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The MEP Advantage

AGENDA1.The Retirement Plan Market

2.The Internal Conflict: 401(k) Plans

3.Understand the Points of Entry

4.Why TomorrowsK?

5.Questions

The OpportunityAn Untapped Market

The Retirement Plan Market

1.The Opportunity

2.The Internal Conflict of 401(k) Plans


4.Why TomorrowsK?

5.Questions

401(k) Market401(k) MarketUnderstanding theProblems of 401(k) PlanDelivery

Understanding theProblems of 401(k) PlanDelivery

What is the Problem with 401(k) Plans?

• Fiduciary and Plan Administrator Roles

• Effort Redundancy

• Brown Processes (Paper Waste)

• Participant Investment Behavior

• Conflicts of Interest

• “Our Plan should/could/must do what?”

401(k) Issues . . .401(k) Issues . . .

THE FIDUCIARY AND PLANADMINISTRATOR PROBLEMTHE FIDUCIARY AND PLANADMINISTRATOR PROBLEM

For most employers, this is a daunting task and more than 80% of all plans are out of compliance (according to the DOL)

The Legal Standard is to act with “the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use . . .”

• Act “Solely in the Interests of Plan Participants” . . .

• Act as a “Prudent Expert” and be a Fiduciary with regard to:– Overall Reasonableness of Plan Fees and Expenses

• Understand flow of Sub-TA, Shareholder Servicing and 12-b1 fees• Assess all wrap fees and all participant-level fees for reasonableness

– Service Provider Oversight• Conflict of Interest assessment in platform restrictions• Periodic evaluation of fee structure with market

– Operation of Plan in accordance with written Investment Policy Statement– Investments:

• Performance of Investment Options• Style Drift/Style Purity• Construction of Appropriate Liability• Removal of Underperforming Investment Options

• Be the “Plan Administrator” – be responsible for:– Timely Deposits of Contributions– Setting Plan-Level Eligibility requirements– Loans, Hardships, Distributions– QDRO Approval– 5500 Approval & Filing– Summary Annual Report and Summary Plan Description distribution– Ensuring Plan Document revisions and SPD re-distribution– Audit Coordination– 404(c) Communications to Plan Participants– Fiduciary Liability Insurance & ERISA Bonding Requirements– Ensuring participants are receiving education or advice about plan investments

Warning:

Not a

Comprehe

nsive

List!!!

But how hard could that really be?But how hard could that really be?EXAMPLE: FEE OVERSIGHT

SOURCES: INVESTMENT COMPANY INSTITUTE PROFIT-SHARING COUNCIL OF

AMERICA

• Individual company 401(k) plans:

– Waste paper to give information that is unused or thrown away:

• Summary Plan Descriptions• Prospectuses• Paper Statements• Enrollment materials• Summary Annual Reports

– Waste time and energy of employees:• Investment Committees and Trustee Briefings• “Education” sessions that eat up productive time• Eat up administrative time for all the multiple aspects

of running the plan:– QDRO, hardship, loan, and distribution approvals– 5500 and SAR reporting– Coordination of auditors– Arranging time for EE’s to meet with enrollers/educators– Tracking down lost or missing paperwork from employees

Effort Redundancy & Paper Waste Problems


Employers trying to meet the real legal of 401(k) plans end up wasting time of employees to both administer and participate in the program

Many 401(k) plans operate as they did in the 1980’s – lots of paper processes and manual data transfers that waste time, money and natural resources

• The Administration of 401(k) plans is not why a company goes into business.– Companies would never dream of operating other

employee benefits this way• Example: Health Insurance

• Having many small-to-midsize companies operating “unique” 401(k) plans that are largely indistinguishable from each other is not smart– Repetition of time, money and effort for similar tasks:

• Investment Committees• Plan Oversight• Plan Administration

• Economies of scale not present in 401(k) plans



A better business model for 401(k) would be to replicate the business model of insurance benefits administration outsourcing - and corresponding liability & administrative duties transfer to those companies

The desire of employers to offer a 401(k) plan is legitimate; the desire of employees to have a 401(k) plan is real; the assumption that the company should be the legal fiduciary and administrative liaison/operator should be called into question.

• Participant Investment Behavior:– 20 Year Investment Return – S&P 500: 8.20% – 20 Year Investment Return – Participant investor: 3.17%

• Conflicts of Interest:– “Educators” or “Enrollers” with duty of loyalty to providers– Custodians or Administrators determining investment

menus or limiting investment choices:• Pay-to-Play debacle• Directed Trade requirements• An intractable mess: an annuity inside a 401(k) . . .

– Plan Consultants getting paid to both provide advice to the plan and provide advice to participants

• “Our plan could/should do what?”– Always behind what could be in plan

• Auto-Enrollment, QACA, Cross-testing, etc.

