The UnifiedPlan Dramatically Increases Retirement Success & Improves Plan Cost/Benefit Structure

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1 The UnifiedPlan Dramatically Increases Retirement Success & Improves Plan Cost/Benefit Structure 1

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3 DR. GREGORY W. KASTEN UNIFIED TRUST COMPANY, NA The UnifiedPlan Dramatically Increases Retirement Success and Improves Plan Cost/Benefit Structure 2016 UPDATE EXECUTIVE SUMMARY We found substantial improvement in participant outcomes and improved cost/benefit through the UnifiedPlan managed account platform. The UnifiedPlan reduced wasted dollars (plan total operational costs spent on failing participants) from $8,007,834 to $3,597,999, producing annual efficiency savings of $4,409,834 for the plans. On a relative basis, the annual total plan cost for each successful participant dropped from $1.00 before the UnifiedPlan to $0.44 after. The results of this paper are based on all 200 plans to fully complete the UnifiedPlan conversion process. The total plan assets were $743,335,432. Of the 16,046 participants across the 200 plans, 84% elected to fully participate ( opt in ) in the UnifiedPlan, a managed account acceptance rate that is 10 to 25 times higher than most published industry averages. Another 8% opted out of the UnifiedPlan but selected a trustee managed model portfolio. Only 8% of participants chose to do it themselves by selecting their own asset allocations and fully opting out from all help. The high UnifiedPlan acceptance is remarkable. After adoption of the UnifiedPlan the percentage of participants actuarially on track to retire increased dramatically from 31% to 68%. A total of 5,980 participants moved from under-funded to fully-funded. Participants in the UnifiedPlan also experienced better portfolio outcomes, typically with less portfolio risk and better risk tolerance matching. The UnifiedPlan operates as a Qualified Default Investment Alternative ( QDIA ). It may also be called the Qualified Default Income Answer. Introduced by Unified Trust Company, a nationally chartered trust company specializing in the fiduciary management of retirement plans, the UnifiedPlan offers an innovative approach to improving retirement readiness for 401(k) participants. The UnifiedPlan increases success rates by combining intelligent defaults such as automatic enrollment, savings increases, portfolio selection and portfolio rebalancing with fiduciary and actuarial oversight. This is much more effective than mere employee education. 3

4 STUDEBAKER REVISITED In 1963 Studebaker closed their South Bend, Indiana manufacturing plant and more than four thousand workers, some of which had over 40 years of service with the company, received only $0.15 for every dollar of vested pension benefits. Their financial lives were left in ruin. Eleven years later in 1974 Congress passed ERISA to correct many of the abuses in the defined-benefit pension system. But they did not adequately address problems in defined contribution plans. These problems exist to this day. Studebaker employees suffered from not understanding the goal of the plan, not knowing whether or not the plan was receiving adequate contributions, not understanding how to invest the monies and had no ability to make midcourse corrections. These same problems exist in defined contribution plans today. The UnifiedPlan solves most of these defined contribution plan problems. Figure 1: UnifiedPlan Improvement in Outcomes Compared to Studebaker Losses UnifiedPlan Success Has More Than Offset Studebaker Losses UnifiedPlan Increased Successful ParCcipants Studebaker Employees Who Lost Pensions THE UNIQUE ROLE OF A NAMED PLAN FIDUCIARY Unified Trust as a discretionary trustee serves in the unique role as a named plan fiduciary under section 402(a) of ERISA. Congress normally reserved this role only for the plan sponsor and discretionary plan trustee as most all vendors today categorically refuse to serve in this elevated fiduciary role. The named plan fiduciary can be thought of as the CEO of the plan. This high fiduciary function is necessary to improve the outcome for most plan participants. 4

