Participant Guide to Understanding Fee Disclosure

Transcription

1 Participant Guide to Understanding Fee Disclosure The cost to maintain a high-quality plan In the spirit of the fee disclosure rules issued by the U.S. Department of Labor (DOL), the Minnesota Deferred Compensation 457(b) Plan (MNDCP) provides this fee disclosure notice to all eligible employees and plan participants. Fees are an important consideration in selecting retirement savings investments because they lower potential returns. Ultimately, fees and expenses impact retirement account balances. While there are many factors (other than fees and expenses) to consider when making investment decisions, this document summarizes certain plan-related and investment-related fees and expenses to better assist with investment and account management decisions. There are many investment-related terms used throughout this document, please see the glossary of terms on page 10. Page 1

2 Consider how just a one percentage point difference in fees could affect an account balance over time Assuming a beginning account balance of $25,000, continuous contributions of $100 per month ($50 per paycheck with 24 pay periods per year), and an average 6% annual total return over 35 years. $300,000 $250,000 $286,288 If annual fees are 0.50%, an account would hypothetically grow to about $286,288. But if fees are 1.50%, an account balance might only grow to about $216,572. $200,000 $150,000 A difference of $69,716 $216,572 FOR ILLUSTRATIVE PURPOSES ONLY This hypothetical illustration is not guaranteed and does not reflect the performance of any specific investment. It is intended to help demonstrate the possible impact differing fee amounts could have on an account balance over time. This example does not include the impact of taxes which would lower the values shown. $100,000 $50,000 $0 Page 2

3 MNDCP participants pay the following fees: 1. Administrative Fee The Plan administrative fee covers the costs of administering the MNDCP. A portion of the administrative fees collected are paid to Empower Retirement, recordkeeper for MNDCP. Examples of recordkeeping services include: p systems architecture p data entry and processing p payroll processing p website and automated voice response system p daily account valuations and reconciliations p preparation and mailing of participant account statements p support for plan audits p tax reporting Administrative fees also help offset expenses incurred by the Minnesota State Retirement System (MSRS), administrator for MNDCP. Examples of MSRS services include: p communication - newsletters, brochures, guides p participant education and counseling p toll-free telephone access to Plan Representatives p trade processing p legal support p financial reporting p distribution processing MNDCP Administrative Fee Currently, the annual administrative fee is 5 basis points (0.05%), deducted monthly from an account balance at a rate of %. The fee is not charged on account balances in excess of $100,000. Therefore, the maximum annual fee is $50. Annualized, the administrative fee is.50 for each $1,000 invested. The actual administrative fee charged can be found under the Fees column within the Your Account Activity Summary section of quarterly statements. Page 3

4 2. Investment Option Operating Expenses Most investment options (or fund ) have operating expenses, otherwise known as an expense ratio. The expense ratio is a measure of what it costs an investment company to operate a fund. The largest component of an operating expense is the fee paid to the investment manager/advisor. Other costs include recordkeeping, custodial services, taxes, legal expenses, and accounting and auditing fees. Operating Expenses are determined through an annual calculation, expressed as a percentage. A fund s operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund s assets and lower the rate of return (or performance) of a fund. MNDCP Investment Options Operating Expenses Each funds operating expense (expense ratio) can be found on page 8 and is also reflected on the MNDCP Investment Option Performance Report. This expense is shown under the Gross Fund Exp. column. Page 4

5 Fund Reallowances The Plan in conjunction with the Minnesota State Board of Investment regularly monitors the investment options offered and negotiates with different investment companies to ensure that Plan participants benefit from low operating expenses. The Plan provides institutional share classes, when available; however, funds that only offer retail share class have agreed to provide reallowances to the Plan. The Plan uses the reallowances to offset administrative expenses, thereby passing the savings on to Plan participants in the form of lower administrative fees. Below is a description of reallowances the Plan receives: Fund Name Fee Offset How Fee Offset is Calculated T. Rowe Price Small Cap Stock Fund 0.15% per year On the average daily net assets held by the Plan over the month Fidelity Diversified International Fund 0.25% per year On the average daily net assets held by the Plan during the quarter Janus Twenty Fund 0.25% per year On the average monthly net assets held by the Plan during the month Dodge & Cox Income Fund 0.08% per year On the average net assets held by the Plan during the quarter Fund reallowances are contractual and may be subject to change or termination. Page 5

