Managing Your Fiduciary Responsibilities

Kevin Handford, CFP®, ChFC®, CFS®, AIF®

7 Hotel Street, Warrenton, VA 20186

540-349-0700

Securities and Advisory Services offered through Commonwealth Financial Network®,Member FINRA/SIPC, a Registered Investment Adviser.

Rev. 04/10

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The Current Environment for Plan Sponsors

Arbitration and litigation for breach of fiduciary responsibility are running at an all-time highMore than 1,300 cases at circuit court level; 13 at the U.S. Supreme Court levelFiduciaries are now being measured on the results of the

participant experienceThe Employee Benefits Security Administration has hired

1,000 new enforcers37% of employers don’t consider themselves to be plan fiduciaries*

*Source: AllianceBernstein, Inside the Minds of Plan Sponsors

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Recent Litigation

Braden v. Wal-Mart Stores, Inc.• A plan fiduciary has a duty to disclose material information, including revenue sharing, when such information is

material to a participantJones v. Harris Associates L.P.

• Individual mutual fund investors allege that a mutual fund advisor violated the Investment Company Act of 1940 by charging excessive fees compared to institutional investors

Martin v. Caterpillar, Inc.• Caterpillar agreed to pay $16.5 million to settle a lawsuit that alleged its 401(k) plans charged its employees

unreasonable and excessive fees

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Participant Concerns

Individuals bear more responsibility for funding their own retirement

• Less reliability on social security • Discontinuation of company pensions

53% of retirement plan participants have not done a retirement needs analysis77% claim to have little, basic, or no investment understanding33% over age 55 have less than $25,000 set aside

for retirement

Source: Employee Benefit Research Institute, 2008

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Managing Your Fiduciary Responsibilities: Who Is a Fiduciary?Anyone who:

• Exercises discretion, authority, or control over the management or disposition of plan assets• Provides investment advice for a fee or other compensation• Has discretion or responsibility for plan administration

Examples include:• Plan trustee(s)• Employees of the company • Investment committee members (as well those who select

committee members)• Investment advisers

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Primary Fiduciary Responsibilities Under ERISA

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Prohibited Transactions

Fiduciaries cannot:• Act in a capacity other than on behalf of the plan and its participants• Invest plan assets for their own account• Deal with plan assets in the fiduciary’s own interest• Engage in transactions with a party whose interests are adverse to the interests of the plan• Fully delegate away their fiduciary responsibility

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Breach of Fiduciary Responsibilities

Fiduciaries who do not follow these standards of conduct can be:• Personally liable for restoring any losses to the plan from their own assets, including:

Homes Bank accounts Investments Stock options

• Required to reimburse any profits as a result of their actions• Subject to financial or civil penalties equal to 20% of the amount recovered from the fiduciary

WAYS TO MITIGATE RISK ASSOCIATED WITH YOUR FIDUCIARY RESPONSIBILITIES

Fiduciary responsibilities can be shared but cannot be delegated

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Establish an Investment Committee

Identify the right people• Members should have relevant experience • Led by CEO or CFO• Senior members of HR, Finance, and Operations

Appoint between 3–7 individualsInclude both permanent and temporary membersMeet on a regular basis (e.g., annually or quarterly)Document the criteria and process used to select and monitor committee members

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Duties of an Investment Committee

Responsible for the selection and ongoing monitoring of investment options

Develop an investment policy statementEstablish procedures for selecting and monitoring

investment optionsEvaluate investment manager’s performance and take

appropriate actionSelect and remove investment managersEvaluate investment-related fees paid by the plan and

participants annuallyBenchmark the plan every 2–3 years

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Develop a Written Investment Policy Statement (IPS)

Defines the purpose and process for selecting investment optionsDescribes:

• The roles and responsibilities of the individuals or committee responsible for selecting investments• Criteria for selecting investment options• Asset classes permitted and/or restricted in the plan• Standards and benchmarks of the plan’s investment performance• Policies and procedures associated with hiring, monitoring, and/or replacing investment managers• Policies and procedures for monitoring and controlling

investment expensesReview for changes at least annually

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Qualified Default Investment Alternative (QDIA)

Appropriate for any plan3 standard categories

• Age-based or target-retirement• Balanced• Managed

Assets must be invested in a QDIAParticipants must be given an opportunity to provide investment direction but fail to follow throughQDIA notice must be furnished to participants at least 30 days

prior to the first investmentAuto-enroll

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Implement a Fiduciary Process

Establish written proceduresDocument all plan-related decisions, including all investment committee meeting minutesCreate a Fiduciary Audit File

