Case Studies of Plan Success in a Holistic Fiduciary Solution

Dr. Gregory W. Kasten and Joseph Reese Unified Trust Company, N.A.

What We Will Cover

• Industry evolution• Review of case studies of plan success • Discuss how to improve participant

outcomes in a scalable advisory practice

The Early Years

Less Funds, Managed Accounts, Focus on OutcomesLess Funds, Managed Accounts, Focus on Outcomes

Open Architecture and 1,000s of FundsOpen Architecture and 1,000s of Funds

Participant Directed, Daily Valuation, Limited FundsParticipant Directed, Daily Valuation, Limited Funds

Trustee Directed, Balance ForwardTrustee Directed, Balance Forward

Ineffective SolutionsRetirement industry offers simple but ineffective solutions• Automatic Enrollment • Target Date Fund• Gap Report• Web Calculator• “Plan Health Reports”• Email Campaigns

FRONTLINE: “The Retirement Gamble”

“The Retirement Gamble”“I had no idea. I was so confused. I came out of that meeting, and I was, like, ‘oh, my God.’ It was just— it was overwhelming for me, the knowledge that you had to have in order to invest.”−Debbie Skoczynski, Computer Leasing Agent

FRONTLINE is a registered trademark of WGBH Educational Foundation, Copyright PBS

DetrimentalBehaviors

5 Detrimental Behaviors

1. Inertia2. Procrastination3. Choice Overload4. Endorsement Effect5. Framing

The GapBetween where participants are and

what they will need for retirement

Dr. Gregory Kasten• ERISA Fiduciary since 1985• 2013 Retirement Plan Advisor of the

Year• Over $4.2 billion of fiduciary assets

under management• Founder and CEO of Unified Trust

Company, NA• Board certified anesthesiologist• Work with advisors who share our

vision of fiduciary best practices to improve retirement success

What’s the Connection?

ERISA Studebaker

STUDEBAKER: The First ERISA Case Study

Studebaker Testimony

For 27 years, Ray Manzer worked on the truck line at the Studebaker auto plant in South Bend, earning $2.60 an hour and a pension that company officials promised he could look forward to in his old age.“I loved my job,” said Manzer, “I thought I was set for life.”

“Pensions: the Broken Promise” NBC News aired 9/12/1974

Studebaker Testimony

Then, in 1963, Manzer showed up for work and was told there was no more job. No more Studebaker. And no more pension.

The funds that had been promised to provide pensions for 4400 vested Studebaker employees were gone.

“Pensions: the Broken Promise” NBC News aired 9/12/1974

President Ford signs ERISA into law on Labor Day 1974

Protect the Participant

“It is hereby declared to be policy…to protect the interests of participants in employee benefit plans and their beneficiaries…”

29 U.S. Code § ERISA 1001 – Congressional Findings and Declaration of Policy

ERISA Protected Pensions

Early During ERISA things worked as planned.

In 1979 more than 84% of the workforce had a DB plan or a combined DB/DC plan that was professionally managed.

The Market Evolved

Today most workers are on their own…and failing!In 2014 less than 15% of the private workforce had a pension plan as their primary retirement benefit.

Today most workers are on their own…and failing!

By Robert SteyerSource: Pensions & InvestmentsDate: September 22, 2010

Three-quarters of defined contribution plan participants are projected to fall short of what they will need in retirement, said Christopher L. Jones, chief investment officer at Financial Engines.

Three In Four Fail:75% in Dc Plans Won’t Have Enough For Retirement, Survey Says

Where Did ERISA Go Wrong?

“Exclusive Authority”

Congress thought the trustee would be discretionary!“The House bill also provides that all plans must be in writing, that plan assets generally are to be held in trust, and that trustees generally are to have the exclusive authority to manage and control plan assets.”

US House of Rep Conference Report No. 93-1280 August 12, 1974

The number of times Directed Trustee is

mentioned.

The number of times named fiduciary is

mentioned.

