Broadening the Scope of Your Practice

STRONGER
Strategies
for success
2015 Partner Conference
together
Broadening the
Scope of your
Practice
Paul Neveu,
President, BPAS Plan
Administration and Recordkeeping
Services, and
Elizabeth Kaido,
Sales Relationship Manager

2015 Partner ConferenceStronger Together
Welcome
• Broadening the scope of your retirement
plan business beyond basic 401(k) plans
will help you to diversify your client base
and become more profitable.
• Today we will give you a basic overview of
different plan types and help you identify
opportunities in your practice
You may see some of
the same plan types in a
later session discussing
Case Studies
presented by Maryann
Geary and Vince Spina.

STRONGER
Strategies
for success
together
Bundled DC and
Cash Balance Plans

How to Grow the Nest Egg
Basic EE deferrals - $18,000 (or $24,000 if > age 50)
Add Safe Harbor Non-elective - 3% of pay (up to $265k) or $7,950
Profit Sharing to get to max contribution - $27,050
Maximum annual contribution - $53,000
What if $53k is not enough?
What are the options?

Identifying Cash Balance Candidates
• Cash balance plans are an option for
employers who maximize contributions
under their existing DC plan and would
like to contribute more.401k
Cash
Balance

Identifying Cash Balance Candidates
• Potential Cash Balance candidate is a business where:
• Owners have compensation at or near the IRS maximum
($265,000)
• Owners are maxing out the DC plan ($53,000)
• Willing and able to contribute at least 7.5% of pay for
employees annually across plans
• Owners are relatively older than their employees
• Sufficient and relatively stable cash flow to fund
program for at least the next 3-5 years
401k
Cash
Balance

Typical DC/CB Combo Plan Design
• 3% Safe Harbor Non-Elective Contribution for NHCEs
• Maximum 401(k) deferral opportunity for Owners/HCEs
• In DC plan: Cross-tested Profit Sharing Contribution,
each participant in an allocation group:
—Owners receive up to IRC 415 maximum
—NHCEs receive between 4.5% and 7.5%
• Cash Balance Contribution Credits:
—Owners receive up to age-based IRC 415 maximum
—NHCEs receive 2.5%

DC/CB Combo Illustration
Eligible
Comp.
401(k)
Deferral
3% SH
Non-Elec.
Profit
Sharing
Cash
Balance
Total
Retirement
Current
Design Difference
Owner Age 55 265,000 24,000 -- 35,000 185,000 244,000 59,000 185,000
NHCE Age 40 50,000 -- 1,500 2,250 1,250 5,000 2,500 2,500
NHCE Age 30 35,000 -- 1,050 1,575 875 3,500 1,750 1,750
NHCE Age 25 25,000 -- 750 1,125 625 2,500 1,250 1,250
Grand Total 375,000 -- 3,300 39,950 187,750 255,000 64,500 190,500
Owner Percentage of Owner Invested Cost = 96% 91% 97%
- Assumed current design to be safe harbor 401(k) with cross-tested profit sharing and 5% contribution for employees
- Owners will typically receive over 90% of total contribution dollars invested and often receive nearly all of the additional
contribution dollars invested
- If Owners will contribute 5% for employees to save $53,000 to $59,000 for themselves, why would they not contribute another 5%
for employees to individually save an additional $100K, $150K, $200K or more for themselves?

STRONGER
Strategies
for success
together
Company Stock,
ESOPs and kSOPs

Company Stock
• BPAS is a recognized leader in plans
involving employer securities
• We have more flexibility than virtually any
other firm in this regard
• Dedicated team of plan consultants
specializing in Company Stock, ESOP and
kSOP plans

Company Stock
Ways BPAS Trades Company Stock:
• Treasury Shares (book entry trading)
• The Price Guaranteed Approach
• Stock Unitization
• The Schwab PCRA approach
• The Pended Trades Approach
• Hybrid approaches (e.g., “buy through treasury,
sell on the open market”)
See our
Company Stock
Trading Matrix
(0 21 in Partner
Toolbox) for
more details.

