Fiduciary Fundamentals

Transcription

1 Retirement & Benefit Plan Services Fiduciary Fundamentals Basics and Best Practices This guide covers the following chapters:

2 A plan fiduciary serves an important role At Bank of America Merrill Lynch, we understand the important role that you, the plan fiduciary, serve in maintaining the integrity of your company s retirement plan. We also understand the pressure fiduciaries experience trying to keep up with their responsibilities. This guide from Bank of America Merrill Lynch gives you an overview of the role of a plan fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA) and provides suggested best practices that may help you fulfill your fiduciary responsibilities.1 Serving as a plan fiduciary is no small challenge. Here s just a sampling of what a fiduciary needs to consider: Do you offer your participants a diversified menu of investment options that have been prudently selected? If participants make their own investment decisions, have you provided sufficient information and education for them to exercise control in making those decisions? Have you taken advantage of available fiduciary safe harbors? Have you reviewed plan costs for reasonableness? We are prepared to assist you by drawing upon the expansive capabilities across our organization to help you fulfill your challenging fiduciary duties. 1 Bank of America Merrill Lynch does not provide advice on the roles and responsibilities of fiduciaries. Please consult your own counsel regarding the matters discussed in this document to the extent that they may apply to your situation. The selection and monitoring of investments in the plan in question remain the responsibility of the plan fiduciary, which shall in no instance be Bank of America Merrill Lynch, any of its affiliates, or any employees of Bank of America Merrill Lynch or its affiliates, unless the plan sponsor has a service agreement with Bank of America Merrill Lynch for Defined Contribution Investment Consulting Services. 2

3 The essential role of a fiduciary Bank of America Merrill Lynch offers you a range of tools and services that we have developed based on years of helping clients like you meet their fiduciary responsibilities. Who is considered a retirement plan fiduciary under erisa? A fiduciary under ERISA is any person or entity that exercises authority or control over a plan s assets, gives investment advice for compensation or has discretion over plan administration. Plan sponsors are generally fiduciaries. For some plans, administrative committees or a company s board of directors may be fiduciaries. Attorneys, recordkeepers, accountants and actuaries generally are not fiduciaries when acting solely in their professional capacities. At a minimum, a plan must have at least one fiduciary designated in the plan document as having control over the plan s operation and investments. A person or entity becomes a fiduciary by virtue of the functions they perform. For example, individuals who exercise control over a plan s assets are fiduciaries no matter what titles or positions they hold. the fiduciary role Standards of fiduciary performance under ERISA generally are process-based as opposed to outcome-based. Fiduciaries must act with prudence consistent with the prudent man standard of care. Plan fiduciaries must exercise their duties with the prudence of a person familiar with the business they are responsible for, or employ the assistance of those with the requisite experience. This is also known as the prudent expert rule. The responsibilities of a plan fiduciary generally include: Acting solely in the interest of plan participants and their beneficiaries. Defraying reasonable expenses for the administration of the plan. Following the plan documents (unless inconsistent with ERISA). Diversifying plan investments. ERISA defines a plan fiduciary to include anyone who gives investment advice for a fee or other compensation with respect to any moneys or other property of a plan, or has any authority or responsibility to do so. The complete definition and responsibilities of qualified plan fiduciaries are contained in the Employee Retirement Income Security Act of 1974 (ERISA). Process-based prudence Giving appropriate consideration to those facts and circumstances that the fiduciary knows or should know are relevant to the particular investment or investment course of action involved and then acting accordingly. 3

4 Responsibilities of a plan fiduciary include: Loyalty Discharge plan duties solely in the interest of participants and beneficiaries Ensure expenses are reasonable Prudence Education Monitoring Diversification Act with the care, skill and diligence of a prudent expert Provide participants with tools and education that enable them to make sound investment decisions Regularly review service providers, including performance and fees Ensure plan investments are adequately diversified to help minimize risk of large losses1 Develop and document processes for decision making Follow terms of plan document Hire third parties where internal expertise is lacking Carefully select service providers 1 Diversification does not ensure a profit or protect against loss. Fiduciaries may be personally liable for any losses to the plan resulting from a breach of fiduciary duty. These duties can be breached by failing to perform their duties with prudence for the benefit of the plan, engaging in prohibited transactions or failing to monitor those to whom fiduciary duties have been delegated. For more information on the duties of a fiduciary, click to see the Fiduciary Compliance Checklist included with this guide. 4

5 Fiduciary best practices While outcomes are always important, a fiduciary will want to demonstrate procedural prudence by maintaining written policies and procedures, minutes or other documentation of actions and decisions. It is also important to maintain supporting documents and data used in the decision-making process. In addition, fiduciaries should consider taking advantage of safe harbors, which protect them from the liability associated with certain investment decisions. What follows is a list of practices that all plan fiduciaries should consider adopting. 1 Identify all plan fiduciaries It is important to identify all the fiduciaries in an organization and to assure that they are aware of their responsibilities. If an organization maintains an investment committee, it is important that the committee be properly formed. Investment committees are typically created by an organization s board of directors or the chief executive and the establishment of the committee should be documented. When a fiduciary delegates responsibility to another person or committee, the original fiduciary retains a residual fiduciary responsibility. Click to see the Sample Investment Policy Statement and Menu Construction & Fund Selection Due Diligence included with this guide. 2 Maintain a written investment policy statement The selection, monitoring and maintenance of an investment menu are the duties most frequently identified with being an ERISA fiduciary. The investment policy statement provides the framework for this process. The investment policy statement should be reviewed at least annually and amended to reflect changes in the securities markets, plan objectives or other factors relevant to the plan. The policy statement should: Identify the key functions and responsibilities necessary for the ongoing management of the plan s assets. Describe the investment structure for the plan s assets, including the various asset classes that are expected to produce an investment return over the long term while prudently managing risk. Establish formal criteria to monitor and evaluate plan performance results on a regular basis. 5

6 3 Take advantage of fiduciary safe harbors Fiduciary Liability Safe Harbor 404(c) Section 404(c) of ERISA provides a voluntary safe harbor intended to protect plan fiduciaries from liability for the decisions participants make in managing their investments. Three key requirements for compliance with the Section 404(c) safe harbor are: Participants must be offered at least three core investment alternatives that are diversified and materially different in their risk and return characteristics. Participants must have the opportunity to exercise control over their accounts, such as changing investment options at least quarterly. Pursuant to ERISA 404(a)(5) Participant Disclosures, certain information about the plan must be disclosed or made available to participants, including sufficient details about the investments offered in the plan to make sound investment decisions and more. Plan fiduciaries must continue to prudently select and monitor plan investments. To take advantage of ERISA 404(c), fiduciaries must provide notice to participants of the intent to use this safe harbor. Typically, this notice is provided in the summary plan description. Additional 404(c) Safe Harbors Default investments: The Pension Protection Act of 2006 extended certain protections of Section 404(c) to fiduciaries in plans that invest participants accounts in default investment options in the plan. This protection relieves the fiduciary of liability associated with the choice of asset classes used for default investments. While utilizing a QDIA is optional, fiduciaries for plans that utilize default investments should consider the benefits of this safe harbor protection. Click to see the Default Investment Selection, Success by Plan Design White Paper and Making Plan Health Automatic Fact Sheet included with this guide. Leveraging qualified default investments in automated programs Your qualified default investment option can serve as the centerpiece of an automated program that includes enrollment and regular deferral increases to help your employees achieve retirement success. The Pension Protection Act of 2006 reflected strong endorsement of such programs by Congress based on the legislators desire to encourage sponsors to take more aggressive steps to help employees secure their financial future. 6

