Upcoming Changes to the Kansas City, MO Deferred Compensation Plan

Consistent with evolving best practices in the financial services industry, the Kansas City Deferred Compensation Plan is improving its fee structure. Currently all Plan expenses are covered by revenue received from the investment options offered within the Plan. This method of paying plan expenses results in fees that are 1) not transparent to participants and 2) not the same for all participants (since different investment options provide different levels of revenue). The changes being made will ensure transparency and consistency in the amount of fees paid for the Plan. Additionally, these changes will result in a 0.05% reduction in average “all in” expenses, saving the Plan and its participants over $100,000 annually. 

Effective January 1, 2020, the total Administrative Fees collected will be 1) an annualized 0.08% asset fee will be assessed monthly, on the last business day of the month, based on your total account balance on that date (both 457 and 401(a) plan accounts), plus 2) a per head charge of $44.00 per year (assessed as $11.00 per quarter) for those participants with an account balance of at least $5,000 (only assessed on the 457 plan account).

Understanding the details

This change will provide full transparency of the amount of Administrative Fees you pay for your deferred compensation plan account. In the coming months you will notice the following changes:

  • Effective January 1, 2020, a monthly explicit asset fee of 0.08% (annualized) will be assessed on your entire account balance, with fee payments occurring on the last business day of the month. The first fee payment will occur on January 31, 2020.
  • Effective January 1, 2020, a per head charge of $44.00 per year (assessed as $11.00 each quarter) will be assessed for all participants with an account balance of at least $5,000. This fee will be assessed on the last day of the calendar quarter, only on your 457 plan account, with the first fee payment occurring on March 31, 2020.
  • If you are invested in the Kansas City Fixed Account, your fixed investments will reflect a higher declared crediting yield. This change reflects the transfer of 0.25% annually that was previously used to pay for plan expenses to the declared crediting yield. This change was effective October 1, 2019.
  • In November 2019, all mutual funds were moved to the least expensive share class. If you were impacted by this movement, you would have received a separate notice about the change and you will see the transfer between share classes on your 4th Quarter 2019 participant account statement.
  • If you are invested in a mutual fund that provides service fee payments, as of January 1, 2020, these amounts will be credited to your account on a quarterly basis, with the first amounts attributable to 1st Quarter 2020 being credited in late April 2020.

What do I need to do?

This change will be made automatically and requires no action on your part. Please review the Frequently Asked Questions below to assist in your understanding of these changes.

We’re here to help

If you still have questions after reviewing the Frequently Asked Questions, or need any additional information, contact our Participant Solution Center at 866-350-5266. Our specialists are available Monday through Friday, 7:00 AM to 10:00 PM, and Saturday 8:00 AM to 5:00 PM, Central time.

Frequently Asked Questions (FAQs)

