Retirement plan redemption fees and trade restrictions. Frequently asked questions. Know which trading activities trigger fees and restrictions

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1 Retirement plan redemption fees and trade restrictions Frequently asked questions Know which trading activities trigger fees and restrictions 1

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3 The ability to move your retirement plan assets to meet your investment goals is a great feature. This feature is available to you as a participant in your employer s retirement plan. Trading excessively, however, can have a negative impact on long-term investors like you. With the best interests of investors in mind, many mutual fund companies have established, or are establishing, policies designed to discourage harmful short-term trading. These policies are commonly referred to as redemption fees and trading restrictions. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. 3

4 What s a redemption fee? A fee charged to an investor who trades in and out of a fund within a specified time frame (for example, 30 days). Typically the fee is a percentage of the amount withdrawn (for example, 2%). Fees vary by both fund company and by fund. The amount of a fund s redemption fee is outlined in the prospectus. This fee is reinvested back into the fund to offset the increase in trade costs. This benefits the long-term investors remaining in the fund. What s a trade restriction? A limit a fund house places on the ability to trade into a fund within a specified time frame following an exchange out of that fund. Why are these fees and restrictions necessary? Some participants attempt to time the market continually buying and selling fund units within a very short time frame. Unfortunately, this practice may impact long-term investors. How? By causing increased trading costs and forcing the mutual fund company to have more liquid assets (cash) on hand. So to protect long-term investors, mutual fund companies have placed trading restrictions and fees on certain funds to discourage this practice and offset the increased trading costs. How long have these short-term trading policies been in effect? Redemption fees and trade restrictions have been common in the mutual fund industry for many years. However, they are relatively recent in the retirement plan market. How are redemption fees applied? Units subject to a redemption fee are determined based upon the first in, first out method, where units purchased first are redeemed first and units purchased last are redeemed last. 4

5 How will I know whether or not a fund in my plan has a redemption fee and/or a trade restriction? Log in to the Investor Service Center (ISC) website found at nationwide.com/login. Under the Explore Funds tab, select Trading Policies. The funds in your plan with redemption fee policies are indicated with an F. Funds that have trade restriction policies are indicated with a T. You ll also find a set of Frequently Asked Questions on both redemption fees and trade restrictions. 5

6 My fund has a redemption fee of 2% for assets held less than 30 days. What does this mean? A redemption fee is applied when assets invested in the fund for less than the stated number of days are redeemed or transferred between funds. This means that any assets transferred out of the fund held less than 30 days would be subject to a 2% redemption fee. This fee would be withheld from the amount of the transfer and sent to the fund house to be reinvested in the fund. The following examples are based on the assumption that ABC Fund has a 2% redemption fee for assets held less than 30 days. EXAMPLE 1 Joe Smith has $10,000 invested in ABC Fund. Of this amount, $9,000 has been invested in ABC Fund for more than 30 days. Joe now wishes to exchange $8,000 out of ABC Fund and into XYZ Fund. Because Joe has held more than $8,000 in ABC Fund for longer than 30 days, this exchange will not incur a redemption fee. 6

7 EXAMPLE 2 Jane Smith has $10,000 invested in ABC Fund, none of which has been invested in ABC Fund for more than 30 days. Jane now wishes to exchange $8,000 out of ABC Fund and into XYZ Fund. Because none of these assets have been invested in ABC Fund for longer than 30 days, the entire amount of this exchange is subject to the 2% redemption fee ($8,000 x 0.02 = $160). This $160 redemption fee will be withheld from the exchange and sent to the fund house to be reinvested, with the remaining $7,840 being exchanged into XYZ Fund. EXAMPLE 3 John Smith has $10,000 invested in ABC Fund. Of this amount, $3,000 has been invested in ABC Fund for longer than 30 days. Joe now wishes to exchange $8,000 out of ABC Fund and into XYZ Fund. Because $3,000 has been invested for longer than 30 days, that amount is not subject to a redemption fee. To calculate the amount of the exchange subject to a redemption fee, subtract the amount held longer than 30 days from the total requested exchange amount ($8,000 - $3,000 = $5,000). The remaining $5,000 is then subject to a redemption fee of 2% ($5,000 x 0.02 = $100). This $100 redemption fee will be withheld from the exchange and sent to the fund house to be reinvested, with the remaining $7,900 being exchanged into XYZ Fund. 7