5 DEFINING THE GOAL: RETIREMENT SUCCESS Albert Einstein reportedly said, Insanity is doing the same thing over and over again and expecting different results. Many plan sponsors move from vendor to vendor while experiencing no change in outcomes. They instead focus on cosmetic items such as websites. The UnifiedPlan takes a different approach than other solutions to improve the outcomes for most participants. Most 401(k) participants do not know how much they need to save, how to invest their monies, what changes they should make to their account over time, or whether they are on track to retire successfully. In order to improve retirement success, Unified Trust Company developed the UnifiedPlan. The UnifiedPlan is a managed account platform that develops a long-term plan for each participant, based on each participant s unique situation, to increase the likelihood of achieving a successful retirement. The retirement goal for most 401(k) participants is to be able to retire successfully. The default UnifiedPlan goal is to replace 70% of pre-retirement income each year during retirement. By targeting the goal--income replacement-- the focus of the 401(k) shifts from being merely a defined contribution plan to a defined goal plan, where the outcome, retirement success, serves as the primary focus. 1 ERISA expert Fred Reish evaluated the UnifiedPlan 2 and concluded: that the Program offers material assistance to participants to help them increase the likelihood of success for a secure retirement. The UnifiedPlan is more than a gap report since it not only identifies the underlying problem, but attempts to automatically fix the problem. HIGH UNIFIEDPLAN ACCEPTANCE Of the 16,046 participants across the 200 plans that have the UnifiedPlan, 84% of participants elected to fully participate in the UnifiedPlan. Another 8% opted out of the UnifiedPlan but selected a trustee managed model portfolio. Only 8% of participants on average chose to do it themselves and select their own asset allocations. The 84% to 92% managed account advice overall acceptance rate is 10 to 25 times higher than most advice systems that are passively offered on a platform where employees must actively sign up for the service. 3,4,5 The UnifiedPlan achieves high acceptance because it is the default pathway, where a participant must opt out to bypass the program. There is also no additional cost for the UnifiedPlan at the participant level, eliminating a significant barrier to acceptance since many managed account platforms cost 0.40% or more per year. Figure 2: UnifiedPlan Acceptance Rates 84% 8% 8% 1 Kasten, G. The Defined Goal Retirement Plan, Journal of Pension Benefits, Autumn 2009, Vol. 17, No. 1, pp Reish, F., Evaluation of UnifiedPlan, A Whitepaper, December 2008, Unified Trust Company PlanSponsor.com, Vanguard is Offering Retirement Plan Participants Interactive Graphics, July 10, Mottola, G. and Utkus, S. Red, Yellow, and Green: A Taxonomy of 401(k) Portfolio Choices, Pension Research Council Working Paper, June Financial Engines and Aon whitepaper Help in Defined Contribution Plans: 2006 Through 2010, September

6 DRAMATICALLY IMPROVED SUCCESS RATES Research on retirement readiness suggests that only roughly 20-25% of participants in defined contribution plans are on track for a successful retirement. The UnifiedPlan improves participant success rates through asset liability matching, portfolio management, and more aggressive plan savings design. The default goal of the UnifiedPlan is replace 70% of pre-retirement income as near as possible to the Social Security normal retirement age with the least amount of risk. The expected Social Security benefit is included in the calculation, as are assets outside the 401(k) and other sources of income such as part-time work in retirement, if provided by the participant. After converting to the UnifiedPlan the number of participants forecast to retire successfully increased to from 31% to 68% across all 200 plans. Even those participants who were not on track for retirement success in the UnifiedPlan still had a significant reduction in their funding shortfall and were better prepared for retirement. Figure 3: Percentage of Participants on Track to Retire Successfully UnifiedPlan Moves More Participants to Fully Funded Status A@er UnifiedPlan 68% 70.3% Before UnifiedPlan 31% 29.8% Na0onal Average 25.0% 25% 10% 20% 30% 40% 50% 60% 70% 80% 90% Frac0on of Par0cipants on Track for Fully Funded Re0rement Benefit UNIFIEDPLAN GLIDEPATH PORTFOLIOS The UnifiedPlan glidepaths are matched to each participant s funded ratio. The funded ratio is an actuarial term used to describe whether or not a participant is on track to have enough assets to retire successfully. The calculation is relatively straightforward, with the future expected asset at retirement (account balance) divided by the future expected liability at retirement (retirement income expense). A participant with a funded ratio of 1.00 would be on track to replace 100% of his or her retirement need. The goal of the UnifiedPlan is to get each participant to a funded ratio of at least 1.00, while minimizing risk if multiple solutions are available. A significant flaw in target-date mutual funds is that they assume each participant has the same funded status. Target-date mutual funds cannot, and do not, adjust a participant s asset allocation based on the likelihood of that participant being able to retire successfully. Research has demonstrated that the likelihood of a participant being able to retire successfully improves if the funded status is used to help guide the portfolio decision making process. 6 Participants with allocations that are dynamically updated based on their funded status, like in the UnifiedPlan, can expect to achieve 30% less account dispersion at retirement and have a 10% higher probability of achieving retirement success when compared to using single target-date glidepath series. 7 6 Blanchett, D. and Kasten, G. Improving the Target in Target Date Investing, Journal of Pension Benefits, Autumn 2010, Vol. 18, No. 1, pp Ibid. 6