7 4 Review fees and expenses for reasonableness Plan fiduciaries are responsible for ensuring that the fees charged to plan assets are reasonable relative to the services provided. These costs should be reviewed periodically. Two main types of fees are commonly paid out of plan assets: Fees for the maintenance and administration of the plan. Investment management fees paid to fund managers and fund management companies. The Department of Labor (DOL) requires plan sponsors to disclose fees paid directly or indirectly to providers on Schedule C of IRS Form In 2012, the DOL issued final regulations pursuant to ERISA 408(b)(2). Under 408(b)(2), service providers must disclose to plan sponsors written details of services and fees to help plan fiduciaries evaluate the reasonableness of fees charged to the plan under service contracts or agreements. Click to see the Defined Contribution Fee Policies White Paper, The New Era of Fee Transparency White Paper and Plan Sponsor to Fee Disclosure included with this guide. 5 Maintain fiduciary liability insurance While most documents will provide for the indemnification of fiduciaries by the plan sponsor, many plan sponsors maintain fiduciary liability insurance as an additional layer of protection. This is typically a separate policy distinct from any directors and officers or errors and omissions policy. 6 Educate and update participants with clear, consistent communications It is always a good policy to identify those communication activities that are intended to be educational in nature, as opposed to investment advice. It is important to communicate to participants the responsibilities assumed by them relative to those assumed by the plan fiduciaries. The maintenance of clear documentation on this point is viewed by many as a fiduciary best practice. Bank of America Merrill Lynch delivers participant education in a variety of ways, including brochures, fact sheets, seminars and more. For plans where we provide recordkeeping services, a wealth of educational communications can be accessed through our Benefits OnLine participant website. For more information on employee communication and education, click to see the Participant Communication & Education Program and Sample Participant Communications Schedule included with this guide. 7

8 Sample Plan Governance Calendar 7 Maintain a regular governance calendar There is a myriad of issues that a fiduciary or fiduciary committee must monitor and manage. The most effective fiduciaries maintain a regular governance calendar. They identify their key areas of focus, set objectives and establish policies, and identify leverage points those action items that can impact the objectives. After setting performance objectives, they implement a monitoring process and document the entire process. Each of the key areas of focus is revisited on a regular basis according to a governance calendar. These processes can be as formal or informal as circumstances require. 1st Quarter Plan Investments Review investment policy Review plan menu construction Evaluate fund/manager performance Washington Outlook Legislative and regulatory updates 2nd Quarter Review Plan Fees for Reasonableness 8 Document, document, document In the unlikely event of litigation, the most effective way of proving a prudent fiduciary process is to produce the documents governing the process and the minutes or other records capturing how that process was followed. It is important that fiduciaries document their efforts to act with prudence by maintaining written policies and procedures. For more information on plan administration and processes as well as the role of a fiduciary, click to see the Plan Sponsor to Compliance Resources included with this guide. Plan Administration Review compliance issues Review 404(c) safe harbor procedures Review recent interpretations of plan language Evaluation of Fund/Manager Performance Quantitative and qualitative analysis 3rd Quarter Business Planning Determine impact of corporate transactions Implement necessary plan or business changes Fiduciary Update Fiduciary education refresher Review fiduciary liability insurance Evaluation of Fund/Manager Performance Quantitative and qualitative analysis 4th Quarter Participant Utilization Participation and contribution rate analysis Investment pattern analysis Review participant communication strategies Evaluation of Fund/Manager Performance Quantitative and qualitative analysis 8

9 Talk to us today Speak to your Bank of America Merrill Lynch representative to learn more about how we can help you fulfill your fiduciary responsibilities. Learn how we are rethinking retirement and benefit plan design to help you maximize your defined contribution plan s effectiveness and help put your employees on the path toward financial well-being. We can assist with reviewing and refining your investment policy statement as well as monitoring and evaluating your plan s performance on a regular basis. In addition, we can conduct regular portfolio reviews to help you measure the performance of your investment menu relative to your investment policy statement. Bank of America Merrill Lynch can also help you design a tailored employee education and communication strategy that will encourage participants to make the most of the plan. We believe employees who understand and appreciate a plan are more likely to enroll and increase contributions over time. We can help you assess your current communication and education program. Bank of America Corporation is one of the world s largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. Important: This publication provides general information about fiduciary-oriented ideas and strategies for retirement plans. Always consult with your legal, tax, insurance and investment advisors before implementing any financial or regulatory changes. For plan sponsor use only. Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation ("BAC"). Banking activities may be performed by wholly owned banking affiliates of BAC, including Bank of America, N.A., member FDIC. Brokerage services may be performed by wholly owned brokerage affiliates of BAC, including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a registered broker-dealer and member SIPC. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value Unless otherwise noted, registered trademarks and trademarks are the property of Bank of America Corporation Bank of America Corporation. All rights reserved. AR7ETXSN B-DIG 12/2013 9

