Finally…the Right Retirement Plan

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• Finallythe Right Retirement Plan
• Loan Answer
• Gwenn Paness, Director of Sales, MyPlanLoan

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Agenda

• The Problem
• The Loan Dilemma
• Policy
• Prudence
• Leakage
• State of the Union Todays Loan Utilization
  Statistics
• Issues for Terminated Participants. Is There a
  Better Option Available?
• In-house Loan Administration Challenges
• The Solution
• The MyPlanLoan Solution
• Who can use MyPlanLoan?
• How does the Program Work?
• How are Loans Created and Paid?
• MyPlanLoan Program Fees
• Benefits of MyPlanLoan
• Case Studies
• About Benefit Plans Administrative Services, Inc.
  (BPAS)

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The Loan Dilemma

• Policy
• Should loans be offered in the first place?
• Does the payroll department have the time and
  resources to
• administer this plan provision
  effectively?
• Prudence
• While compliant, is 72(p) always a prudent limit?
• Leakage
• On a net basis, do loans contribute to increased
  participation and savings rates, or do they
  promote leakage of terminated Participant plan
  assets?
• Can something be done about the concerns of
  terminated Participants? Is there a better
  option than 90 day loan payoff or default?

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Todays Loan Utilization Statistics
SOURCE PSCAs 54th Annual Survey of Profit
Sharing and 401(k) Plans

• Despite the prevalence of 401(k) loans, loan
  assets constitute only 2.4 of total plan assets
  among plans with a loan option
• About 90 of 401(k) Participants are in plans
  that offer a loan option. Within those plans,
  about 1 in 5 eligible Participants has a loan
  outstanding at a given point in time
• In a much larger study of Vanguard administered
  plans, Mitchell, Utkus and Yang (2007) showed
  that having a loan provision raises
• contribution rates by about 10

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Issues for Terminated Participants

• Statistics
• 12 of loan holders (about 2 of Participants)
  terminate employment with a 401(k) loan
  outstanding in any given year
• Loan balances are typically due in full within 90
  days of termination date
• Among 401(k) plan borrowers terminating
  employment, approximately 80 default on their
  loans
• . . . approximately 10 of those with 401(k)
  loans default each year at the time of
  termination of employment
• The challenge - how do we fix the problem?

SOURCE An Empirical Analysis of 401(k) Loan
Defaults
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In-House Loan Administration Challenges

• Time-consuming activity that adds nothing to
  companys bottom line
• Risk of error in setting up/processing payment
  schedules
• Inflexibility of payment plans
• Workplace environments where payroll deduction is
  not a viable solution
• Multi-employer plans (multiple payrolls)
• Restaurants (low hourly rate, tip based comp)
• Retail (low hourly rate, high turnover)
• Car dealerships (multiple payrolls, variable comp
  from commissions)
• Construction (seasonal/cyclical layoffs)
• Heavy payroll maintenance (multiple payrolls with
  divisional transfers)
• More than one loan permitted

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The Solution MyPlanLoan

• Who can use MyPlanLoan?
• MyPlanLoan is for everyone!
• Terminated Participants
• Loan Continuation to avoid immediate payoff or
  default
• Bridging the gap between leaving current job and
• starting a new job
• Active Participants
• Unexpected home repairs
• Unanticipated medical expenses
• During cyclical layoffs

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Terminated Participants - MyPlanLoan

• The Third Option for Terminated Participants
• Participants date of termination reported to
  Recordkeeper
• Participant has an existing Traditional Loan
• Participant can choose to convert the loan(s) to
  a Loan Continuation Account
• Participant can establish a new loan line equal
  to the fixed amount set by the Employer (i.e.
  5,000 subject to daily 72(p) limit)
• Participant does not have an existing Traditional
  Loan
• Participant can establish a new loan line equal
  to the fixed amount set by the Employer (i.e.
  5,000 subject to daily 72(p) limit)
• Participant receives a monthly statement from
  MyPlanLoan
• Participant remits monthly payment to MyPlanLoan

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The Solution - MyPlanLoan

• MyPlanLoan for Active Participants
• Participant requests a loan line up to 72(p)
  limit
• Participant applies online through re-direct from
  Participant Web
• MyPlanLoan Access Card mailed to Participant to
  be used, as needed, for future loan transactions
• Loan lines may be increased up to 72(p) limit
• Unused portion of loan line may be reallocated to
  core investments at any time
• Participant receives a monthly statement from
  MyPlanLoan
• Participant remits monthly payment to MyPlanLoan

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The Solution - MyPlanLoan

• Principal Residence Loans vs. General Purpose
  Loans
• No access card issued loan is created for entire
  amount requested during account opening
• Expanded amortization schedule up to 360 months
• Once request is approved (by Sponsor/Third
  Party), MPL deposits loan proceeds via ACH to
  participants designated bank account (bank
  instructions provided during account opening)
• MPL sends monthly statements and collects
  payments
• As payments are processed, principal and interest
  are returned to participants core funds

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Traditional vs. MyPlanLoan
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The Solution - MyPlanLoan

• How loan lines are created
• Similar to a HELOC, MyPlanLoan creates a
  retirement fund loan line for Participants,
  based upon 72(p) or a lesser amount, as
  determined by the Sponsor/Fiduciary
• Loan line funds are transferred to a separate
  account within the Plan (i.e., stable value or
  money market fund)
• MyPlanLoan Access Card allows Participant to draw
  upon the loan line as needed
• Loans are created only when funds are actually
  spent
• Unused portion of loan line remains in the Plan,
  continuing to earn tax-deferred dividends for the
  Participant