The number of times “Trustee” (Discretionary)

is mentioned!

But most 401(k) corporate trustees are directed!

401(k) Corporate Trustees

Corporate Trustee(Directed)

Corporate Trustee(Discretionary)

Most 401(k) Corporate Trustees Today Are Directed

Where Did All The “Trustees” Go?(Discretionary)

Better for the Vendor

Directed Trustee Status is Better For The Vendor, Not The Participant!• Multiple sources of revenue (Hidden)• Exempt from most fiduciary prohibited

transactions• Little fiduciary compliance cost• Little risk (most risk remains with named plan

fiduciary)

The Directed Trustee

The directed trustee is “IMMUNE FROM JUDICIAL INQUIRY!”“As we have explained, a directed trustee is essentially "immune from judicial inquiry" because it lacks discretion, taking instructions from the plan fiduciary that it is required to follow.”

Renfro v. Unisys Corp., 671 F. 3d 314 - Court of Appeals, 3rd Circuit 2011

After Studebaker

The “Named Plan Fiduciary”• Functions as the plan’s “CEO”• “Most important fiduciary”• Generally named in plan document or sometimes

identified by specific procedure• Congressional intent was to focus responsibility for

proper plan management• Plan may have more than one named fiduciary and in

such cases the duties are allocated

ERISA Section 402(a)

How Does the Past Impact the Future?

Case Studies

Case Studies Summary

516: Total number of employees485: Total number accepting solution318: Before on track to achieve success480: After on track to achieve success162: Total number added for full success

What happens when all the right things are done

for the participant?

Success Happens!

High Acceptance RateSuccess requires a very high acceptance rate

UnifiedPlan Opt In

Opt Out Using Managed Model

Opt Out Complete "Do It Myself"

There is no single answer to success!

Begins With Plan Design1. Recognize that five key behaviors make

effective use of web tools rare, and success unlikely

2. Fulfill original ERISA role for plan trustee3. Control plan fees4. Provide default retirement income

replacement goal5. Design adequate default savings rate6. Design automated escalators of savings7. Accurately measure of the cost of the goal

(liability)

8. Understand asset/ liability matching and investing

9. Build personalized actuarial solution before enrollment meeting

10. Design optimized portfolio based upon MPT standards

11. Define MPT participant risk limits in governing plan documents

12. Control participant risk exposure13. Build liability driven investment process14. Communicate simply with “YES” box

checked

The Success Solution

The Success SolutionImplement and Monitor1. Gather relevant data2. Recalculate retirement income

replacement goal3. Review savings rate4. Accurately re-measure of the cost of the

goal (liability)5. Calculate future value of assets6. Calculate asset/ liability matching portfolio

solution7. Allow for additional information to

personalize further8. Obtain MPT participant risk limits in

conjunction with governing plan documents

9. Test personalized actuarial solution10. Design optimized portfolio based upon

MPT standards11. Control participant risk exposure12. Implement new solution13. Confirm solution implemented correctly14. Communicate to participant15. Review plan for all FI360 Fiduciary Best

Practices16. Document all decisions and actions

…Quarterly Reviews

Fully Funded StatusThe process moves most to fully funded status.The number of participants on track for a fully funded retirement benefit jumped from 318 to 480; an extra 162 were successful!

Fraction of Participants on Track for Fully Funded

Retirement Benefit

After UnifiedPlan 93%

Before UnifiedPlan 62%

National Average 25%

“Fully Funded” means forecast Asset/Liability at least 1.00. Average from the 3 case study plans.National Average data from Pensions & Investments Sept 22, 2010

The Process Lowers The Cost Of Success

Before UnifiedPlan $1.00

After UnifiedPlan $0.47

The relative cost calculation shows that for every dollar previously spent to achieve a successful participant, it will now cost the plans only $0.47 a savings of 53%.

Investing is improved when done for the participant.