10 Resources The following is a sampling of materials available from Bank of America Merrill Lynch to help you understand and fulfill your fiduciary responsibilities. Click on the images to read the full documents. RETIREMENT & BENEFIT PLAN RVICES RETIREMENT & BENEFIT PLAN RVICES RETIREMENT & BENEFIT PLAN RVICES RETIREMENT & BENEFIT PLAN RVICES Fiduciary Compliance Checklist Sample Investment Policy Statement (IPS) Menu Construction & Fund Selection Due Diligence Default Investment Selection Creating an investment menu and selecting and monitoring the investments that comprise the menu are among the most challenging responsibilities plan fiduciaries face. These complex activities must be carried out in compliance with the Employee Retirement Income Security Act of 1974 (ERISA), which sets standards of fiduciary conduct in relation to retirement plans. Fiduciaries who fail to follow ERISA s principles may be held personally liable for their conduct. That s why it s important to have a good understanding of your fiduciary investment responsibilities. This guide was designed to provide information you may find helpful in fulfilling your fiduciary role. Your Bank of America Merrill Lynch representative is also ready to assist you. Providing a default investment is essential for employers who sponsor an employee-directed defined contribution retirement plan particularly for those who make nonelective contributions or have automatic enrollment. This guide is designed to help you understand Qualified Default Investment Alternatives and your fiduciary obligations. Menu construction Help reduce the likelihood that participants will bring lawsuits against their employer if they lose money in the plan or fail to generate an adequate return over time. You should periodically evaluate your plan s fiduciary governance structure and procedures. Below is a list of basic requirements and best practices that every fiduciary should review to help ensure that they are meeting their responsibilities. Plan Legal Documents 1. Plan document has been updated and reflects the most recent legislative changes. Signed copies of documentation, amendments, resolutions and Summary Plan Description (SPD) are on file. 2. An IRS Determination Letter, if applicable, is on file. 3. Plan s Loan Policy, if applicable, has been completed and signed. 4. Plan s Qualified Domestic Relations Order (QDRO) procedures are on file. Maintenance of an Investment Policy Statement (IPS) is consistent with Employee Retirement Income Security Act of 1974 (ERISA) fiduciary standards and is one of the most important duties of an individual fiduciary or a fiduciary committee. The following sample IPS is intended to provide an overview of a typical investment policy statement for large- and mid-sized participant-directed 401(k) retirement plans. Any IPS created should be reviewed by an attorney knowledgeable in this specific area of the law. I. Introduction A. Purpose of Investment Policy Statement. The purpose of this Investment Policy Statement is to document the investment objectives and investment policies for the XYZ, Inc. 401(k) Profit Sharing Plan (Plan). The IPS is intended to assist the XYZ, Inc. 401(k) Profit Sharing Plan Investment Committee (the Committee) in meeting their fiduciary obligations under (ERISA) by: 5. Interpretations of plan language are documented and on file. 6. Signed agreements are on file for all plan-related service providers, outlining responsibilities, fees and service standards. 1) Making a clear distinction between the responsibilities of the Committee, the investment funds, the plan participants and beneficiaries, and other plan service providers; 2) Establishing a framework for the selection, monitoring, and evaluation of the Plan s investment funds; and 3) Affirming the Plan is intended to meet the safe harbor requirements of ERISA Section 404(c). B. Statement of intent. In accordance with their fiduciary responsibility under ERISA, investment decisions of the Committee will be made solely in the interest of the participants and beneficiaries of the Plan and for the exclusive purpose of paying benefits to participants and defraying the reasonable cost of administration. It is the intent of the Committee that its members and any other fiduciary action on behalf of the Plan shall perform their duties with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Compliance 1. Annual IRS Form 5500 reporting completed by the required filing date. 8. Fidelity bonding requirements met in accordance with ERISA. 2. Annual plan contribution limits reviewed. 9. Pursuant to ERISA 408(b)(2), plan sponsors receive notice of fees charged and should ensure they are reviewed for reasonableness. 3. Nondiscrimination testing completed and corrective action taken as needed. 4. Plan met annual required minimum distribution (RMD) rules. 5. Salary-deferral contributions submitted on a timely basis. 6. Summary Annual Report distributed to participants. 7. Applicable annual written notices provided to plan participants 30 to 90 days before the beginning of the plan year (i.e., Safe Harbor 401(k) Notice, Automatic Enrollment Notice, Qualified Default Investment Alternative (QDIA) Notice). 10. Participants receive various participant fee disclosure notices under ERISA 404(a)(5), including an annual notice that must be distributed to all eligible and participating employees and a quarterly notice that must be distributed to all participating employees. 11. A 404(a)(5) plan related change notice is provided to participants at least 30 days, but no more than 90 days, in advance of a change (e.g., to investment options, plan restrictions or individual fees). This statement is an outline of the Committee s general investment policies and is intended to supersede any earlier statement(s) of investment policies and objectives effective with the date this statement is executed. The Policy will be reviewed at least annually and revised as necessary to reflect changes related to the Plan. C. Plan objective. The Plan was established to provide eligible employees an opportunity to contribute in order to provide a source of retirement income in addition to that received from other savings or benefits they may accumulate over the course of their working careers. The Plan is intended to meet the applicable conditions for qualification under Section 401(a) of the Internal Revenue Code of 1986 as amended and provide for benefits based solely on the amount contributed to each participant s account plus or minus any income, expenses, and gains or losses. The Plan Document and Summary Plan Description for the Plan are the governing plan documents and contain the specific plan provisions and requirements for determining eligibility to make contributions and receive benefit payments under the plan. It is important to note that the goal of menu construction for participant-directed qualified retirement plans is not to attempt to create a single portfolio that can serve the interests of all participants. Instead, fiduciaries should seek to select a mix of investment options sufficient to allow participants to build their own portfolios appropriate to their individual needs and risk tolerances. In order to give plan participants the opportunity to reduce risk in their portfolios, we believe fiduciaries should make investments available in at least three major asset classes. The most basic menu will include cash equivalent, fixed income and equity mutual funds. A Plan Sponsor s To meet the unique needs of its participants, a plan may offer more expanded menus that provide equity funds that follow various investment styles and objectives, such as those that specialize in large or small companies. Equity funds can be further subdivided into those offering growth and value styles of investing. Including international equities in the menu may allow for even more diversification opportunities. Additionally, passively managed funds that track a specific index may provide a low cost menu option. An advanced fund menu can be created by including various fixed income options and non-traditional asset classes as well, such as real estate investment trusts. Some fiduciaries may also choose to make available self-directed brokerage options through mutual fund windows to create additional opportunities for diversification. Sample plan investment menus Basic Menu Expanded Menu Money Market/Stable Value Money Market/Stable Value Intermediate-Term Bond Intermediate-Term Bond Inflation-Protected Securities Intermediate-Term Bond High Yield Global Bond Inflation-Protected Securities Large Cap Value & Growth or Large Cap Blend Small Cap Value & Growth or Small Cap Blend Foreign Large Value & Growth or Foreign Large Blend Large Cap Value & Growth or Large Cap Blend Mid Cap Value & Growth or Mid Cap Blend Foreign Large Blend Small Cap Value & Growth or Small Cap Blend (a) Consistent with ERISA Section 404(c), investment options are selected by the Committee to provide participants with an opportunity to diversify their accounts across a reasonable risk and reward spectrum. (c) The investment options provided under the Plan are intended to accommodate the needs of participants whose investment objectives may range from long-term to short-term nature and may have risk tolerances ranging from high to low. Mid Cap Value & Growth or Mid Cap Blend Foreign Large Value & Growth or 1) Purpose of investment options Large Cap Value & Growth or Large Cap Blend Small Cap Value & Growth or Small Cap Blend D. Investment option menu (b) Participants may select from any combination of investment options provided under the Plan and may change the asset allocation of their investments pursuant to the Plan provisions. Advanced Menu Money Market/Stable Value Commodity Funds Real Estate Investment Trusts Following prudent processes regarding default investments can help fiduciaries: Increase the likelihood that employees who don t select an investment of their own will still have a favorable outcome at retirement. Under the Pension Protection Act of 2006, lawmakers and regulators have given special protection to employers who choose certain types of investments designated as Qualified Default Investment Alternatives or QDIAs. Plan sponsors who choose a QDIA and satisfy its requirements receive safe harbor protection for QDIA assets. What qualifies as a QDIA? The types of investments that qualify as QDIAs are more diversified and generally more aligned with participants financial and retirement needs than the stable value investments that predominated as defaults before QDIA regulations were issued in The Department of Labor notes in the preamble to its QDIA regulations that it is widely believed to be advantageous to invest retirement savings in diversified portfolios that include equity. Sample Investment Policy Statement If your current default investment fits within one of the designated QDIA investment types. What type of default investment is best for your plan and employees. Approved QDIAs, as defined by Department of Labor regulations, include: Whether a default investment that meets QDIA requirements can be chosen from, or created using, your current investment menu. 1. Managed accounts 2. Target date investments How to document the decisions your investment committee makes in order to protect your firm. 3. Balanced investments The final QDIA regulations also provided grandfathered QDIA protection for certain stable value products used as defaults and invested before December 24, Going forward, safe harbor protection is predicated on choosing any of the three investment types shown above, not on choosing the correct one from the three. Merrill Lynch provides access to investment products for all three QDIAs and can assist you in making QDIA-related decisions.1 Foreign Large Value & Growth or We offer a breadth and depth of solutions to serve Foreign Large Blend Emerging Markets virtually all plan types, from basic to complex. Important: This publication provides general information about fiduciary ideas and strategies for retirement plans. Always consult with your legal, tax, insurance and investment advisors before implementing any changes. 1 Fiduciary Compliance Checklist Fact Sheet This guide outlines a process designed to help investment committees determine: What your fiduciary obligations are regarding default investments. Menu Construction & Fund Due Diligence Bank of America Merrill Lynch does not provide advice on the roles and responsibilities of fiduciaries. Please consult your own counsel regarding the matters discussed in this document to the extent that they may apply to your situation. The selection and monitoring of investments in the plan in question remains the responsibility of the plan fiduciary, which shall in no instance be Bank of America Merrill Lynch, any of its affiliates, or any employees of Bank of America Merrill Lynch or its affiliates, unless the plan sponsor has a service agreement with Bank of America Merrill Lynch for Defined Contribution Investment Consulting Services. Default Investment Selection RETIREMENT & BENEFIT PLAN RVICES RETIREMENT & BENEFIT PLAN RVICES Making Plan Health Automatic Defined Contribution Fee Policies WORKPLACE INSIGHTSTM RETIREMENT & BENEFIT PLAN RVICES The importance of 401(k) plans to both businesses and their employees is especially relevant in today s workplace. Results from our 2012 Workplace Benefits Report show that 91% of employees surveyed view the 401(k) as one of the most critical savings vehicles for retirement income.1 And, for employers a healthy, successful retirement plan is valuable in helping attract and retain talent, while maximizing employee satisfaction and productivity. Success by Plan Design Improving 401(k) plan health and employee wellness For these reasons, plan sponsors have made providing a strong retirement program a top priority. However, approximately a quarter of employees don t take advantage of the benefits offered. Procrastination, inertia, and lack of knowledge can prevent them from enrolling, maximizing contributions and investing wisely in their 401(k) plans. Automatic features promote fuller plan participation Automatic plan design features can be a highly effective way of kick-starting employees to invest in their 401(k). Making the decision-making automatic can help increase participation in the plan and gradually raises employees contribution rates to help ensure they save more over time. By encouraging every employee to participate and save more through automatic features, plan sponsors can effectively take steps to improve participant behavior and the health and success of their 401(k) plans. Design your plan with auto features to help influence positive outcomes Automatic enrollment When employees meet your plan s eligibility criteria, and do not take action on their own, they are automatically enrolled in the plan. Automatic deferral increases Automatically increasing employees deferral rates periodically, either annually on a pre-determined date or to coincide with salary increase dates, helps ensure that contributions steadily increase unless participants opt out. Automatic investing Selecting a default investment that helps employees build a strong foundation for retirement is critical. This is the investment in which employee contributions are placed, absent an election by the employee. You should choose an automatic enrollment default investment that is prudent for your participant demographics. And, Bank of America Merrill Lynch offers a number of investment choices that may qualify as a Qualified Default Investment Alternative (QDIA). The New Era of Fee Transparency: Making Sense of the Details Considerations for Plan Sponsors and Fiduciaries When 401(k) plans first came into being, the question Who pays for what? could be answered fairly simply. Over time, however, fees became more complex. Concern grew that sponsors and participants alike did not have the information they needed to properly evaluate the amount being paid and the way fees impact each participant. Recent Department of Labor (DOL) requirements have ushered in a new era of fee transparency. In the early days of the 401(k) plan, before the widespread introduction of mutual funds, 401(k) sponsors typically paid for administrative costs such as recordkeeping and trust services. Participants typically paid for investment management through the fees charged Quick links DOL guidance on fees charged to the plan The 401(k) landscape has changed dramatically over the past 30 years. What began as Table of Contents Who pays for what? a mention in a code section has become the most valuable savings plan for workers The move to greater fee transparency Beginning With a Well-Defined Process retirements. Simple plans have become more complex, small balances have grown into The case for creating sponsor and fiduciary fee policies Sponsor/fiduciary decision tree larger portfolios, and regulators have struggled to keep pace with the speed of change. New laws, new regulations and additional requirements have been appended to the 401(k). But one constant has been the role of the fiduciary, and the obligation to put the best 1 Success by Plan Design White Paper 2012 Workplace Benefits Report Methodology: Boston Research Group interviewed a national sample of 1,000 employers of all sizes and 1,000 employees from January 2012 through March 2012 on behalf of Bank of America Merrill Lynch. To have qualified for the survey, employers must have offered their employees a 401(k) plan. Making Plan Health Automatic Fact Sheet Developing a Benchmarking Strategy One of the most important fiduciary responsibilities is to understand the services being Getting Started Is Easy provided and ensure that the fees being charged to the plan are reasonable. This paper The Role of Your Services Team RETIREMENT & BENEFIT PLAN RVICES At Bank of America Merrill Lynch, we seek to deliver industry-leading retirement and benefit plan solutions for companies of all shapes and sizes. It is our mission to be a trusted resource to help you manage your business and help your employees achieve financial wellness. We do this through a number of service and support initiatives. It is our hope that you will take advantage of our resource to help you fulfill your obligations as a plan fiduciary. About this guide We designed this document to help you understand and comply with Department of Labor (DOL) fee disclosure regulations. For the past few years, fee disclosure regulations have evolved in order to provide plan participants more transparency. In this booklet, we help you understand what the regulations mean, outline our responsibilities as a covered service provider and your responsibilities as the plan fiduciary, and map out next steps so that you can feel confident that you are in compliance. You will want to review this guide and familiarize yourself with your requirements and responsibilities. Plan sponsor and participant disclosures DOL regulations 408(b)(2) and 404(a)(5) The fee disclosure regulations are part of a three-stage DOL project that has been under way since The overall intent is to improve fee transparency. The regulations were developed to help ensure that ERISA fiduciaries understand the fees being charged so they may evaluate whether those fees are reasonable. ERISA requires the responsible plan fiduciary (you, as plan sponsor) to determine the reasonableness of the fees that are being charged to the plan and to the underlying participants (your employees). The first element, which was finalized and effective for plan years beginning on or a er January 1, 2009, is an expansion of the Form 5500 Schedule C, and requires plan sponsors to report any fees paid from plan assets over the course of a plan year to service providers. This guide focuses on the final two elements: 408(b)(2) and 404(a)(5) disclosures. Quick links About this guide 1 Overview of regulations 1 Fee disclosure to plan sponsors 408(b)(2) 1 Fee disclosure to participants 404(a)(5) 3 Participant fee disclosure distribution options 5 Additional considerations 6 recordkeeping and other services were free or at least low cost. The trend started of Labor (DOL) will help you build best practices for evaluating plan fees and determine whether you are with proprietary-only mutual fund families where the mutual fund company adapted requirements have striking a balance between the fees you pay and the services you receive. existing systems that were well suited to a daily valuation environment and used fund ushered in a new era revenue to subsidize recordkeeping costs. of fee transparency. Important: This publication provides general information about fiduciary ideas and strategies for retirement plans. Always consult with your legal, tax, insurance and investment advisors before implementing any changes. Defined Contribution Fee Policies White Paper Volume 1, Issue 2 Plan Sponsor to Fee Disclosure Recent Department Participant Communication & Education Program HOW WE CAN HELP YOU You want your employees to be able to make the most of the retirement plans you offer. That s why Bank of America Merrill Lynch provides a robust suite of educational materials to help your employees prepare for their financial future and strengthen their overall financial health. Learn about the communications available to you and how to access them. Fee disclosure to plan sponsors 408(b)(2) Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value The New Era of Fee Transparency White Paper RETIREMENT & BENEFIT PLAN RVICES When you make the transition to Bank of America Merrill Lynch, we will be available to consult with you on compliance-related activities and communications, including the Sarbanes-Oxley blackout provisions and 404(a)(5) plan-related change notice requirements, to make your transition as smooth as possible. This guide to compliance resources is designed to advise you of the availability of comprehensive information from a variety of trusted sources that may assist you in meeting your fiduciary responsibilities. Given the 30-day notice requirements, careful decisions must be made about investment offerings, transaction deadlines and availability of records. Your Bank of America Merrill Lynch team will work closely with you to help ensure that your employees are well-informed of important transition and blackout dates, as well as new plan features and investment options. Where to go for... Below are illustrative samples of a participant communications implementation schedule for a defined contribution plan. Scheduling can be modified to fit your needs. General information on meeting your fiduciary responsibilities The Department of Labor (DOL) provides an online publication at that covers such topics as: What are the essential elements of a plan? How do employees get information about the plan? Who is a fiduciary? How are employers required to report plan activities? Months 1 2 Month 4 What is the significance of being a fiduciary? Can a fiduciary terminate its fiduciary duties? Implementation communications planning process begins Review of plan features Final reminder blackout period Limiting liability What help is available for employers who make mistakes? On-boarding communications mailing completed Finalize communications strategy and implementation plan Hiring and monitoring a service provider Tips for employers with retirement plans Information posted on plan sponsor intranet Development of on-boarding and ongoing communication materials Blackout period begins Prohibited transactions Sample communications implementation schedule This schedule is subject to change during the implementation phase. Promote meetings (posters, HTML ) Month 3 GO LIVE Plan sponsor announcement of changes Plan is live announcement and key account access information available on Benefits OnLine (BOL) Advocate and Call Center training Sarbanes-Oxley and 404(a)(5) plan-related change notices sent to all employees (eligible, participating, terminated and retired with a balance) Information to include: Transition overview Enhanced, new services New fund offerings Key dates Enrollment campaign for all eligible, non-participating employees to encourage participation Seminars available (in person, on demand, webcast) Conversion Participation Plan appreciation Implement transition services for terminated employees with balances Make available most recent 404(a)(5) participant disclosure to newly eligible participants Sample plan implementation timelines On-boarding for January go live date On-boarding for July go live date Implementation activity October November December January Implementation activity April May June July This guide addresses two disclosure requirements: On-boarding completed December 31 Go live mid July Service Provider Fee Disclosure, also known as 408(b)(2) disclosure Go live mid January Fee disclosure requirements Investment products: Plan Sponsor to Compliance Resources Pre-conversion web meetings for plan sponsor management This means that Merrill Lynch, the service provider, must provide a disclosure notice to you, the plan sponsor. This will enable you to determine the reasonableness of fees prior to entering into, extending or renewing service contracts. Changes must also be disclosed as soon as practicable, but not later than 60 days from the date we are notified of the change. However, any changes to investment-related information must be updated on an annual basis. Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation ( BAC ). Banking activities may be performed by wholly owned banking affiliates of BAC, including Bank of America, N.A., member FDIC. Brokerage services may be performed by wholly owned brokerage affiliates of BAC, including Merrill Lynch, Pierce, Fenner & Smith Incorporated ( MLPF&S ), a registered broker-dealer and member SIPC. RETIREMENT & BENEFIT PLAN RVICES Benefits staff and leader preparation Service Provider requirements For institutional use only. Sample Participant Communications Schedule On-boarding completed end of month 4 The final 408(b)(2) disclosure regulations require covered service providers to provide a description of services being offered and the compensation expected in connection with those services. The regulation was effective July 1, Comparing Costs to the Value of Services interests of participants first. by asset managers for separately managed accounts, collective trusts, and similar vehicles. Then in the early 1990 s, the 401(k) market moved to a bundled model where Understanding What You re Paying Compliance information The following DOL site contains information intended to assist plan sponsors in understanding and complying with the requirements of ERISA as it applies to employee retirement and other benefit plans: Contents include: General fiduciary compliance assistance Frequently Asked Questions about pension plans and ERISA Reporting and Disclosure for Employee Benefit Plans Reporting and filing resources Be sure to scroll down all the way to the bottom of this site in order to see all the materials available to help you. Compliance information on fee disclosure regulations The following DOL site contains information intended to assist plan sponsors in understanding and complying with the final fee disclosure regulations pursuant to ERISA 408(b)(2) Service Provider Fee Disclosure and ERISA 404(a)(5) Participant Fee Disclosure: Contents include: Overview of final fee disclosure regulations Initial disclosure timing requirements and subsequent changes Final Regulation Relating to Service Provider Disclosures Under Section 408(b)(2) fact sheet Reporting and filing resources On-boarding completed June 30 Participant Disclosure, also known as 404(a)(5) disclosure Plan Sponsor to Fee Disclosure Participant Communication & Education Program Sample Participant Communications Schedule Plan Sponsor to Compliance Resources