7 Figure 4: UnifiedPlan Glidepaths vs. Target-Date Mutual Funds Equity Allocation 90% 80% Aggressive 70% 60% Moderate 50% 40% Conservative 30% Target Date T. Rowe Price Vanguard Fidelity UnifiedPlan Aggressive UnifiedPlan Moderate UnifiedPlan Conservative The UnifiedPlan model glidepaths are typically less aggressive (i.e., have lower equity allocations) than most target-date funds. Figure 4 includes the glidepaths risk, or timeline equity allocations, of the three UnifiedPlan model glidepaths against the largest three target-date mutual fund providers by assets: Fidelity, T. Rowe Price, and Vanguard. 8 Note, the UnifiedPlan Aggressive glidepath was the most similar glidepath to the mutual fund targetdate funds glidepaths. The distribution of participants across the three UnifiedPlan glidepaths varies based on the funded status of the participant. Figure 5 shows that the participants who are on track to retire successfully (i.e., have a funded ratio of 1.00 or greater), 56% are invested in the Conservative glidepath, 13% are in the Moderate glidepath, and 31% are in the Aggressive glidepath. This data illustrates the huge risk management advantage of the UnifiedPlan, which bases portfolio management largely upon the participant s funded ratio, as compared to a blind target date mutual fund. Fully funded or overfunded participants are invested more conservatively in the UnifiedPlan to reduce potential account balance volatility at retirement. Figure 5: UnifiedPlan Glidepaths Distributions for Fully Funded Participants 31% 13% 56% 8 Data from Morningstar as of December 31,

8 Among the participants who are not on track to retire successfully (i.e., have a funded ratio of less than 1.00), 4% are invested in the Conservative glidepath, 5% are in the Moderate glidepath, and 91% are in the Aggressive glidepath. Underfunded participants are invested more aggressively and are expected to delay retirement, or some combination of the two, in order to increase the probability of achieving retirement success. Some of the underfunded participants were not invested in the aggressive glidepath due to individual risk preferences. In addition to plan level investment oversight, Unified Trust measures the fiduciary prudence and efficiency of each individual participant s portfolio every quarter for participants who have opted/defaulted in to the UnifiedPlan. Under the discretionary asset allocation service, a specific model asset allocation portfolio is created automatically for a participant s account. The model asset allocation portfolio created for a particular opt-in participant, therefore, will reflect the application of the methodologies developed by Unified Trust, taking into account individual participant data. GREATLY IMPROVED COST/BENEFIT STATUS FOR THE PLANS Identifying and managing defined contribution plan costs can be very complex and often causes confusion among most plan sponsors. Over the last few years, the Department of Labor (DOL) introduced fee disclosure requirements in an attempt to help plan sponsors better understand the total costs their plan is paying, the scope of services provided, and whether or not the service provider is serving in any type of fiduciary role. Despite their efforts, there is still considerable confusion over fees. However, the key question still remains as to what represents the value in exchange for the costs for the plan? Benchmarking services are emerging that can compare the suite of services against costs to plans of similar size and complexity. However, this still does not answer the basic question about the true value proposition of the 401(k) or other defined contribution plan. Since defined contribution plans have replaced defined benefit pension plans as the main retirement savings vehicle for most Americans, it is proposed that successful retirement be defined as the key metric to measure value of the defined contribution plans. Successful retirement can be measured on an actuarial basis, and can then be used to calculate the cost/benefit of each defined contribution plan. This is the best way to benchmark the plan. Several calculations can be done to determine the plan s cost/benefit ratio. The first is the total annual dollar cost for each successful plan participant. The term cost refers to the total costs of running the plan, but does not include employer or employee contribution dollars, such as profit sharing or matching contributions. The total costs of the plan are measured in dollars and divided by the number of successful plan participants with funded ratios of 1.00 or higher. The calculation gives the annual cost in dollars for each successful participant. TOTAL DOLLAR COST FOR EACH SUCCESSFUL PARTICIPANT = TOTAL $ COST OF THE RETIREMENT PLAN NUMBER OF FULLY FUNDED PARTICIPANTS 8

