US Defined Contribution Plan

• A school is likely to hire a financial advisor to assist them. Most financial advisors charge an annual fee in the “ballpark” of 25 to 50 basis points. (Note: a “basis point” is 1/100 of 1%. So, a fee of 50 basis points is 0.50% multiplied by the plan assets.)
• The school will also choose a company that provides recordkeeping/administrative services for the plan. This firm also is likely to maintain an investment platform from which the plan’s investment funds are chosen. The recordkeeper/administrator may charge a “bundled” fee for all of its services or may charge separate fees for different services. Regardless of how fees are charged on an annual basis, there is likely to be an initial fee relating to the preparation of a plan document.
• Under a 403(b) or 401(k) plan, the amount credited to a participant’s account is adjusted by the investment results of the funds in which the participant’s account is invested. The investment results are affected by the “expense ratios” of the mutual funds in which the participants’ assets are invested. The expense ratio is an offset against the fund’s rate of return.Each mutual fund has different share classes that each have their own expense ratio. The expense ratio charged by the mutual fund under the Plan is often affected by the amount of the plan assets—a plan with a small amount of assets will generally have mutual funds with higher expense ratios. These higher expense ratios reduce participants’ rates of return.
• The plan’s fees can be paid by the employer, paid by the participants, or shared by the employer and the participants.
  • If fees are paid by the participants, the fees are often allocated to the participants’ accounts in proportion to the participants’ account balances. The annual fees are typically subtracted from participants’ accounts in quarterly installments.
  • Some employers choose investment funds with higher expense ratios because those higher fees generate “revenue sharing” that can be offset against plan fees. But these higher expense ratios reduce a participant’s rate of return from a particular mutual fund investment.

• Each retirement plan has a “plan administrator” that is a fiduciary under federal law. For most plans, the plan administrator is the employer or individuals working for the employer.
• Most 403(b) plans and 401(k) plans allow participants to choose the manner in which their account balances will be invested. The participants choose from a “menu” of investment funds selected by fiduciaries for the plan.
  
  There are two structures that are frequently used for choosing the investment funds:
  
  
  • The employer chooses an investment committee, which often hires an investment advisor to assist in the selection of the investment funds. The investment advisor often agrees to be a co-fiduciary with the committee under Section 3(21) of ERISA (a federal law).
  • Less frequently, the employer or the investment committee choose an investment manager under Section 3(38) of ERISA. If an investment manager is chosen, the investment manager has sole discretion for the choice of the menu of investment funds. The employer or investment committee’s responsibility is limited to choosing the investment manager and monitoring the investment manager’s performance.
• If an employer or any of its employees are fiduciaries, the employer may want to purchase fiduciary liability insurance.

Here are some of the key concepts:

• CSI will be the sponsor of the new Plan. CSI member schools may join the CSI Plan as participating employers. Most of the “plan design” issues have been chosen by CSI, but each participating school will still have flexibility to make decisions regarding the following issues for its employees:
  • Employer contributions: Will the employer make contributions on behalf of its employees? If so, will those contributions be matching contributions or contributions based upon eligible employees’ compensation? What will be the amount of these contributions? A participating employer may separately determine the type and amount of its contributions for each school year.
  • Vesting: Will the employer contributions be subject to a three-year vesting schedule, or will they always be 100% vested?
  • Borrowing from accounts: May employees borrow from their accounts under the Plan?
• CSI has chosen retirement plan professionals to carry out most administrative functions relating to the Plan:
  • TIAA is the Plan’s recordkeeper. The investment funds will be chosen from TIAA’s investment platform, which includes TIAA investments and mutual funds from many other fund families (for example, Vanguard and American Funds).
  • TAG Resources is the “legal” plan administrator for the Plan.
  • CBIZ Retirement Plan Services is the Section 3(38) investment manager. CBIZ will choose the “menu” of investment funds made available under the Plan and will monitor their performance on an ongoing basis.

None of these responsibilities are imposed on participating employers. The goal is to simplify the operation of the Plan from the standpoint of a participating employer and reduce legal risks for a participating employer.

These service providers are also available to help you now. They can answer questions about the CSI Plan and assist you in “signing up” to be a participating employer.

• By establishing a “multiple employer plan,” CSI will be able to achieve a saving in costs. The following fees apply:
  • TIAA and TAG together will charge a fee of $190 per participant per year for recordkeeping/administration of the Plan. This fee will decrease as the number of participants increases.
  • CBIZ will charge a fee of five basis points per year for its work as a Section 3(38) investment manager. But, at the current time, CSI intends to pay CBIZ’s annual fee.
  • A plan that has more than 100 participants is required to be audited by a CPA each year. This cost is likely to be in the range of $10,000–$15,000 per year. In a multiple employer plan, this cost is “spread” over many employers and participants.
  • Refer to the initial “menu” of investment funds that will be made under the CSI Plan. We recommend you carefully review the information regarding the rates of return and expense ratios for these funds. As you can see, the rates of return are better, and the expense ratios are lower, than those for the peer funds.

To assist you in comparing different proposals, refer to the Plan Comparison Chart that lists many of the relevant issues regarding the cost and administration of a 403(b) or 401(k) plan. We have included the information regarding the CSI Plan. You can add the information regarding other proposals you receive so that there is a side-by-side comparison.

You may email 403bplan@csionline.org, and a member of the CSI staff will contact you within 24 hours on weekdays.