Finally…the Right Retirement Plan
Loan Answer
Gwenn Paness, Director of Sales, MyPlanLoan
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Agenda
The Problem
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The Loan Dilemma
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Policy
Prudence
Leakage
State of the Union – Today’s Loan Utilization Statistics
Issues for Terminated Participants. Is There a Better Option Available?
In-house Loan Administration Challenges
The Solution
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The MyPlanLoan Solution
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Who can use MyPlanLoan?
How does the Program Work?
How are Loans Created and Paid?
MyPlanLoan Program Fees
Benefits of MyPlanLoan
Case Studies
About Benefit Plans Administrative Services, Inc. (BPAS)
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The Loan Dilemma
Policy
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Should loans be offered in the first place?
Does the payroll department have the time and resources to
administer this plan provision effectively?
Prudence
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While compliant, is 72(p) always a prudent limit?
Leakage
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On a net basis, do loans contribute to increased participation and savings
rates, or do they promote leakage of terminated Participant plan assets?
Can something be done about the concerns of terminated Participants?
Is there a better option than 90 day loan payoff or default?
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Today’s Loan Utilization Statistics
Loan Demographics
2006
2007
2008
2009
2010
Percentage of Participants with loans
23.7%
23.6%
24.1%
23.1%
23.8%
Average Loan Amt per borrower
$7,776
$7,655
$8,309
$8,760
$8,619
2.1%
1.6%
2.8%
2.5%
2.4%
Percentage of Plan Assets Loaned
SOURCE: PSCA’s 54th Annual Survey of Profit Sharing and 401(k) Plans
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Despite the prevalence of 401(k) loans, loan assets constitute only 2.4% of total
plan assets among plans with a loan option
About 90% of 401(k) Participants are in plans that offer a loan option. Within
those plans, about 1 in 5 eligible Participants has a loan outstanding at a given
point in time
In a much larger study of Vanguard administered plans, Mitchell, Utkus and Yang
(2007) showed that having a loan provision raises
contribution rates by about 10%
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Issues for Terminated Participants
Statistics
 12% of loan holders (about 2% of Participants) terminate
employment with a 401(k) loan outstanding in any given year
 Loan balances are typically due in full within 90 days of
termination date
 Among 401(k) plan borrowers terminating employment,
approximately 80% default on their loans
 . . . approximately 10% of those with 401(k) loans default
each year at the time of termination of employment
 The challenge - how do we fix the problem?
5 Loan Defaults
SOURCE: An Empirical Analysis of 401(k)
In-House Loan Administration
Challenges
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Time-consuming activity that adds nothing to company’s bottom line
Risk of error in setting up/processing payment schedules
Inflexibility of payment plans
Workplace environments where payroll deduction is not a viable
solution:
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Multi-employer plans (multiple payrolls)
Restaurants (low hourly rate, tip based comp)
Retail (low hourly rate, high turnover)
Car dealerships (multiple payrolls, variable comp from commissions)
Construction (seasonal/cyclical layoffs)
Heavy payroll maintenance (multiple payrolls with divisional transfers)
More than one loan permitted
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The Solution – MyPlanLoan
Who can use MyPlanLoan?
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MyPlanLoan is for everyone!
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Terminated Participants
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Loan Continuation to avoid immediate payoff or default
Bridging the gap between leaving current job and
starting a new job
Active Participants
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Unexpected home repairs
Unanticipated medical expenses
During cyclical layoffs
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Terminated Participants - MyPlanLoan
The Third Option for Terminated Participants
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Participant’s date of termination reported to Recordkeeper
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Participant has an existing Traditional Loan
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Participant can choose to convert the loan(s) to a Loan Continuation
Account
Participant can establish a new loan line equal to the fixed amount set by
the Employer (i.e. $5,000 subject to daily 72(p) limit)
Participant does not have an existing Traditional Loan
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Participant can establish a new loan line equal to the fixed amount set by
the Employer (i.e. $5,000 subject to daily 72(p) limit)
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Participant receives a monthly statement from MyPlanLoan
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Participant remits monthly payment to MyPlanLoan
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The Solution - MyPlanLoan
MyPlanLoan for Active Participants
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Participant requests a loan line up to 72(p) limit
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Participant applies online through re-direct from Participant Web
MyPlanLoan Access Card mailed to Participant to be used, as needed, for
future loan transactions
Loan lines may be increased up to 72(p) limit
Unused portion of loan line may be reallocated to core investments at
any time
Participant receives a monthly statement from MyPlanLoan
Participant remits monthly payment to MyPlanLoan
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The Solution - MyPlanLoan