11 RETIREMENT & BENEFIT PLAN RVICES fiduciary compliance checklist You should periodically evaluate your plan s fiduciary governance structure and procedures. Below is a list of basic requirements and best practices that every fiduciary should review to help ensure that they are meeting their responsibilities. Plan Legal Documents 1. Plan document has been updated and reflects the most recent legislative changes. Signed copies of documentation, amendments, resolutions and Summary Plan Description (SPD) are on file. 2. An IRS Determination Letter, if applicable, is on file. 3. Plan s Loan Policy, if applicable, has been completed and signed. 4. Plan s Qualified Domestic Relations Order (QDRO) procedures are on file. 5. Interpretations of plan language are documented and on file. 6. Signed agreements are on file for all plan-related service providers, outlining responsibilities, fees and service standards. Compliance 1. Annual IRS Form 5500 reporting completed by the required filing date. 8. Fidelity bonding requirements met in accordance with ERISA. 2. Annual plan contribution limits reviewed. 9. Pursuant to ERISA 408(b)(2), plan sponsors receive notice of fees charged and should ensure they are reviewed for reasonableness. 3. Nondiscrimination testing completed and corrective action taken as needed. 4. Plan met annual required minimum distribution (RMD) rules. 5. Salary-deferral contributions submitted on a timely basis. 6. Summary Annual Report distributed to participants. 7. Applicable annual written notices provided to plan participants 30 to 90 days before the beginning of the plan year (i.e., Safe Harbor 401(k) Notice, Automatic Enrollment Notice, Qualified Default Investment Alternative (QDIA) Notice). 10. Participants receive various participant fee disclosure notices under ERISA 404(a)(5), including an annual notice that must be distributed to all eligible and participating employees and a quarterly notice that must be distributed to all participating employees. 11. A 404(a)(5) plan related change notice is provided to participants at least 30 days, but no more than 90 days, in advance of a change (e.g., to investment options, plan restrictions or individual fees).

