invest 403(b) plan. our current plan hope vanguard individual custodial account tiaa-cref individual...
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INVEST 403(b) Plan
Our Current Plan
Hope
Vanguard Individual Custodial Account
TIAA-CREF Individual Custodial Account
Fidelity Institutional Account
10.5% +10.5% +
10.5% +
$3,415,884
Annuity:
$53,991,103
$33,737,699Traditional
$29,916,976
Accounts:
Vanguard Individual Custodial Account
Current Plan Assets
TIAA-CREF Individual Custodial Account
Fidelity Institutional Account
TOTAL: $121,061,662*600 Active Employees; 480 Retirees
How are you currently paying fees and expenses?
Hope
Vendor10.5% +
• Hope contributes 10.5%• Any voluntary contributions
• 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 Requirements1. 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
•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
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Process: Step 2Create 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:
Process: Step 3
- Past Relationship
- Could offer Vanguard
- Would continue Traditional Annuity
- Couldn’t offer Fidelity
- More limited in new fund families
- 15 Basis Points fee
-Conflict of Interest?
-Questions about Annuity
Positives
Negatives
- Can offer all 3 current vendors plus unlimited- Fluctuating Basis Points (.19, .14, .10)- No Conflict of Interest- Rated #1 in 401(k) record-keeping by outside research group
- We would need to transfer all current employee information
- No previous relationship
Positives
Negatives
Process: Step 4
Campus Approval
• FRAC (Financial Resources Advisory Committee)
• PIC (Professional Interest Committee)
• SAG (Staff Advisory Group)
Selection:
Our Current PlanHope
Vanguard Individual Custodial Account
TIAA-CREF Individual Custodial Account
Fidelity Institutional Account
10.5% +10.5% +
10.5% +
New PlanHope
Transamerica
Fund
Fund
Fund
Fund
Fund
10.5% +
1. Record-keeper Fees (in Basis Points)
$0 – $70 million: 19 basis points
$70-120 million: 14 basis points
$120 million + 10 basis points
2. Plan Expense Fees (IBS expenses)
Fees and Expenses going forward
Fund Transamerica
3. Fund Expenses and Revenue Sharing
Fees and Expenses going forward
- Fund expenses and fees collected
Revenue Sharing
Example:
Fees and Expenses going forward
Revenue SharingExample:
Fidelity sets a flat Basis Point Fund Expense for everyone. Let’s use 8 Basis Points for this example:
Transamerica
Fidelity
Fidelity takes out 8 Basis Points for Plan
Expenses/Fees
Discounts fees by 2 Basis Points for not being record-keeper
Returns 2 Basis Points to
Transamerica
Examples
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Examples
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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) Meet with Transamerica one-on-one this summer
b) Use a local financial planner
c) 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?