INVEST 403(b) Plan Our Current Plan Vanguard Individual Custodial Account Hope 10.5% + TIAA-CREF Individual Custodial Account Fidelity Institutional Account Current Plan Assets Vanguard Individual Custodial $29,916,976 Account Accounts: Custodial $53,991,103 TIAA-CREF Individual Traditional $33,737,699 Account Annuity: Fidelity Institutional Account $3,415,884 TOTAL: *600 Active Employees; 480 Retirees $121,061,662 How are you currently paying fees and expenses? Hope • • Hope contributes 10.5% Any voluntary contributions • 10.5% + Vendor • Vendor takes expenses from your account before reporting gains or losses. Expense ratios are calculated as a “Basis Point” (not on your statement) Record-keeping fees (on your statement) Definition BASIS POINT (or Expense Ratio) A Basis Point is a measure used for describing interest rates, and is equal to one hundredth of a percentage point (.01%) Example: $100,000 balance with expense ratio charged at 40 basis points (.4%): $100,000 x .004 = $400 in expenses Why make changes? New federal rules were issued in 2007 to bring 403(b) plans into compliance with 401(k) plans. • ERISA -Employee Retirement Income Security Act • Plan Documents • Audit (2 years completed) • Form 5500 • Fee Disclosures • Discrimination Testing -2 Tiers (1 year waiting period) Final Requirements 1. Creation of the Investment Policy & Committee 2. Evaluation of the Employer Fiduciary Responsibility • Hope must evaluate performance of the funds and open and close funds based on performance • Most 401(k) or 403(b) plans have on average less than 15 funds • Hope currently has over 300 funds Process: Step 1 Evaluate Our Current Funds • Hope College partnered with John Missad, a Retirement Plan Consultant from IBS Financial Group • Each of our current funds was evaluated based on 10 criteria • Funds were labeled with a Red, Yellow, or Green flag as a result of that evaluation Process: Step 1 26 39 259 • Funds receiving a Red Flag failed at least 7 of the 10 criteria • Funds receiving a Yellow Flag failed 4-6 of the 10 criteria • Funds that failed less that 4 of the criteria were given a Green Flag Process: Step 2 Create an Investment Policy & Investment Committee • Determine Investment Committee • Create Investment Policy by selecting fund categories that the Plan will invest in (Small Cap, Large Blend, Real Estate, etc.) • Set Plan goals: • Get Institutional Shares for lower expenses • Get a single Record-keeper Process: Step 3 Select Record-keeper Requests for Proposal (essentially, an offer to bid for our business) was sent to 5 companies: our 3 current vendors (TIAA-CREF, Vanguard, Fidelity) and 2 outside record-keepers (Transamerica and ING). From these RFPs, 2 companies became “finalists”: Process: Step 3 Select Record-keeper Both companies were interviewed and lists were compiled of some of the benefits and drawbacks of each company: Positives Process: Step 3 - Couldn’t offer Fidelity - Past Relationship - Could offer Vanguard - Would continue Traditional Annuity - More limited in new fund families - 15 Basis Points fee -Conflict of Interest? Negatives -Questions about Annuity Positives - Can offer all 3 current vendors plus unlimited - We would need to Negatives - Fluctuating Basis Points transfer all current (.19, .14, .10) employee information - No Conflict of Interest - No previous - Rated #1 in 401(k) relationship record-keeping by outside research group Process: Step 4 Campus Approval • FRAC (Financial Resources Advisory Committee) • PIC (Professional Interest Committee) • SAG (Staff Advisory Group) Selection: Our Current Plan Vanguard Individual Custodial Account Hope 10.5% + TIAA-CREF Individual Custodial Account Fidelity Institutional Account New Plan Fund Fund Hope 10.5% + Transamerica Fund Fund Fund Fees and Expenses going forward 1. Record-keeper Fees (in Basis Points) $0 – $70 million: $70-120 million: $120 million + 19 basis points 14 basis points 10 basis points 2. Plan Expense Fees (IBS expenses) Fees and Expenses going forward Example: 3. Fund Expenses and Revenue Sharing Fund - Fund expenses and fees collected Revenue Sharing Transamerica Fees and Expenses going forward Example: Revenue Sharing Fidelity sets a flat Basis Point Fund Expense for everyone. Let’s use 8 Basis Points for this example: Transamerica Returns 2 Basis Points to Transamerica Discounts fees by 2 Basis Points for not being record-keeper Fidelity Fidelity takes out 8 Basis Points for Plan Expenses/Fees Examples CREF Stock Fund Fund Expense .47 Record-keeper Fee + .20 (included) Plan Fee + 0 Total Fees = .47 TIAA-CREF Equity Index Fund Expense .07 Record-keeper Fee + .14 Plan Fee + .05 Total Fees = .26 Examples Vanguard Windsor Fund Expense .41 Record-keeper Fee + $15 (.0002) Plan Fee + 0 Total Fees = .4102 Vanguard Equity Income Admiral Fund Expense .22 Record-keeper Fee + .14 Plan Fee + .05 Total Fees = .41 Examples Fidelity Contrafund Fund Expense Record-keeper Fee + .81 .31 (included) Plan Fee + Total Fees = 0 .81 Fidelity Contrafund Fund Expense .81 Record-keeper Fee + .14 Plan Fee + .05 Revenue Sharing - .25 Total Fees = .75 What about annuities? • Standard Insurance Stable Value Fund -Guaranteed Income Fund • Secure Path for Life (must be age 50 or older) -Invests in Vanguard Target Funds -Can begin withdrawals at age 55 -Guaranteed minimum withdrawals Other Changes • Local advisor fees are no longer allowed to be paid from Plan assets • All voluntary contributions must be set as a percentage, not a fixed amount • Default fund-Target Date funds • Continued review of fund performance - Funds will move with changes What do you need to do? 1. Select new funds by September 1, 2013 a) b) c) Meet with Transamerica one-on-one this summer Use a local financial planner Make the changes yourself 2. Between September 1 and October 1, move your existing funds Why should I move funds? 1. Lower institutional shares 2. One-stop record-keeping 3. Lower record-keeping fees 4. Personal review by a financial consultant 5. One fully inclusive retirement web tool Transferring Fund Balances • Vanguard – all funds will be required to be moved to the new plan; will work directly with Transamerica • Fidelity – requires all funds to be moved to the new plan; will work directly with Transamerica • TIAA-CREF –will require working with the company; will depend on type of investment What tools are available? • FAQ on Hope HR Office website • Communication will begin late spring/summer from Transamerica. Watch for mailings and/or emails for information • Information will be sent to you about setting up your one on one appointment with Transamerica Questions?