In her presentation at the 2015 Savannah Fiduciary Seminar, Julia Butler of the Fiduciary Group describes how plan sponsors, trustees, and investment committees can best meet their fiduciary duties to manage the plan’s investments. She outlines what should be in an effective Investment Policy Statement, and lays out the fiduciary processes to select, monitor, and replace the plan’s investment options. She also explains how a Section 3(38) fiduciary investment advisor can significantly reduce or eliminate a plan sponsor’s fiduciary liability for plan investments.

1. Best Practices for Meeting Fiduciary
Duties for Plan Investments
Julia Butler, JD, MBA
Chief Operating & Compliance Officer
and Director of 401(k) Advisory Services
The Fiduciary Group
April 30, 2015

2. Overview of Fiduciary Duties for Plan Investments
 Those who exercise discretionary authority over plan investments—including sponsors,
trustees, and investment committee members—have a fiduciary duty to select, monitor,
and replace investment options in a prudent manner and in best interest of participants.
 Duty to act prudently includes diversifying plan investments and keeping plan expenses
reasonable.
 Prudence focuses on the process for making fiduciary decisions. It is important to
document the process, the decisions made, and the underlying support for the decisions.
 A participant-directed plan gives participants control over their investment decisions and
reduces a fiduciary’s liability (ERISA 404(c)), but participants must be given the opportunity
to choose from a broad range of prudently-selected investment alternatives and must be
given sufficient information to make informed decisions.
 A fiduciary may hire an investment advisor to assist. But only if the advisor is a Section
3(38) fiduciary advisor who assumes ERISA-defined “discretion,” will the plan fiduciary be
relieved of liability for the investment decisions. Otherwise the sponsor still maintains
“discretion” for decisions and is potentially liable.

3. Three Keys to Effective Participant Outcomes
Though the starting point is to meet fiduciary duties, most 401(k) sponsors want to
offer an investment platform that delivers effective participant outcomes. There are
3 keys of excellence:
 Excellent Fund Managers: A line-up of highly rated, competitively priced mutual
funds across all major asset categories from which participants may choose;
 Excellent Balanced Portfolios: Actively managed, globally diversified asset
allocation portfolios to make it easy for participants to have a properly allocated,
balanced portfolio; and
 Excellent Education: Effective participant education and guidance to empower
participants to make good choices.

4. Four Keys to Managing Fiduciary Duties
 Adopt and follow a prudent Investment Policy Statement (IPS)
 Implement an effective process to select, monitor, and replace investment
options
 Provide effective ongoing education and guidance to participants
 Hire a Section 3(38) fiduciary investment manager to implement the foregoing

5. Elements of an Effective Investment Policy
An Investment Policy Statement (IPS) is a written set of guidelines and procedures
that direct the management of plan assets.
An effective IPS will set forth a process for:
 Selecting a diversified range of asset categories;
 Identifying the criteria for selecting, monitoring, and replacing investment
options;
 Creating and maintaining diversified, asset-allocation portfolios; and
 Providing ongoing investment education and guidance to participants
(See the sample IPS in the program booklet.)

6. Fiduciary Duty No. 1: Asset Category Selection
 ERISA 404(c) requires that investment options give participants reasonable
opportunity to materially affect both the potential return and degree of risk in
his/her account as well as to diversify investments to minimize risk of large losses.
 Goal is to offer a broad range of asset categories so that participants are able to
select from a number of different asset types, each of which is characterized by
different risk and return factors
 Asset categories should have a definable market segment that is well-recognized
and for which there exists a widely-recognized benchmark and peer group.
 Want to provide broad diversification across asset classes (stocks, bonds,
alternatives, money market), market capitalization (large-, mid-, small-cap),
geography (domestic, international, emerging), and style (growth, value, blend,
index).

7. Recommended Asset Allocation Grid

8. Fiduciary Duty No. 2: Fund Selection and Balanced Portfolios
 Select only exchange-traded, daily valued mutual funds
 Provides participants transparency and liquidity
 Annuity-wrapped share classes are opaque and don’t offer public accessibility to complete
information; some “guaranteed return” products lock up assets for minimum periods and restrict
other holdings in portfolio
 Use an open architecture platform that provides access to complete universe of mutual
funds
 Charles SchwabTrustCompany –our preferred custodial platform—offers access to over 10,000
mutual funds
 Some proprietary platforms offer only certain fund families and/or a limited/reduced range of
investment options
 Select both actively managed and passively managed (low-cost index) funds for each asset
category
 Offer actively managed asset allocation portfolios as well as low-cost passively managed
target date funds to make it easy for participants to have a properly allocated, well
diversified investment portfolio.