Types of Company Stock Plans at BPAS
• 401(k) plans that allow employer securities as an
investment option (usually daily valued plans
• ESOPs
—Closely held, annually valued companies (including S Corp ESOPs)
—Publicly traded companies (NASDAQ, NYSE, etc.)
—Annually valued ESOPs alongside daily valued 401(k) plans
(separate plans)
• Daily valued combined kSOP arrangements
• If stock is closely held, best approach is to run separate
401(k) and ESOP

What is an ESOP?
• An Employee Stock Ownership
Plan (ESOP) is a qualified defined
contribution retirement plan that
is designed to invest primarily in
employer securities
• ESOPs can be leveraged and non-
leveraged
—About 75% of ESOPs are leveraged

Non-leveraged ESOP
Company sets
up ESOP Trust
Company makes
annual tax-Deductible
contributions in cash
or stock to ESOP
Cash used to buy
stock from current
shareholders
Shares allocated to employee
accounts within ESOP based on
salary. ESOP holds stock for
employees and annually
notifies them how much they
own and how much stock is
worth. Employees receive
stock or cash after they retire
or leave company, vesting
schedule appliesSource Morgan, Lewis

Leveraged ESOP
Lender lends
to company
Company
lends to ESOP
ESOP uses
loan
proceeds to
buy stock
from existing
shareholders
Company
makes annual
tax deductible
contributions
to ESOP.
The ESOP then
in turn repays
lender.
Employees
receive stock
or cash when
they retire or
leave (vesting
applies)
Source Morgan, Lewis

ESOPs - Advantages
• Provides ownership mentality for employees which
can result in increased productivity and making
employees mindful of financial results
• Provides for the continuity of the company and
employees
• Possible business succession tool

ESOPs - Advantages
• Can be leveraged
• Allows seller to sell in stages, providing a gradual withdrawal
while allowing heirs, key employees or others partial ownership
interest in company
• Can provide tax advantages to corporation and selling stockholder
• Creates market for stock of a closely-held company
• Can obtain tax deductible financing for corporate expansion
including acquisition of new company assets
• Can be used to finance mergers and acquisitions with tax
deductible loans to buy stock

ESOPs - Disadvantages
• Complicated with high start-up costs vs other plans
• Loan repayments for a leveraged ESOP create an annual
contribution obligation
• Only allocation methods allowable are pro-rata. ESOPs
cannot be cross tested or integrated
• Owner must adjust to sharing ownership with employees
• Increased fiduciary liability
• Participant account balances are not diversified initially
• If the company fails……

What is a kSOP?
• A kSOP isan ESOP that includes a
401(k) feature
• kSOPs may be invested in employer
stock in elective deferral accounts,
matching accounts, employer
discretionary accounts or any
combination of the three

Advantages of a kSOP
• A private company wants to make matching
contributions in employer stock under an ESOP and not
be subject to a duty to diversify plan assets
• The employer wishes to use matching contributions to
repay a securities acquisition loan
• The ESOP would otherwise be a frozen or terminating
plan, due to ceasing contributions; and the employer
wishes to add the 401(k) component so that the plan is
active and avoid accelerated vesting

Advantages of a kSOP
• The employer wishes to avoid two separate audits,
assuming the employer has more than 100 participants
• The employer wishes to avoid having multiple SPDs,
participant statements and 5500 filings
• The employer is publicly traded and employer stock is
readily valued, purchased and sold, it can be administered
in a daily valuation environment
—BPAS administers company stock in a daily valuation
environment even if it is thinly traded

Disadvantages of a kSOP
• Combining an ESOP with a 401(k) plan will eliminate
the possibility of using a prototype or volume
submitter document for the 401(k) plan
• Combining plans does not give the employer any
advantage regarding coverage or nondiscrimination
testing
• Administration of a non-publicly traded ESOP will
usually take longer than a 401(k), thereby slowing the
process for the 401(k) plan

