3 16 Fiduciary Outsourcing

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In August, 2018, Pentegra conducted a survey of retirement plan advisors and their attitudes toward a growing trend in the industry today— ERISA 3(16) Fiduciary Outsourcing. Today, retirement plan administration has become increasingly complex and laden with compliance burdens. For many employers, the commitment of time and energy is overwhelming and too often distracts from the more critical responsibility of running a business. As an advisor, it is a distraction from your business as well. Know More at https://www.pentegra.com/wp-content/uploads/2018/11/2018-Advisor-Survey.pdf

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SURVEY Advisors and 316 Fiduciary Outsourcing 2018 PENTEGRA

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In August 2018 Pentegra conducted a survey of retirement plan advisors and their attitudes toward a growing trend in the industry today— ERISA 316 Fiduciary Outsourcing. T oday retirement plan administration has become increasingly complex and laden with compliance burdens. For many employers the commitment of time and energy is overwhelming and too often distracts from the more critical responsibility of running a business. As an advisor it is a distraction from your business as well. When it comes to the fduciary oversight of a retirement plan while most plan sponsors are the Named Fiduciary of their plan the reality is that they aren’t aware of the myriad of responsibilities that come with that role or that these responsibilities involve signifcant risk. Understanding and handling these responsibilities is time away from their business and yours. Time that could be better spent focusing on growth and proftability. For both you and your clients time is money. There’s an easier way. Outsourcing.

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2 Pentegra Retirement Services What makes an ERISA 316 fduciary so important Contrary to common belief most plan mistakes that occur have little or nothing to do with the investments or the investment manager but instead involve plan administration issues. Some of the top mistakes that occur include: • Plan document not updated to refect law changes • Failure to follow plan terms • Not using the plan’s defnition of compensation for deferrals and allocations correctly • Employer matching contribution errors • Not satisfying non-discrimination tests ADP ACP • Not notifying all eligible employees of their opportunity to defer • Not complying with IRC Section 402g • Not depositing employee elective deferrals in a timely fashion • Hardship distribution issues • Not making required minimum contributions for top-heavy plans • Not fling a Form 5500 series return and not distributing a Summary Annual Report to all participants. Fiduciary outsourcing involves the transfer of legal responsibility for a retirement plan from an employer to an institutional fduciary. By hiring a competent ERISA 316 fduciary plan sponsors are insulating themselves against these errors to a greater level than a typical third-party administrator TPA arrangement provides.

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Nearly all advisors surveyed are familiar with 316 outsourcing. Yes No Not Sure 0 100 50 60 70 80 90 10 20 30 40 83.53 11.76 4.71 Are you familiar with ERISA 316 Fiduciary Outsourcing services

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4 Pentegra Retirement Services A 316 Plan Administrator assumes full responsibility for managing the day-to-day operations of the plan and shifts the legal and operational burdens of the Plan Administrator role from the client to the 316 Plan Administrator.

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4.71 Have you considered recommending outsourced 316 administrator services to your clients Yes No Not Sure 0 100 50 60 70 80 90 10 20 30 40 83.53 11.76 Nearly 84 of advisors surveyed are considering recommending 316 administrative services.