9. Example of Prudent Investment Process

10. Example of Documenting Fund Evaluation
Created with Zephyr StyleADVISOR. Manager returns supplied by: Morningstar, Inc.
OAKIX
Oakmark International I
April, 2005 - March, 2015
Universe Ranking
ReturnRank
100%
75%
Median
25%
0%
Mar 2008 Dec 2009 Dec 2011 Dec 2013 Mar 2015
Risk / Return
Return
0%
2%
4%
6%
8%
10%
Standard Deviation
0% 5% 10% 15% 20% 25% 30%
Calendar Year Return
-40%
-20%
0%
20%
40%
60%
YTD 2014 2013 2012 2011 2010 2009 2008 2007 2006
Oakmark International I iShares MSCI EAFE (NAV)
Overview
Category Foreign Large Blend
Benchmark MSCI EAFE Index
Morningstar Rating 5
Expense Ratio 0.95%
Turnover 39%
Net Assets ($mil) $29,640.87
Manager David Herro
Manager Inception 1992-09-30
Fund Inception Date 1992-09-30
Asset Allocation
U.S. Stock 5%
International Developed 91%
Emerging Markets 1%
Fixed Income 1%
Cash 2%
Other 0%
Market Capitalization
Large Cap 88%
Mid Cap 12%
Small Cap 0%
Weighted Avg Market Cap ($mil) 32,316
Top 10 Holdings
Credit Suisse Group 5.2%
BNP Paribas 3.8%
CIE FINANCIERE RICHEMONT SA 3.3%
Allianz SE 3.3%
Daimler AG 3.3%
Honda Motor Co Ltd 3.3%
Intesa Sanpaolo 3.2%
Bayerische Motoren Werke AG 3.1%
Experian PLC 2.9%
Toyota Motor Corp 2.8%
Combined Top 10 Holdings Weight 34.1%
# of Holdings 58
Key Analytics
Oakmark
International
MSCI
EAFE
Past 3 Year Earnings 6.7% 6.5%
Price/Earnings Ratio 17.4 17.9
Price/Book Ratio 1.7 1.7
Price/Sales Ratio 1.0 1.1
Price/Cash Flow Ratio 10.5 9.4
FWD Price/Earnings 13.8 16.5
FWD Price/Cash Flow 6.9 4.9
Prospective Dividend 2.3% 3.1%
Forecasted Earnings 7.8% 0.5%
Oakmark International I
iShares MSCI EAFE (NAV)
Return
Standard
Deviation
Sharpe
Ratio
Pain
Ratio
Tracking
Error
Info
Ratio
Up
Capture
Down
Capture
Alpha Beta R2 Corr.
8.44% 19.05% 0.37 0.67 6.46% 0.47 102.52% 91.50% 3.10% 0.99 88.52% 0.94
4.84% 18.09% 0.19 0.20 0.21% -2.88 98.09% 100.58% -0.55% 1.00 99.99% 1.00

