once every three months. (6) For the first 90 days after investments are first made in a QDIA on the participant's behalf, any transfer out of the QDIA by the participant is not subject to restrictions, fees, or expenses, except such fees or expenses charged on an ongoing basis for the operation of the investment itself. After that first 90-day period, transfers may be subject only to the same fees or restrictions that would be imposed on participants who affirmatively chose to invest in the QDIA. (7) The plan must offer a broad range of investment alternatives. QDIA Investment Vehicles To qualify as a QDIA, a plan s default investment must constitute one of the following: (1) A product invested in a mix of underlying equity and fixed income investments that takes into account the individual s age or retirement date and is designed to change asset allocations over time to become more conservative (an example could be life-cycle or targeted retirement date funds). (2) An investment management service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual s age or retirement date and utilizes allocations that are designed to become more conservative over time (an example could be a professionally-managed account). (3) A product invested in a mix of underlying equity and fixed-income investments with a target level of risk that takes into account the characteristics of the plan s group of employees as a whole, rather than each individual (an example could be a balanced fund). Certain other requirements must be met, including the requirement that a QDIA vehicle must be managed by (1) an investment manager, plan trustee or a plan sponsor who is a named fiduciary, or (2) an investment company registered under the Investment Company Act of 1940.

12 Qualified Default Investment Alternative ( QDIA ) (continued) Automatic Enrollment Although not a fiduciary requirement to offer automatic enrollment, many plan sponsors are choosing to include this as an optional feature in their defined contribution retirement plan. Used in conjunction with a QDIA Investment Vehicle, the automatic enrollment plan feature can help increase plan participation and assist employees in saving for retirement. Employers can automatically enroll employees in a plan, such as a 403(b) plan, and direct contributions deducted from employees paychecks into certain predetermined investments available under the plan. Participants have the opportunity to opt out of participation in the plan at any time, and may change the designated investment selection periodically. The plan fiduciary selects the investment to which the employees automatic contributions are directed in the absence of an employee election. Using certain QDIA investments and providing notice of the plan s automatic enrollment process provides relief to the fiduciary. Certain other investments may qualify as QDIAs for amounts invested before the December 24, 2007 effective date of the regulations. Relief is available with respect to an investment product or fund designed to: Additional conditions apply: No fees or surrender charges can be imposed in connection with withdrawals from the product or fund initiated b y a participant or beneficiary; The product or fund must invest primarily in investment products that are backed by State or federally regulated financial institutions; and Appropriate notice is provided to participants. Additional Considerations The fiduciary must determine what qualifies as a QDIA, how to meet the QDIA requirements and whether the default vehicle selected is prudent. It should be noted that pursuant to these regulations, there is no requirement that a plan sponsor choose a QDIA as a default investment vehicle. The preamble to the regulations acknowledges that a QDIA is not the exclusive means by which a fiduciary might satisfy its fiduciary responsibility for default investments and further provides that an employer may conclude that a stable value product is an appropriate default investment for its employees regardless of the fact that it does not qualify as a QDIA. For a sample participant notice for auto enrollment and QDIA, please consult the website: Preserve principal; Provide a rate of return generally consistent with that earned on intermediate investment grade bonds; Provide liquidity for withdrawals by participants and beneficiaries, including transfers to other investment alternatives.