Disadvantages of a kSOP
• Drafting the SPD for KSOP in a non-publicly-traded
company is complex and confusing due to the
potentially different distribution and fiduciary rules
applicable to each plan
• A 401(k) plan and an ESOP may require two different
fiduciary standards for investment of plan assets

ESOP Services
• Annual Administration
— Calculation and allocation of share release
— Year-end valuation report at the plan level (plan provisions,
census, deposit summary, financial statements, participant
register, etc.)
— Preparation of participant statements
— Diversification notices and processing
— Testing required on the allocation and/ or combined
testing with other retirement plans
— Signature ready Form 5500
— Audit support for large filers
— Transfer agent support for proxy voting

ESOP Services
• Distribution processing
—Maintain records on participants eligible for distribution
during eligible distribution window
—Process and issue 1099’s if we are the asset holder or
send letter of instruction to custodian
—RMD monitoring, calculation and processing
• Participant support
—Participant website access
—Customer service call center and secure email

Creative uses of ESOPs for Businesses
• Provide a market for partial or complete sale of
company by shareholders (independent valuation).
—“Tax-free” rollover treatment if ESOP ownership in a C
Corporation is 30% or greater (IRC 1042)
• Borrow from a bank, the sponsoring company, or
sellers to purchase a block of stock

Creative uses of ESOPs for Businesses
• Make corporate tax-deductible contributions,
including loan principal and interest payments via the
ESOP (savings of 25% of Payroll + C Corporation
Interest)
• Pick up corporate tax deduction for C Corporation
dividends passed through the ESOP to employees, or
used to repay ESOP debt (excluded from 25% limit) –
called a “404K” Election

Four discrete roles in an ESOP
1. ESOP / Stock Counsel
2. Administration Firm
3. ESOP Trustee
4. Repurchase Liability Consultant (or software)
In our view, unlike bundled DC plan administration, the best
interests of the plan sponsor are served when these
functions are separated. Each firm comes to the table with
different concerns, and rightly so.

S-Corporation ESOPs…Quite Possibly the
Greatest Tax Benefit in America
• In legislation passed in 1996 and 1997, Congress
allowed ESOPs to own stock in an S corporation
(1/1/1998). Goal was to encourage ESOP creation
• In a 100% S Corp ESOP, all of the earnings of the
company pass through (tax free) to the ESOP
—ESOP must allocate shares in a non-discriminatory manner
(anti-abuse rules)

• S Corporation ESOPs do not qualify for the same benefits
as C corporation ESOPs
—sellers cannot defer gains made from the sale of stock to an
ESOP (sellers of ESOPs owning at least 30% of the stock in a C
corporation can defer taxation on the gain)
• C and S Corporations can deduct contributions of up to
25% of eligible payroll in an ESOP to repay an ESOP loan,
but C corporations base the calculation on the amount of
principal paid, while S corporations must also count
interest

• In C Corporations, dividends paid on ESOP-held
company stock are tax-deductible if they are used to
repay an ESOP loan or passed directly to employees.
In S corporations, however, distributions (the
equivalent of C Corporation dividends) paid on ESOP-
held stock are not deductible
• nceo.org/articles/esops-s-corporations

STRONGER
Strategies
for success
together
Prevailing Wage
Plans

Prevailing Wage Plans
Prevailing wage Base amount
Fringe
Allocation
Mandated rate (determined by
state) a contractor must pay
employee based on job
classification. Two components:
1. Base amount
2. Fringe Allocation
Amount in
paycheck
Can be deposited
into paycheck or
used toward bona
fide benefits

Why Not Put Fringe into Pay?
• When Fringe is included in paycheck
—Increased payroll taxes
—Increased Workers Compensation premiums
—Less competitive bids
• When Fringe is credited to bona fide benefit
—Benefits generally not subject to payroll taxes/ WC premiums
—More competitive bids
—Additional benefit programs for employees
—Employee retention, satisfaction

What are Bona Fide Benefits?
• Health Insurance
• Life Insurance
• Retirement Plan
• Vacation Time
• Sick Leave
To be a bona fide benefit it must be “under the operation of an
independent, third party administrator who is beyond the control of the
employer AND subject to the scrutiny of the Department of Labor.”

