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Benchmarking Your Retirement Plan:

Optimizing Fees & Services

Presented by: Robert W. Dion and Tad Gray Morgan Stanley Smith Barney

© 2011 Morgan Stanley Smith Barney LLC. Member SIPC.

FOR PLAN SPONSOR USE ONLY 2

“Shining a Light on Murky 401(k) Plan Fees”

“401(k) Fees Gain a Bit of Clarity”

“Labor Department Requires 401(k) Fee Disclosure”

“Industry Eyes Lawsuits Over Pension Investment”

“What Your 401(k) Really Costs You”

“Cracking Down on 401(k) Fees”

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Key Topics for Discussion

· Current Regulatory Environment

· What it Really Means to Understand Plan Fees

· Benchmarking: The Key to a Prudent Process

· How MSSB Can Help

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Current DC Regulatory Environment

A Spotlight on Fees

The Department of Labor and Congress are placing a great deal of emphasis on plan expenses and services

• Form 5500 Schedule C reporting requirements

• 408(b)2 reporting requirements

• Participant level fee disclosure

• Pending legislation

• Lawsuits

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Now, more than ever, it is critical for plan sponsors to

understand plan fees.

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What it Really Means to Understand Plan Fees

Plan Fiduciaries have:

“. . . a specific obligation to . . . Ensure that fees [and] expenses are reasonable in light of the level and quality of services provided. . .”

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Source: A Look At 401(k) Plan Fees, U.S. Department of Labor Publication, p.3

Understand how fees are derived

Determine whether reasonable in light of services being provided

Document a prudent process

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1. Understand How Fees Are Derived

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Plan Fees &

Expenses

Recordkeeping/ Administration

InvestmentManagement

Plan Complexity

Trustee Services

Education &Communications

Advisors/ Consultants

It’s not enough to look at total plan costs—many factors influence plan fees

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2. Determine Whether Fees Are Reasonable in Light of Services Being Provided

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In order to determine how “reasonable” fees are, it is important to understand how to compare your plan to the market. You should consider:

• Plan and participant level services provided

• How well the plan is performing – participant success measures

• Plan size and participant demographics

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3. Document a Prudent Process

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Plan fiduciaries should demonstrate that a prudent process was followed, including:• Understanding plan fees and expenses

• Determining reasonableness of fees

• Documenting the decision-making process when selecting service providers

Plan Fees

UNDERSTAND

DETERMINE

DOCUMENT

Demonstrate a prudent process

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Benchmarking: The Key to a Prudent Process

“Benchmarking” or evaluating and comparing plan fees and services to other similar plans:· Helps you understand the fees paid by your plan

· Helps you determine whether fees are reasonable in light of services being provided

· Provides documentation for your records

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Plan Fees

UNDERSTAND

DETERMINE

DOCUMENT

Demonstrate a prudent process

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A New Way to Benchmark Your Plan

Traditional approaches to benchmarking plan fees have not been entirely effective:

1. Requesting periodic proposals from different vendors· Compares your plan to what you can get, not to what similar plans are actually getting· Doesn’t include plan level data such as participation, deferral rates, etc.· Typically very time consuming

2. Using databases from 5500 filings· Information may be outdated or incorrect· May include fees and plan level data but not services being provided· Wide variance in pricing may make it hard to draw conclusions

3. Benchmarking produced by the plan provider· Comparative bias· Not independent

Morgan Stanley Smith Barney can offer you a more efficient way to prudently benchmark your plan and determine reasonableness of fees

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FOR PLAN SPONSOR USE ONLY

MSSB can provide you with a benchmarking analysis:

· Independent, third party data

· Use an “apples to apples” comparison of your plan against other similar plans- Factors considered include: plan size, number of participants, company industry, employer

match and allocation to index funds

· Provides the data needed to accurately understand and assess relative plan fees, support, services and success measures

How MSSB Can Help

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The MSSB Approach to Benchmarking

A comprehensive approach designed to help you determine how reasonable your fees are and to document your review process.

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Evaluation Benchmarking Consultation Implementation

Understand all of the services being received and the fees being paid

Utilize benchmarking capabilities of an independent, third party specializing in retirement plan fee benchmarking

Provide comprehensive review of the benchmarking data and consult with you on strategies for enhancement

Help you implement and document changes to your plan

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The MSSB Benchmarking Approach Can Help You…

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· Renegotiate with your provider for lower fees, if necessary

· Identify services that you don’t need, or other services that you do need

· Determine whether your plan’s success measures need to be improved - participation rates, deferral rates, diversification, etc.

· Revisit and improve your plan design

· Provide documentation for your fiduciary audit file

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Questions?

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Robert W. Dion Tad GraySenior Vice President Financial AdvisorMorgan Stanley Smith Barney Morgan Stanley Smith Barney312-648-3018 312-648-3314robert.dion@mssb.com tad.gray@mssb.com

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Disclosures

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Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Smith Barney Financial Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley Smith Barney. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their tax or legal advisors before establishing a retirement plan and to understand the tax, ERISA and related consequences of any investments made under such plan.