Finally…the Right Retirement Plan Loan Answer Gwenn Paness, Director of Sales, MyPlanLoan

1. Finally…the Right Retirement Plan Loan Answer Gwenn Paness, Director of Sales, MyPlanLoan

2. Agenda The Problem • The Loan Dilemma • Policy • Prudence • Leakage • State of the Union – Today’s Loan Utilization Statistics • Issues for Terminated Participants. Is There a Better Option Available? • In-house Loan Administration Challenges The Solution • The MyPlanLoan Solution • Who can use MyPlanLoan? • How does the Program Work? • How are Loans Created and Paid? • MyPlanLoan Program Fees • Benefits of MyPlanLoan • Case Studies • About Benefit Plans Administrative Services, Inc. (BPAS)

3. The Loan Dilemma Policy • Should loans be offered in the first place? • Does the payroll department have the time and resources to administer this plan provision effectively? Prudence • While compliant, is 72(p) always a prudent limit? Leakage • On a net basis, do loans contribute to increased participation and savings rates, or do they promote leakage of terminated Participant plan assets? • Can something be done about the concerns of terminated Participants? Is there a better option than 90 day loan payoff or default?

4. Today’s Loan Utilization Statistics SOURCE: PSCA’s 54th Annual Survey of Profit Sharing and 401(k) Plans • Despite the prevalence of 401(k) loans, loan assets constitute only 2.4% of total plan assets among plans with a loan option • About 90% of 401(k) Participants are in plans that offer a loan option. Within those plans, about 1 in 5 eligible Participants has a loan outstanding at a given point in time • In a much larger study of Vanguard administered plans, Mitchell, Utkus and Yang (2007) showed that having a loan provision raises contribution rates by about 10%

5. Issues for Terminated Participants Statistics • 12% of loan holders (about 2% of Participants) terminate employment with a 401(k) loan outstanding in any given year • Loan balances are typically due in full within 90 days of termination date • Among 401(k) plan borrowers terminating employment, approximately 80% default on their loans • . . . approximately 10% of those with 401(k) loans default each year at the time of termination of employment • The challenge - how do we fix the problem? SOURCE: An Empirical Analysis of 401(k) Loan Defaults

6. In-House Loan Administration Challenges • Time-consuming activity that adds nothing to company’s bottom line • Risk of error in setting up/processing payment schedules • Inflexibility of payment plans • Workplace environments where payroll deduction is not a viable solution: • Multi-employer plans (multiple payrolls) • Restaurants (low hourly rate, tip based comp) • Retail (low hourly rate, high turnover) • Car dealerships (multiple payrolls, variable comp from commissions) • Construction (seasonal/cyclical layoffs) • Heavy payroll maintenance (multiple payrolls with divisional transfers) • More than one loan permitted

7. The Solution – MyPlanLoan Who can use MyPlanLoan? • MyPlanLoan is for everyone! • Terminated Participants • Loan Continuation to avoid immediate payoff or default • Bridging the gap between leaving current job and starting a new job • Active Participants • Unexpected home repairs • Unanticipated medical expenses • During cyclical layoffs

8. Terminated Participants - MyPlanLoan The Third Option for Terminated Participants • Participant’s date of termination reported to Recordkeeper • Participant has an existing Traditional Loan • Participant can choose to convert the loan(s) to a Loan Continuation Account • Participant can establish a new loan line equal to the fixed amount set by the Employer (i.e. $5,000 subject to daily 72(p) limit) • Participant does not have an existing Traditional Loan • Participant can establish a new loan line equal to the fixed amount set by the Employer (i.e. $5,000 subject to daily 72(p) limit) • Participant receives a monthly statement from MyPlanLoan • Participant remits monthly payment to MyPlanLoan

9. The Solution - MyPlanLoan MyPlanLoan for Active Participants • Participant requests a loan line up to 72(p) limit • Participant applies online through re-direct from Participant Web • MyPlanLoan Access Card mailed to Participant to be used, as needed, for future loan transactions • Loan lines may be increased up to 72(p) limit • Unused portion of loan line may be reallocated to core investments at any time • Participant receives a monthly statement from MyPlanLoan • Participant remits monthly payment to MyPlanLoan

10. The Solution - MyPlanLoan Principal Residence Loans vs. General Purpose Loans • No access card issued; loan is created for entire amount requested during account opening • Expanded amortization schedule up to 360 months • Once request is approved (by Sponsor/Third Party), MPL deposits loan proceeds via ACH to participant’s designated bank account (bank instructions provided during account opening) • MPL sends monthly statements and collects payments • As payments are processed, principal and interest are returned to participant’s core funds

11. Traditional vs. MyPlanLoan

12. The Solution - MyPlanLoan How loan lines are created • Similar to a HELOC, MyPlanLoan creates a retirement fund “loan line” for Participants, based upon 72(p) or a lesser amount, as determined by the Sponsor/Fiduciary • Loan line funds are transferred to a separate account within the Plan (i.e., stable value or money market fund) • MyPlanLoan Access Card allows Participant to draw upon the loan line as needed • Loans are created only when funds are actually spent • Unused portion of loan line remains in the Plan, continuing to earn tax-deferred dividends for the Participant

