es OF Los Angel eles CITY O & CALCULATING SUCCESS 1 Y OF Los - PowerPoint PPT Presentation

es OF Los Angel eles CITY O & CALCULATING SUCCESS 1

Y OF Los Angel eles es at a Glance CI CITY OF City of L.A. Retirement Assets (in billions) DC: 457 Plan, $4.7 DC Plan Assets for Major U.S. Cities DB: Civilian, (in billions) $13.9 $13.2 DB: Water and $14.0 Power, $9.7 $12.0 $10.0 $8.0 $6.0 $4.7 $3.7 $4.0 $0.9 $0.8 DB: Police & $2.0 Fire, $18.3 $- New York Los Angeles Chicago Philadelphia Houston Plan Features:  Pre-Tax & Roth Contributions  Active & Retiree Loans 2  12 Core options + SDBO  Auto Enrollment (approved, to be implemented)

Y OF Los Angel eles es at a Glance CI CITY OF Participation Participation Rate 41,053 69% 45,000 Current: DC Participants - 1999 to Present Participation Rate 41,053 40,000 State/Local Gov Avg, 35,000 40% 30,000 City of L.A., 25,000 69% 20,000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3/31/15 0% 20% 40% 60% 80% Avg Annual Contribution Avg Account Balance $7,742 $115,117 Avg Account Balance 03-31-15 $115,117 Annual Contribution Amount $7,742 $5,701 $60,100 3 National Governmental DC Avg City of L.A. National 457 Avg City of L.A. Source for national averages: National Association of Government Defined Contribution Administrators 2014 survey of member agencies

QUIZ: WHAT DO I NEED TO RETIRE? Choose the Best Answer: ☐ 70-85% of pre-retirement income ☐ 100% of pre-retirement income ☐ 66% of pre-retirement income ☐ 8 x your ending salary ☐ $1 million ☐ It sorta depends ☐ Consult a financial planner ☐ Consult a tax advisor ☐ Try this calculator ☐ Try this lifecycle fund ☐ Try this guaranteed income product ☐ Whatever it is, you probably won’t have it ☐ Other 4

es TY OF Los os Angel eles CITY A. What is our Core Mission? To help City employees achieve retirement income security B: What is Retirement Income Security? Replacement of 100% of “lifestyle income” upon retirement C. What is Lifestyle Income? Nominal annual salary upon retirement less primary salary reductions for retirement saving (a.k.a. maintaining one’s standard of living) Retirement 30-year DB Plan DC Plan Income 5 Career Income Income Security

s Y OF Los s Angel eles CITY O Lifestyle Income Example Salary Upon Retirement 100% $100,000 DB Contribution 11% $(11,000) DC Contribution 10% $(10,000) Social Security/Medicare Contribution 1.45% $(1,450) Lifestyle Income $77,550 DB Benefit (30 Years/Age 55) 65% $65,000 $12,550 Lifestyle Income Gap 16% 6

s Y OF Los s Angel eles CITY O Retirement Income Projection Calculator What percentage of your projected lifestyle income will be replaced upon retirement? Your Current Projected Retirement Income Replacement Percent is… ?% 7

Primary Web Screen 8

Calculator at-a-Glance 9

Results 10

ENGAGEMENT/AWARENESS: Calculator Sessions 11

SELF-REPORTED DATA City of L.A. Self-Reported Retirement Income Replacement Percentage 100% or Higher 44% Below 100% 56% 12 Based on October 2014 participant survey

The Retirement Security Formula & Auto Enrollment Variables Values Salary/Service Years of Service 30 Starting Salary $ 50,000 Annual Salary Increase Factor 3% Projected Ending Salary $ 117,828 Participant Retirement Contributions Retirement Plan Contribution 11% Medicare Contribution 1.45% Social Security Contribution 0% Starting DC Contribution % 2% Avg Annual DC Increase 0.25% Ending DC Contribution % 9.25% Rate of Return Assumptions Accumulation Rate of Return 7% Distribution Rate of Return 3% Retirement Income Projections Projected DB Benefit $ 76,588 Projected DC Benefit $ 17,382 Projected Social Security Benefit $ - Combined DC + DB + SS Income $ 93,970 DC Balance Projections Pre-Tax Balance Needed to Fund Income Stream $ 340,688 After-Tax (Roth) Balanced Needed to Fund Income Stream $ 272,544 13 Projecte Lifestyle Income Replacement Analysis Projected Lifestyle Income Need Upon Retirement $ 92,388 Projected Lifestyle Income Replacement % 102%

CITY OF L.A. CONTRIBUTION DATA Years of Average Avg Years of DCP DCP Contribution $ Per Average Annual Salary Service Age Service Contribution % Pay Period Range 0-5 32 3 5% $ 138 $ 71,879 5-10 39 7 6% $ 189 $ 83,946 10-15 45 13 6% $ 229 $ 89,084 15-20 47 18 6% $ 239 $ 98,979 20-25 52 23 7% $ 304 $ 103,337 25-30 54 27 8% $ 344 $ 104,599 30-35 56 32 9% $ 366 $ 108,485 35+ 62 38 10% $ 449 $ 113,644 2014 Data 14