6 3. Individual Fees MNDCP offers the following optional services for a fee. These fees are deducted directly from an account balance. Overnight mail fee a $25 fee will be deducted, per occurence, from the proceeds of a distribution if this option is chosen. Self-Directed Brokerage Account (SDBA) provided through TD Ameritrade offers thousands of mutual funds from which to choose, in addition to the core investment options offered by the Plan. The SDBA is intended for knowledgeable investors who acknowledge and understand the risks associated with the investments contained in the SDBA. Annuity Product Service provided through Income Solutions is available to all Plan participants. Income Solutions allows participants to convert Plan assets to a guaranteed income stream through the purchase of an institutionally-priced fixed annuity. Interested participants receive competitive quotes from up to six available insurance companies and select the company and annuity that best fit their needs. There is no cost to receive an annuity quote; however, there is a one-time fee of 2.5% of the deposit amount, which is assessed upon purchase of the selected annuity. GWFS Equities is not affiliated with Income Solutions. Participant s who use a SDBA pay a $2.50 monthly fee (deducted from an account balance) or $30 annually for the use of this service. This fee is in addition to any transaction fees TD Ameritrade charges and any expenses of the investments chosen within a SDBA. Contact TD Ameritrade at for more detailed SDBA fee information. 1 Brokerage services provided by TD Ameritrade Inc., member FINRA/SIPC/NFA. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and the Toronto-Dominion Bank. All rights reserved. Used with permission. Additional information can be obtained by calling TD Ameritrade at (866) TD Ameritrade and GWFS Equities, Inc. are separate and unaffiliated. Page 6

7 MNDCP Individual Fees, continued Managed Account Service - provided through Advised Assets Group, LLC (AAG), a federally registered investment adviser. AAG offers independent advisory services to Plan participants. Interested participants give AAG the ability to make investment choices based on their personal goals and financial situation. The Managed Account service provides a personalized and strategically designed retirement portfolio that is automatically managed from quarter to quarter. The annual fee for this service is based on your account balance and is no more than 0.45%. Discounts apply for account balances over $100,000. That s $45 a year for each $10,000 account balance. The fee is deducted monthly directly from an account balance according to the following fee schedule: Fund Redemption Fee Funds may charge redemption fees, also referred to as short-term trading fees, at any time to discourage investors from making a short-term round trip trade (i.e., a purchase, typically a transfer, followed by a sale within a short period of time) or engaging in excessive trading. If a redemption fee is charged, it is assessed when a participant redeems or sells fund shares within a specified time frame. These fees are deducted from the transfer or redemption amount. Currently, the Fidelity Diversified International Fund is the only investment option that charges a redemption fee. A 1% fee will apply to all redemptions from the Fidelity Diversified International Fund for any shares held less than 30 calendar days. Participant Account Balance Managed Account Annual Fee First $100,000 of account balance 0.45% Next $150,000 up to $250,000 account balance 0.35% Next $150,000 up to $400,000 account balance 0.25% Amounts greater than $400, % AAG also offers Online Investment Advice service that provides fund-specific portfolio and savings rate recommendations based on your needs using the core funds available in the plan. There is a $25 fee for this service, billed at $6.25 quarterly. There is no fee for Online Investment Guidance, a service that provides general asset allocation and savings rate information. There is no guarantee that participation in Reality Investing Advisory Services will result in a profit or that your account will outperform a self-managed portfolio Managed Account, Guidance and Advice services are offered by Advised Assets Group, LLC (AAG), a federally registered investment adviser and wholly owned subsidiary of Great-West Life & Annuity Insurance Company. More information can be found at Page 7

8 Cost of Participation (as of ) Please consider investment objectives, risks, fees and expenses carefully before investing. The prospectuses and/or disclosure documents contain this and other important information. Read them carefully before investing. To obtain a prospectus or disclosure document for performance data current to the most recent month-end, or to learn more about the investment options visit /investments-mndcp or call Investment Option Name Total Annual Total Annual Plan Redemption Fee & Operating Expense 1 Administrative Fee 2 Other Investment Option Restrictions 3 Embedded in Fund NAV Deducted directly from account balance Expense Ratio Per $1,000 As a % US Small Cap Equity T. Rowe Price Small Cap Stock Fund 0.91% $ % NA International Equity Fidelity Diversified International Fund 0.95% $ % 1% -shares held less than 30 calendar days Vanguard Total International Stock Index Fund 0.10% $ % See footnote 3 US Mid Cap Equity Vanguard Mid Cap Index Fund 0.06% $ % See footnote 3 US Large Cap Equity Janus Twenty Fund 0.77% $ % See footnote 3 Vanguard Institutional Index Fund 0.02% $ % See footnote 3 Balanced Vanguard Balanced Index Fund 0.08% $ % See footnote 3 Bond Dodge & Cox Income Fund 0.43% $ % NA Vanguard Total Bond Market Index Fund 0.05% $ % See footnote 3 Stable Value SIF Stable Value Fund 0.26% $ % See footnote 3 Money Market 4 SIF Money Market Fund 0.01% $ % NA Target Retirement Funds 5 MN Target Retirement 2060 Fund 0.17% $ % NA MN Target Retirement 2055 Fund 0.17% $ % NA MN Target Retirement 2050 Fund 0.17% $ % NA MN Target Retirement 2045 Fund 0.17% $ % NA MN Target Retirement 2040 Fund 0.17% $ % NA MN Target Retirement 2035 Fund 0.17% $ % NA MN Target Retirement 2030 Fund 0.17% $ % NA MN Target Retirement 2025 Fund 0.17% $ % NA MN Target Retirement 2020 Fund 0.17% $ % NA MN Target Retirement Income Fund 0.17% $ % NA Page 8