13 Investment Policy Statement (IPS) An Investment Policy Statement (IPS) The Department of Labor (DOL) plays an active role in fiduciary compliance. ERISA imposes special legal requirements on fiduciaries of retirement plans. You may be unaware of the potential liability you face under ERISA and the implications of being a 403(b) plan fiduciary. The Department of Labor defines an Investment Policy Statement (IPS) as a written statement that provides the fiduciaries who are responsible for plan investments with guidelines or general instructions concerning various types of categories or investment management decisions, which may include proxy voting decisions. As a formal description of the plan s investment philosophy, the IPS sets a framework for plan investment decisions by guiding the selection, monitoring and termination of plan investments. A wellconstructed IPS can help protect the plan sponsor and other fiduciaries by presenting a sensible fiduciary process. Although not required under ERISA, implementing an IPS has practical advantages for you, including the following: Helping to clarify the plan s investment-related goals and objectives; Providing a framework for ongoing evaluation of investment performance; Aiding in clear communication of the plan s investment policy to participants; Ensuring continuity in decision-making as plan fiduciaries change; and Protecting the fiduciaries from inadvertently making arbitrary or inconsistent decisions. We believe that having a well-considered written set of investment guidelines could help ensure that your plan operates efficiently, cost-effectively and with a minimum of exposure down the road. What is the advantage of creating a written policy statement? Participants choose from investments available to them. If you are the plan fiduciary with the responsibility for selecting the investment options made available to participants, you want to ensure that you meet fiduciary responsibilities. While it is not mandatory to do so, you may wish to complete an IPS. This document describes the investment guidelines and objectives that you follow in selecting and monitoring the investments made available to participants. Fiduciaries should seek advice from their legal counsel when developing their IPS. Should you consider using an IPS? The IPS establishes how the investments will be selected and monitored in relation to the long-term goals of the retirement plan. An IPS is a written statement by the fiduciary of a defined contribution or other retirement plan that defines the scope of allowable investments and describes the decisionmaking process. An investment policy statement is not required. How can an IPS protect me from liability? A formal IPS documents the fiduciary s process for selecting available plan investments. Without a prudent investment process, the plan sponsor could be legally liable for poor investment results. A written IPS is documentary evidence that a prudent policy exists. Therefore, a written policy statement provides a measure of fiduciary liability protection for the fiduciaries against challenges to investment choices or their performance, provided the fiduciary acts prudently within the policy. Fiduciary Guide 11

14 ERISA Section 404(c) Employer Guidelines The ERISA Sec. 404(c) regulations allow you, as a fiduciary, to shift certain investment responsibilities directly to plan participants and beneficiaries. Compliance with ERISA Sec. 404(c) is not mandatory in order to maintain a qualified retirement plan or ERISA 403(b) retirement plan. You could, therefore, choose to operate your plan without regard to these guidelines. However, if the requirements of ERISA Sec. 404(c) are met, you will reduce your liability for investment decisions made by participants and beneficiaries. To take advantage of the relief offered by ERISA Sec. 404(c), you must make certain types of investments available under the plan and alert and inform participants and beneficiaries about their investment responsibilities and options. The following ERISA Sec. 404(c) Employer Guidelines are designed to assist you in understanding and complying with the requirements of ERISA Sec. 404(c). The Guidelines contain three sections: Section I is a general overview of the ERISA Sec. 404(c) requirements. Section II provides instructions for completing the ERISA Sec. 404(c) Employee Information Sheet (a sample is provided at the end of this booklet), which you should give to your plan participants and beneficiaries. Section III offers you a general Compliance Checklist to help you evaluate whether you have taken the major steps needed to obtain the relief offered by ERISA Sec. 404(c). Please read these guidelines carefully before completing the ERISA Sec. 404(c) Employee Information Sheet.* While implementing the Compliance Checklist is not mandatory, we think you will find it a useful tool in evaluating your compliance with the requirements of ERISA Sec. 404(c). This set of guidelines is not designed to serve as a replacement for tax or legal advice. You should seek the assistance of a competent professional advisor regarding your plan s compliance with ERISA Sec. 404(c). I. General Overview of the ERISA Section 404(c) Requirements To understand the relief offered by ERISA Sec. 404(c), you must first have a basic understanding of the ERISA fiduciary rules. Under ERISA, the term fiduciary includes anyone who has discretionary authority over any aspect of plan administration or investments. Persons who are considered fiduciaries of an ERISA plan are held to very strict standards of performance in an effort to protect plan participants and beneficiaries against fraud and mismanagement of plan assets. If you, the employer, exercise any decision-making authority over plan administration or investments, you will be deemed to be a fiduciary under ERISA. It is important to note that compliance with the 404(c) regulations does not absolve you from all fiduciary responsibility. Rather, the 404(c) regulations prescribe the requirements that a participant-directed investment program must meet in order for you to avoid fiduciary responsibility with respect to individual participants investment selections. You remain responsible for determining the investment alternatives available to participants and beneficiaries. You must choose such investments prudently and monitor their performance and their characteristics on an ongoing basis. The fiduciary that is responsible for plan investments must diversify the investments so as to minimize the risk of loss. Basic Requirements Under ERISA Sec. 404(c), in order for you to reduce your exposure to fiduciary liability with respect to investment selection, participants and beneficiaries must be permitted to exercise control in fact. Participants and beneficiaries must be allowed to: Choose from among a broad range of investment alternatives consisting of at least three diversified investment categories, each of which is characterized by materially different risk and return factors; Diversify investments generally both among and within the investment categories; Fiduciary Guide 12

