Ideas to improve plan results Jennifer Schuessler – Regional Sales Director Ashley Taylor – Relationship Manager FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Agenda • New research that highlights drivers of success • Why should plan sponsors consider these plan design features? • Should plan sponsors be apprehensive? • Client case studies 2 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Who is Empower? • Successfully serving over 30,000 retirement plans and approximately 7 “ million participants 1 We have one goal: to help people replace — for the rest of their lives — the income • Committed, well-capitalized owners ” they made while working. with a long-term perspective • Led by industry pioneer Bob Reynolds and Robert L. Reynolds an experienced senior leadership team • A focus on continuous innovation and improvement designed to increase participants’ retirement readiness 1 Empower Retirement 06/2015 PT247000 10/15 3 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Empower service platform Core 401(k) Empower Segment participants Core 401(k) <$50 million 1.6 million Mega Large $50 million 401(k) 401(k) Large 401(k) .6 million to $500 million Mega 401(k) >$500 million 1.8 million Nonprofit/403(b) 1 million Nonprofit/ Government 2 million Government 403(b) Empower serves over $10b in defined benefit and non-qualified plans Sources: Spectrem 401(k) PPT share, 2014; PLANSPONSOR 403(b) Guide PPT share 2014; Govt RFP analysis, asset share 2013 Combined GWF, Putnam and RPS market share; includes institutional Empower data as of 12/31/2014. 4 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
New Research: Behaviors likely to improve retirement success FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
What are the leading indicators of success? New research points to successes and shortfalls • Census-weighted survey of 4,004 working Americans, ages 18–65, conducted online 12/16/14–1/14/15 • Estimates the percentage of current income that a household might expect to replace beginning at age 65 • Includes future wage growth from present age to the retirement age of 65, as well as an estimate for future Social Security benefits • Measures effectiveness of workplace savings plan design and professional advice 6 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Lifetime Income Score SM V 100% The average household is 80% on track to replace Nearly 60% 60% 58% of income 40% 20% 0% Projected Income Replacement Source: Empower Retirement, “Lifetime Income Scores V: Our Latest Assessment of Retirement Preparedness,” March 2015 7 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Lifetime Income Score SM V Projected Income Replacement Those eligible for workplace 100% savings plans enjoy a 80% 32% 74% 60% advantage 58% 40% 42% 20% 0% Eligible Total Not eligible Source: Empower Retirement, “Lifetime Income Scores V: Our Latest Assessment of Retirement Preparedness,” March 2015 8 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Lifetime Income Score SM V Impact of using an advisor Projected Income Replacement Americans who work with an 100% advisor have a nearly 80% 30% 82% 60% advantage 58% 55% over those who don’t 40% 20% 0% Paid Advisor Total No Advisor Source: Empower Retirement, “Lifetime Income Scores V: Our Latest Assessment of Retirement Preparedness,” March 2015 9 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Lifetime Income Score SM V Savings rate: the dominant driver of success 140% 133% Lifetime Income Score 120% 100% 106% 80% 76% Median Lifetime 60% 60% Income Score = 58% 54% 40% 48% 20% 0% 0% savings >0 % but less 3% >3% but less 10% and 15% and than 3% than 10% greater greater Household Savings Rate Results are based on a survey of 4,148 working Americans between the ages of 18 and 65, with segments weighted in accordance with U.S. Census parameters for all working adults. The survey was conducted by Brightwork Partners LLC in Q4 2013. 10 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Lifetime Income Score SM V 56% of auto-enrolled 140% plans start at 3% or less 133% Lifetime Income Score 120% 100% 106% 80% 76% Median Lifetime 60% 60% Income Score = 58% 54% 40% 48% 20% 0% 0% savings >0 % but less 3% >3% but less 10% and 15% and than 3% than 10% greater greater Household Savings Rate Results are based on a survey of 4,148 working Americans between the ages of 18 and 65, with segments weighted in accordance with U.S. Census parameters for all working adults. The survey was conducted by Brightwork Partners LLC in Q4 2013. 11 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Lifetime Income Score SM V Effect of auto-escalation Projected Income Replacement 100% 92% 80% 74% 73% 60% 40% 20% 0% Auto No Auto All Plans Source: Empower Retirement, “Lifetime Income Scores V: Our Latest Assessment of Retirement Preparedness,” March 2015 12 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
What are key steps to improving retirement? Replacement percentages of pre-retirement income 106% 92% 82% 82% 74% Median household replacement score 58% 42% No access to Access to Auto enrolled Works with advisor Has auto Deferring workplace plan workplace plan in plan escalation 10%+ Empower Retirement Lifetime Income Study, 2015. Source: Household data estimated from the Current Population Survey and Bureau of Labor Statistics. Median Lifetime Income Score = 58% 13 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Considering automatic options Why are plan sponsors apprehensive? • Increased level of investment • No time to focus on the “project “ • Fear of negative employee reaction
How will employees react to auto-escalation? A strong majority of Americans are open to auto-escalation 9% “Absolutely certain to use this feature” “Very likely 22% to use this feature” 43% “Somewhat likely to use this feature” Source: Empower Retirement’s Lifetime Income Study, 2015 15 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Employees have different priorities – Engagement is about the message and the method Savings goals by demographic group 80 Retirement 70 Paying down debt 60 Health-care expenses 50 40 Major expenses/purchases 30 Child's education 20 10 0 Baby Boomers Gen X Gen Y Source: Empower Retirement, “Lifetime Income Scores V: Our Latest Assessment of Retirement Preparedness,” March 2015 16 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Keys to successfully adding Auto Features 1. Identify Financial Impact a. Your service providers can help model cost on the plan level 2. Consider timing of rollout a. Coordination with other events b. Potentially schedule annual auto increase to coincide with annual merit increases 3. Update plan document 4. Communication & Education
Ideas to support implementation 1. Identify populations most affected by the change a. Targeted training of management and human resources personnel who interact with the population most affected 2. Communication & Education a. E-mail or print campaign b. Webinars or in-person meetings c. Testimonies from employees d. Caution 3. Support ongoing enrollment and savings rates with simple onboarding experience 4. Keep employees coming back for encouragement
Optimize automatic plan design features to overcome employee inertia Situation Plan design Results recommendations: Participation increased • Highly engaged plan sponsor 23% by seeking guidance to optimize plan Employees contributing 0-3%: design for ideal employee • Full automatic reenrollment at 4% outcomes Average contribution rate with 2% annual automatic increased from increases to a max of 15% 7.1% 8.0% Employees contributing 4% or more: TO • Increase contribution rate by 2%, up to a max of 15% WINNER PT211676 11/14 19 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
Automatic features to engage a young workforce Industry Travel services for students Number of employees Objectives 2,400 as of 12/31/15 ― Improve participation and plan awareness for participants. Total assets $25M as of 12/31/15 ― Set foundation for retirement readiness. ― Improve ADP/ACP testing results. Situation Strategy/Approach ― The employee population was not focused on ― After a consultative plan design review, the plan sponsor retirement. The plan struggled to engage a young implemented an online retroactive auto-enrollment at 3% and dispersed employee population in the plan. with auto-increase up to 8%. Results After one year, the participant rate increased 540%. • Average contribution rate increased more than 300%. • 20 FOR INSTITUTIONAL/INVESTMENT PROFESSIONALUSE ONLY. NOT FOR PUBLIC DISTRIBUTION.
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