12 Investments 1. Investment Committee has been established to review fund options available to participants. 8. Reviews of menu construction are conducted on an annual basis. 2. Investment Committee has formally adopted a written Investment Policy to which it conforms. 9. Investment reviews are documented and action is taken as needed (e.g., replacing or eliminating an investment option). 3. The Investment Policy Statement is reviewed periodically, is current and is kept on file with other plan documents. 4. The Investment Policy Statement: Defines the objectives of the investment options in the plan. Defines the people or positions responsible for managing and administering the plan. Outlines criteria to be used in selecting, measuring, monitoring, replacing or eliminating investment options in the plan. Explains that costs of the plan and investments within the plan will be monitored and evaluated against clearly defined benchmarks (a)(5) participant fee disclosure notices are distributed annually to all eligible and participating employees within 12 months of the last distributed 404(a)(5) notice, and a quarterly notice that must be distributed to all participating employees. 11. A 404(a)(5) plan related change notice is provided to participants at least 30 days, but no more than 90 days, in advance of a change (e.g., to investment options, plan restrictions or individual fees). Plan sponsors seeking 404(c) protection should ensure that: 12. The investment menu includes a broad, well-diversified investment lineup that covers the risk/return spectrum. Summarizes ERISA guidelines for participant communications and the plans for addressing those guidelines. 13. The intention to be 404(c) compliant is documented, and legally required information has been distributed to participants. Includes signatures from all known plan investment fiduciaries, acknowledging they intend to manage the plan in keeping with applicable laws, trust documents and the Investment Policy Statement. 14. An up-to-date SPD which describes the features of the plan and has been approved by legal counsel is distributed to participants at the frequency required by law. 5. The election regarding compliance with QDIA regulations has been documented. 15. Enrollment programs explain the importance of plan participation, saving for retirement, investment diversification and other investment basics. 6. Investment performance is regularly reviewed and compared to appropriate benchmarks. 16. Required initial and ongoing participant education and communication is planned, delivered and documented. 7. Plan sponsor provides investment education to the participants. This document is designed to provide general information for plan fiduciaries to assist with planning strategies for their retirement plan and is for discussion purposes only. Representatives of Bank of America Merrill Lynch do not provide tax, accounting or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S. federal, state or local tax penalties. Please consult your own independent advisor as to any tax, accounting or legal statements made herein. For plan sponsor use only. Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation ( BAC ). Banking activities may be performed by wholly owned banking affiliates of BAC, including Bank of America, N.A., member FDIC. Brokerage services may be performed by wholly owned brokerage affiliates of BAC, including Merrill Lynch, Pierce, Fenner & Smith Incorporated ( MLPF&S ), a registered broker-dealer and member SIPC. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value 2013 Bank of America Corporation. All rights reserved. ARU946CC NSB 12/2013