11. Example of Fund Evaluation continued
Created with Zephyr StyleADVISOR. Manager returns supplied by: Morningstar, Inc.
Manager: Oakmark International I
Benchmark:MSCI EAFE Index
Universe:TFG Foreign Large Cap Total
Analysis Period: April, 2005 to March, 2015
Annualized Returns Calendar Year Returns
Return
-2
0
2
4
6
8
10
12
14
1 quarter YTD 1 year 3 years 5 years 10 years
-40%
-20%
0%
20%
40%
60%
YTD 2014 2013 2012 2011 2010 2009 2008 2007 2006
The above charts display the annualized returns of Oakmark International I against its benchmark, MSCI EAFE Index. To the left
are the trailing, annualized returns; to the right the returns are displayed on a year-by-year basis. Through the quarter ending
March 31, 2015, Oakmark International I had a return of 6.51%, exceeding the MSCI EAFE Index return of 5.00%. Over the last
one year, the returns for Oakmark International I and its benchmark were -0.05% and -0.48%, respectively.
Over the last five years the manager had an average annualized returns of 9.73%. Over the same time period the benchmark
return was 6.64%, a performance differential of 3.09%, averaged annually.
Over the long-term, ten-year average annualized returns were 8.44%. In contrast, the benchmark had a ten-year return of 5.43%.
This represents an annualized margin of 3.01%.
Growth of $100 Rolling Excess Returns
60
80
100
120
140
160
180
200
220
240
Mar 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Mar 2015
ExcessReturnvs.MSCIEAFEIndex
-10%
-5%
0%
5%
10%
15%
Time
Mar 2008 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Mar 2015
Over the last 10 years Oakmark International I has performed better the MSCI EAFE Index benchmark. A $100 investment in
Oakmark International I 10 years ago would be worth $224.93 as of March 31, 2015, whereas the same $100 invested in the
MSCI EAFE Index would be worth $169.73.
The graph to the right displays the trend in over- or under-performance versus the benchmark. The line displays a rolling 36
month average annualized excess return versus the MSCI EAFE Index. When the line is above the axis Oakmark International I
is outperforming the MSCI EAFE Index; when the line is below it is underperforming.
Oakmark International I iShares MSCI EAFE (NAV)
1 Qtr YTD 1 Year 3 Years 5 Years 10 Years 2014 2013 2012 2011 2010
Oakmark International I 6.51% 6.51% -0.05% 12.97% 9.73% 8.44% -5.41% 29.34% 29.22% -14.07% 16.22%
MSCI EAFE Index 5.00% 5.00% -0.48% 9.52% 6.64% 5.43% -4.48% 23.29% 17.90% -11.73% 8.21%
Created with Zephyr StyleADVISOR. Manager returns supplied by: Morningstar, Inc.
Oakmark International I vs. MSCI EAFE Index
Analysis Period: April, 2005 to March, 2015
Return vs. Risk Manager Rankings (TFG Foreign Large Cap Total)
Return
0%
2%
4%
6%
8%
10%
Standard Deviation
0% 5% 10% 15% 20% 25% 30% 35%
ReturnRank
00%
75%
edian
25%
0%
10 years 8 years 6 years 4 years 2 years
Ideally an active manager would have more return and less risk than its
benchmark index. In the case of Oakmark International I its return over 10 years
has been better than the MSCI EAFE Index, while its risk of 19.05% has been
higher than the index risk of 18.18%. In graphical terms this puts Oakmark
International I in the northeast quadrant, the aggressive area on the chart.
Risk and return are combined in to a single metric, the Sharpe ratio. The
Sharpe ratio measures the trade-off of return vs. risk, and the higher the number
the better. Oakmark International I's Sharpe ratio of 0.37 is superior to the MSCI
EAFE Index's Sharpe ratio of 0.22.
The above graph and table shows where Oakmark International I ranks relative
to its peer group, the TFG Foreign Large Cap Total universe. The one-quarter
ranking of 10 places Oakmark International I in the top quartile of its peer group.
The one-year rank was in the middle of the peer group with a second quartile
rank of 38.
Five year performance was in the top quartile with a rank of 3.64
Finally, over the long-term the performance ranking was impressive and in the
top quartile. The 10 year rank was 1.44
Up Markets vs. Down Markets Drawdowns
Upside%
90
95
100
105
110
Downside%
90 95 100 105 110 -60%
-50%
-40%
-30%
-20%
-10%
0%
Mar 2005 Dec 2007 Dec 2009 Dec 2011 Mar 2015
Beta measures Oakmark International I's sensitivity to movements in the market
index; the MSCI EAFE Index. The beta of 0.99 indicates Oakmark International
I moves less than the market when the market moves.
Markets can be separated in to up and down periods. Ideally Oakmark
International I would capture more of the up markets and have less exposure to
down markets. The up capture of 102.52% and down capture of 91.50%
suggests the manager added value in both up and down markets.
Finally, alpha measures whether or not Oakmark International I was able to
outperform the benchmark given the level of systematic risk undertaken. The
alpha of 3.10 suggests that the decisions made have added value on a risk-
adjusted basis.
Over the last 10 years the worst peak-to-trough loss for Oakmark International I
was -56.58%, starting in Jun 2007 and bottoming out Feb 2009. As of March,
2015 the manager has recovered the losses incurred during the maximum
drawdown period over the analysis date range.
The pain index is a risk metric that measures the depth, duration, and frequency
of losses. It is the area between the line and the top axis in the graph above.
The less of that area, the smaller the number, the happier the investor.
Oakmark International I's pain index of 10.49 is lower than than the benchmark's
pain index of 16.18. The pain ratio is analagous to the Sharpe ratio, as it
compares return vs. risk. The difference with the pain ratio is risk is defined as
drawdowns or the pain index. Like Sharpe ratio, the higher the pain ratio the
better.
Oakmark International I iShares MSCI EAFE (NAV)
Return Standard
Deviation
Sharpe
Ratio
R-Squared
Oakmark International I 8.44% 19.05% 0.37 88.52%
MSCI EAFE Index 5.43% 18.18% 0.22 100.00%
YTD 1 year 3
years
5
years
7
years
10
years
Oakmark International I 10 38 2 4 1 1
MSCI EAFE Index 51 40 21 33 35 39
Beta Alpha Up
Capture
Down
Capture
Oakmark International I 0.99 3.10 102.52% 91.50%
MSCI EAFE Index 1.00 0.00 100.00% 100.00%
Max
Drawdown
To High
Water
Pain
Index
Pain
Ratio
Oakmark International I -56.58% 2.27% 10.49 0.67
MSCI EAFE Index -56.40% 4.84% 16.18 0.25

