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

$29,916,976Accounts:

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)

DefinitionBASIS 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 & Committee2. 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 1Evaluate 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 3Select Record-keeperRequests 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 3Select Record-keeperBoth 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 4Campus 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 forwardRevenue 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

+ + =

+ + =

Examples

+ + =

+ + =

Examples

+ + =

+ + =-

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 summerb) Use a local financial plannerc) Make the changes yourself

2. Between September 1 and October 1, move your existing funds

Why should I move funds?

1. Lower institutional shares2. One-stop record-keeping3. Lower record-keeping fees 4. Personal review by a financial consultant5. 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?