13 RETIREMENT & BENEFIT PLAN RVICES Sample investment Policy Statement (ips) Maintenance of an Investment Policy Statement (IPS) is consistent with Employee Retirement Income Security Act of 1974 (ERISA) fiduciary standards and is one of the most important duties of an individual fiduciary or a fiduciary committee. The following sample IPS is intended to provide an overview of a typical investment policy statement for large- and mid-sized participant-directed 401(k) retirement plans. Any IPS created should be reviewed by an attorney knowledgeable in this specific area of the law. i. introduction A. Purpose of Investment Policy Statement. The purpose of this Investment Policy Statement is to document the investment objectives and investment policies for the XYZ, Inc. 401(k) Profit Sharing Plan (Plan). The IPS is intended to assist the XYZ, Inc. 401(k) Profit Sharing Plan Investment Committee (the Committee) in meeting their fiduciary obligations under (ERISA) by: 1) Making a clear distinction between the responsibilities of the Committee, the investment funds, the plan participants and beneficiaries, and other plan service providers; 2) Establishing a framework for the selection, monitoring, and evaluation of the Plan s investment funds; and 3) Affirming the Plan is intended to meet the safe harbor requirements of ERISA Section 404(c). B. Statement of intent. In accordance with their fiduciary responsibility under ERISA, investment decisions of the Committee will be made solely in the interest of the participants and beneficiaries of the Plan and for the exclusive purpose of paying benefits to participants and defraying the reasonable cost of administration. It is the intent of the Committee that its members and any other fiduciary action on behalf of the Plan shall perform their duties with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. This statement is an outline of the Committee s general investment policies and is intended to supersede any earlier statement(s) of investment policies and objectives effective with the date this statement is executed. The Policy will be reviewed at least annually and revised as necessary to reflect changes related to the Plan. C. Plan objective. The Plan was established to provide eligible employees an opportunity to contribute in order to provide a source of retirement income in addition to that received from other savings or benefits they may accumulate over the course of their working careers. The Plan is intended to meet the applicable conditions for qualification under Section 401(a) of the Internal Revenue Code of 1986 as amended and provide for benefits based solely on the amount contributed to each participant s account plus or minus any income, expenses, and gains or losses. The Plan Document and Summary Plan Description for the Plan are the governing plan documents and contain the specific plan provisions and requirements for determining eligibility to make contributions and receive benefit payments under the plan. D. Investment option menu 1) Purpose of investment options (a) Consistent with ERISA Section 404(c), investment options are selected by the Committee to provide participants with an opportunity to diversify their accounts across a reasonable risk and reward spectrum. (b) Participants may select from any combination of investment options provided under the Plan and may change the asset allocation of their investments pursuant to the Plan provisions. (c) The investment options provided under the Plan are intended to accommodate the needs of participants whose investment objectives may range from long-term to short-term nature and may have risk tolerances ranging from high to low.

14 2) Construction of the investment option menu (a) The number and types of investment options and the investment funds (mutual funds, collective trusts of other fund types as approved by the Committee retained to manage the investment options) are subject to change based upon the Committee s on-going review and evaluation of the investment menu offered to participants. (b) The Committee may add, replace, or remove investment options or funds at any time when it concludes such a change is in the best interests of plan participants and beneficiaries. (c) Investment options generally will not be added, if, in the Committee s judgment, they are redundant or duplicative of existing options. (d) When selecting investment options the Committee will bear in mind the wide range of needs of the participants. (e) The investment options that are currently available under the Plan are described in the attached Appendix A. ii. Statement of responsibilities A. Investment Committee. The Board of Directors has authorized the Chief Executive Officer to appoint members to the Committee. It is important to be certain that the fiduciary committee (or individual) is properly named and authorized. Many plan documents name the company as the fiduciary. The Board of Directors subsequently formally delegates the fiduciary role to specific individuals or committees. In fulfilling its duties and obligations hereunder, the Committee shall be responsible for: 1) Selecting the investment design features of the Plan. This includes establishing (a) the investment policy and objectives, (b) the number and types of investment alternatives available to Plan participants, and (c) participant investment procedures. 2) Selecting, monitoring and evaluating all investment funds in accordance with guidelines and benchmarks established within this document and ERISA. 3) Monitoring plan costs which are charged to plan assets and/or paid by plan participants, including but not limited to recordkeeping and administration fees, investment management fees, custodial fees and fees paid to other plan service providers from plan assets. 4) Providing general investment information to plan participants regarding the procedures for making investment choices under the plan and general investment information regarding each of the investment options offered under the plan, including information intended to meet the requirements of ERISA Section 404(c). B. Investment fund menu. At present, the Plan primarily utilizes mutual funds and collective trust funds as plan investment vehicles. The Committee may utilize separately managed accounts, collective trusts, commingled pooled funds, mutual funds and any other funding vehicles as it deems appropriate for use by the Plan. 1) General responsibilities. Plan assets of the Plan shall be maintained in trust in accordance with applicable laws governing the operation of the retirement plans, including ERISA and their fiduciary standards. 2) Information provided to the Committee. The Committee may from time to time request the investment fund manager(s) or others with relevant knowledge and expertise to meet with them to discuss topics, including but not limited to the following: (a) The manager s views concerning the economy and the securities markets, with focus on the likely impact of the fund s strategies on portfolio performance. (b) The effects of any changes to the investment fund s organization, investment philosophy, financial condition, or professional staff.