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MyPlanLoan How Loans are created
Participant swipes card at merchant
Transaction processor settles with merchant and
requests funds from MPL
Transaction processor posts transactions and
sends data to MPL
MPL sends file to RK system to redeem money from
loan line fund. MPL settles with processor
Participant Loan created from that days card
usage
RK system updated and RK/Custodian settles with
MPL
Day 4
Day 3
Day 1
Day 2
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MyPlanLoan Repayment

• MyPlanLoan eliminates payroll deduction as the
  method of loan repayment
• Monthly statement detailing loan payment due
  (includes principal, prime interest and the
  MyPlanLoan service fee) is communicated to
  Participant on 10th of the month (e-delivered or
  mailed)
• MyPlanLoan accepts and processes loan payments
  (ACH pull or check)
• Principal and prime interest are remitted to the
  Plan custodian
• Record of loan payments are reported to the
  Recordkeeper
• Defaults are monitored by MyPlanLoan staff and
  communicated electronically to Recordkeeper for
  1099R reporting

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MyPlanLoan How Loans are Repaid
Participant receives monthly MPL statement data
detailing loan payment due
Participant remits loan payment due to MPL via
ACH or Check/Money Order
MPL sends file to RK system with payment
information and initiates ACH of principal and
interest to custodian
RK creates trades to purchase money into loan
line fund (principal) and core funds (interest)
Payment posted to Participants MPL Account
RK system updated
Step 3
Step 2
Step 1
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MyPlanLoan Customer Service

• Dedicated Participant Call Center
• Monday Friday
• 9am 5pm ET
• Inbound/Outbound calls
• Missed Payment Notification
• Phone call and letter
• 30, 60, 90 days
• Prior to default date
• Bilingual
• English and Spanish

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MyPlanLoan Program Fees
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MyPlanLoan Program Services
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MyPlanLoan Benefits

• Recordkeeper Benefits
• Limits trade rejects for inaccurate loan payments
• Insufficient amounts
• Payoffs with continuing loan deductions
• Value added service to market to Plan Sponsors
• Additional revenue opportunity
• Simplifies administration of plans offering
  multiple loans
• Client Retention tool

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MyPlanLoan Benefits

• Plan Sponsor Benefits
• Get out of the loan business
• Paternalistic approach
• Set loan limits, prevent employees from borrowing
  more than they need
• Encourage employees to continue to save for
  retirement
• Ability to offer loans without payroll support
  requirements
• Reduces gamesmanship of hardship and
  termination/rehire transactions
• A compassionate HR benefit for Participants, many
  of whom are involuntarily terminated or terminate
  for good reason
• Layoffs Retirement
• Disability Family care

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MyPlanLoan Benefits

• Participant Benefits
• A third option for terminated Participants
• 1. Immediate payoff
• 2. Default
• 3. Loan Continuation
• Loan availability for terminated Participants to
  help bridge the gap between jobs
• Opportunity to avoid burdensome taxes associated
  with defaults which further worsens leakage of
  Participant assets (federal, state, local, 10
  penalty)
• Participants leave 100 of balance in the Plan
• Loan access when traditional loan administration
  systems arent responsive
• Natural disasters (i.e., Katrina)
• Unforeseen emergencies (i.e., car repair)
• Privacy (loan reason disclosure)
• Loan availability in workplace environments where
  plan loans might otherwise not be available.

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Case Study 1 Taft-Hartley Plan
The Problem Taft-Hartley Plan Members often work
for multiple employers and may experience
periodic layoffs over the course of a typical
loan amortization period, thus making payroll
deduction impractical. Access to a responsible
loan line was needed to help with issues such as
vehicle repairs and tools, which are not covered
by hardship rules.
The Solution The Trustees of the Taft-Hartley
plan added the MyPlanLoan program with a maximum
loan line of 5,000 to their members plan.
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Case Study 2 Non-Profit Employer
The Problem A large non-profit employer converted
its 403(b) from a provider that issued coupon
books for loan repayments. The Employer wanted
to convert to an institutional fund/open
architecture provider but did not want to bring
loan administration back into its payroll
department.
The Solution MyPlanLoan was added with the plan
conversion, and the outstanding coupon-based
loans were converted to a MyPlanLoan account.
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Case Study 3 Geographically-Dispersed Employees
The Problem The payroll department of a large
regional grocery store chain was concerned about
the payroll support requirements of a loan
provisions, given the 24/7, geographically-dispers
ed nature of their business, and thus did not
offer a loan provision in their Plan.
The Solution MyPlanLoan was added to the Plan to
provide employees with a non-payroll deducted
loan option. The Employer effectively outsourced
loan origination, adjudication, payment
processing and default counseling, and was able
to comfortably offer a loan program to employees
for the first time.
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Client Testimonial
HR Manager, Midwest Manufacturing Company When
an economic downturn forced us to lay off several
hundred workers, I felt terrible about those who
had outstanding retirement loans that otherwise
would have been due within 90 days. With
MyPlanLoan we were able to offer these
terminating employees the opportunity to continue
to repay their loans over the original terms,
helping minimize their risk of default.
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About BPAS

• Benefit Plans Administrative Services, Inc. is a
  subsidiary of Community Bank System, Inc. (NYSE
  listed CBU)
• Offices in
• NY New York City, Syracuse, Utica
• IL Chicago
• NJ East Hanover
• PA Philadelphia, Pittsburgh
• TX Houston
• 235 employees providing
• TPA services MyPlanLoan/AutoRollovers (EGTRRA
  distributions)
• Actuarial Services (dedicated staff of 26
  actuaries)
• Institutional Trust (CIF administration)
• VEBA/HRA, Flex services
• Supporting MyPlanLoan administration since 2003

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MyPlanLoan Contact Information
Gwenn Paness, Director of Sales MyPlanLoan (646)
285-4937 gpaness_at_bpas.com