BEYOND CALCULATORS: METRICS & BENCHMARKING 15

STANDARD AMERICAN RETIREMENT DIET: TRIPLE FEAR BURGER W/CHEESE with ALL YOU CAN EAT COMPLEXITY DB, DC, IRA, Diversify or Taxes Could Annuity die Eat You Alive Rubik’s Cube Stocks will save you Cat Food Fright Night Stocks will ruin you Just so you know - Social Security might You need so not be there much more than you think Inflation could wipe out your earning power – You don’t but cash makes need as much great kindling as you think Healthcare or eldercare You might Fees could coud ruin you 16 outlive your ruin you – just sayin’… retirement

Retirement: Chronic Disease v. Wellness Chronic Disease Indicators Wellness Indicators • Incoherent Objectives • Clear Mission • Discordant Measures of Success • Core Consensus Benchmarking • Complex Regulatory Structure • Translation (Communications) Excellence • Complex Financial Products • Simple Investment Choices • • Complex Services Personalized Engagement • Complex Financial Markets • Focus on Risk Relationship 17

Core Universal Benchmarking? Potential Universal Measurements of DC Plan Success 1. Lifestyle Income Replacement Percentage 2. DC Plan Participation Rate 3. Contributions as % of Salary 4. Personalized Engagements 5. Participant Defined Relationship to Risk 6. Periodic Payment or Annuity Election % 7. Fees as % of Assets 18

RETIREMENT INCOME SECURITY City of L.A. Projected Lifestyle Income We’re calculating this. Replacement % Stay tuned… Relationship to Core Mission – The projected lifestyle Lifestyle Lifestyle Lifestyle Retirement Retirement Income Retirement Income Income income replacement percentage is the most essential Replacement % at Replacement % at Replacement % at indicator of retirement readiness. age 55 age 60 age 65 ___% __% __% Median Projected Retirement Income Replacement Employer A Percentage Average 90% 85% 83% 84% 85% 81% 81% 80% 78% 80% 75% 70% 65% 60% 60% 60% 59% 58% 59% 59% 60% 55% 19 50% 2015 2016 2017 2018 2019 2020 2021

PARTICIPATION RATE City of L.A. Participation Rate As % of Eligibles Relationship to Core Mission – Participation 69% in the DC Plan is a prerequisite to being able 68% to achieve retirement income security. DB 67% only or SS only will not achieve the result. 2012 2013 2014 Participation Rate Benchmark Employer ABC Average 100% 90% 75% 80% 74% 73% 72% 71% 70% 69% 70% 60% 50% 43% 43% 42% 42% 41% 41% 40% 40% 30% 20% 10% 20 0% 2015 2016 2017 2018 2019 2020 2021

CONTRIBUTIONS City of L.A. As % of Salary Years of DC DC + DB Average Avg Years Service Contribution Contribution Age of Service Range % % Relationship to Core Mission – Participants must contribute a certain % of salary to achieve retirement 0-5 32 3 5% 16% income security, but required overall contribution 6-10 39 7 6% 17% level relative to DB and/or SS benefits. 11-15 45 13 6% 17% 15-20 47 18 6% 17% 20-25 52 23 7% 18% 25-30 54 27 8% 19% 30-35 56 32 9% 20% 35+ 62 38 10% 21% Total Retirement Plan Contributions by Age 21% 20% 19% 18% 17% 17% 17% 17% 16% 16% 15% 14% 13% 12% 11% 11% Employer ABC Average 18-25 26-35 36-45 46-55 56-65 65+ 30-35 35+ 21 Employer ABC 16% 17% 17% 17% 18% 19% 20% 21% Average 11% 11% 12% 13% 14% 15% 16% 17%

ENGAGEMENTS City of L.A. Personal Contacts 33,550 35,775 Rolling 4- 30,700 Quarter 27,000 25,100 Relationship to Core Mission – Personal 23,100 20,900 20,300 engagements represent the most powerful 19,400 19,500 tool for raising their awareness of information vital to success (particularly defining a unique relationship to risk), and navigating the 9,200 9,350 9,625 7,600 7,400 6,500 5,400 5,700 5,500 4,300 complexity of the retirement planning 12/1/2012 1/1/2013 2/1/2013 3/1/2013 4/1/2013 5/1/2013 6/1/2013 7/1/2013 8/1/2013 9/1/2013 10/1/2013 11/1/2013 12/1/2013 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 6/1/2014 7/1/2014 8/1/2014 9/1/2014 10/1/2014 11/1/2014 12/1/2014 1/1/2015 2/1/2015 3/1/2015 structure. Personal Contacts as % of Total Participants? Or Eligible Employees? 90% 77% 76% 76% 76% 80% 75% 75% 73% 70% 56% 56% 60% 55% 54% 54% 53% 51% 50% 40% 30% Employer ABC Average 20% 22 10% 0% 2015 2016 2017 2018 2019 2020 2021