15 ERISA Section 404(c) Receive sufficient information to make informed investment decisions; and Give investment instruction as frequently as the market volatility of the particular investment dictates in any event, no less frequently than quarterly. Broad Range of Investments "Core" Investments To take advantage of ERISA Sec. 404(c), you must offer participants a broad range of investments. To meet this requirement, participants must be provided with at least three investment alternatives. The categories of investments must be diversified enough to enable each participant and beneficiary to create a personal investment portfolio with risk and return characteristics appropriate for him or her. To minimize the risk of loss, diversification is required both between the investment categories and within each investment choice. That is, each of the three required investments offered under the plan must be materially different from the others in terms of risk and return Core investments. Investment Diversification The regulations require that each investment alternative used to satisfy the requirement that a broad range of investment options be offered be, in and of itself, diversified. Employee Disclosures and Investment Information To take advantage of the relief offered by ERISA Sec. 404(c), you must disclose to your participants and beneficiaries, in writing, that they will be responsible for selecting their own investments. The ERISA Sec. 404(c) Employee Information Sheet, when properly completed, is intended to guide you in satisfying this written disclosure requirement. In addition to the disclosure described, you must communicate investment information to plan participants and beneficiaries. The ERISA Sec. 404(c) regulations contain a comprehensive list of items that must be disclosed to participants and beneficiaries. The information must be sufficient to enable a participant to make an informed investment decision. The DOL Participant Fee Disclosure 404a-5 Regulation made some minor conforming changes to ERISA Sec 404(c) by eliminating a reference to the duplicative identification of any designated investment manager in order to establish a uniform disclosure framework for all participant-directed account plans. Investment Direction Frequency Participants and beneficiaries must be allowed to transfer their retirement plan dollars from one investment to another within the plan. The regulations state that the option to change investments must generally be allowed at least quarterly. You may place some restrictions on changes of investment. For example, you could require that participants and beneficiaries move retirement plan dollars in increments of at least 10 percent of their balance. Also, you can refuse to implement investment changes for a person who is legally incompetent or investment changes that would result in a prohibited transaction. You should be cautious about imposing too many limitations, however. Limitations may be viewed as an infringement upon an individual s exercise of control. If you do not permit sufficient participant control, you may not qualify for ERISA Sec. 404(c) protection. Fiduciary Guide 1 3