• Plan documents• Form 5500 and other associated financial statements• IPS• Committee meeting minutes• ERISA Fidelity Bond• Participant communications• Third-party services• Plan procedures

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ERISA 404(c)

• Offers protections to plan fiduciaries for the results of investment choices made by participants• 404(c) requirements:

– Permit participants to exercise control over the investments in their accounts

– Offer a broad range of investment options—at least three of which have different risk and return characteristics

– Allow participants to reallocate funds at least quarterly (daily exchanges are now more typical)

– Provide employees with adequate information about the investment options

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Steps You Can Take to Help Comply with ERISA 404(c)

Notify participants that the plan intends to comply with 404(c) and that they will be allowed to direct their investmentsGive participants access to and control over their accountsOffer at least three core investmentsProvide sufficient education to help participants be prudent investorsDesignate a default fund that meets the requirements of a QDIA

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Fiduciary Bonding and Insurance

ERISA Fidelity Bond• Provides protection to a plan against loss by reason of acts of fraud or dishonesty on the part of a fiduciary• Every fiduciary and person who handles funds is required to be bonded• The amount of the bond is 10% of the amount of the plan’s assets as of the beginning of the fiscal year• Maximum amount is $500,000 ($1 million for plans with company stock)

Fiduciary Liability Insurance• Not required by ERISA• Every fiduciary of an ERISA plan should consider obtaining fiduciary liability insurance, as fiduciaries can be

personally liable for losses incurred by a plan due to their breach

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Next Steps

Identify and/or evaluate plan fiduciariesEstablish an investment committeeDevelop an IPSEstablish a fiduciary documentation processReview and evaluate plan fees and expensesAssess plan services (administration, recordkeeping, investment management, employee communications)Create a location or file to store all plan-related documents

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The Handford Financial Strategies Consulting Difference

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Let us help you manage a better retirement plan.

Handford Financial StrategiesKevin Handford, CFP®, ChFC®, CFS®, AIF®

7 Hotel Street, Warrenton, VA 20186

540-349-0700

Handfordfinancial.com

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Handford Financial Strategies Retirement Plan Consulting Services

Helping Keep Your Firm’s Plan on Course

7 Hotel StreetWarrenton, VA 20186

Advisor Disclosure Securities and Advisory Services offered by Commonwealth Financial Network®,

Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered by Handford Financial Strategies are separate and unrelated to Commonwealth.

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How We Work with YouHow We’re DifferentThe Handford Financial Strategies Advantage

Helping Maximize Your Fiduciary ProtectionPutting Our Investment Expertise to Work for YouDesigning a Plan to Help Maximize SatisfactionHelping Your Employees Make Better Decisions

Our FirmA Team Dedicated to YouSome of Our ClientsClient Experiences with Our Company

Our Broker/Dealer

Table of Contents

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How We Work with You

RegulatoryCompliance

Fiduciary Oversight

Participant Services

Plan Design

ADVISOR Investment Expertise

Seamless IntegrationWe are dedicated to:

Creating a reliable, seamless experience and improved outcomes for retirement plan sponsors and employees

Implementing process-driven strategies to help you limit your fiduciary liability

Acting as your guide to help you manage changes in the regulatory environment

Offering advice and education to improve the retirement readiness of your employees

Helping you manage your relationships with third parties

Vendor Management

EMPLOYER

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Independence: What Ours Means for YouOur objectives are aligned with your best interests and those of your employees.

• An objective viewpoint• Investment advice and selection free from proprietary conflicts• A fully transparent fee structure• Unbiased vendor and investment recommendations

Expertise: Specialized Designations That Benefit YouWe’re committed to standards of investment fiduciary excellence.

• Accredited Investment Fiduciary® (AIF®) The leading designation for investment fiduciaries for both individuals and retirement plans• Chartered Retirement Plans SpecialistSM (CRPS®)

Signifies a thorough understanding of the administration of retirement plans for businesses and their employees

How We’re Different

The Handford Financial Strategies Advantage

Maximize Your Fiduciary ProtectionWe acknowledge a written fiduciary status. Enhance Investment OpportunitiesWe recommend an investment lineup that aligns with plan objectives.

Manage Plan CostsWe evaluate and monitor provider fees and services for reasonableness.

Optimize Plan Efficiency and Ensure ComplianceWe focus on operational aspects, including plan eligibility,

contribution modeling, and compliance.

Our primary goal is to help you manage risks, ensure that your plan delivers optimum investment options and services, and improve employee retirement readiness.

Improved Retirement ReadinessWe create a customized employee education program and offer individualized investment advice.

