Plan assets and average account balance are generally the two most significant demographic factors impacting total plan costs, but plan services are also a primary driver of cost, especially when a plan sponsor takes the plan to market during an RFP Vendor Search. Based on our experience of having conducted hundreds of fee and service benchmarking reports, the following plan services consistently have the biggest impact on retirement plan fees:

• Investment management objectives - Passively managed funds that track an index generally have significantly lower management fees than actively managed funds whose objective is to outperform a certain benchmark, index, or asset class. The analysis of investments should include an "apples to apples" comparison of investment management styles, objectives, and asset classes.
• Investment Advice - Many providers offer on-line investment advice, usually delivered through a third party firm. Fees typically range from 0.50% - 1.25% of employee account balances. Often these fees are as much as all other total cost components added together. This is another important topic for plan fiduciaries to discuss and document in the consideration of services and plan design.
• On-site employee meetings with multiple locations - Labor and travel to deliver ongoing periodic on-site group or individual enrollment and investment education meetings is expensive. Plan fiduciaries need to evaluate the results of on-site meetings versus other more potentially beneficial communications and plan design strategies.
• Non-standard (unusual) investments - Any fund or vehicle that creates additional friction on the service providers' recordkeeping system. Examples include the recordkeeping of outside GICs (guaranteed investment contracts) that are not manufactured by the existing service provider, illiquid limited partnerships, and employer stock (private or publicly-traded). Plan sponsors need to weigh the benefits and costs of offering these investments, including a determination of their appropriateness from a fiduciary standpoint.
• Multiple, complicated, or antiquated payroll transmittal frequency or systems - Data that is submitted through non-electronic methods, or by plans with multiple payroll systems, locations, and payroll frequency, typically generate additional recordkeeping fees.

During Volatile Markets, What Type of Investor are You?
- David Montgomery

Fear, panic, enthusiasm, confidence. You may have felt some of these emotions during recent market volatility. Why are some deeply disturbed by market uncertainty while others remain confident? Perspective.

Picture two investors with identical investment situations: The first one is at his or her desk stressing over news reports of market gymnastics and worrying about financial security. The second investor continues to be productive at work and enjoys their favorite evening pastime because they feel confident in their investment strategy. I believe most of us would rather be that second investor. You and your plan's participants can be like the second investor by maintaining a positive perspective with a proper strategy in times of greater market volatility. Here are some thoughts:

• Develop an appropriate strategy based on your specific situation, not mass-market guidance from a TV personality who doesn't know your situation. If you already have a proper strategy, stick to it. This disciplined approach will assist in removing emotion from decisions.
• If you get the urge to try outguessing market fluctuations even though you have a proper strategy in place, remind yourself that you have to be correct twice. You must first decide when to move out of the market, but also the right time to get back in. Do you know someone who let their emotions get the best of them by pulling their money out of the stock market during the 2008 market crash, and ultimately missed the 72%1 gain in the twelve months following the low point of March 9, 2009?
• Keep in mind that the average annual return for the S&P 500 for the 30-year period ending 6/30/11 was 8.00% and investors who missed just 20 of the best days during those three decades averaged only 3.70% annual return2.

David Montgomery will be authoring a series of articles on participant behavior in upcoming issues.

1. S&P 500
2. Source: FactSet as of 6/30/11

Up Close: Changing Market Conditions and Participant Behavior

JPMorgan recently released a white paper titled "Searching for Certainty: Observations and opinions on how changing market conditions are affecting 401(k) plan participant outcomes." The study, which surveyed 1,000 individuals nationwide, reveals a fundamental shift since 2007 largely due to the market conditions of the past several years.

According to the paper, participants are focusing on financial issues, but "on a near-term basis." Half of the respondents indicated their number one financial concern was meeting monthly obligations. A distant second and third were saving for retirement and reducing their mortgage, respectfully.

According to the study, 45% of participants never call or visit the provider's website to monitor their account. With regards to retirement plans, the study concluded that many participants remain "accidental investors" or rather, participants who do not actively manage their accounts.

Finally, the report brought back the concept that we often see appear in these type of studies: The goal of using the retirement plan to bridge the gap between what programs such as social security will provide and what the participant will actually need in retirement. Most studies in the past focused on lower income employees, but this study identified an emerging risk for high-income employees due to the fact that they can expect a smaller percentage income replacement from Social Security. As a result, this group must do more to supplement that shortfall. According to JPMorgan, the high-income group (those defined as earning over $100,000 per year) has the following characteristics:

• Half are "concerned about having enough money to make ends meet."
• High income employees take a disproportionate number of loans. Half of all loans are to high-income employees and they represent half of the value of all loans.
• A quarter of high-income employees owe more than $10,000 in credit card debt, versus only 12% of those making less than $50,000 per year.

Communication Corner: Staying the Course

With the current turmoil on Wall Street fresh in everyone's minds, it is always helpful to remind participants about the importance of staying diversified and not to panic in times of crises; timing the market or bailing out of the retirement plan altogether is futile in meeting long-term savings goals.

Email info@m-rpa.com for a copy that you can print and distribute to employees.

News from MRPA

• MRPA Consultant Awarded Accredited Investment Fiduciary® (AIF®) Designation
  David M. Montgomery, newest addition to the MRPA team, was certified as an Accredited Investment Fiduciary by the Center for Fiduciary Studies. The Center is associated with the Center for Executive Education at the Joseph M. Katz Graduate School of Business at the University of Pittsburgh. Prior to joining MRPA, Mr. Montgomery developed tailored investment solutions for high net worth clients of T. Rowe Price Investment Services.
• Montgomery to Speak at Center for Due Diligence Conference (CFDD)
  Mike Montgomery will be addressing the Center for Due Diligence conference in Chicago on October 17 and 18, 2011. On Monday, October 17, he will participate in a panel discussion on qualifications for independent fiduciaries "3(38) Investment Management Services: Are You Qualified?", and the following afternoon, on "Multiple Employer Plans: A Fiduciary Risk Solution?"

This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.

Securities and investment advisory services offered through Financial Telesis Inc. Member FINRA / SIPC. Montgomery Retirement Plan Advisors and Financial Telesis Inc. are not affiliated.