Sage 401(k) plan conversion to Empower FAQ

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1 Sage 401(k) plan conversion to Empower FAQ When 401(k) providers change Why change providers? As part of our ongoing fiduciary responsibilities, we conduct regular portfolio reviews, monitor and evaluate our overall plan performance; and recently underwent a request for proposal (RFP). The RFP process was designed to evaluate the services, fees, plan technology, etc. of potential 401(k) record keepers and administrators. After the RFP was completed, the Sage North America Benefits Committee felt that it was in the best interest of our average participant to switch record keepers and adjust the Plan s investment offerings. I m concerned about changing 401(k) providers with the current market volatility. What should I keep in mind regarding the recent market volatility? It s only natural to be concerned with the economy and how it affects your personal financial circumstances. Though retirement may be a far-away thought for many of us, the truth is that the volatility of the stock market today may challenge the decisions you ve made on funding your retirement. Learn more. Becoming familiar with fees In the coming weeks, you ll receive information about the fees charged to your retirement plan account. These fees are not new. By understanding what is charged to your account, you ll have a more complete picture of one of the factors to consider in planning your retirement. There have been a number of questions about Sage's new 401(k) structure and that is understandable because it is so different than what we've done in the past. In fact, the industry is changing in regards to 401(k) fees and Sage is committed to providing the best, equitable solution to our colleagues. This change reflects the industry's best practice for companies our size. As part of the Sage Benefits Committee's fiduciary responsibility, they will continue to determine the best possible share class for funds that meet our rigorous screening process. In some cases, we may be using a "net" cheapest share class where the fund provides revenue out of the expense ratio for administration services and this "net" effect is cheaper than the share class that doesn't pay anything. In this event, all the revenue sharing from that specific fund will be returned to investors using that fund (making it the "net" cheapest option for the investor). This will happen on a monthly or quarterly basis depending on when Empower receives this revenue on our behalf. Not all of our share classes pay revenue sharing so not every participant will see credits to their account and some will only see credits in certain funds. As the industry matures we anticipate mutual fund families to correct this anomaly and create share classes with no revenue sharing that truly reflects the cheapest operation of their product. Since Sage will, in general, use funds with no revenue sharing the plan will cover its costs by applying Sage 401(k) Empower conversion FAQ Page 1 of 5

2 an administrative charge to each participant with more than $500. Each participant has access to the same services. Therefore, it was determined that these administrative costs would be allocated on a per capita basis - currently this amounts to $96 annually (based on the costs of the plan and number of participants). This amount is subject to change as we continue to negotiate vendor fees and add or subtract participants to the plan. Industry trends show that most participants opt for the re-enrolment and allow their accounts to move into the target date funds. These funds became popular about 10 years ago and represent the most suitably diversified portfolio based on an investor s age. These funds continue to evolve as participant s age and require very little interaction on the participant s behalf. Once again, industry statistics show this to be the employer s most suitable solution with participants making only one change to their account every 18 months (on average). We anticipate over three-quarters of the plan participants will reenrol into the target date funds. Based on these assumptions, we anticipate our plan will go from an average expense of.66% to 0.28%. For a plan with hundreds of millions of dollars this amounts to annual savings of almost $1M. The following frequently asked questions will help you understand some of the most common fees, what they pay for and where you can find them if they re charged to your account. What type of fees are there? Some typical fees are administrative, investment and individual service fees. What are administrative fees? Administrative fees generally cover services such as recordkeeping, legal and trustee/custodial expenses, audit, plan consulting, mailing out plan notices, maintaining the Web site and paying the people who answer the phone when you have a question. It s important to note that administrative fees are not new. Administrative fees were paid to the prior record-keeper through higher expense ratios. By separating the administration fee from the funds expense ratios, participants get a clearer picture of how much they pay for plan participation. Are fees changing? Today, all Sage 401(k) plan participants pay 100% of the plan s administration costs, such as trustee and recordkeeping fees. Although these fees will still be paid by the plan, the manner in which they are charged and the dollar amount of the fees are changing fees are going down! Today, these costs are embedded in the management fees charged by the mutual funds, making the plan administration costs difficult for participants to discern and identify. The intent of the upcoming change is to remove the plan administrative costs from the mutual fund fees and make the plan administrative costs identifiable and transparent to participants. Replacing those administrative costs will be a flat monthly fee charged to all participants with account balances over $500. How are administrative fees charged? Sage, with the transition to Empower, will change the plan s fund line up in order to offer share classes with lower costs. As a result, participants in the plan will pay a monthly fee of $8 ($96 per year) to cover the costs of operating the plan. This fee is subject to change annually. You ll see this fee for the first time on your fourth quarter statement, for the Sage 401(k) Empower conversion FAQ Page 2 of 5