9 A relative cost calculation for each successful participant can determine the normalized cost of a relative dollar consumed by the plan for each successful participant before and after a campaign, such as the introduction of the UnifiedPlan. The total annual dollar costs for each successful plan participant are calculated as described above for both the before and after time periods. The relative cost calculation treats the before time period cost at a constant $1.00. It compares how effective the campaign was to cost efficiently deliver successful participants. This relative calculation shows that for every operational dollar the 200 plans previously spent to achieve a successful participant, it will now cost only $0.44, a savings of 55%. TOTAL DOLLAR COST FOR EACH SUCCESSFUL PARTICIPANT AFTER THE CAMPAIGN RELATIVE COST = TOTAL DOLLAR COST FOR EACH SUCCESSFUL PARTICIPANT BEFORE THE CAMPAIGN The third calculation takes into account the total cost of the retirement plan from all sources expressed as basis points, and divides it by the percentage of fully funded participants in the plan. The calculation gives the annual cost in basis points for each successful participant. BASIS POINT COST FOR TOTAL BASIS POINT COST OF THE RETIREMENT PLAN EACH SUCCESSFUL PARTICIPANT = % OF FULLY FUNDED PARTICIPANTS A fourth calculation can be done to determine the wasted dollars consumed by the plan. The total costs of the plan are measured in dollars and multiplied by the fraction of unsuccessful plan participants with funded ratios of lower than The amount of plan costs going towards unsuccessful participants is considered wasted, since the participant is failing. WASTED DOLLARS CONSUMED BY THE PLAN = TOTAL $ COST OF THE RETIREMENT PLAN No system can be effective and deliver much tangible value if only used by 2% to 10% of plan participants. A single digit utilization rate is found in most voluntary advice programs. Web based tools and calculators are used by a tiny handful of employees, but even fewer implement the advice. Without implementation no program can succeed. Using default pathways in a QDIA managed account format can produce very high acceptance rates among plan participants for an effective actuarial solution. 9 The high implementation acceptance combined with much better actuarial funded ratios for most participants produces the best cost/benefit ratio for the total plan. This is the best measure of a plan s cost effectiveness. The four calculations described above can quantify the cost/benefit ratio for each plan. X FRACTION OF UNSUCCESSFUL PARTICIPANTS 9 Kasten, G. Why the UnifiedPlan Is So Effective in Improving Outcomes, 2012 Unified Trust Company, NA 9

10 Figure 6: UnifiedPlan Greatly Improves the Cost/Benefit Status for All Plans UnifiedPlan Cost/Benefit Impact Before UnifiedPlan After UnifiedPlan Total Assets of All Plans $743,335,432 $743,335,432 Total Plan Participants 16,046 16,046 Average Balance $46,325 $46,325 Fully Bundled Total Cost as Percentage (%) {Assume Avg 10 bps for UP} 1.55% 1.51% Fully Bundled Total Cost in Dollars ($) $11,552,399 $11,225,312 Fully Funded Plan Participant Retirement Success Rate 31% 68% Fully Funded Successful Participant Count 4,293 10,903 Basis Point Cost Per Successful Participant Total Dollar Cost Per Successful Participant $2,346 $1,029 Relative Dollar Cost Per Successful Participant $1.00 $0.44 % Higher Cost Per Successful Participant for Before Group 127.9% n/a "Wasted Dollars" Going Towards Failing Participants Each Year $8,007,834 $3,597,999 % Reduction in "Wasted Dollars" Each Year n/a -55.1% $ Cost Relative Cost for Each Successful Participant $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $1.00 Before UnifiedPlan $0.44 After UnifiedPlan Annual Wasted Dollars "Wasted Dollars" Spent by Plans on Failing Participants $10,000,000 $5,000,000 $8,000,000 $4,000,000 $6,000,000 $3,000,000 $4,000,000 $2,000,000 $2,000,000 $1,000,000 $0 $4,655,092 $8,007,834 Before UnifiedPlan $2,052,571 $3,597,999 After UnifiedPlan Total Basis Point Cost Total Basis Point Cost for Each Successful Participant Before UnifiedPlan After UnifiedPlan 10