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Helping Maximize Your Fiduciary Protection

• Serve as a named co-fiduciary to the plan • Formalize investment committee protocols• Conduct ongoing fiduciary reviews• Manage a fiduciary audit file• Provide guidance on regulatory changes

As risk management specialists, we share your fiduciary responsibilities. We stand by you to help mitigate the potential risks and liabilities of a changing retirement plan landscape.

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We follow a proven, documented process to review investment offerings aimed at enhancing investment outcomes.

Putting Our Investment Expertise to Work for You

BenchmarkInvestment Policy

Statement

Investment Analysis

and Selection

Ongoing Assessment and

Review

Establish guidelines for making investment decisions.

Evaluate the investment portfolio and recommend a balanced lineup that offers broad diversification across asset classes.

Compare the plan to industry averages to identify areas for enhancement.

Conduct periodic investment reviews to ensure that performance and expenses remain consistent with plan objectives and in accordance with the IPS; deliver written report.

Diversification does not assure against market loss, and there is no guarantee that a diversified portfolio will outperform a nondiversified portfolio.

Designing a Plan to Help Maximize Satisfaction

Plan Design

Employer contribution modeling and analysis

Review of plan eligibility and distribution provisions

Optimal use of “safe harbors,” such as 404(c) and default alternatives

Compliance with legislative and regulatory changes

Vendor Management and Due Diligence

Ongoing fee benchmarking and analysis against other vendors and plans

Vendor search services, including:• Gathering responses, data, and pricing from several plan providers• Analyzing costs, services, and investment choices• Facilitating finalist meetings

We focus on designing a plan that can streamline your administrative responsibilities, maximize plan provisions, and promote employee satisfaction.

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Helping Your Employees Make Better Decisions

• Employee education program tailored to your specific needs• Annual written communication plan • Annual employee education calendar, including enrollment

meetings and broad financial planning education• Individualized investment advice• Effective utilization of online tools and resources• Ongoing assessment to track progress and measure results

Retirement Readiness at a 20-Year Low

•50% of workers are “not at all” or “not too” confident about having enough money for a comfortable retirement.•56% of workers report total savings and investments of less than $25,000.

Source: Employee Benefit Research Institute 2011 Retirement Confidence Survey, March 2011, ebri.org.

We provide advice and education to help your employees understand plan options, encourage participation, promote satisfaction, and feel confident about the decisions they are making toward their retirement readiness.

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Handford Financial Strategies was founded in 2002 by Kevin and Jennifer Handford. After working with a nation-wide investment and insurance firm for the twelve years prior, Kevin and Jennifer felt the need to branch out on their own so that they could advise clients in a truly non-proprietary, objective, and independent manner. We focus on two main areas.

1. Comprehensive Financial Planning for individuals and business owners with a total net-worth of 1 million or more.

2. Helping to design and monitor corporate retirement plans on a fiduciary level.

Our Firm

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Kevin Handford, CFP®, ChFC®, CFS®, AIF® Kevin earned his Economics degree from Virginia Military Institute in 1990 and has 21 years of financial industry experience. He holds the CERTIFIED FINANCIAL PLANNER TM, Chartered Financial Consultant (ChFC®), Certified Fund Specialist (CFS®), and the Accredited Investment Fiduciary ® (AIF®) registrations.

Jennifer HandfordJennifer earned her B.S. and M.S. from Portland State University in 1993 and 1995. She has over 15 years of experience in the financial services industry .

Lucy Zimmerman Lucy began working with Handford Financial Strategies in March 2011 as a Client Service Assistant. Lucy graduated from Hollins University in 2008 and received her B.A. in English and Sociology. Lucy has her Registered Paraplanner's™ certification through the College for Financial Planning.

A Team Dedicated to You

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We partner with Commonwealth Financial Network®, established in 1979

The nation’s largest, privately held independent broker/dealer• Freedom to allocate resources where they’re needed and to act in the best interests of advisors

and their clients—not shareholders.

More than $5B in assets in qualified retirement plans as of December 31, 2010

Infrastructure designed to work the way we do• Investment choice, service, technology, and security

Ranked “Highest in Independent Advisor Satisfaction among Financial Investment Firms” in the J.D. Power and Associates 2010 Financial Advisor Satisfaction StudySM.*

*Commonwealth Financial Network received the highest numerical score in the independent advisor segment in the proprietary J.D. Power and Associates 2010 Financial Advisor Satisfaction StudySM. Study based on 2,863 total responses and measures overall financial advisor satisfaction among advisors registered with the Financial Regulatory Authority (FINRA) investment firms. Proprietary study results are based on experiences and perceptions of financial advisors surveyed in February–June and July–August, 2010. Your experiences may vary. Visit jdpower.com.

Our Broker/Dealer