  1. Why is this change being made?
    The retirement plan industry has evolved significantly over the past several years. While imbedded administrative fees paid by revenue sharing from plan investments has historically been the norm, emerging best practices reflect an evolution to explicit, transparent administrative fees reflected on participant accounts. This move to full transparency regarding the administrative fees you pay allows you to see exactly how much you are paying to help cover the expenses associated with the operation of the Plan.
  2. What are Administrative Fees and how are they used?
    Administrative Fees are those fees you pay to cover the expenses of administering the Deferred Compensation Plan and to protect the Plan’s integrity and strength. The largest single Plan expense relates to costs associated with the Plan’s third-party administrator and marketer. (This is the role currently filled by Nationwide Retirement Solutions.) In addition, the Plan pays for other expenses, including those associated with 1) a Plan consultant, 2) City staffing to administer the Plan internally and 3) continuing education for members of the Kansas City Deferred Compensation Board, to help the Board fulfill its fiduciary responsibilities to the Plan and its participants. Administrative Fees are different from the fees that you pay to the asset managers associated with various investment options.
  3. How much did I pay in Administrative Fees before the change?
    Depending upon the investment option(s) you have chosen, you were previously contributing anywhere from 0.00% to 0.40% annually toward the Plan’s costs from embedded revenue sources described in 7. below. This change is designed to allow all participants to pay the same fees regardless of what investment options they invest in.
  4. Under the new approach, what will I pay in Administrative Fees?
    Moving forward, you will contribute 0.08% on an annualized basis toward Plan expenses (on both your 457 and 401(a) plan accounts), plus $44.00 annually (only on your 457 plan account and only if your account balance is at least $5,000 on the date the fee is assessed). The amounts assessed will be reflected on your account statement. A table reflecting all fees associated with each investment option offered within the Plan, along with the Administrative Fees, follows these FAQs.
  5. Why will there now be two fees assessed?
    The 0.08% explicit asset fee is assessed as compensation for Nationwide as the Plans’ third-party administrator and marketer. The $44.00 per head charge (assessed as $11.00 each quarter) is assessed to cover the City’s expenses as the Plan Sponsor.
  6. What will the $44.00 annual fee be used for?
    The City has set expenses each year in order to make the Plans available to its employees. These expenses cannot be covered by the City directly, so they are passed on to the participants in the Plans. Because these expenses should be shared equally by participants, a per head charge is being implemented. The Plan pays for expenses associated with 1) a Plan consultant, 2) City staffing to administer the Plan internally and 3) continuing education for members of the Kansas City Deferred Compensation Board, to help them fulfill their fiduciary responsibilities to the Plan and its participants. These are not new expenses, they will just be covered by a different method of fee assessment.
  7. How were Administrative Fees identified and collected in the past?
    The Plan’s administrative expenses have been covered on an imbedded basis, under which Plan expenses were covered by revenue sources that were not readily identifiable to Plan participants. For those invested in the Kansas City Fixed Account, a recordkeeping offset was netted out of the declared quarterly crediting yield to help cover Plan expenses. For those invested in mutual funds, many mutual funds provided imbedded service fee payments to the Plan for use in covering Administrative Fees.
  8. What are Mutual Fund Service Fee Payments?
    Mutual fund service fee payments are a component of many mutual fund expense ratios. The service fee payments are remitted back to the Plan to help cover the Administrative Fees of the Plan. This is in recognition of the fact that the mutual fund companies do not have to provide recordkeeping, administration, statements, customer service, distribution and tax reporting for each individual participant because the Plan’s recordkeeper performs these functions.
  9. What will happen to Mutual Fund Service Fee Payments going forward?
    In the past, mutual fund service fee payments were used by the Plan to cover its expenses. Effective January 1, 2020, all mutual fund service fee payments will be refunded and credited to the Plan accounts of those participants invested in any mutual fund that provides service fee payments. You will receive an allocation to your Plan account for your proportional share of the service fee payments returned from those mutual funds that provide service fee payments. Keep in mind that not all mutual funds provide service fee payments, so it is possible you may not receive a refund of service fee payments depending upon which mutual funds you hold in your account. For those impacted, the first credit of mutual fund service fee payments will occur during the 2nd Quarter 2020 for revenue attributable to the 1st Quarter 2020.
  10. How does this change impact Plan loan(s)?
    There is no impact to any loan you initiated prior to January 1, 2020, nor does this change impact new loans going forward. You should continue to pay any outstanding loan you may have per your loan agreement until the loan is paid off.
  11. How does this change impact my balance in the Schwab Personal Choice Retirement Account (PCRA)?
    Effective January 1, 2020, the 0.08% Administrative Fee applies to any balances held in the Schwab PCRA. This fee is assessed monthly on the last business day of the month like the core investment options in the Plan. However, since such a fee cannot be assessed directly on PCRA assets, the fee amount for the PCRA assets is deducted on a pro-rata basis across your investments in the core investment options. This first fee will be assessed on January 31, 2020 combined with the fee on core investment option balances.

