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?