Other Major 401(k) ProblemsOther Major 401(k) Problems

SOURCES: DALBAR RESEARCH 2010 (PERFORMANCE AS OF DECEMBER 31, 2009)

Too many “bundled” solutions disguise very real conflicts of interest that harm both employers and employees

401(k) plans have failed to make Wall-Street savvy investors out of disinterested or overwhelmed plan participants

• Understand the current 401(k) model IS and why it doesn’t work

• Evaluate providers and processes with a critical eye toward what your 401(k) SHOULD BE, not just continue processes that were inherited

• Ask the 3 Critical Strategic Questions:– Why am I doing this?

– Does this help or hurt my business/employees?

– Is there a better way to get this done?

So what can you do?So what can you do?

SOURCES: DALBAR RESEARCH 2010 (PERFORMANCE AS OF DECEMBER 31, 2009)

A key metric of your current 401(k) plan is the TRUE cost – not just what you spend on fees and expenses, but the total time and effort required to administer and oversee the plan

The only way to truly have a Better 401(k) is to directly confront the problems inherent in the current 401(k) delivery system

Running a 401(k) is Complicated . . .

The Retirement Plan Market

1.The Opportunity

2.The Internal Conflict of 401(k) Plans


4.Why TomorrowsK?

5.Questions

Organizational Conflict Model

How TomorrowsK Benefits an OrganizationOrganizational Unity

CFO/Treasurer“The Money Guys”

Investment Oversight Tomorrows K

Business OwnersUltimate Fiduciary

Human ResourcesLogistical Responsibility

WELCOME TO BETTERTomorrowsK – THE NEXT GENERATION 401(k) PLAN

EVALUATE ALIGN SOURCE

RE-EVALUATE YOUR ROLEDOES RUNNING YOUR OWN 401(k) PLAN MAKE SENSE?

STAFF TIME, COMPANY MONEY & RESOURCES

All are consumed in delivering this employee benefit.

From investment committee and vendor meetings to

paying the TPA, the total cost of running a 401(k) adds up

quickly.

PERSONAL & CORPORATE FIDUCIARY RISK

As the Employer and primary Fiduciary, you are both

corporately and personally liable for Fiduciary actions in

overseeing your 401(k).

EFFORTS WITH LITTLE BENEFIT

Employees primarily evaluate 401(k) plans by asking two

questions: Does it exist? and How much does the

employer contribute? Your efforts in complying with

fiduciary standards developed for Fortune 500 companies

do not normally translate to higher employee appreciation.

COMPLEXITY AND CONFUSION

The next slide illustrates this Plan Sponsor issue . . .

E VA L U AT E : [ v e r b ] : t o d e t e r m i n e t h e s i g n i f i c a n c e , w o r t h , o r c o n d i t i o n o f , u s u a l l y b y c a r e f u l a p p r a i s a l a n d s t u d y

ALIGN

SOURCE

WHAT RUNNING A 401(K) PLAN MEANS

Runn i ng a 401 (k ) p l an d raws heav i l y on your emp l oyee and s ta f f resources to oversee a compl ex i nves tm ent se rv i ce i ndus t ry w i th i n a web o f ever -chang i ng regu l a to ry and l ega l requ i rements .

EVALUATING THE OPTIONSYOU HAVE MORE OPTIONS THAN YOU MAY THINK

START WITH STRATEGIC QUESTIONS:- Why am I doing this?

- Is this giving my business a competitive advantage?

- Is there a different way to accomplish this?

UNDERSTAND THE VESTED INTERESTS

An entire financial services industry has been created to

deliver “solutions” that leave you legally and financially

responsible for overseeing their products and services.

UNDERSTAND YOUR OPTIONS

ERISA, the federal law regulating retirement plans,

defines specifically how a retirement plan must be

managed. But ERISA doesn’t say you have to be the

one that runs it.

EVALUATE

ALIGN

SOURCE

NOW THERE IS A BETTER WAY . . . TomorrowsK.

WHAT IS Tomorrows K?A BETTER WAY TO DELIVER A 401(k) BENEFIT TO EMPLOYEES

EVALUATE

ALIGN

SOURCE

• An IRS-approved model in use for over 20 Years• A way for employers to lower the cost of providing a 401(k)• Aggregation of low value-added services leads to lower costs

MULTIPLE EMPLOYER 401(k) PLAN: A COMPREHENSIVE SOLUTION THAT LETS AN EMPLOYER JOIN AN EXISTING 401(k) PLAN COMPLETELY RUN BY PROFESSIONALS

Cost Items – 401(k) PlanConventional 401(k) Plan (Average)

TomorrowsK

Set-up Fee (One-Time) $500 - $3,500 $600

TPA Charges/Admin Charges $700 - $3,000 $400

ERISA Bonding $100 - $300 Covered

Annual Audit (if required: >100 EEs) $4,000 - $14,000 Covered

Fiduciary Liability Insurance $1,200 - $7,500 Covered

Total Annual Cost $2,000 - $20,000 $400

WHY TomorrowsK IS BETTER FOR YOUR BUSINESSALIGN YOUR NEEDS WITH STAFF AND EMPLOYEE RESOURCES

ADMINISTRATIVE WORK LOAD

Your human resource staff will not be

burdened signing off on various distributions

from the plan and coordinating the various

vendors to administer your 401(k).