12. Ongoing Monitoring
 Once a line-up is selected, fiduciaries must provide ongoing monitoring of
managers and expenses.
 Review fund returns monthly. Maintain ongoing communication with fund
managers (by phone, in person). Monitor to be aware of any changes in fund
management team.
 Monitor fund holdings on quarterly basis to ensure they are meeting the criteria
established in the investment process (see sample Monitoring Report).
 Provide quarterly reporting to participants to keep them apprised of performance
of funds, changes in the investment options, and other information that impacts
investment decisions (see sample Quarterly Report).

13. Example of Quarterly Report

14. Example of Quarterly Report continued

15. Example of Quarterly Report continued

16. Example of Monitoring Report

17. Fund Line-up Resulting from Fiduciary Process
17

18. Potential Red Flags in Line-up and/or Process
 Inadequate range of asset classes and/or fund offerings within those classes
 Poorly rated active mutual funds (average or below average Morningstar ratings)
 High fund expenses
 Insufficient number of passively managed (index fund) offerings
 Disproportionate number of funds in a proprietary fund family (the custodian or
platform provider favors their own funds or certain fund families)
 Insufficient range of risk-based asset allocation balanced portfolios and/or target
date funds
 Inadequate record of underlying analyses and/or regular, ongoing monitoring and
review
 Unless sponsor has delegated decision making to a Section 3(38) manager, he/she
must keep record of investment committee review of analyses and reports, and
document the decisions made by the investment committee

19. Ongoing Participant Education & Guidance
The goal is to encourage employees to save sufficiently for their retirement, and to
empower participants to make informed, effective investment decisions for
themselves.
 Teach the basics of saving:
 Importance of saving for retirement; how much to save; benefits of 401(k)/ qualified
retirement plans; why we shouldn’t borrow from or take early distributions from
retirement accounts.
 Teach the basics of investing:
 Difference between stocks, bonds, and cash and what to expect from investments;
what mutual funds are and how they work; importance of diversification and asset
allocation; rebalancing portfolios and adhering to an appropriate long-term strategy;
managing risk.
 Provide quarterly reporting to and semi-annual in-person reviews with
participants:
 Keep employees informed and engaged in their retirement accounts.

20. What a Section 3(38) Fiduciary Advisor Provides
 Creates and implements the Investment Policy Statement (IPS)
 Selects all investment options in accordance with a prudent process
 Monitors all funds regularly and replaces funds when prudent
 Constructs, monitors, and rebalances diversified asset allocation portfolios
 Provides ongoing participant education and guidance
 Makes all investment decisions based on the best interests of Participants
 Ensures plan costs are reasonable and competitive
 Indemnifies Plan Sponsors from fiduciary liability for investment management of
plan’s assets

21. Benefits of Having a Section 3(38) Fiduciary Advisor
 Funds are selected based on what’s best for participants, not the platform
provider
 Fund universe not limited or tilted to proprietary fund families
 Fiduciary advisor assumes full responsibility for fund selection, monitoring, and
replacement—offloading significant burden from sponsor’s shoulders
 Fiduciary advisor ensures reasonableness and competiveness of costs
 Fiduciary liability of plan sponsor for investment management is significantly
reduced or eliminated
 Employees appreciate having a fiduciary investment advisor on their side

22. Checklist for Sponsors and Trustees
 Do you have an IPS documenting due diligence criteria?
 Do you have a documented investment selection process?
 Do you have a diversified line-up consistent with your IPS, offering a broad range
of major asset categories?
 Are your funds highly rated by an independent rating agency?
 Do you have both actively managed and passively managed funds?
 Are fund expenses reasonable and transparent?
 Do you offer asset allocation portfolios and target date funds?
 Do you receive quarterly/ semi-annual due diligence reports, allowing you and
participants to monitor investment performance?
 Does your advisor provide hands-on education and guidance to participants
several times a year?
 Are you working with a Section 3(38) advisor?