9 Cost of Participation Footnotes 1 Operating expenses are deducted by the investment company prior to the calculation of the net asset value (NAV). The Gross Expense Ratios shown do not reflect any temporary fee or expense waivers that may be in effect for a fund. 2 The administrative fee is deducted and prorated among investment options in your account at a rate of % per month or 0.05% annually. This fee is deducted the last business day of each month. The fee is only charged on the first $100,000 in an individual s account. For SIF investment options, this fee only applies to contributions made after July 1, Trading restrictions. Some investment and fixed-interest account options impose fees or trading restrictions to prevent short-term trading. Investment Option Fidelity Diversified International Fund All Vanguard Funds Janus Twenty Fund SIF Stable Value Fund Dodge & Cox Income Fund Trading Restrictions/Fees 1% fee will apply to all redemptions made from this fund for shares held less than 30 calendar days. Any participant who transfers money out of a Vanguard fund is not permitted to transfer money back into the same fund for a period of 60 calendar days. Generally, a purchase and redemption of shares from the fund within 90 calendar days may result in enforcement of the funds excessive trading policies and procedures on future purchase orders. Participants may not transfer balances directly from the SIF Stable Value Fund to the SIF Money Market Fund. They may transfer the SIF Stable Value Fund balance to any other fund option for 90 days before moving the balance to the SIF Money Market Fund. This is known as an Equity Wash restriction. If round trip-transfer* is made within 30 calendar days and another round-trip is made within the subsequent 30 days, transfers back into the fund are not allowed for 30 days. *Example of round-trip transfer funds are transferred from Dodge & Cox Income Fund to another MNDCP fund and then transferred back to Dodge and Cox Income Fund. 4 An investment in a Money Market fund is not insured or guaranteed by the Federal Deposit Insurance Company (FDIC) or any other government agency. Although the fund seeks to preserve the value at $1 per share, it is possible to lose money by investing in the account. This option is not registered with the Securities and Exchange Commission and is only available to participants in the Minnesota State Retirement System defined contribution plans. 5 The Target Date in the MN Target Retirement Funds is the approximate date an investor plans to start withdrawing their money. A target date fund will gradually shift its emphasis from more agressive investments to more conservative ones based on its target date (which is the assumed retirement date for an investor).when the target date is reached, the account balance may be more or less than the original amount invested. For each target date portfolio, until the day prior to its target date, the portfolio will seek to provide total returns consistent with an asset allocation targeted for an investor who is retiring in approximately each portfolio s designated target year. On the target date, the portfolio will seek to provide a combination of total return and stability of principal. There is no guarantee that any investment option will achieve its stated objective. Principal value fluctuates and there is no guarantee of value at any time, including the target date. Page 9