OUT-OF-POCKET COSTS

Lower the administrative cost of doing

business while still providing employees a

valuable benefit they desire.

ON-THE-CLOCK EMPLOYEE TIME

If your employees want to learn about

diversification, risk allocation and tinker with

their investment mix, they can do it in the

privacy of their home or with other interested

parties. Eliminate on-site enrollment and

“education” meetings that burn time and add

little value to your 401(k) plan.

EVALUATE

ALIGN [verb ] : to be o r come in to p rec ise ad justment o r cor rect re la t ive pos i t ion

SOURCE

A PROVEN SOLUTIONWHO ADMINISTERS TomorrowsK?

PLAN CUSTODIAN

TomorrowsK Retirement Plan investments are held at TD Ameritrade, a retirement plan custodian with over $13 Billion in 401(k) assets and one of the most respected plan custodians for their technology, integrity and transparency.

RECORDKEEPER/THIRD PARTY ADMINISTRATOR

401(k) Plan Administration is provided by Capital Services, a specialized Multiple Employer Retirement Plan administrator founded in 1997. Capital Services provides plan administration to over 2,000 corporate retirement plans with over $1.2 Billion in assets.

PLAN SPONSOR

Allen Plan Administrators (APA) is the Plan Sponsor for TomorrowsK. Founded by a former broker-dealer chief compliance officer and human resource consultant, APA focuses solely on Retirement Plan Sponsor services.

PLAN FIDUCIARY

The Employer’s Fiduciary Solution (EFS) provides Fiduciary consulting to large and small employers. EFS serves as Principal Fiduciaries on the plan and are responsible for both investment and operational oversight of TomorrowsK. EFS was founded by Matthew Fields, Registered Investment Advisor, CPA, Attorney, and MBA.

EVALUATE

ALIGN

SOURCE [noun] : a po int o f or ig in or procurement

EMPLOYER DUTIES WHEN USING TomorrowsK

• Moving the Plan Sponsorship streamlines 401(k) operations for you as an employer.

• As a Co-Adopting employer, you can still choose your own contribution scheme

• TomorrowsK assists with continuing non-discrimination compliance.

As a Co-Adopting Employer: •Remove 90% of the administrative workload from internal staff•Shift plan management and legal compliance to TomorrowsK•Retire from your duties as a Plan Sponsor

RE-SOURCE YOUR RESPONSIBILITIES

EVALUATE

ALIGN

SOURCE [noun] : a po in t o f o r ig in o r p rocurement

REALIZE THE MULTIPLE BENEFITS OF SOURCING YOUR PLAN WITH TomorrowsK

• ELIMINATE ANNUAL PLAN AUDITS• ELIMINATE ANNUAL FORM 55OO FILINGS• SHIFT FIDUCIARY LIABILITY TO PLAN PROVIDERS• ELIMINATE PLAN DOCUMENT CHARGES• ELIMINATE ERISA FIDELITY BOND CHARGES• HAVE PIECE OF MIND FROM KNOWING A

PROFESSIONAL FIDUCIARY INVESTMENT MANAGER IS RUNNING YOUR PLAN

• REDUCE WASTE AND DELIVER A GREEN 401(K) PROGRAM

FIND OUT MORE AT TomorrowsK.COM

How is a MEP Better?

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Market Overview

Marketplace Dynamics

1.Advisor-Centric Distribution

2.Paper-Based, Inefficient Processes

3.High Costs, Particularly for Small Employers

4.Unprepared for 2012 Fee Disclosure

Payroll Providers and 401(k)s

1.ADP, Paychex, Ceridian

a. Integrated Service Model

b. Predominately Traditional 401k due to Plan Administration Revenue

2. Independent Payroll Providers

a. Un-integrated referral relationships

b. Traditional 401(k) Plan Integration

c. Multiple Employer Plan

Integration Example: Paychex

• Integrated Retirement Plan Administration Services with Payroll

• 2011: Paychex becomes largest 401(k) provider by both number of total 401(k) plans and new plans

• 2011: Number 30 on Business Insurance Top 100 List; Oswald is Number 54

MEP Market Dynamics

1.Multiple Employer Plans make up 5.4% of all Retirement Plans ($169 Billion in Total Assets with 3.2 Million Employee-Participants).

2.Best Estimate: Over 80% of all Multiple Employer Plan assets held by Insurance-Company based programs