16 ERISA Section 404(c) ERISA Section 404(c) Employer Guidelines II. Instructions for Completing the ERISA Section 404(c) Employee Information Sheet The following instructions are designed to help you, the employer, complete the ERISA Sec. 404(c) Employee Information Sheet. The instructions are meant to be used as a general guide and are not intended as a substitute for qualified professional advice. Plan Information In the space provided, list the name of your plan. Investment Options If you select the specific investments and/or investment managers in which participants and beneficiaries may choose to invest their retirement plan dollars, check Option A and list and describe each investment and investment manager. In your description, you must include a brief explanation of the investment s objective, risk and return characteristics, and the level of diversification. You may choose to attach prospectuses or other investment information to complete this section. If you allow participants and beneficiaries to invest in any asset administratively feasible for the plan to hold, check Option B. Additional Information If appropriate, the additional information listed in the Employee Information Sheet must be provided. Designated Plan Fiduciary In the space provided, list the name or title, address and phone number of the fiduciary responsible for carrying out investment instructions and providing information to participants and beneficiaries. III. Employer 404(c) Compliance Checklist The following checklist is intended to help you evaluate your plan s compliance with the major requirements of ERISA Sec. 404(c) and the corresponding regulations. This checklist is by no means an exhaustive listing of the steps needed to implement ERISA Sec. 404(c). Rather, it highlights the most significant compliance issues. Unless each of the following questions is answered yes, your plan may not be in compliance with ERISA Sec. 404(c). Investment Instructions In the spaces provided, list the frequency with which participants and beneficiaries may change their investment selection. In addition, specify to whom, when, and how investment instructions may be provided by participants and beneficiaries (e.g., in writing to the Human Resources Director). If applicable, you must describe any limitations on participants and beneficiaries associated with their investment instructions (e.g., conditioning the ability of participants and beneficiaries to give investment instructions on the movement of a minimum percentage of their investment plan dollars). Finally, list any fees, charges or expenses that are assessed directly against participants and beneficiaries retirement plan dollars because of a purchase or sale of an investment alternative. Fiduciary Guide 14

17 EMPLOYER 404(c) Compliance Checklist Plan Design 1. Does your plan permit participants and beneficiaries to direct the investment of all or a portion of their retirement plan dollars? Yes No 2. May participants and beneficiaries choose from at least three core investments, each of which has materially different risk and return characteristics? Yes No 3. Are each of the core investments themselves diversified? Yes No 4. Do the core investments allow participants and beneficiaries to create an investment portfolio that meets their personal needs and minimizes the risk of large losses? Yes No 5. Do you permit participants and beneficiaries to give investment instructions with respect to core alternatives at least quarterly (or more frequently if the volatility of the investment option warrants more frequent changes)? Yes No Employee Disclosure 1. Have you informed participants and beneficiaries that the plan is intended to meet the requirements of ERISA Sec. 404(c)? Yes No 2. Do you provide participants and beneficiaries the information necessary to allow them to make informed investment decisions? Yes No 3. Do you update the information given to participants and beneficiaries when significant changes regarding their investment alternatives occur? Yes No 4. Do you disclose plan fee and investment information to participants and beneficiaries according to DOL Participant Fee Disclosure 404a-5 Regulation requirements? Yes No 6. Is a plan fiduciary generally obligated to comply with participants and beneficiaries investment instructions? Yes No

18 Sample ERISA Section 404(c) Employee Information Sheet PLAN INFORMATION Your Employer has adopted an ERISA retirement plan to help you attain financial security during your retirement years. As a Participant in your Employer s Plan, you have the responsibility to decide how you want your retirement plan dollars invested. This Employee Information Sheet will outline some basic information about the investments available to you under your Plan. Your Employer will give you a separate Investment Selection Form or other written instructions for selecting your investments. You should review the following information carefully before making your investment choices. Keep this disclosure with your Summary Plan Description and other retirement plan documents. Plan Name ERISA SECTION 404(c) PLAN Your Employer intends that the retirement plan you participate in satisfies the requirements of Sec. 404(c) of the Employee Retirement Income Security Act (ERISA) and Title 29, Code of Federal Regulations, Sec c-1. This means that your Employer is providing you with the opportunity to decide how your retirement plan dollars are invested, enabling you to choose investments that fit your personal needs. Your Employer, and other people in charge of the Plan, will not be responsible for the investment performance of your retirement plan dollars, which results from your investment instructions. INVESTMENT OPTIONS OPTION A You may invest your retirement plan dollars in any one or more of the following options: (You are encouraged to refer to the prospectuses or other investment materials relating to these alternatives before you actually make your investment selections.) (Attach additional pages or investment information as needed.) Investment Option Description Investment Option Description Investment Option Description Investment Option Description Investment Option Description OPTION B You may invest your retirement plan dollars in any asset(s) administratively feasible for the Plan to hold. Fiduciary Guide 16