How Does Prevailing Wage Fit
into a Retirement Plan?
• Fringe contributions are deposited into the plan on
behalf of the employees working PW hours
• Usually 100% vested
• Portion can be treated as a deferral for ADP testing
• Also can be used to offset safe harbor or profit sharing
contributions
These offsets create significant advantages
and flexibility within a retirement plan.

Prevailing Wage Example
• An employee works on a PW job and receives $25/ hour in base
pay and $15/ hour in Fringe.
— His total compensation for the year is $100,000.
— $15/ hour accumulates over course of the job to amount to $8,000
(8% of his total compensation).
• Participant account credited with $8,000 PW contribution.
— ADP test will include $8,000 for the participant or an 8% ADP rate.
— For Safe Harbor plan, $8,000 will be credited towards 3% safe harbor
contribution.
— Only owe $3,000 for SH, so no additional contribution required.
— Since Safe Harbor contribution is only $3,000, can use remaining $5,000
as a credit toward a profit sharing contribution.

Results of Prevailing Wage Plan
• Employers can reduce payroll and Workers
Compensation costs
• Become more competitive and win more bids
• Fringe used to offset safe harbor or profit sharing
contributions owed to the plan
• Greater percentage of profit sharing can be credited to
the owner or management

STRONGER
Strategies
for success
together
MEPs
and
METs

What is a Multiple Employer Plan?
• A Multiple Employer Plan (MEP) is a plan sponsored by two or
more employers where at least two of the sponsoring
employers are not members of the same controlled group or
affiliated service group
• A Multiple Employer Trust (MET) is a vehicle in which the assets
of qualified plans maintained by related or unrelated employers
are pooled for investment purposes. It is organized in the form
of a trust and a bank or trust company serves as the custodian.
The investment manager determines the objectives of the trust
and directs the trustee as to its investment
What is a MEP or MET?

Multiple Employer Plans
• Plans for multiple, unrelated employers are
combined into one legal Plan under ERISA. There
is a single plan number, a combined Form 5500
and a single plan audit.
• Often an association of businesses.
Establishing an MEP may help to control costs
by reducing administrative expenses

Multiple Employer Plans
Two types of MEPs
1. Closed MEPs where there’s a nexus or common bond
among participating employers, such as an association.
Professional Employer Organizations (PEOs), which have
become increasingly popular among today’s small
employers, capitalize on the closed MEP structure.
2. Open MEPs which may include virtually any employer
(those MEPs that can’t demonstrate a sufficient nexus
among employers).

Treatment of Plan Provisions for MEPs
• Single employer for:
• Eligibility
• Exclusive benefit rules
• Vesting
• Accrual
• Contribution and benefit
limitations
• Form 5500
• Separate plan for:
• Coverage rules under
410(b)
• Top heavy
• Funding for pensions plans
• Deduction Limits

MEP Disadvantages
• The primary disadvantage to a MEP is that a failure of
one portion of the plan can result in disqualification of
the plan as a whole
• DOL opinions indicate that it is scrutinizing MEPS to
ensure that the employers constitute a bona fide group
of employers
—If not, the DOL regards the plan as many individual
plans rather than a single plan

Multiple Employer Trust (MET)
Assets of separate retirement plans are combined into a
single Trust; plans remain separate and distinct with
independent plan documents. This strategy allows
underlying plans to benefit from a single fiduciary process
with pooled assets to capitalize on group purchasing
power. Employers in METs may enjoy access to:
• Lower-cost share classes
• Funds with large investment minimums

MET Advantages
• Access to investment managers and opportunities in
specialized areas
• Cost-effective approach to a separately managed account
• Savings obtained through efficient management of larger
asset pools
• Reduction in transaction and administrative costs
• Participating plans afforded simplified reporting of
investment value in the MET on single line on Form 5500