Fund/Share Class Information

Category & Fund/Share Class Name Ticker Gross Expense Ratio Net Expense Ratio
(A)
Mutual Fund Service Fee Payment*
(B)
Explicit Asset Fee (C) Total Expense
(A - B + C)
Target Date
T. Rowe Price Retirement I 2060 Fund – I Class** TRPLX 0.75% 0.59% 0.00% 0.08% 0.67%
T. Rowe Price Retirement I 2050 Fund – I Class** TRPMX 0.60% 0.59% 0.00% 0.08% 0.67%
T. Rowe Price Retirement I 2040 Fund – I Class** TRPDX 0.59% 0.58% 0.00% 0.08% 0.66%
T. Rowe Price Retirement I 2030 Fund – I Class TRPCX 0.53% 0.53% 0.00% 0.08% 0.61%
T. Rowe Price Retirement I 2020 Fund – I Class TRBRX 0.46% 0.46% 0.00% 0.08% 0.54%
T. Rowe Price Retirement I 2010 Fund – I Class** TRPAX 0.45% 0.40% 0.00% 0.08% 0.48%
Specialty
American Century Real Estate Fund – Class R6 AREDX 0.80% 0.80% 0.00% 0.08% 0.88%
International Stock
Capital World Growth & Income Fund – Class R6 RWIGX 0.44% 0.44% 0.00% 0.08% 0.52%
Harding Loevner Emerging Markets Portfolio – Institutional Class HLMEX 1.27% 1.27% 0.10% 0.08% 1.25%
EuroPacific Growth Fund – Class R6 RERGX 0.49% 0.49% 0.00% 0.08% 0.57%
Small-Cap Stock
Baron Small Cap Fund – Institutional Shares BSFIX 1.04% 1.04% 0.15% 0.08% 0.97%
William Blair Small Cap Value Fund – Class I** BVDIX 1.30% 1.25% 0.15% 0.08% 1.18%
Vanguard Small-Cap Index Fund – Institutional Shares VSCIX 0.04% 0.04% 0.00% 0.08% 0.12%
Mid-Cap Stock
Carillon Eagle Mid Cap Growth Fund – Class R6 HRAUX 0.66% 0.66% 0.00% 0.08% 0.74%
Vanguard Mid-Cap Index Fund – Institutional Shares VMCIX 0.04% 0.04% 0.00% 0.08% 0.12%
Vanguard Selected Value Fund – Investor Shares VASVX 0.36% 0.36% 0.00% 0.08% 0.44%
Large-Cap Stock
MFS Value Fund – Class R6 MEIKX 0.48% 0.48% 0.00% 0.08% 0.56%
The Growth Fund of America – Class R6 RGAGX 0.33% 0.33% 0.00% 0.08% 0.41%
Vanguard Institutional Index Fund – Institutional Shares VINIX 0.035% 0.035% 0.00% 0.08% 0.115%
T. Rowe Price Growth Stock Fund – I Class PRUFX 0.52% 0.52% 0.00% 0.08% 0.60%
Balanced
T. Rowe Price Retirement Balanced I Fund – I Class** TRPTX 0.45% 0.38% 0.00% 0.08% 0.46%
Bonds
American Century Government Bond Fund – Class R5 ABTIX 0.27% 0.27% 0.05% 0.08% 0.30%
PIMCO Total Return Fund – Institutional Shares PTTRX 0.71% 0.71% 0.00% 0.08% 0.79%
Short-Term Investments
Kansas City Fixed Account N/A 0.00% 0.00% 0.00% 0.08% 0.08%
Self-Directed Brokerage
Schwab Personal Choice Retirement Account N/A 0.00% 0.00% 0.00% 0.08% 0.08%

Disclosures from Nationwide
Before investing, carefully read the fund prospectus and consider the fund’s investment objectives, risks, charges and expenses. The underlying fund prospectuses contain this and other important information and are available to download at www.KCMODC.com or by calling 866-350-5266.
Mutual fund share classes listed available effective as of 11/19/2019.
Expense ratio, mutual fund service fee payment and administrative fee percentages are subject to change without notice. This information is accurate as of 9/30/2019. Please contact Nationwide at 866-350-5266 or log on to www.KCMODC.com for the most up to date information.

* Mutual Fund Service Fee Payments may be offered when a company, such as Nationwide, provides marketing, record keeping, and other services for the mutual fund companies by making the investment funds available to Nationwide’s clients.
** This mutual fund currently has a management expense waiver or reimbursement in place. For more information about management expense waivers or reimbursements, please consult the fund’s prospectus.
Real Estate Funds: Funds that invest mainly in real estate are sensitive to economic and business cycles, changing demographic patterns and government actions.
International Funds: Investing internationally involves risks not associated with investing solely in the U.S., such as currency fluctuation, political risk, differences in accounting and the limited availability of information.
Small Cap Funds: Small and emerging companies may have less liquidity than larger, established companies. Therefore, funds investing in stocks of small or emerging companies may face greater price volatility and risk.
Bond Funds: Bond funds have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the fund. Funds that invest in high-yield securities are subject to greater credit risk and price fluctuations than funds that invest in higher-quality securities.

NRW-6950MO-KC
NRW-6950MO-KC
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