15 3) Specific duties. The specific duties and responsibilities of each investment fund provider are as follows: (a) Managing the Plan s assets under their supervision in accordance with their mandates or those contained within their published guidelines or prospectus. (b) Exercising full investment discretion in regards to buying, managing and selling assets held in the portfolio. (c) Promptly voting all proxies and related actions in a manner consistent with the long-term interest and objectives of the investors. Each investment fund shall keep detailed records of the voting of proxies and related actions and will comply with all applicable regulatory obligations. C. Plan participants. The Committee recognizes that the Plan is intended to be a significant source of retirement income for plan participants and their beneficiaries. Investment, contribution, and allocation decisions shall be made solely by each plan participant subject to certain procedural and administrative guidelines and default investment procedures for automatically enrolled or other participants that do not make an investment election. The Committee shall make available to participants the investment results of the Plan s options and provide educational information relating to investment concepts and the investment options. The provision of this information does not constitute investment advice. It is solely the responsibility of each plan participant to direct the investments in their account. In the absence of participant direction, however, the Committee retains the responsibility to invest the accounts prudently for retirement (see the Qualified Default Investment language in section IV). Participants are responsible for the following: 1) Determining their contribution deferral rate. 2) Selecting their investment options for both existing balances and new contributions going forward. 3) Monitoring their asset allocation strategy and making adjustments as personal situations change. 4) Electing the timing and form of distributions according to the terms of the plan. D. Plan Administrator. The Committee is also the Plan Administrator under the plan. The Plan Administrator s duties include: 1) Administering and interpreting the provisions of the plan. 2) Providing plan participants with a Summary Plan Description. 3) Providing plan participants with an annual statement of account. 4) Providing all plan participants and eligible employees with plan-related and investment-related disclosure notices pursuant to ERISA 404(a)(5). 5) Compliance with all laws and regulations governing the plan. 6) The Committee may delegate various functions or tasks to individual employees or outside service providers. The role of Plan Administrator is a fiduciary role. The role is sometimes filled by the Investment Committee, a sub-committee or an individual. The individual or groups serving in this role and the scope of their respective duties should be formally designated. E. Investment related services. Bank of America Merrill Lynch makes investments available to the plan, and informs the Committee on various investment-related issues with respect to the oversight and potential enhancements of the Plan. Such services include: 1) Assisting the Committee with determining an appropriate process for constructing the structure of the investment menu. 2) Providing timely and accurate quarterly reports evaluating return, risk and characteristics (where available) of each of the funds compared to appropriate indexes and/or peer group universes. 3) Apprising the Committee of changes with regard to their funds in an appropriate time frame given the significance of the information. 4) Conducting a fund review at the request of the Committee when, for example, noteworthy changes or significant underperformance occurs. 5) Assisting the Committee in the search and replacement of existing funds when a review so merits this change.

16 Bank of America Merrill Lynch s role is to provide information to the Committee. Bank of America Merrill Lynch does not provide advice on the roles and responsibilities of fiduciaries. The selection and monitoring of investments in the plan in question remains the responsibility of the plan fiduciary, which shall in no instance be Bank of America Merrill Lynch, any of its affiliates, or any employees of Bank of America Merrill Lynch or its affiliates, unless the plan sponsor has a service agreement with Bank of America Merrill Lynch for Defined Contribution Investment Consulting Services. F. Plan Record Keeper. The Plan Record Keeper has no discretionary authority over the plan and its assets and is not a fiduciary with respect to the plan or its assets. The Record Keeper is responsible for: 1) Maintaining the plan s participant account balances in an accurate and confidential manner. 2) Preparation of quarterly participant statements. 3) Completion of the annual compliance tests as included in their service agreement. 4) Accurate and timely plan data and reports to the Committee as included in their service agreement. 5) Providing participants with electronic access to account information and transactions. 6) Coordination of the provision of fund prospectuses to participants as requested. 7) Provision of various participant communication materials as described in the service agreement and/or requested by Committee. 8) Providing the plan sponsor with disclosure notices pursuant to ERISA 408(b)(2). G. Trustee. The trustee is a non-discretionary trustee that takes direction from the Committee. The trustee is charged with the following responsibilities: 1) Safekeeping all securities, 2) Settling transactions, 3) Receiving contributions, 4) Allocating contributions among investment accounts as instructed, 5) Making participant distributions as instructed, 6) Providing periodic account statements to the Committee and other service providers as requested by the Committee, and 7) Promptly voting all proxies and related actions in a manner consistent with the long-term interest and objectives of the investors. Keeping detailed records of the voting of proxies and related actions and will comply with all applicable regulatory obligations. iii. committee process A. Meeting frequency. The Committee shall meet quarterly. These meetings will be held to review the performance of the investment funds. In the event that a meeting can not be scheduled, individual Committee members will review performance information and initiate Committee actions as necessary. The Committee will also review the investment policy and investment options offered in the plan on an annual basis. It is a best practice for large- and mid-sized retirement plans to conduct quarterly fiduciary investment reviews. It is important that the IPS not set unreasonable expectations for meeting frequency and most policies will allow for some flexibility. B. Investment fund selection. Searches for investment funds should include candidates that have demonstrated successful investment history. In selecting an investment fund, a due-diligence process is followed, which analyzes the investment fund in terms of: 1) Investment performance track record and consistency of returns given the risks taken. 2) Alignment of fund investment philosophy and style with plan option objectives. 3) Size and experience of professional staff.

17 4) Tenure of investment management team. 5) Competitiveness of investment management fees. 6) Compatibility with plan trading requirements. 7) An assessment of the likelihood of future investment success relative to other opportunities. C. Investment fund performance evaluation. The Committee will review the performance of investment funds quarterly to determine if they are achieving the established objectives. Investment performance reports will be sent to the Committee members semiannually coincident with scheduled Committee meetings. In the event that a meeting cannot be scheduled, individual Committee members will review performance information and initiate Committee actions as necessary. Interim meetings may be called on an ad-hoc basis at the discretion of the Committee Chairman. Performance objectives will be established for each fund and/or asset class at the time the class is included. The performance review will include measuring the funds investment performance to stated benchmarks and peer groups, as well as monitoring risk measures. The following general criteria will be evaluated: 1) Quantitative measures. This section of the policy includes the quantitative performance expectation for funds in the menu. Individual committees develop their own measures of expected fund performance. (a) Active investment strategies. Funds employing active management are compared across various metrics to the appropriate peer group for rolling three-year and five-year periods. It is also expected that the risk of each fund, as defined by standard deviation of returns, be commensurate with the appropriate market index and/or peer group. The benchmarks, peer groups and risk measures are outlined in Appendix A. (b) Passive investment strategies. Passive Funds are expected to track the performance of the index that the option is designed to replicate (less management fees), within a specified margin of error. Typically, rolling three- and five-year periods will be evaluated. It is also expected that the risk of each fund, as defined by standard deviation of returns, be commensurate with the risk of the appropriate market index. The benchmarks and risk measures are outlined in Appendix A. 2) Qualitative measures. The funds will also be monitored on an ongoing basis for other material changes that the Committee may determine are important in the decision to retain an investment fund. Such changes may include personnel departures, organizational changes, or alterations in investment style, philosophy, or strategy, and failure to adhere to stated guidelines. 3) Time periods. The Committee acknowledges that fluctuating rates of return characterize securities markets, particularly during short-term time periods. Recognizing that short-term fluctuations may cause variations in a fund s performance, the Committee intends to employ investment funds with long-term investment strategies and will evaluate fund performance from a long-term perspective. Performance over market cycles of three to five years will be weighted more heavily than performance over shorter time periods, such as one year or less. D. Investment fund termination. All investment funds are expected to perform according to their prescribed objectives. The Committee recognizes the long-term nature of retirement plan investing and the variability of market returns. Periodic underperformance in any of the criteria outlined in this policy will not necessarily lead to the termination of a fund. Underperformance will provoke thoughtful consideration by the Committee of the factors causing underperformance and possible courses of action that the Committee may take. The Committee may place a fund on probation or a watch list that calls for a greater level of review and analysis of the fund s performance. The Committee may decide to take action, including but not limited to the following: 1) Remove the fund from probation, 2) Extend the probation period, 3) Cease new contributions to the fund, 4) Terminate the fund and reallocate fund assets to an alternate fund or replacement fund either by Committee direction or employee direction as deemed appropriate by the Committee.