MET Disadvantages
• Plan fiduciary investing in MET retains
fiduciary responsibility for that decision
• Investment manager is fiduciary responsible
for performance and operation of the trust

Understanding the Differences
Closed MEP Open MEP MET
Reportingand
Disclosure Single filing for the overallplan
Individualfilingsforeach
adoptingemployer
One 5500 filed for the MET;
each plan files a 5500
PlanDocument
A single plan document A single plan document
Plandocumentrequiredfor each
adoptingemployer
Non-
discrimination
Testing
Individual non-discrimination
testing for each adopting
employer
employer
employer
Bonding SinglebondfortheMEP Bondingrequiredforeach plan Bondingrequiredforeach plan
Fiduciary Risk No primary fiduciary risk No primary fiduciary risk No primary fiduciary risk
Fiduciary
Protection
Relieffromselectingand
monitoringinvestments
Plan Design Plan design options are more
restrictive
Plan design options are less
restrictive
Plan design options are less
restrictive
IQPAAudit
Single audit for the overall plan
Individual audits for employer
with 100+ participants
Individual audits for any
employer with 100+
participants
Item O35 in the BPAS Partner Toolbox

Understanding the Differences
Closed MEP Open MEP MET
Rehires Participants terminated from
existingparticipatingemployer and
re-employedbyanother
participatingemployerare
immediatelyeligibleforthe plan and
not eligiblefor a distributionfrom
theplan
Participants terminated from
existingparticipatingemployer and
re-employedbyanother
participatingemployerare
immediatelyeligibleforthe plan and
not eligiblefor a distributionfrom
theplan
Terminatedparticipants re-
employedbyanother employer
participatingin
the MET are considered new
employees unless the previous and
new employers are related employers
Plan Termination Voluntary and involuntary
terminations are achieved by
establishing a single employer
plan as a spinoff from the MEP
Voluntary and involuntary
terminations are achieved by
establishing a single employer
plan as a spinoff from the MEP
Plan sponsor can terminate the plan
without a spin off since
an MET consists of single plans with a
combined trust
PotentialCost
Savings
Economies of scale from the
buying power of a single large
plan versus smaller plans; better
negotiating power when buying
investments and other plan
services
Economies of scale from the
buying power of a single large
plans versus smaller plans; better
negotiating power when buying
investments and other plan
services
Betternegotiatingpower when
buyinginvestments
Governance Elevated level of governance and
attention to detail that employers
of all sizes are unlikely to achieve
without costly assistance
Elevated level of governance and
attention to detail that employers
of all sizes are unlikely to achieve
without costly assistance
Attentiontodetaillimitedto
capabilityof each adopting employer
Item O35 in the BPAS Partner Toolbox

Other MEP/MET Considerations
• Payroll solution – common or disparate?
• Full online enrollment – key for efficiency
• Plan sponsor web access
• Rehires
• Loans (including MyPlanLoan)
• Audit considerations (spread cost across plans)
• Simplified fee schedule is important

STRONGER
Strategies
for success
together
Non-profit clients

Non-Profit Clients
• 401(a)- some Tax-exempt employers
maintain 401k plans
• 403(b)
—ERISA, Non-ERISA or Church
• 457
—Governmental or Top Hat
—457(b) or 457(f)
• Defined Benefit

Non-ERISA vs ERISA 403(b) Plans
Non-ERISA ERISA
• Deferrals and rollovers only, no
employer contributions
• Employer is arms length
— No fees paid by sponsor
— No approval of loans/distributions
• Multiple vendors- choice
• No 5500 or annual audit
requirements
• No annual notices- fee disclosure,
QDIA
• Very similar to 401k plans with
design features
• Employer contributions allowed
• Annual 5500 and audit rules apply
• Subject to all disclosure
requirements
— QDIA, SH, 404a5, 408(b)2

401(k) versus ERISA 403(b)
Similarities Differences
• Deferrals and employer
contributions ( both match and
non-elective)
• Vesting schedules
• 5500 and /or audit requirements
• Subject to all notices (QDIA,
Automatic Enrollment/Escalation,
Fee Disclosure)
• No ADP testing- big advantage
• No Top Heavy testing
• Only mutual funds and annuities
allowed (no CIT, stock)
• Universal availability- no eligibility
period on deferrals
• No Trustee

Types of 457 Plans
• Governmental
—Local and state governments
establish 457 plan for
employees
• Top Hat (non-profit)
—Limited to select group of
highly compensated or
management employees
Beginning in 2002, employees
who are eligible to participate
in an eligible 457(b) plan and
any other deferral program
(401k or 403b), may contribute
the maximum contribution
limits to both plans.