16% 14% 14%

100% 100% 100% 100%

Age Matched Funded Status Investment Theory Pass All 3 Tests

“Fully Funded” means forecast Asset/Liability at least 1.00. Average from the 3 case study plans.National Average data from Pensions & Investments Sept 22, 2010

Non UnifiedPlan Equity Asset Allocation is Not Related to Age

Non UnifiedPlan Asset Allocation is Not Related to Funded Ratio

Non UnifiedPlan Portfolio Risk is Not Related to Funded Ratio

Case Study One

Employees:13

Named plan fiduciary was

plan sponsor & single

individual trustee

Named plan fiduciary was

plan sponsor & single

individual trustee

Employee deferral rate: Increased

1.1% to 6.4%(Added safe harbor match

rate)Number of employees receiving advice:

Number of employees receiving advice:

0Number of employees with a goal:

1 (8%)

Number of employees with a goal:

1 (8%)

Automatic features:None

(Automatic enrollment added,

still considering automatic escalation)

(Automatic enrollment added,

still considering automatic escalation) Old QDIA was

TDF, then UnifiedPlan via reenrollment

Old QDIA was TDF, then

UnifiedPlan via reenrollment

1. Recognize that five key behaviors make effective use of web tools rare, and success unlikely

2. Fulfill original ERISA role for plan trustee

3. Control plan fees4. Provide default retirement income

replacement goal5. Design adequate default savings rate6. Design automated escalators of

savings ✓7. Accurately measure of the cost of the

goal (liability)

12. Control participant risk exposure13. Build liability driven investment

process14. Communicate simply with “YES” box

checked

Critical Errors & Omissions

1. Gather relevant data2. Recalculate retirement income

replacement goal3. Review savings rate4. Accurately re-measure of the cost of

the goal (liability)5. Calculate future value of assets6. Calculate asset/ liability matching

portfolio solution7. Allow for additional information to

9. Test personalized actuarial solution10. Design optimized portfolio based

upon MPT standards11. Control participant risk exposure12. Implement new solution13. Confirm solution implemented

correctly14. Communicate to participant15. Review plan for all FI360 Fiduciary

Best Practices16. Document all decisions and actions

…Quarterly Reviews ✓

Case Study Two

Employees:21

Named plan fiduciary was plan sponsor,

and single individual as

trustee

2.1% to 8.3% (Added safe harbor match

rate)Number of employees receiving advice: 3 (15%)

Number of employees receiving advice: 3 (15%)

2 (10%)

(Added automatic enrollment and

automatic escalator of savings (2%

annually))

annually)) Old QDIA was TDF, then

3. Control plan fees ✓4. Provide default retirement income

savings7. Accurately measure of the cost of the

goal (liability)

checked

Case Study Three

Employees:21

trustee

rate)Number of employees receiving advice: 3 (15%)

Number of employees receiving advice: 3 (15%)

2 (10%)

annually))

annually)) Old QDIA was TDF, then

3. Control plan fees ✓4. Provide default retirement income

savings ✓7. Accurately measure of the cost of the

goal (liability)

checked

How is Success Achieved?

The “Pension” Answer

Determine a Personal goal for each participante.g. $2,500/month

Measure Their ProgressQuarterly tests are preformed to determine if you are on track and statements of progress are provided.

Manage The InvestmentAutomatically select investments with the lowest possible risk required to achieve the goal.

It is much easier to say “yes” to the answer…

….Rather than to learn and implement

the methods

LIABILITY

Actuarial Management

LIABILITY: How much money will be needed to pay for retirement

ASSET : How much money the participant is on track to have saved when retirement starts

ASSET = 1.00 OR MORE

Actuarial Solution Matrix

$600,000

$650,000

$700,000

$750,000

$800,000

$850,000

$900,000

$950,000

$1,000,000

$1,050,000

SSNRA SSNRA +1 SSNRA +2 SSNRA +3

Actuarial Solution Matrix Finds the Equilibrium Spot Liability Conservative Asset Moderate Asset Aggressive Asset