18 Factors contributing to placing a fund on probation are: 1) Performance below the performance objectives relative to the peer group over three- and/or five-year rolling periods, 2) Significant change in the risk profile of the portfolio as measured by the standard deviation of returns, 3) Significant increase in management fees or expense ratios, 4) Turnover in the management team of the portfolio, 5) Significant decrease of assets under management due to withdrawals or declining market values, 6) Deviation from the investment style on which selection of the fund was based, 7) Significant organizational change, changes in ownership, mergers, etc., 8) Or other factors which the Committee may determine are important for consideration. The Committee will endeavor to use its best judgment and information available to act in a prudent manner on behalf of the plan and its participants. The Committee reserves the right to terminate any investment fund at any time for any reason when it determines such termination is in the best interests of the plan and its participants and beneficiaries. E. Quorum and manner of acting. A quorum will be a simple majority of the members of the total Committee. A quorum must be present (in person, by telephone, by video, or other electronic access) for the Committee to take action. Decisions for any action taken by the Committee will be by majority vote of the full Committee. F. Action without a meeting. Any action that may be taken at any meeting of the Committee may be taken without a meeting if the written consent to such action by a majority of the Committee is provided. Such written consent may be executed jointly or severally. iv. asset classes The Committee will consider the following asset classes for possible inclusion in the plan s investment menu: A. Domestic Equity Funds. 1) Capitalization Large Cap, Mid Cap, Small Cap 2) Style Growth, Value, or Blended styles B. International Equity Funds. 1) Capitalization Large Cap, Mid Cap, or Small Cap 2) Style Growth, Value, or Blended styles C. Bond Funds. 1) Investment Grade (Portfolio Weighted Average of A) 2) Portfolio Duration (Long-Term, Intermediate, or Short-Term) 3) Government, Corporate, or Blended 4) Domestic and/or International D. Cash & Equivalents Funds. 1) Money Funds 2) Stable Value Funds (GIC/BIC/Synthetics) E. Pre-Set Asset Allocation Funds. The Committee may decide to offer pre-set asset allocation funds and/or balanced funds which are intended to provide an investor with an asset allocation option that they may determine is aligned with their own risk and return preferences. These asset allocation type funds are broadly diversified by asset class, issuer, issue type, and economic sector. These preset asset allocation funds will be made up of funds currently offered individually as fund choices to the participants (see Appendix A). The Committee will be responsible for the asset allocations of each of the pre-set alternatives provided. The Committee may utilize outside research in making determination of the asset allocations of the pre-set mix asset allocation funds.

19 F. Advice. Investment Choices will also include access to individualized investment advice provided by a third party chosen after due diligence by the Committee. The contract with the Advice Access service dated [MM DD, YYYY] is incorporated in this Investment Policy by reference. This investment alternative will be the default investment used in instances where a participant does not make an investment election for contributions to the Plan. Combined with the required notices, this option is intended to satisfy the requirements of the Department of Labor s Qualified Default Investment Alternative regulations. The choice of a Qualified Default Investment Alternative (QDIA) is an important fiduciary function. This choice should be documented in the IPS. G. Other asset classes. The Committee may also consider other asset classes or strategies as it deems appropriate. v. erisa 404(c) statement A. ERISA 404(c) Safe Harbor Compliance. It is the Committee s intent that the Plan comply with ERISA 404(c) guidelines. The Committee has structured the program (investments and participant services) to meet the criteria outlined within Section 404(c). While the notation of 404(c) status in an IPS does not contribute to the satisfaction of the 404(c) requirements, the IPS is a good place for the fiduciaries to remind themselves of their intention to utilize this safe harbor. 1) The Committee believes it complies with the requirements of ERISA 404(c) and has provided notice of its statement of compliance to plan participants. 2) The plan participants will be responsible for the investment decisions and investment transactions that they make under this plan. vi. adoption and signatures This Investment Policy Statement is adopted by the Committee and effective on this day of,. For plan sponsor use only. Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation ( BAC ). Banking activities may be performed by wholly owned banking affiliates of BAC, including Bank of America, N.A., member FDIC. Brokerage services may be performed by wholly owned brokerage affiliates of BAC, including Merrill Lynch, Pierce, Fenner & Smith Incorporated ( MLPF&S ), a registered broker-dealer and member SIPC. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value 2013 Bank of America Corporation. All rights reserved. AREUJCJ B 12/2013

20 RETIREMENT & BENEFIT PLAN RVICES menu construction & fund Selection Due Diligence Creating an investment menu and selecting and monitoring the investments that comprise the menu are among the most challenging responsibilities plan fiduciaries face. These complex activities must be carried out in compliance with the Employee Retirement Income Security Act of 1974 (ERISA), which sets standards of fiduciary conduct in relation to retirement plans. Fiduciaries who fail to follow ERISA s principles may be held personally liable for their conduct. That s why it s important to have a good understanding of your fiduciary investment responsibilities. This guide was designed to provide information you may find helpful in fulfilling your fiduciary role. Your Bank of America Merrill Lynch representative is also ready to assist you. menu construction It is important to note that the goal of menu construction for participant-directed qualified retirement plans is not to attempt to create a single portfolio that can serve the interests of all participants. Instead, fiduciaries should seek to select a mix of investment options sufficient to allow participants to build their own portfolios appropriate to their individual needs and risk tolerances. In order to give plan participants the opportunity to reduce risk in their portfolios, we believe fiduciaries should make investments available in at least three major asset classes. The most basic menu will include cash equivalent, fixed income and equity mutual funds. To meet the unique needs of its participants, a plan may offer more expanded menus that provide equity funds that follow various investment styles and objectives, such as those that specialize in large or small companies. Equity funds can be further subdivided into those offering growth and value styles of investing. Including international equities in the menu may allow for even more diversification opportunities. Additionally, passively managed funds that track a specific index may provide a low cost menu option. An advanced fund menu can be created by including various fixed income options and non-traditional asset classes as well, such as real estate investment trusts. Some fiduciaries may also choose to make available self-directed brokerage options through mutual fund windows to create additional opportunities for diversification. Sample plan investment menus Basic Menu Expanded Menu Advanced Menu Money Market/Stable Value Money Market/Stable Value Money Market/Stable Value Intermediate-Term Bond Intermediate-Term Bond Inflation-Protected Securities Intermediate-Term Bond High Yield Global Bond Inflation-Protected Securities Large Cap Value & Growth or Large Cap Blend Small Cap Value & Growth or Small Cap Blend Foreign Large Value & Growth or Foreign Large Blend Large Cap Value & Growth or Large Cap Blend Mid Cap Value & Growth or Mid Cap Blend Small Cap Value & Growth or Small Cap Blend Foreign Large Value & Growth or Foreign Large Blend Large Cap Value & Growth or Large Cap Blend Mid Cap Value & Growth or Mid Cap Blend Small Cap Value & Growth or Small Cap Blend Commodity Funds Real Estate Investment Trusts We offer a breadth and depth of solutions to serve virtually all plan types, from basic to complex. Foreign Large Value & Growth or Foreign Large Blend Emerging Markets