10 Glossary of Terms A glossary excerpt explains some common terms used by defined contribution plans Administrative Fee: A fee charged by an organization or agency responsible for administering a group employee benefit plan to cover expenses related to recordkeeping and other administrative costs. Annual Rate of Return: The annual rate of gain or loss on an investment expressed as a percentage. Asset Allocation: A method of investing by which investors include a range of different investment classes, such as stocks, bonds and cash equivalents, in their portfolios. Asset Class: A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (e.g., stocks), fixed income (e.g., bonds) and cash equivalents (e.g., money market funds). Basis Point: 1/100th of 1%, or 0.01%. For example, 5 basis points (bps) equals 0.05%. An investment with an expense ratio of 5 bps would charge $0.50 per $1,000 invested on an annual basis. Investment expenses, interest rates and yield differences among bonds are often expressed in basis points. Benchmark: A way of measuring the performance of a security, investment option or investment manager based on a point of reference. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500 Index. Individuals cannot invest directly in an index. A benchmark is not actively managed, does not have a defined investment objective, and does not incur fees or expenses. Therefore, performance of a fund will generally be less than its benchmark index. Bond: A debt security that represents the borrowing of money by a corporation, government or other entity. The borrowing institution repays the amount of the loan plus a percentage as interest. Income funds generally invest in bonds. Page 10 Self Directed Brokerage Account (SDBA): A plan feature that permits participants to purchase investments that are not included among the plan s general menu of designated investment alternatives. Capital Preservation: An investment goal or objective to keep the original investment amount (the principal) from decreasing in value. Cash Equivalent: An investment that is short-term, highly liquid and has high credit quality. Diversification: The practice of investing in multiple asset classes and securities with different risk characteristics to reduce the risk of owning any single investment. Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets. Emerging Markets: Generally, economies in the process of growth and industrialization, such as in Africa, Asia, Eastern Europe, the Far East, Latin America and the Middle East, which, while relatively undeveloped, may hold significant growth potential in the future. Investing in these economies may provide significant rewards and significant risks. May also be called developing markets. Equity/Equities: A security or investment representing ownership in a corporation, unlike a bond, which represents a loan to a borrower. Often used interchangeably with stock. Equity Wash Restriction: A provision in certain stable value or fixed income products under which transfers made from the stable value or fixed income product are required to be directed to an equity fund or other non- competing investment option of the plan for a stated period of time (usually 90 days) before those funds may be invested in any other plan-provided competing fund (such as a money market fund). Investment managers determine which funds within a plan menu are considered competing and non-competing funds. Expense Ratio: A measure of what it costs to operate an investment, expressed as a percentage of its assets or in basis points. These are costs the investment management company charges, which are deducted from assets in the funds before the daily share prices or unit values are calculated. These fees allow them to recover their costs of managing and marketing the funds. Index: An unmanaged group of securities whose overall performance is used as a benchmark against which financial or economic performance may be measured, such as the S&P 500. Inflation: The overall general upward price movement of goods and services in an economy. Inflation is one of the major risks to investors over the long term because it erodes the purchasing power of their savings. Interest/Interest Rate: The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond issuer. Investment Option Performance (IOP): Listing of core investments available in the Plans comparing performance to benchmarks, performance over time and expense ratios. The IOP is posted monthly on the Plans website and is available with your quarterly participant statement. Liquidity: The ease with which an investment can be converted into cash. If a security is very liquid, it can be bought or sold easily. If a security is not liquid, it may take additional time and/or a lower price to sell it.

11 Market Capitalization (Market Cap): The market value of a company s outstanding securities. Market capitalization can be determined by multiplying the number of outstanding shares of a company s stock by the stock s current market price per share. Mutual Fund: A registered investment fund that pools a sum of money (usually from individual investors) to invest in different securities. Net Asset Value (NAV): The net dollar value of a single investment fund share or unit that is calculated by the fund on a daily basis. Operating Expense: The costs to operate an investment; including management fees, administrative fees, and any marketing and distribution fees. See Expense Ratio. Recordkeeper: A company or individual that tracks the status of your retirement benefits. Redemption fee: A fee some mutual funds charge when an investor sells shares within a specified short period of time. Risk: The potential for investors to lose some or all of the amounts invested or to fail to achieve their investment objectives. Roth: Instead of receiving a current tax deduction with tax-deferred contributions, you pay tax at the time of contribution and withdraw your balance without paying taxes as long as you meet certain conditions. Roth contributions must be held at least 5 years before date of distribution and you must be age 59½ (assuming separation from service, dealth or disability). Share: A unit of ownership in a mutual fund or, for stocks, a corporation. Stock: A security that represents an ownership interest in a corporation. Target Date Fund: A fund designed to provide a pre-mixed, diversified selection of investments (typically stocks and bonds) based on an investor s age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income; also known as a lifecycle fund. Tax-Deferred Investment: An investment where taxes on pre-tax contributions and earnings are postponed (or deferred) until withdrawn. Plans such as 401(k), 403(b) and 457 plans, along with traditional IRAs, are examples of tax-deferred investments. Time Horizon: The amount of time that an investor expects to hold an investment before taking money out. Total Return: The performance of an investment over a specific period of time. Total return includes income and share price appreciation and depreciation. Total return assumes that all dividends and capital gains paid during the period are reinvested to buy additional shares. Volatility: A statistical measure of variation of price for a given security or market index. In general, riskier securities tend to have higher volatility. Security: A general term for stocks, bonds, mutual funds and other investments. Page 11

12 Need more information? For additional information or to review your retirement plan account, log on to review your account at or contact a Representative at , option 3 60 Empire Drive, Suite 300, Saint Paul, MN Toll-free: Fax: Core Securities, when offered, are offered through GWFS Equities, Inc. and/or other broker dealers. GWFS Equities, Inc., Member FINRA/SIPC, is a wholly owned subsidiary of Great-West Life & Annuity Insurance Company. PT (7.15) Page 12