11 IMPROVING PARTICIPANT PORTFOLIOS Figure 7 demonstrates the random nature of participant investing for the Opt Out participants that wanted to Do It Myself. There is little relationship between the age or funded status of the participant and their equity allocation. Some near retirees are nearly 100% equities, while some very young participants are sitting in cash. Similar randomness was seen for equity allocations vs funded ratio, and also versus portfolio risk (standard deviation) and other important portfolio metrics. In the UnifiedPlan, the risk of the portfolio, or equity allocation, is adjusted based on whether or not the participant is expected to retire successfully. Figure 7: Equity Allocations Versus Age for Opt Out Participants Are Random 100% 90% Account Equity Allocation 80% 70% 60% 50% 40% 30% 20% 10% 0% Participant Age Retirement plan participants are not investment experts, nor do most participants have the time or ambition to become experts. No matter how much education is provided, the vast majority of participants will never attain a level of expertise that is equivalent to a professional. And many participants lack even fundamental knowledge. One recent study showed that the more fund options employees are faced with, the less likely they are to participate in their plan: 10 The UnifiedPlan resulted in significant improvements in participant investing. Every single participant opting in the UnifiedPlan passed asset allocation prudency tests based on age, funded status, and modern portfolio theory. Only 14% of participants who opted out of the UnifiedPlan passed all three tests. The results across each test are included in Figure Iyengar, Sheena S.; Jiang, Wei: The Psychological Costs of Ever Increasing Choice: A Fallback to the Sure Bet Columbia University, April

12 Figure 8: Opt Out Participants Have Ineffective Investing 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% The UnifiedPlan Improves Participant Investing Compared to "Opt Out" Group 46% Opt Out Group 100% 100% 100% 100% 20% UnifiedPlan Opt In 43% 16% Age Matched Funded Status Investment Theory Pass All 3 Tests CONCLUSION The UnifiedPlan has resulted in a material improvement in the retirement readiness for participants who utilize the platform. Some 401(k) vendors are beginning to offer gap reports but do not collect enough information or use overly simplistic assumptions. 11 The UnifiedPlan uses a robust and tested actuarial process. The explanation for the UnifiedPlan success can be attributed to a number of factors. 12 One of the most important factors is overlooked by most of the industry. We call this the Actuarial Solution Matrix, or ASM. The ASM can consistently make a huge improvement in the participant s funded ratio. 13 The UnifiedPlan increases success rates by combining intelligent defaults such as automatic enrollment, savings increases, portfolio selection, and portfolio rebalancing with fiduciary and actuarial oversight. It may also be called the Qualified Default Income Answer. The study of the 200 plans shows significant outcome improvements, along with excellent cost/benefit metrics. For the 200 plans included in this study, only 31% of all participants were on track to meet their goals. After introducing the UnifiedPlan, 68% of the participants were expected to achieve a successful retirement. Of the remaining participants still labeled as failing, most had a significant reduction in their funding shortfall. These results were achieved in conjunction with significant improvements in cost/benefit metrics. On a relative cost basis, the annual total plan operating cost for each successful participant dropped from $1.00 before the UnifiedPlan to $0.44 after. The operating cost of the plan does not include any contributions from either the participant or employer. In the population studied before implementation of the UnifiedPlan, the annual plan total dollar cost for each successful participant was $2,346. After the UnifiedPlan was implemented the cost for each successful participant fell to $1,029, a drop in per unit cost of -51.1%. 11 Blanchett, D. Inaccurate Precision: The Danger of Replacement Rate Calculations with Incomplete Information, Morningstar Research Whitepaper submitted to FI360 Conference, Kasten, G. Why the UnifiedPlan Is So Effective in Improving Outcomes, December 2011, Unified Trust Company, NA 13 Kasten, G. The Actuarial Solution Matrix: A Vital Step to Improve 401(k) Participant Outcomes, June 2012, Unified Trust Company, NA 12