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6 Pentegra Retirement Services The 50 Responsibilities of the Plan Administrator that Can be Outsourced with 316 Services 1. Overall operational compliance 2. Document compliance mandatory interim amendments restatements 3. Form 5500 4. Annual plan audit if applicable 5. New hire processing 6. ERISA bond 7. ACA automatic enrollment administration 8. ACI automatic contribution increases administration 9. Default investment administration 10. Determination of vesting and amount of distribution 11. ERISA section 105 employee beneft statements 12. Reasonableness of fees 13. Prudent selection and monitoring of service providers 14. Beneft determinations and disputes 15. Administration of benefciary rules 16. Worker classifcation 17. Nondiscrimination testing 18. Summary Annual Report SAR 19. Defnition of compensation 20. Allocation of unallocated monies by plan year- end 21. IRC section 72p loan administration 22. Contribution calculations and limitations 23. Protected benefts 24. Acceptance or rejection of rollovers or transfers 25. Annual notices 26. Segregation of assets by source 27. Coverage testing and corrections 28. Involuntary distributions 29. Episodic notices 30. Distributions 31. Hardship withdrawals 32. Qualifed Domestic Relations Orders QDRO 33. Lost/missing participants and unclaimed benefts 34. Grandfathered plan provisions 35. Plan termination and partial termination 36. Spousal consents 37. Survivor benefts QJSA and QPSA 38. Summary Plan Descriptions and Summaries of Material Modifcations SPD and SMM 39. Timely remission of deferrals and loan repayments 40. Timeliness of other required contributions 41. Diversifcation requirements for plans with employer securities 42. Blackout procedures 43. Defned beneft plan duties 44. Participant fee disclosure 404a-5 45. Fiduciary fee disclosure 408b-2 46. Records retention under ERISA Sections 107 and 209 47. Responding to participant inquiries 48. T op-heavy minimum beneft 49. Overpayments 50. Personal liability under ERISA

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26. Segregation of assets by source 27. Coverage testing and corrections 28. Involuntary distributions 29. Episodic notices 30. Distributions 31. Hardship withdrawals 32. Qualifed Domestic Relations Orders QDRO 33. Lost/missing participants and unclaimed benefts 34. Grandfathered plan provisions 35. Plan termination and partial termination 36. Spousal consents 37. Survivor benefts QJSA and QPSA 38. Summary Plan Descriptions and Summaries of Material Modifcations SPD and SMM 39. Timely remission of deferrals and loan repayments 40. Timeliness of other required contributions 41. Diversifcation requirements for plans with employer securities 42. Blackout procedures 43. Defned beneft plan duties 44. Participant fee disclosure 404a-5 45. Fiduciary fee disclosure 408b-2 46. Records retention under ERISA Sections 107 and 209 47. Responding to participant inquiries 48. T op-heavy minimum beneft 49. Overpayments 50. Personal liability under ERISA Most clients are receptive to 316 outsourcing services. 56.10 Are your clients receptive to this type of service Yes No Somewhat 34.15 9.76 0 100 50 60 70 80 90 10 20 30 40

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8 Pentegra Retirement Services Which Employers are a Good Fit for 316 Outsourcing Which types of employers are most likely to be good candidates for 316 outsourcing It is less about the size of the plan than the needs of the plan. There are employers on the smaller end of the spectrum that run a tight ship and have tenured experienced staff responsible for the daily administration of their retirement plan. Even in this scenario outsourcing still frees up staff time that can be reallocated elsewhere plus there is a substantial reduction in liability for the employer. However it may or may not be enough of a pain point for that particular employer to consider outsourcing these responsibilities. On the other end of the spectrum there are large plans where outsourcing makes perfect sense. High turnover ill-advised plan design that increases retirement plan burdens inexperienced staff or understaffed employers all contribute to plan level issues. These are the plans with loan issues control group issues the ones that don’t follow the terms of the plan document or worse can’t even locate the document. These are the plans where a DOL/IRS audit nightmare is in the waiting. Inexperienced staff or understaffed employers all contribute to plan level issues.

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While there isn’t a set-in-stone answer as to which employers are a good ft there are a few things to look for: • That there are enough participants for it to matter. More participants equal more plan activity more things for employer’s staff to do. • That things are being done correctly is important to the employer. There’s only one way to run a retirement plan—the right way. If the employer isn’t one to cut corners and expects things to be done the right way then getting the Plan Administrator duties right will mean something. • That the employer has limited resources and/or sees the value in not having employees spending time on plan minutiae. As important as human resource functions are many companies do not have a dedicated staff. That means employees are wearing many hats. • For the employer who values someone else assuming these responsibilities outsourcing duties that carry substantial legal liability would make good sense. It’s not just about having someone else do it for you it’s also having the other party take responsibility for it. The employer who gets the value of not being responsible—of limiting liability—will appreciate the value of Plan Administrator duties being outsourced. When an employer responds positively to any one or combination of these factors 316 outsourcing makes sense