3 period ending December 31, 2015 (assuming you had more than $500 in the plan over the course of the 4th quarter, the charge on your statement will be $24 (3 months x $8 per month). Why are these changes being implemented? These changes are being implemented because it is a more equitable and transparent way for plan participants to pay for administration-related expenses, which are separate and distinct from investment management fees. This new approach is considered a best practice for retirement plans of our size and scale, and aligns with our philosophy of fee transparency for the services and benefits that we provide to our colleagues. What is an investment management fee? An investment management fee may be also known as an expense ratio. A fund s expense ratio covers the cost of operating the fund, which includes management and administrative expenses. Each fund in the plan charges an expense ratio. What you pay depends on which funds you choose and your account balance. What is a gross expense ratio? The gross expense ratio represents the total operating expense of a fund. It is the amount you would pay if the fund did not offer any waivers or reimbursements. Federal disclosure rules require that communications to plan participants show gross expense ratios. What is a net expense ratio? A fund s net expense ratio factors in fee waivers and expense reimbursement. This is the actual expense ratio that investors paid during the fund s most recent fiscal year. When you invest in a fund, the amount you pay will likely be the net expense ratio. Do the expense ratios always stay the same? Both gross and net expense ratios are likely to differ slightly over time. Gross expense ratios can change when the fund s asset size or operating expenses change. Net expense ratios can change if fee waivers offered by the fund change. The net expense ratio is found in the fund s prospectus, if applicable. When am I charged? Expense ratios are stated as an annualized rate. However, funds charge a fee on a daily basis. So, you are only charged a fee for the period of time you are invested in the fund. It s important to note that mutual funds deduct their fee out of the fund s asset base before the nightly share price is computed. That way a tiny fraction of the annual cost is deducted each night and fund investors don t see an itemized cost. What funds have the lowest fees? In general, different types of funds have different fee structures. For example, a large U.S. stock fund may have lower fees than an international stock fund. Passively managed index funds typically have lower fees than actively managed funds. Shouldn t I just pick the investments with the lowest fees? Fees are just one of the factors to take into consideration. Others include how much time you have until retirement and your tolerance for risk. Sage 401(k) Empower conversion FAQ Page 3 of 5

4 Important information about the transition of your account from T. Rowe Price to Empower What happens to my T. Rowe Price account balance? As part of the transition from T. Rowe Price to Empower, your current plan account balance and future contributions in the Sage 401(k) plan will move to a target date fund on October 1 unless you opt out of the automatic transfer before the end of the election period on September 30. You will have a two week open enrollment window beginning on September 14, 2015 to elect your investment options. Can I rollover my T. Rowe account balance to an IRA? No. A change in record-keepers and investment options is not a triggering event that would allow for a rollover or cash out of your account balance. What happens to my outstanding loan? All loans on September 25, 2015, at 4 p.m. ET will transition from T. Rowe Price to Empower and you will continue to make loan payment through payroll deduction. Will I need to make a new deferral election? No. Your deferral percent on file at T. Rowe Price on September 25, 2015, at 4 p.m. ET will be transferred to Empower for setup in their system. Can I continue to make deferral election changes, take a new loan, or change my plan investments at T. Rowe Price after September 25, 2015? No transactions will be allowed on your plan account once the blackout period begins - September 25, 2015, at 4 p.m. ET through the week of October 11, 2015, which is referred to as the transition period. What happens to my payroll deductions and matching contributions during the blackout period? Payroll deductions and matching contributions will continue as normal. Will I need to make a new investment election? As part of the transition, participants current plan account balance and future contributions in the Sage 401(k) plan will move to a target date fund on October 1 unless they opt out of the automatic transfer before the end of the election period on September 30. There is an investment open enrollment that will begin September 14. If they want to opt out of the automatic transfer, participants need to sign in and make their selections at empower-retirement.com/participant or call 1 (888) Is there an investment open enrollment for the non-qualified plan? No. There is not an investment open enrollment for the Sage Non-Qualified plan. When is the blackout period? Blackout will begin on September 25, 2015, at 4 p.m. ET Sage 401(k) Empower conversion FAQ Page 4 of 5

5 Participants will have limited access to their account beginning September 25, 2015, until the week of October 11, No transactions will be allowed on their plan account. Last day to contact T. Rowe Price to request transactions or changes including new loans, withdrawals or distributions from your plan account before the transition. This is also the last day to change their contribution rate percentage or plan investments before the transition begins. To contact T. Rowe Price visit the website at troweprice.com, or call a T. Rowe Price representative at 1 (800) During the blackout payroll deductions and matching contributions will continue. The blackout period is from September 25 through the week of October 11. During this period, where is my money invested? Assets will be invested in the Money Market Fund from October 1 through the end of the live date. We re expected to be live the week of October 11. The asset transfer could be invested in the Money Market Fund for up to 12 business days. Although there is a chance the market will go up while the plan s assets are in a money market fund, there an equal chance the market will go down as well. What we do know is that while the Plan s assets are in a money market fund, everyone will earn some credit on their account balance. Balances will be invested in the Money Market Fund starting October 1, 2015 through the transition period and then allocated to the appropriate investment election that was either made during the opt out period or the BlackRock Target Date Fund prior to the transition period end date. The transition period is expecting to end during the week of October 11, Why is the money placed in a money market account during this timeframe? The balances have to be invested in the Money Market Fund because Sage is using this opportunity to re-enroll plan participants in the most suitably diversified investment option the Target Date Fund(s) based on their date of birth. On the asset transfer date (October 1) the record-keeper and Trustee know how much money is in the plan. What they don t know is how much belongs to each individual participant. Empower, our new recordkeeper and Trustee, anticipates receiving the participant records from our prior recordkeeper during the week of October 4. Once they receive these records, Empower will continue their work of reconciling the October 1 wire amount (plus earning from the Money Market Fund) into the respective accounts of each participant based on their selected investments or the default fund whichever is relevant to your situation. Until this reconciliation is complete, balances will remain in the money market fund. This is the best suitable investment during a conversion blackout. Our goal is to have balances reallocated from the money market fund into the appropriate investment elections during the week of October 11. Because our new record-keeper, Empower, is relying on the conversion records from the prior record-keeper, a specific live date cannot be determined. We can ensure for everyone that our conversion team is committed to moving as quickly as possible. Sage 401(k) Empower conversion FAQ Page 5 of 5