19 INVESTMENT INSTRUCTIONS You must give instructions to the person(s) listed in the final section of this document as to how you want your retirement plan dollars invested. Your Employer will provide you with an Investment Selection Form to use for this purpose or will provide written instructions regarding other ways to select investments. You may alter your investment selections every (state frequency) by completing a new Investment Selection Form or following your Employer s instructions for investing. The following is a list of fees and/or expenses that may affect your retirement plan dollars in connection with your instructions to buy or sell the investment options listed on this disclosure. ADDITIONAL INFORMATION In accordance with Participant Fee Disclosure 404a-5 Regulation requirements, the Plan will also provide a description of the annual operating expenses, management fees, administrative fees and transaction costs of each investment option, all of which will reduce your rate of return. In addition, you may request the following additional investment information from the person(s) listed in the final section of this document: 1. Copies of any prospectuses, financial statements and reports, and any other materials relating to the investment options available under the Plan if such information is provided to the Plan; 2. A list of the actual investments held in each investment option and the value of each of these investment options (or the proportion of the investment option that it comprises); 3. With respect to each individual investment that has a fixed rate of interest and is issued by a bank, savings and loan association, or insurance company, the name of the issuer of the investment and its term and rate of return; 4. Information concerning the value of shares or units in investment options available to you under the Plan, as well as the past and current investment performance of the investment options; 5. Information concerning the value of shares or units in investment options in which you have invested your retirement plan dollars. _ DESIGNATED PLAN FIDUCIARY Name or Title of Fiduciary Address Phone Instead of giving investment instructions and requests for additional information to the fiduciary identified above, you may give such requests to the following: Name(s) of Trustee or Plan Administrator Address Phone Fiduciary Guide 17

20 Retirement Benefits Simplified. Variable annuities are offered by prospectus only, which is available from your registered representative. You should carefully consider the product s features, risks, charges and expenses, and the investment objectives, risks and policies of the underlying portfolios, as well other information about the underlying funding choices. This and other information is available in the prospectus, which you should read carefully before investing. Variable annuities have limitations, exclusions, charges, termination provisions and terms for keeping them in force. See your representative for complete details. There is no guarantee that any of the variable investment options will meet their stated goals or objectives. Purchase of the contract through a retirement plan does not provide any additional tax deferral benefits beyond those already provided through the plan. If you are purchasing the contract through a plan, you should consider purchasing it for its death benefit, annuity options and other non-tax related benefits. Mutual funds are sold by prospectus only, which is available from your registered representative. Please carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information about any mutual fund investment please obtain a prospectus and read it carefully before you invest. Investment return and principal value will fluctuate with changes in market conditions such that shares may be worth more or less than original cost when redeemed. Diversification cannot eliminate the risk of investment losses, and past mutual fund performance is not a guarantee of future results. Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor. MetLife, its affiliates, agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances. Annuities are issued by Metropolitan Life Insurance Company (MLIC), 200 Park Avenue, New York, NY or MetLife Insurance Company of Connecticut (MLICC), 1300 Hall Boulevard, Bloomfield, CT 06002, depending on the jurisdiction. The issuing company will be reflected on the contract. Products are distributed by MetLife Investors Distribution Company (MLIDC), (member FINRA), 5 Park Plaza, Suite 1900, Irvine, CA Securities, including variable products offered through MetLife Securities, Inc., (MSI), (member FINRA, SIPC), New York, NY MLIC, MLICC, MLIDC and MSI are MetLife companies. MetLife Resources is a division of Metropolitan Life Insurance Company, New York, NY MetLife and/or its family of companies receive fees from the fund families or their affiliates for administrative, distribution and recordkeeping services. Metropolitan Life Insurance Company 200 Park Avenue New York, NY METLIFE, INC. L [EXP1015][ALL STATES][DC] MLR

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