Principal Residence Loans vs. General Purpose Loans
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No access card issued; loan is created for entire amount requested
during account opening
 Expanded amortization schedule up to 360 months
Once request is approved (by Sponsor/Third Party), MPL deposits loan
proceeds via ACH to participant’s designated bank account (bank
instructions provided during account opening)
MPL sends monthly statements and collects payments
As payments are processed, principal and interest are returned to
participant’s core funds
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Traditional vs. MyPlanLoan
MPL
MPL
Traditional Loan
Loan
Loan
Continuation Line
MPL
General Purpose
Residential
Repay After Termination No
Yes
Yes
Yes
Allowed for
Active Participants
Yes
Yes
Yes
Yes
Allowed for Terminated
Participants
No
Yes
Yes
(if Plan allows)
Yes
(if Plan allows)
Access Card Provided
No
No
Yes
No
Revolving Loan Line
No
No
Yes
No
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The Solution - MyPlanLoan
How loan lines are created
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Similar to a HELOC, MyPlanLoan creates a retirement fund “loan line” for
Participants, based upon 72(p) or a lesser amount, as determined by the
Sponsor/Fiduciary
Loan line funds are transferred to a separate account within the Plan
(i.e., stable value or money market fund)
MyPlanLoan Access Card allows Participant to draw upon the loan line as
needed
Loans are created only when funds are actually spent
Unused portion of loan line remains in the Plan, continuing to earn taxdeferred dividends for the Participant
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MyPlanLoan – How Loans are created
Participant
swipes card
at merchant
Transaction processor settles
with merchant and requests
funds from MPL
Transaction processor
posts transactions and
sends data to MPL
MPL sends file to RK
system to redeem money
from loan line fund. MPL
settles with processor
Participant Loan
created from that
day’s card usage
Day 1
Day 2
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Day 3
RK system updated
and RK/Custodian
settles with MPL
Day 4
MyPlanLoan – Repayment
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MyPlanLoan eliminates payroll deduction as the method of loan
repayment
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Monthly statement detailing loan payment due (includes principal, prime
interest and the MyPlanLoan service fee) is communicated to Participant
on 10th of the month (e-delivered or mailed)
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MyPlanLoan accepts and processes loan payments (ACH pull or check)
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Principal and prime interest are remitted to the Plan custodian
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Record of loan payments are reported to the Recordkeeper
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Defaults are monitored by MyPlanLoan staff and communicated
electronically to Recordkeeper for 1099R reporting
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MyPlanLoan – How Loans are Repaid
Participant receives
monthly MPL
statement data
detailing loan
payment due
Participant remits loan
payment due to MPL via
ACH or Check/Money
Order
MPL sends file to RK system with
payment information and initiates ACH
of principal and interest to custodian
RK creates trades to
purchase money into
loan line fund (principal)
and core funds (interest)
Payment posted to
Participant’s MPL
Account
Step 1
Step 2
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RK system
updated
Step 3
MyPlanLoan Customer Service
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Dedicated Participant Call Center
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Missed Payment Notification
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Phone call and letter
30, 60, 90 days
Prior to default date
Bilingual
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Monday – Friday
9am – 5pm ET
Inbound/Outbound calls
English and Spanish
MyPlanLoan Program Fees
Record Keeper Maintenance
Annual Maintenance (Set-up,
Maintenance, Upgrades, Compliance)
$2,000 per year
Payable on Anniversary of Agreement
Plan Sponsor Program Fees
MPL Program de-conversion fee at Plan
level (each participant card manually
closed, final reconciliation, file export to
Record Keeper)
$500 plus $5/MPL participant (capped at
$1,500), invoiced to record keeper for
each Plan that chooses to de-support
MPL Program
Record keeper invoiced
Sponsor can charge to Plan Assets
Participant Program Fees
Loan Continuation Program
$48/year, paid in monthly installments
Traditional Loans
No card issued, loan moved to MPL
system for record keeping and pay off of
existing loan
Residential Loans
MPL Program Fee for new loans, loan
line increases, etc (includes loan access
card and recordkeeping on MPL system)
2.7% service charge *
plus $3/month loan administration
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See MPL Maintenance Fee for services
provided
See 2.7% Service Fee for services
provided
See MPL Maintenance Fee for services
provided
MyPlanLoan Program Services
Description of MPL Services
MPL Maintenance
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Monitor 72p limit rules for each loan, plus compliance, other DOL issues
Payment clearing and processing
Handling of payment presentment rejects and notification to participant
Refund of overpayments, return of payments received after loan closed
Ongoing customer service (Participant call center – inbound, outbound calls and email)
Defaulted loan processing
OFAC and Audit support (reporting, phone calls, etc)
2.7% Participant Service Fees
• New Account verified, card created and mailed to Participant
• Each day’s transactions create a ‘new loan’. Amortization Schedule created, daily oversight and reconciliation
• Recordkeeping and reconciliation of daily transactions and monetary settlement with BIN Sponsor Bank
• Fraud monitoring, research, manual closure of card, re-issue and mailing of new card
