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Schwab Bank Cuts Expense Ratios In Target Date Collective Trust Funds For Large Retirement Plans

To meet increasing demand for target date funds in large retirement plans, Charles Schwab Bank (“Schwab Bank”) is introducing a new unit class for its Schwab Managed Retirement Trust Funds™ (“SMRT Funds”) with a lower 0.35 percent operating expense ratio. The SMRT Funds are collective trust funds offered exclusively to qualified retirement plans. Beginning July 1, 2014, the new unit class will be available to retirement plans with $300 million or more in SMRT Fund assets.

“More than ever, large plan sponsors and their consultants are telling us they want open-architecture target date funds because they are concerned about possible conflicts of interest with all-proprietary target date funds,” said Jake Gilliam, managing director, Charles Schwab Investment Management, Inc. “The SMRT Funds appeal to many employers for good reason – they offer an open-architecture approach and a wide array of choices in investment strategies at an incredible value for plan participants.”

Employer interest in Schwab Bank’s collective trust funds has risen dramatically since last year when the U.S. Department of Labor published fund selection tips for ERISA plan fiduciaries and identified the benefits of low-cost, open-architecture target date funds. With $8.1 billion in assets under management as of March 31, 2014, the SMRT Funds were among the first to use unaffiliated, industry-recognized investment managers as sub-advisors 1 and to combine active and passive strategies to deliver an efficient and diversified portfolio.

The SMRT Funds’ newest unit class comes at a time when adoption of target date funds is growing among employers and employees alike. More than $573 billion was invested in target date funds as of October 31, 2013, up from $115 billion at the end 2006, according to the Investment Company Institute (“ICI”). 2 A recent study by the ICI and the Employee Benefit Research Institute (“EBRI”) revealed that 72 percent of 401(k) plans offered target date funds at the end of 2012. The same study found 41 percent of plan participants invested in target date funds in 2012, more than double the number that held them in 2006. 3

SMRT Funds Investment Line-up as of December 31, 2013


Fund Investment

Sub-Advisor(s) 1

Domestic Equity
    Schwab Instl Large Cap Value Trust Fund*     Dodge & Cox (Large Value)
BNY Mellon Large Cap Stock Index Fund BNY Mellon (Large Blend) +
Schwab Instl Large Cap Growth Trust Fund* Wellington Management (Large Growth)
Vanguard Mid-Cap Index Fund Instl Plus Vanguard (Mid-Cap Blend) +
BNY Mellon Small Cap Stock Index Fund Instl BNY Mellon (Small Blend) +
Schwab Instl Small Cap Trust Fund* Wellington Mgmt. (Small Value)
ING (Small Growth)
BMO (Small Growth)

International Equity
SSgA Emerging Markets Index Fund A SSgA (Diversified Emerging Markets) +
Schwab Instl International Diversified Trust Fund* Franklin Templeton (Foreign Large Value)
American Funds (Foreign Large Blend)
DFA (Foreign Sm/Mid Value)
William Blair (Foreign Sm/Mid Growth)

Real Assets (Equity)
BlackRock Developed Real Estate Index Fund E BlackRock (Global Real Estate) +
BlackRock DJ-UBS Commodity Index Fund E BlackRock (Commodities) +

Intermediate-Term Bond
BNY Mellon U.S. Aggregate Bond Index Fund Instl

BNY Mellon (Core) +
Schwab Instl Core Plus FI Trust Fund III* PIMCO (Core Plus)
Loomis Sayles (Core Plus)
BNY Mellon (Core) +

Short-Term Bond & Cash Equivalents
BNY Mellon Active 1-5 Year U.S. Aggregate Bond Fund BNY Mellon (Short-Term Bond)
State Street U.S. Government Short Term Investment Fund SSgA (Cash Equivalents)

Real Assets (Fixed Income)
BlackRock U.S. TIPS Index Fund E BlackRock (Inflation-Protected Bond) +

* The SMRT Funds invest in other Schwab Bank Collective Trust Funds to gain exposure to the underlying third-party sub-advised strategies.+ Passive strategy.

“At Schwab, we want to help plan participants make the right choices when it comes to investing for retirement, and target date funds certainly can play a role in that process,” said Gilliam. “As more plan participants seek managed investment solutions from their employers, we expect the demand for target date funds to continue to grow.” Schwab Bank has already secured a $400 million retirement plan transfer to the new 0.35 percent unit class, which will take place in July 2014.

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