13 Education has largely failed to improve outcomes in retirement plans. 14 Despite the failure of education a recent study showed the industry spends more than $1 billion a year on employee 401k education. 15 Most of this money is wasted. This is evidenced by another recent study that showed 56% of participants were not aware or did not review educational materials. 16 Plan participants cannot get past their five inherent behaviors which include inertia, procrastination, choice overload, endorsement affect, and framing. Only an entity that can exert control can use these behaviors to benefit the participant. The most logical entity to do this work is the discretionary plan trustee implementing the processes of the UnifiedPlan. But under ERISA and individual or institution must be a fiduciary to have control. If the institution is not a true fiduciary they cannot be trusted. The UnifiedPlan clearly makes a difference. Another cost/benefit metric was to determine the wasted dollars consumed by the plan. The total costs of the plan are measured in dollars and multiplied by the fraction of unsuccessful plan participants with funded ratios of lower than The amount of plan costs going towards unsuccessful participants is considered wasted, since the participant is failing. The UnifiedPlan reduced wasted dollars from $8,007,834 to $3,597,999, producing annual efficiency savings of $4,409, Fernandes, D., Lynch, J., Netemeyer, R, Financial Literacy, Financial Education and Downstream Financial Behaviors, Management Science, October 8, National Association of Plan Advisers, NAPANet, December 21, Charles Schwab 401(k) Participant Survey, October