SSNRA +1

SSNRA +2

SSNRA+3

CONSERVATIVE

0.700 0.822 0.965 1.132

MODERATE 0.728 0.863 1.022 1.211

AGGRESSIVE

0.757 0.905 1.082 1.294

SSNRA +1

SSNRA +2

SSNRA+3

CONSERVATIVE

0 C 1 C 2 C 3 C

MODERATE 0 M 1 M 2 M 3 M

AGGRESSIVE

0 A 1 A 2 A 3 A

Your retirement benefit statement helps you understand whether you are on course to achieve a successful retirement. Unified Trust Company estimates the "nest egg" savings required to meet your retirement spending goals. We regularly evaluate your progress and, if needed, we will make changes to help you. Your projection is based on information we currently have about you, provided to us by either your employer or you. Please visit our website at www.unifiedtrust.com/UnifiedPlan to add or update your Additional Retirement Information.

UNIFIEDPLAN QUARTERLY PARTICIPANT REPORT AS OF JUNE 30, 2012[Plan Name]

$5,346

YOUR MONTHLY RETIREMENTINCOME SURPLUS

$4,000 $1,346

YOUR PROJECTED RETIREMENT BENEFIT STATEMENT

FOR [Part icipant Name]

YOUR MONTHLY PROJECTEDRETIREMENT INCOME

YOUR MONTHLY RETIREMENTINCOME NEED

$4,000

YOUR MONTHLY RETIREMENTINCOME NEED

YOUR MONTHLY RETIREMENTINCOME SURPLUS

$1,346$5,346

YOUR MONTHLY PROJECTEDRETIREMENT INCOME

Putting the Case Studies into Perspective:

Creating a sustainable advisor model for improving outcomes…

The DOL is Moving Forward on New Fiduciary Standards

What Does the Proposed DOL Rule Mean for Advisors

Today?

Non-FiduciaryNew DutiesHigher RisksChanging (Reduced) CompensationLost Business from Compliance Dept.

FiduciaryDifferentiation LossValue PropositionLost Business from New Competition

New Competitors?

The further erosion of the value proposition…

How Much Time Can an Advisor

Spend with a Participant?

Quantify Your Time

$4.0 Million Plan / 150 Participants40 BPS = $12,000 Advisor Revenue

Plan Level Services = 20 hours• Quarterly trustee meetings; 1 annual employee meeting; on-demand

consulting; prep and drive time

20 hours x $200/hour (time value plus overhead) = $4,000

Goal: Meet with 70% of the participants$8,000/105 participants @ 200/hour • = 22 minutes per participant per year• = 5.5 minutes per quarter

Is5.5 minutes

per quarter enough?

5.5 Minutes1. Gather relevant data2. Recalculate retirement income

…Quarterly Reviews

Off Course ParticipantsTarget off course participants!

Your UnifiedPlan Success Rate

Plan Level Success Data

Quantifying Results

“When going through the specifics of how the plan and the participants’ situations have improved over the past 12 months, it is vital for advisers to show plan sponsors how they drove those changes.”

planadvisor July/August 2015

Unique Value Proposition

1. A holistic retirement model that works for most employees—personalized for all

2. Demonstrated improvement in outcomes3. Trustee services that completely fulfill the

original Congressional intent of ERISA4. Named plan fiduciary status5. The most complete fiduciary liability risk

transference possible

What’s In It For…..• The Participant: They have the answer! A

retirement goal and a plan that’s easy and doesn’t require them to change their behavior.

• The Plan Sponsor: They have a plan that has improved employee satisfaction and retention while at the same time reduced their fiduciary risk.

• The Plan Advisor: You now have a scalable and deliverable service model that drives quantifiable results.

Participants Don’t Want to KnowHow to Build a Watch…

They Just Want to Know the Time!