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How Do You Start the 316 Outsourcing Discussion with an Employer The Advisor needs to believe in the value of the employer outsourcing the Plan Administrator duties—and have a genuine desire to solve client problems by seeing their plan run with less risk and more effciency than they’re experiencing today. A discussion might start with a statement such as “Our retirement plan advisory practice has been built upon a genuine desire to see plans run with less risk and more effciency for the employer and with participants having better outcomes than they’re getting today. We’re doing things that many employers like you are fnding to be great solutions and big improvements for them personally for their business and their employees.” It is also quite possible that the business owner is insulated from the day-to-day tasks involved in the operation of their qualifed plan which may require some education on the part of the advisor. In that case the conversation might sound like “T oday your staff is responsible for required notices to new employees and existing participants loans reviewing/approving/documenting hardships tracking down—and keeping track of—terminated employees keeping documents updated and making sure these are done correctly and on time—to name just a few of the 50+ chores associated with the operation of your plan.” 10 Pentegra Retirement Services

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What makes outsourcing services most attractive to clients Mitigate retirement plan risks Plan oversight relief Lessen administrative responsibilities Reduce plan burdens Alleviate work 1 2 3 tied 4 tied The Advisor needs to believe in the value of the employer outsourcing the Plan Administrator duties. Save time

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12 Pentegra Retirement Services 1.18 Are you actively discussing this fduciary outsourcing option with your retirement plan clients Yes No Not Sure 75.29 23.53 0 100 50 60 70 80 90 10 20 30 40 12 Pentegra Retirement Services

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18.67 If so what percentage of your clients are you in conversations with Under 10 10 - 30 50 75.29 18.67 0 100 50 60 70 80 90 10 20 30 40 50 - 75 Over 75 13.33 20.00 75 of advisors surveyed are actively discussing 316 fduciary outsourcing with clients.

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14 Pentegra Retirement Services A Common Misconception Many employers likely believe they’ve already “outsourced” these duties to their third party administrator TPA when in reality they’ve only obtained clerical help from a non-fduciary service provider who leaves a wide range of responsibilities on the employer’s plate. This isn’t to suggest the work of a traditional TPA isn’t meaningful—it is. However from a workload and liability standpoint it is not the same thing as outsourcing 316 duties to a professional fduciary. It is also worth noting that most employers don’t realize they have a choice to not be the responsible fduciary for the Plan Administrator duties. In that case the conversation might also include “T oday you’ve delegated the operation of your 401k to your staff. T omorrow a professional fduciary would be responsible. Y our name comes off the 90+ page legal document. While retaining a limited number of responsibilities as the plan sponsor the professional fduciary is responsible for operating your plan making sure it’s complying with all of the Federal regulations governing employer-sponsored retirement plans. Wouldn’t you rather outsource these tasks to someone else who will own them and take responsibility In addition you woud be shielding your staff from personal liability which they are subject to today. Y our employees are free to apply that time and effort to other much needed work - healthcare wellness programs and other employee benefts workers compensation issues sales and marketing the running of your business. How would that sound to you” And the preferred response would be “That’s a no brainer.”

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Do your clients understand the difference between a Third Party Administrator TPA and 316 Administrator TPA Separate Fiduciary An independent fduciary is appointed as named fduciary and/or 316 administrator as an added layer in the plan document and other governing documents and contracts. The fduciary is not the TPA or recordkeeper but becomes the party responsible for prudently selecting and monitoring the TPA and/or recordkeeper. Under this approach the TPA—the party doing the actual work—is still not a fduciary. The TPA as 316 Fiduciary Administrator A “First” Party Administrator The TPA and/or recordkeeper—is appointed as the named fduciary and/or 316 administrator. The key advantage of this approach is the ability to outsource these responsibilities because under a true 316 arrangement the party doing the work is also the party accepting responsibility for doing it properly. Non-Fiduciary TPA The non-fduciary TPA offers supplemental services such as document mailings or hands-free distribution processing but does so as a non-fduciary or accepts very limited fduciary responsibility for certain tasks only. While this is often a low cost approach the employer retains the bulk of the legal responsibility and therefore much of the labor and all of the fduciary responsibility. Most employers don’t realize they have a choice to not be the responsible fduciary for the Plan Administrator duties.