14 DISCLOSURES 1. Introducing the UnifiedPlan : The UnifiedPlan is a reporting tool designed to help individual investors understand whether they are on course to achieve a successful retirement. For individual investors who are planning for their own retirement, the tool helps estimate the annual savings required by the individual in order to meet his or her personal retirement spending goals and provides the individual investor with alternatives such as delaying their retirement or lowering their personal retirement spending for investors who may not be able to save the requisite amount. For investors who are already retired, the tool helps assess whether their portfolio will be able to sustain their desired spending throughout their retirement. The UnifiedPlan tool uses a combination of deterministic methods and Monte Carlo simulation that considers factors such as individual investor s saving and spending levels, Unified Trust Company s ( UTC s ) long-term market expectations associated with the risk profile selected by the individual investor, the investor s pre- and in-retirement time horizons, and other sources of outside personal income. 2. Investment Data: Unified Trust Company gathers mutual fund and collective investment fund data from publicly available sources of information including but not limited to, Morningstar or the mutual/collective investment fund companies own websites. UTC takes reasonable care in collecting the data, and UTC believes the data to be accurate, but UTC reserves the right to correct any errors and/or deficiencies as soon as practicable, upon discovery by UTC. Individual mutual fund or collective investment fund performance data listed throughout the document represents the performance net of underlying fund expense ratios, but is the gross of add-on expenses such as Trustee fees, TPA fees, or advisory fees. The performance histories reported are simply dollar-weighted historical returns for the proposed fund investments and do not reflect the effects of any rebalancing and/or fund investment replacements. 3. Mutual Fund Investments: Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the FDIC, The Federal Reserve Board, or any other government agency. Mutual fund investments involve risk, including possible decline and/or loss of principal. Mutual fund investment performance quoted reflects past investment performance and is not indicative nor can it predict or guarantee future investment results. Investment return and principal value will fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original cost. Performance figures represent an investment made at the beginning of the reporting period. Results for investments made during the report period will differ. UTC obtains performance data information from sources UTC believes to be reliable, but UTC cannot guarantee the data s completeness and/or accuracy. Redemption fees may be assessed when selling mutual funds under certain circumstances. 4. Limitations Associated with the UnifiedPlan : The UnifiedPlan tool s limitations include, but are not limited to the large number of assumptions UTC must make in its analysis for the investor. The accuracy of UTC s assumptions directly impacts the quality of the UnifiedPlan tool s assessment provided to the individual investor. Potential known problems and/or deficiencies of the UnifiedPlan tool presently include, but are not limited to, UTC s use of the investor s personal financial data provided to UTC which may later prove to be inaccurate or incomplete, the investor s selection of a risk tolerance that does not represent how the investor s portfolio is actually invested, the investor s long term market expectations of risk, return, and inflation that are not achieved in the modeled time frame, UTC s inclusion of the investor s future personal income in UTC s analysis that is never received by the investor, and unforeseen personal life emergencies that require decreased personal saving before the investor s retirement, the investor being forced to retire earlier than originally planned, or the investor s increased spending needs during their retirement. Differences will likely exist between prospective and actual investment results because events and circumstances frequently do not occur as expected, and those differences may be material in the investment outcome, particularly because investment performance estimates are made over extended time periods. All figures and investment performance data reflect current (inflation adjusted) dollars, as of the date of the investor s enrollment in the plan and initial use of the UnifiedPlan tool. The estimated inflation rate used is based upon a capital market forecast developed by UTC. 5. Investor/Participant Success is Not Guaranteed: The UnifiedPlan tool s portfolio changes for each participant are governed by the Plan Document, the Benefit Policy Statement and the Investment Policy Statement for the investor s own Plan. Investor/Participant success is the Plan s primary goal but is not guaranteed. UTC is a professional, independent fiduciary focused on managing retirement plans for the benefit of participants and beneficiaries, with a focus on achieving the highest possible rates of participant success. But, ultimately, success depends upon the decisions and abilities/capabilities of each investor/participant and other factors beyond the control of both investors/ participants and fiduciaries, including UTC. As a result, the investor/participant s investment success is not and cannot be assured and/or guaranteed by UTC. Neither the Plan Sponsor nor UTC guarantees that any participant will achieve a successful retirement. 6. IMPORTANT: The projections or other information generated by the UnifiedPlan tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Projected growth of assets is based upon Unified Trust s projected future modeled returns and the asset allocations of the investor s portfolio for the investor s goals. The graphical representations are an approximation derived from the pertinent events and assumptions tied to the investor s goal. Please note that indices are not managed, indices do not incur management fees or expenses, and investors cannot make direct investments in indices. UTC bases risk assessments upon both Modern Portfolio Theory ( MPT standard deviation risk) and Post Modem Portfolio Theory ( PMPT downside deviation risk). 7. Investment Diversification: UTC believes that a well-balanced and diversified investment portfolio will help achieve an investor s long-term retirement security. As such, UTC feels the investor should give careful consideration a well-balanced and diversified investment portfolio. UTC believes that spreading an investor s assets among different types of investments can help the investor achieve a favorable rate of return, while minimizing the investor s overall risk of losing money. Consequently, UTC believes that certain market or other economic conditions that cause one category of assets, or one particular security, to perform very well can likewise cause another asset category, or another particular security, to perform poorly. Although diversification is not a guarantee against loss, UTC believes diversification is an effective strategy which helps the investor manage investment risk. In deciding how to invest retirement savings, UTC believes the investor should take into account all of the individual s personal assets, including any retirement savings held outside of the Plan. UTC believes that no single approach is right for all investors because, among other factors, individual investors have different financial goals, different time horizons for meeting their goals, and different tolerances for risk. UTC also believes that it is important for the investor to periodically review their own investment portfolio, personal investment objectives, and the investment options available under the Plan to try to ensure that the investor s retirement savings will meet their personal retirement goals. For more information regarding individual investing and diversification, please visit the Department of Labor s website at gov/ebsa/investing.html. 8. Income & Savings Variances or Changes: The UnifiedPlan is highly dependent upon assumptions made about the investor/participants annual income and annual savings. Any variances or changes in the figures used by the UnifiedPlan should be reported immediately to UTC by the investor/plan participant. Unified Trust Company is not responsible for any discrepancies in the data, or output from the UnifiedPlan tool. 9. Income Replacement Goal: The calculated 70% income replacement goal includes the investor/participant s estimated Social Security benefit (estimated by UTC). The Social Security benefit which is actually received by the participant may be different from the Social Security benefit that is estimated by UTC. 10. Compensation Limits: Compensation used for benefit calculations is limited to the applicable IRS annual compensation limits. As of the date of this paper, compensation in excess of the limits prescribed by I.R.C. Section 415 is excluded. 11. Asset Liability Matching: The UnifiedPlan uses asset liability matching. The asset is the money forecast to be accumulated by the investor/participant at retirement, and the liability is the amount of money needed by the investor/participant to pay for his or her retirement. Projections made by the UnifiedPlan tool are based upon expected asset transfers made by the investor/participant. Actual amounts transferred by the investor/participant may be different and may require a new retirement solution for the investor/participant. 14

15 YOUR GOALS ARE OUR GOALS Unified Trust Company, N.A Alexandria Drive, Suite 100, Lexington, KY fax 15