QUESTIONS?Greg KastenChief Executive OfficerUnified Trust Companygreg.kasten@unifiedtrust.com

Joe ReeseInstitutional Retirement ConsultantUnified Trust Companyjoe.reese@unifiedtrust.com

Disclosures1. The UnifiedPlan reporting tool helps investors understand whether they are on course to achieve a successful retirement. The UnifiedPlan uses “asset liability” matching. The asset is the money forecast to be accumulated and the liability is the amount of money needed to pay for the retirement. For investors who are planning for retirement, the tool estimates the amount of funds required to meet their retirement spending goals and provides alternatives such as delaying retirement or lowering retirement spending for those who may not be able to save the required amount.2. For investors who are already retired, the tool estimates the confidence that their portfolio will be able to sustain their desired spending throughout retirement. The tool uses a combination of deterministic methods and Monte Carlo simulation that consider factors that include saving and spending levels, long-term market expectations associated with the risk profile selected, pre- and in-retirement time horizons, and other sources of outside income.3. The UnifiedPlan limitations relate to the large number of assumptions used in the analysis. The accuracy of these assumptions directly impacts the quality of the tool's assessment. Potential problems may include, but are not limited to, the use of inaccurate financial data by the investor, the selection of a risk tolerance by the investor that does not represent how their portfolio is actually invested, long term market expectations of risk, return, and inflation that are not achieved in the modeled time frame, the inclusion future income that is never received, and unforeseen life emergencies that require decreased saving before retirement, force an earlier retirement, or increase spending needs during retirement.4. The UnifiedPlan is highly dependent upon assumptions of annual income and annual savings. Any variances or changes in the figures used should be reported immediately by the plan participant. Unified Trust is not responsible for any discrepancies in the data, or output from the UnifiedPlan tool.5. All mutual fund and collective investment fund data was gathered from publicly available sources of information such as Standard & Poor’s, Morningstar, Zephyr or vendors’ own websites. We take reasonable care in collecting the data, and believe the data are accurate, but reserve the right to correct any errors. Individual mutual fund or collective fund performance data throughout the document are net of underlying fund expense ratios but gross of add-on expenses such as Trustee fees, administration fees, or advisory fees. The performance histories reported are simply dollar-weighted historical returns for the proposed funds and do not reflect the effects of rebalancing or fund replacements.

Disclosures6. Any past performance information for the illustrated investment selections is not indicative of future returns but is merely a snapshot of historical performance. Past performance is not a guarantee of future performance. The investments are not FDIC insured.7. Differences will probably exist between prospective and your actual results because events and circumstances frequently do not occur as expected, and those differences may be material, especially when making estimates over extended time periods. All figures are shown in current (inflation adjusted) dollars. The estimated inflation rate used in this analysis may vary over time.8. The UnifiedPlan portfolio changes and time line changes for each participant are governed by the Plan Document, the Investment Policy Statement and the Benefit Policy Statement for their Plan.9. The calculated 70% income replacement goal includes the estimated Social Security benefit. The actual Social Security benefit may be different from the estimated value.10. Compensation in excess of the IRC 415 limit is excluded. All figures reported in current (inflation-adjusted) real dollars.11. The projections or other information generated by the tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Projected growth of assets is based Unified Trust Company's Projected Future Modeled Returns and the asset allocation of your portfolio for this goal. The graphical representations are an approximation taken from the direct path between the pertinent events tied to your goal. Indices are unmanaged, do not incur management fees or expenses, and cannot be invested in directly. 12. Neither the Plan Sponsor nor Unified Trust can guarantee that any participant will achieve a successful retirement. The UnifiedPlan reporting tool helps investors understand whether they are on course to achieve a successful retirement. The UnifiedPlan uses “asset liability” matching. The asset is the money forecast to be accumulated and the liability is the amount of money needed to pay for the retirement. For investors who are planning for retirement, the tool estimates the amount of funds required to meet their retirement spending goals and provides alternatives such as delaying retirement or lowering retirement spending for those who may not be able to save the required amount.13. Projections are made based upon expected asset transfers. Actual transfer amounts may be different and may require a new retirement solution.

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