CITs & Group TrustsSimplifying and Scaling

Retirement Plans

Current Indust ry T rends

Aggregation/

Consolidation

Fee

Compression

Current State of Retirement Industry

1) Having the qual i f icat ions i s not enough to dist inguish yoursel f anymore

2) Ret i rement Advisory and Recordkeeping i s becoming commodit ized

• W h e n s o m e t h i n g b e c o m e s a c o m m o d i t y a n d t h e r e i s n o d i f f e r e n t i a t i o n b e t w e e n p r o d u c t s t h e n t h e o n l y p l a c e t o c o m p e t e i s o n p r i c e .

The Power of CITs & Group TrustsUnlock Economies of Scale

Clear, Tangible & Simple Process

D i f fe ren t ia te Your se l f

CITs

&

Group

Trusts

1981 IRS Revenue

Ruling 81-100

How are you able to Pool Assets and not Create a Mutual Fund?

Investment Company Act of 1940 section 3(c)(11)“Any employee’s stock bonus, pension, or profit-sharing trust which meets the requirements for qualification under section 401 of the Internal Revenue Code of 1986; or any governmental plan described in section 3(a)(2)(C) of the Securities Act of 1933; or any collective trust fund maintained by a bank consisting solely of assets of one or more of such trusts, government plans, or church plans, companies or accounts that are excluded from the definition of an investment company under paragraph (14) of this subsection; or any separate account the assets of which are derived solely from (A) contributions under pension or profit-sharing plans which meet the requirements of section 401 of the Internal Revenue Code of 1986 or the requirements for deduction of the employer’s contribution under section 404(a)(2) of such Code, (B) contributions under governmental plans in connection with which interests, participations, or securities are exempted from the registration provisions of section 5 of the Securities Act of 1933 by section 3(a)(2)(C) of such Act, and (C) advances made by an insurance company in connection with the operation of such separate account.”

Investment Company Act of 1940 section 2(5)(5) ‘‘Bank’’ means:

(A) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act) or a branch or agency of a foreign bank (as such terms are defined in section 1(b) of the International Banking Act of 1978)(B) a member bank of the Federal Reserve System

(C) any other banking institution or trust company, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency, and which is supervised and examined by State or Federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of this title(D) a receiver, conservator, or other liquidating agent of any institution or firm included in clause (A), (B), or (C) of this paragraph.”

“Bank-maintained” under the federal securities laws has been interpreted by the SEC to mean “substantial investment responsibility”.

Plans

Available

to CITs and

81-100 Group

Trusts

401(k)

P rof i t shar ing

Def ined Benef i t

457(b)

Cash Ba lance

Money Purchase P lans

403(b) (9)

Taf t -Har t ley

State Municipal or Government

Collective Investment Trusts• E s t a b l i s h e d i n 1 9 2 7• A l s o r e f e r r e d t o a s C o l l e c t i v e I n v e s t m e n t T r u s t s a n d C o l l e c t i v e T r u s t F u n d s• H i s t o r i c a l l y t h e p r e f e r r e d r e t i r e m e n t v e h i c l e• B a n k s p o n s o r e d a n d t h e r e f o r e e x e m p t f r o m ’ 4 0 A c t r e g i s t r a t i o n• T r u s t b a s e d• B o a r d o f D i r e c t o r s o f t h e B a n k o v e r s e e t h e T r u s t• B a n k a n d I n v e s t m e n t M a n a g e r a r e b o t h E R I S A f i d u c i a r i e s• O n l y a v a i l a b l e t o q u a l i f i e d r e t i r e m e n t T r u s t s

• 4 0 1 k • 4 0 1 ( a ) / P r o f i t S h a r i n g • D e f i n e d B e n e f i t / P e n s i o n • T a f t - H a r t l e y• 4 0 3 b ( 9 ) - C h u r c h S p o n s o r e d P l a n s • 4 5 7 ( b ) • S t o c k B o n u s • I n s u r a n c e C o . S e p a r a t e A c c o u n t s• C a s h B a l a n c e P l a n s • S t a t e a n d M u n i c i p a l R e t i r e m e n t P l a n s

• C I T s t r a d e o n t h e N S C C a s o f M a r c h o f 2 0 0 0• M o r n i n g s t a r C I T d a t a b a s e e s t a b l i s h e d i n 2 0 0 7• L e v e r a g e t h e s e l l i n g a g r e e m e n t s o f t h e B a n k s p o n s o r• N o p a y t o p l a y p l a t f o r m s c h e m e s

CIT TRENDS

C I T a s s e t s a r e e s t i m a t e d t o s u r p a s s $ 3 t r i l l i o n b y t h e e n d o f 2 0 1 8

C I F a s s e t g r o w t h h a s e x c e e d e d t h e o v e r a l l r e t i r e m e n t m a r k e t w i t h a 7 - y e a r C A G R o f 1 4 . 4 % c o m p a r e d t o 9 % f o r t h e r e t i r e m e n t m a r k e t .

Source: Erach Desai and Jason Dauwen. DST Systems and ALPS. Collective Investment Trust – A Perfect Storm, March 2017.