8 How will I know if my transaction exceeds a fund trading limit? If you ve attempted a transfer or reallocation transaction involving a fund with a trade restriction and the portion of the transaction for that fund is greater than the fund s trading limit, you ll receive the following warning: After this message, the system will display an alert next to the attempted transaction indicating the fund that caused the transaction to fail. T If this occurs, you ll need to review the Trading Policies tab for the particular fund and modify (lower) the percentage, or clear out of the transaction entirely. On the Review and Confirm page, you ll also receive the following message warning you that this transaction may not be processed because it may exceed trading limits, or, if applicable, that a redemption fee may be applied to the transaction. CAUTION: Due to market fluctuation, your transaction may exceed trading limits and therefore may not be processed. It s possible this transaction may limit your ability to exchange in the future. When a fund is restricted, the entire transfer that includes the restricted fund will not be processed if the trade exceeds the maximum in amount for that fund during the restricted period. Or, your transaction may be subject to a redemption fee. Visit the balance detail screen tomorrow and confirm that your transaction was processed as you intended. You may visit the transaction history section tomorrow and see if a redemption fee was taken on your transaction. Or, you can call a Customer Service Representative at , option 1. 8

9 How will I know if my transaction will result in a redemption fee? If the fund you are exchanging out of has a redemption fee policy, it will have an indicator F next to it. In this case, you can either clear your transaction to avoid the possible redemption fee or submit it. On the Review and Confirm page, you ll receive the following message warning you that this transaction may not be processed because it may exceed trading limits or, if applicable, that a redemption fee may be applied to the transaction. CAUTION: Due to market fluctuation, your transaction may exceed trading limits and therefore may not be processed. It s possible this transaction may limit your ability to exchange in the future. When a fund is restricted, the entire transfer that includes the restricted fund will not be processed if the trade exceeds the maximum in amount for that fund during the restricted period. Or, your transaction may be subject to a redemption fee. Visit the balance detail screen tomorrow and confirm that your transaction was processed as you intended. You may visit the transaction history section tomorrow and see if a redemption fee was taken on your transaction. Or, you can call a Customer Service Representative at , option 1. If you do not want to move forward with your transaction because you may incur a fee, you ll need to go back to the move money tab and delete it before the close of the New York Stock Exchange on the effective date listed on the Review and Confirm page. If you do decide to move forward, make sure you visit the balance detail screen the following day to confirm your transaction processed as you intended. 9

10 Can I receive an estimate of the redemption fees? Currently the website does not provide you with an estimate. You can call , option 1, and a customer service representative can assist you in finding the history needed to estimate the fee. If I pay a redemption fee, can I get back into the fund? Currently there are no limitations on purchases of a fund after a redemption fee has been taken. However, fund companies may employ multiple trading policies. If my account has a trading restriction placed on it, can I continue to transfer money out of the fund? Yes, for funds with trading restrictions, you may trade money out of the funds; however, a trading restriction blocks your ability to trade money into the fund. Are there transactions that are exempt from trading restrictions? Yes, but exemptions can vary by each individual fund company. In general, the following types of transactions may be exempt from trading policies: > Contributions made on a periodic basis > Loan and hardship withdrawals > Withdrawals due to disability or death > Automated Asset Rebalancing that occurs on a scheduled and periodic basis Be sure to consult the prospectus for details about specific funds. The use of diversification and asset allocation as part of an overall investment strategy does not assure a profit or protect against loss in a declining market. 10

11 Has Nationwide implemented any steps to help reduce short-term trading by participants? The following trade monitoring policy is in effect: > You may complete 11 web or INQUIRE (phone) transfers within two consecutive calendar quarters of the same year, or up to 20 web or INQUIRE transfers within a calendar year (whichever occurs first) > You ll receive a trade restriction policy reminder notice after completing your sixth web or INQUIRE transfer in a calendar year > If you have reached the point of being restricted by the Nationwide trade monitoring policy, you will not be able to complete transfers through either the Web or INQUIRE for the remainder of the current calendar year; however, you can submit transfers through the U.S. mail requests sent by fax will not be accepted > Web and INQUIRE transfer restrictions will reset every Jan. 1 Nationwide will work with the mutual fund houses to honor their trading policies. Please consult the prospectus for each fund to determine what, if any, trading policies exist for that fund. It is possible to be within the limits of the Nationwide monitoring, but still incur a redemption fee or trading restriction. Who can I contact about additional questions? Talk with your investment professional or retirement plan representative. 11

12 Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution Not insured by any federal government agency May lose value The Nationwide Group Retirement Series includes unregistered group fixed and variable annuities and trust programs. The unregistered group fixed and variable annuities are issued by Nationwide Life Insurance Company. Trust programs and trust services are offered by Nationwide Trust Company, FSB, a division of Nationwide Bank. Nationwide Investment Services Corporation, member FINRA. Nationwide Mutual Insurance Company and Affiliated Companies, Home Office: Columbus, OH Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company Nationwide PNM-0711AO.5 (06/15) 12