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How Can You Minimize Plan Related Decisions For Your Client And Make Their Day Job Easier It is estimated that the average adult makes nearly 35000 remotely conscious decisions each day. In fact researchers at Cornell University estimate we make 226.7 decisions each day on food alone. As your level of responsibility increases so do the multitude of choices you have to make each day. How many remotely conscious decisions about the company retirement plan do your clients make each week More importantly are they aware that there is liability attached with every decision that they make as the Named Plan Administrator What if we could remove those plan related decisions so the employer can focus on other aspects of running their business Wouldn’t that be a no brainer Outsource decisions. Reduce liability. Simplify. 16 Pentegra Retirement Services

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Advisors tell us that more clients are utilizing 316 fduciary outsourcing than not. 39.24 What percentage of your clients are currently utilizing 316 fduciary outsourcing services Using Not Using Not Sure 39.24 21.52 0 100 50 60 70 80 90 10 20 30 40 The survey results included in this material were obtained from Pentegra’s 2018 Survey of Retirement Advisors. The survey sample is comprised of the responses of eighty-fve respondents of retirement advisors nationwide in August 2018.

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Deliver Added Value for Your Clients As a retirement plan advisor too often you spend time solving plan administrative issues for your clients. With the addition of 316 plan administration services you can partner with a professional fduciary to reduce your clients’ responsibilities duties and liabilities while saving you time money and burdens so you can spend your time growing your practice. • Relieve plan sponsors of real work time and liability sponsors want to offer a plan they don’t want added administrative responsibilities • Showcase a way to streamline plan management and save time and money • Offer a new solution that’s different than the usual talk about investment funds and fees • Focus more of your time on participant retirement readiness and growing your business Make our expertise your expertise by partnering with one of the most experienced 316 Administrators in the nation. Pentegra offers the platform fexibility to bring your solution together seamlessly. Pentegra’s 316 Fiduciary Administrator services shifts these burdens from your client’s organization to ours. Many providers say they provide 316 services. Some take responsibility for a handful of tasks. At Pentegra wenot only perform these tasks but also accept responsibility for them. We are a ‘frst’party administrator—we provide TPA services and serve as a true 316 administrator. Our 316 Fiduciary Administrator services allow you to reduce your administrative burdens by not only handing off these tasks to us but also handing off the responsibility for ensuring that they are handled well. With a 75-year legacy built serving as an institutional fduciary Pentegra offers a level of fduciary protection that is unmatched in the industry. We deliver an unrivaled level of oversight and accept a higher level of responsibility. 18 Pentegra Retirement Services

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Key advantages to advisors who are able to offer clients 316 outsourcing services. Mitigate retirement plan risks Offer a service that goes above and beyond traditional TPA servicest Alleviate work for me and my client Relief of plan oversight Provide clients with a boutique-level service Reduce plan burdens 1 2 tied 3 4 tied Save clients time 5 Grow Your Retirement Practice with Pentegra. Let us help you achieve your goals.

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For more information on our fduciary outsourcing retirement plan or multiple employer plan MEP solutions contact the Pentegra Solutions Center at solutionspentegra.com or 855.549.6689 or visit us at www.pentegra.com The Path to Simpler Safer Easier Plan Management

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2 Enterprise Drive Suite 408 Shelton CT 06484-4694 800 •872 •3473 tel 203 •925 •0674 fax www.pentegra.com © 2018 Pentegra Retirement Services All Rights Reserved

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