• Manual processing of loan line decrease requests (with card provider)
• Manual process of loan close requests (with card provider)
Exception Processing Fees assessed to participant on next monthly statement
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$2/check or money order received
$2/monthly paper statement
$20/returned payment
$25/wire
Overnight delivery charges, as requested by participant
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MyPlanLoan Benefits
Recordkeeper Benefits
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Limits trade rejects for inaccurate loan payments
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Insufficient amounts
Payoffs with continuing loan deductions
Value added service to market to Plan Sponsors
Additional revenue opportunity
Simplifies administration of plans offering multiple loans
Client Retention tool
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MyPlanLoan Benefits
Plan Sponsor Benefits
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Get out of the loan business
Paternalistic approach
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Set loan limits, prevent employees from borrowing more than they need
Encourage employees to continue to save for retirement
Ability to offer loans without payroll support requirements
Reduces gamesmanship of hardship and termination/rehire transactions
A compassionate HR benefit for Participants, many of whom are
involuntarily terminated or terminate for good reason
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Layoffs
Disability
Retirement
Family care
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MyPlanLoan Benefits
Participant Benefits
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A third option for terminated Participants
1. Immediate payoff
2. Default
3. Loan Continuation
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Loan availability for terminated Participants to help bridge the gap between jobs
Opportunity to avoid burdensome taxes associated with defaults which further
worsens leakage of Participant assets (federal, state, local, 10% penalty)
Participants leave 100% of balance in the Plan
Loan access when traditional loan administration systems aren’t responsive
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Natural disasters (i.e., Katrina)
Unforeseen emergencies (i.e., car repair)
Privacy (loan reason disclosure)
Loan availability in workplace environments where plan loans might otherwise
not be available.
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Case Study 1: Taft-Hartley Plan
The Problem
Taft-Hartley Plan Members often work for multiple employers and may
experience periodic layoffs over the course of a typical loan amortization
period, thus making payroll deduction impractical. Access to a responsible
loan line was needed to help with issues such as vehicle repairs and tools,
which are not covered by hardship rules.
The Solution
The Trustees of the Taft-Hartley plan added the MyPlanLoan program with
a maximum loan line of $5,000 to their members’ plan.
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Case Study 2: Non-Profit Employer
The Problem
A large non-profit employer converted its 403(b) from a provider that issued
coupon books for loan repayments. The Employer wanted to convert to an
institutional fund/open architecture provider but did not want to bring loan
administration back into its payroll department.
The Solution
MyPlanLoan was added with the plan conversion, and the outstanding
coupon-based loans were converted to a MyPlanLoan account.
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Case Study 3:
Geographically-Dispersed Employees
The Problem
The payroll department of a large regional grocery store chain was concerned
about the payroll support requirements of a loan provisions, given the 24/7,
geographically-dispersed nature of their business, and thus did not offer a loan
provision in their Plan.
The Solution
MyPlanLoan was added to the Plan to provide employees with a nonpayroll deducted loan option. The Employer effectively outsourced loan
origination, adjudication, payment processing and default counseling, and
was able to comfortably offer a loan program to employees for the first
time.
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Client Testimonial
HR Manager, Midwest Manufacturing Company
“When an economic downturn forced us to lay off several hundred workers, I
felt terrible about those who had outstanding retirement loans that otherwise
would have been due within 90 days. With MyPlanLoan we were able to offer
these terminating employees the opportunity to continue to repay their loans
over the original terms, helping minimize their risk of default.”
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About BPAS
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Benefit Plans Administrative Services, Inc. is a subsidiary of Community Bank
System, Inc. (NYSE listed: CBU)
Offices in:
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NY: New York City, Syracuse, Utica
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IL: Chicago
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NJ: East Hanover
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PA: Philadelphia, Pittsburgh
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TX: Houston
235 employees providing:
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TPA services – MyPlanLoan/AutoRollovers (EGTRRA distributions)
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Actuarial Services (dedicated staff of 26 actuaries)
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Institutional Trust (CIF administration)
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VEBA/HRA, Flex services
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Supporting MyPlanLoan administration since 2003
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MyPlanLoan Contact Information
Gwenn Paness, Director of Sales
MyPlanLoan
(646) 285-4937
gpaness@bpas.com
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