S i n c e 2 0 1 2 , C I T u s e h a s g r o w n b y 3 5 % w i t h i n D C p l a n s , w h i l e t h e u s a g e o f m u t u a l f u n d s h a s d e c r e a s e d .

Source: Callan 2017 DC Trends Survey

Use of CITs in DC Plans Booming, Rises 68% Since 2008

“In a December 2015 survey by Cerulli, 18.8% of DC plan executives said they would convert mutual funds to collective investment trusts when asked if they planned to change their

investment structures over the next 12 years.”- Pnesion & Investments, February 22, 2016

CITs Continue Growth“Collective investment trusts are still climbing –

both in use and in offerings.”- Benefits Pro, January 29, 2016

The ‘Explosion’ of Collective Trusts in 401ks

“Plan sponsors thought they had to be big to use CITs; not true...”

- 401k Specialists,, February 23, 2016

CIT Adoption on the Rise in DC Plans“The potential pricing flexibility and cost advantages that

CITs offer when compared with other investment vehicles are translating into a rising demand in the DC market.

Of the 100 largest corporate DC funds in 2016, CITs were used by 54.3%, more than mutual funds, separate accounts and

ETFs combined.”

- Pnesion & Investments, February 23, 2017

Scale Investment Strategies Efficiently

Reduce investment costs

Simplify Model Management

Principal Use Cases for CITs

Scale Investment StrategiesOne Trading Account

Dai ly NAVs

Operat ional ly s imi lar to mutual funds

Fee F lex ib i l i ty

Investment Holding F lex ib i l i ty

Reduce Investment Costs

• CIT vs MF -Callan 2018 Defined Contribution Trends Survey

0

10

20

30

40

50

60

70

80

90

100

US LargeCapCore

InternationalEquity

Target DateFunds

US CoreInvestment

Grade

TER (bps)*

CITsMutual Funds

*assuming $100 MM

401k and ERISA-covered 403b plans through September 2016. Source: Investment News analysis of Groom Law Group data

ERISA LITIGATIONNumber of retirement-fee-cases filed annually

0 5 10 15 20 25 30 35

20162015

2014

2013

2012

20112010

2009

2008

20072006

Notable Cases:• Boeing

• Anthem

• Nordstrom

• Lockheed Martin Corp

• Tibble v. Edison (U.S. Supreme Court)

= Settlements over $300 million

Simpl i fy ModelManagement

Recordkeeper Models Model in CITs

Multiple Accounts One Account

Notifications when new securities are traded

No notifications to participants for trading new securities

Limitation on the types of securities that can be held in the model Expanded available securities

Varying Performance Consistent Performance

What is an 81-100

Group Trust?

Record Keeper

InvestmentManager

Custodian

81-100GROUPTRUST

Plan

Plan

Plan

Plan

Plan

PlanTrust

TrustTrust

Trust

Trust

Trust

MEPS vs 81-100 Group TrustM E P

81-100 GROUP TRUST

M E P

81-100 GROUP TRUST

PlanSpecifications

PlanSpecifications

PlanAssets

PlanAssets

Does each plan still need its own trust?

81-100GROUP TRUST

Plan

Plan

Plan

Plan

Plan

Plan

T ru s tT r u s t

T r u s t

T ru s t

T ru s t

T r us t

MEPS

Record Keeper

InvestmentManager

Custodian

81-100GROUPTRUST

TrustTrust

Trust

Trust

Trust

Trust

Plan Advisor

Plan Advisor

Plan Advisor

Plan Advisor

Plan Advisor

Plan Advisor

Plan

Plan

Plan

Plan

Plan

Plan

81-100GROUP TRUST

Small plan solution

ASSOCIATIONGROUP TRUST

Associationsor

Groups Member

401(k)

401(k)

401(k)

401(k)Member

Member

Member

Association

81-100GROUP TRUST

WealthManager

401(k)

401(k)

401(k)

401(k)

Wealth Client

Wealth Client

Wealth Client

Wealth Client

Wealth Manager

Broker/Dealer RIA

81-100 GROUP TRUSTFUND LINEUP

Large Cap

Mid Cap

Small Cap

Fixed Income

International

Target Date

Large Cap

Mid Cap

Small Cap

Fixed Income

International

Target Date

Large Cap

Mid Cap

Small Cap

Fixed Income

International

Target Date

Types of Investments Available

8 1 - 1 0 0 G R O U P T R U S TF U N D

L I N E U P

C I T s

Mutual Funds

E T F s

U M A s

S M A s

Process for Adding Plans to a Group Trust

Plan fiduciary signs the participation agreement

Record keeper coordinates the conversion of assets

8 1 - 1 0 0G R O U PT R U S TF U N DL I N E U P

Mid Cap Mutual Fund

Small Cap Mutual Fund

Large Cap Mutual Fund

International Cap Mutual Fund

8 1 - 1 0 0G R O U PT R U S TF U N DL I N E U P

Mid CapCIT

Small CapCIT

Large Cap CIT

International CapCIT

Lower Fees

Benefits of CITs & Group Trusts

Simple Process

Differentiates Your

Company

Unlocks Economies

of Scale

Thank You

Stephen Ponder(303) 996-3784

sponder@t rus ta l ta .com

Questions?