13. MyPlanLoan – How Loans are created Participant swipes card at merchant Transaction processor settles with merchant and requests funds from MPL Transaction processor posts transactions and sends data to MPL MPL sends file to RK system to redeem money from loan line fund. MPL settles with processor Participant Loan created from that day’s card usage RK system updated and RK/Custodian settles with MPL Day 4 Day 3 Day 2 Day 1

14. MyPlanLoan – Repayment • MyPlanLoan eliminates payroll deduction as the method of loan repayment • Monthly statement detailing loan payment due (includes principal, prime interest and the MyPlanLoan service fee) is communicated to Participant on 10th of the month (e-delivered or mailed) • MyPlanLoan accepts and processes loan payments (ACH pull or check) • Principal and prime interest are remitted to the Plan custodian • Record of loan payments are reported to the Recordkeeper • Defaults are monitored by MyPlanLoan staff and communicated electronically to Recordkeeper for 1099R reporting

15. MyPlanLoan – How Loans are Repaid Participant receives monthly MPL statement data detailing loan payment due Participant remits loan payment due to MPL via ACH or Check/Money Order MPL sends file to RK system with payment information and initiates ACH of principal and interest to custodian RK creates trades to purchase money into loan line fund (principal) and core funds (interest) Payment posted to Participant’s MPL Account RK system updated Step 3 Step 2 Step 1

16. MyPlanLoan Customer Service • Dedicated Participant Call Center • Monday – Friday • 9am – 5pm ET • Inbound/Outbound calls • Missed Payment Notification • Phone call and letter • 30, 60, 90 days • Prior to default date • Bilingual • English and Spanish

17. MyPlanLoan Program Fees

18. MyPlanLoan Program Services

19. Recordkeeper Benefits Limits trade rejects for inaccurate loan payments Insufficient amounts Payoffs with continuing loan deductions Value added service to market to Plan Sponsors Additional revenue opportunity Simplifies administration of plans offering multiple loans Client Retention tool MyPlanLoan Benefits

20. Plan Sponsor Benefits Get out of the loan business Paternalistic approach Set loan limits, prevent employees from borrowing more than they need Encourage employees to continue to save for retirement Ability to offer loans without payroll support requirements Reduces gamesmanship of hardship and termination/rehire transactions A compassionate HR benefit for Participants, many of whom are involuntarily terminated or terminate for good reason Layoffs Retirement Disability Family care MyPlanLoan Benefits

21. MyPlanLoan Benefits Participant Benefits • A third option for terminated Participants 1. Immediate payoff 2. Default 3. Loan Continuation • Loan availability for terminated Participants to help bridge the gap between jobs • Opportunity to avoid burdensome taxes associated with defaults which further worsens leakage of Participant assets (federal, state, local, 10% penalty) • Participants leave 100% of balance in the Plan • Loan access when traditional loan administration systems aren’t responsive • Natural disasters (i.e., Katrina) • Unforeseen emergencies (i.e., car repair) • Privacy (loan reason disclosure) • Loan availability in workplace environments where plan loans might otherwise not be available.

22. Case Study 1: Taft-Hartley Plan The Problem Taft-Hartley Plan Members often work for multiple employers and may experience periodic layoffs over the course of a typical loan amortization period, thus making payroll deduction impractical. Access to a responsible loan line was needed to help with issues such as vehicle repairs and tools, which are not covered by hardship rules. The Solution The Trustees of the Taft-Hartley plan added the MyPlanLoan program with a maximum loan line of $5,000 to their members’ plan.

23. Case Study 2: Non-Profit Employer The Problem A large non-profit employer converted its 403(b) from a provider that issued coupon books for loan repayments. The Employer wanted to convert to an institutional fund/open architecture provider but did not want to bring loan administration back into its payroll department. The Solution MyPlanLoan was added with the plan conversion, and the outstanding coupon-based loans were converted to a MyPlanLoan account.

24. Case Study 3: Geographically-Dispersed Employees The Problem The payroll department of a large regional grocery store chain was concerned about the payroll support requirements of a loan provisions, given the 24/7, geographically-dispersed nature of their business, and thus did not offer a loan provision in their Plan. The Solution MyPlanLoan was added to the Plan to provide employees with a non-payroll deducted loan option. The Employer effectively outsourced loan origination, adjudication, payment processing and default counseling, and was able to comfortably offer a loan program to employees for the first time.

25. Client Testimonial HR Manager, Midwest Manufacturing Company “When an economic downturn forced us to lay off several hundred workers, I felt terrible about those who had outstanding retirement loans that otherwise would have been due within 90 days. With MyPlanLoan we were able to offer these terminating employees the opportunity to continue to repay their loans over the original terms, helping minimize their risk of default.”

26. About BPAS • Benefit Plans Administrative Services, Inc. is a subsidiary of Community Bank System, Inc. (NYSE listed: CBU) • Offices in: • NY: New York City, Syracuse, Utica • IL: Chicago • NJ: East Hanover • PA: Philadelphia, Pittsburgh • TX: Houston • 235 employees providing: • TPA services – MyPlanLoan/AutoRollovers (EGTRRA distributions) • Actuarial Services (dedicated staff of 26 actuaries) • Institutional Trust (CIF administration) • VEBA/HRA, Flex services • Supporting MyPlanLoan administration since 2003

27. MyPlanLoan Contact Information Gwenn Paness, Director of Sales MyPlanLoan (646) 285-4937 gpaness@bpas.com