Governmental 457
• Deferrals only
• Roth Contributions Permitted
• Age 50+ Catch up
• Final 3 Year Catch up contributions
• 3 years before the year a participant reaches normal
retirement date
• Only available if participant did not fully fund 457 plan in
previous years
• Lesser of 200% of the annual limit or the total “missed
opportunities” from previous years

Governmental 457
• Agreement to defer must be entered into before the
first day of the month in which deferrals begin
• Loans allowed
• Can be rolled into IRA, other Gov’t 457 or other
Qualified Plan

Top Hat- 457b and 457f
• Only available to a select group of highly
compensated and key management
• Payroll taxes apply to both employee and
employer contributions to the plan
• Assets NOT held in trust
—In employers name, subject to creditors

• 457(b) Plans
—Deferrals
—Final 3 Year Catch-Up
—Agreement to defer must be entered into
before the first day of the month in which
deferrals begin

• 457(f) Plans
—No limits on the amount of compensation that
may be deferred
—Often used to provide benefits lost to
participant in Qualified Retirement Plan
—Taxable to the participant in the tax year in
which the assets are no longer subject to
substantial risk of forfeiture, even if payment is
not received in that year

STRONGER
Strategies
for success
together
Fiduciary Services

Comprehensive Administration
Reporting and regulatory requirements for qualified plans
• List is daunting and complex
• Tends to grow every year
Important for plan sponsors to have comprehensive
administration, not merely just recordkeeping
Eligibility determination Loan/ hardship/ distribution adjudication
Real time vesting updates Audit Support
Full online/ auto-enrollment support Complete plan consulting services

3(16) Fiduciary Services
In addition to Comprehensive Administration, BPAS
offers 3(16) Fiduciary Services to plan sponsors for an
additional fee
—Additional Fiduciary protection on administration of
plan
—Annual review call with plan sponsor and calendar of
events and deadlines
—All required annual notices prepared with mailing
services optional
• SPD, SMM, SAR, QDIA, Safe Harbor, Automatic Enrollment,
404a5 Fee disclosures, Fund change notices and more
Used with full
online enrollment
where BPAS is
selected for all
recordkeeping,
administration
and document
services,
including Go
Green

BPAS 3(38) Fiduciary Services
• Optional service asked for by certain Financial
Intermediary partners
• Work with existing Advisor/Trustee to provide
enhanced services
—Those who can’t or don’t want to act as a Fiduciary on
the plan
—FI is still relationship manager, employee education
and main point of contact for the plan
—All reports can be branded for the FI

BPAS 3(38) Fiduciary Services
• BPAS Fiduciary Services essentially acts as the back office for the
Advisor or Trustee
— ERISA 3(38) Discretionary Investment Manager
— Pre-selected menu of funds from universe of fund families
• Institutional, 25 bps or 50 bps (12b1’s)
• Both passive and actively managed funds
• Target Date Funds as QDIA
• Investment Policy Statement
• Quarterly Investment Monitoring Report and Commentary
• Simplified fund change process

In Conclusion
• At BPAS, we are proud to support the “alphabet soup” of
plan types and designs
• Specialized Plan Consulting Teams help us service these
plans more effectively
• Let us work with you to explain the differences, consult with
clients / prospects on their unique situation
• You don’t need to be an expert – just get us involved
• This will set our partnership apart from national bundled
programs which mainly target 401(k) programs

Questions
Thank you

Broadening the Scope of Your Practice

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