2016-09-20 retirement readiness

Thrive. Grow. Achieve.

Retirement Readiness: Evaluating plan health to define success

Ed Gimenez, CFP®, AIF® September 20th, 2016

Securities offered through LPL Financial, Member FINRA/SIPC.

POP QUIZ…


AGENDA

Industry trends

The need for benchmarking

Review of the traditional plan health metrics

The new (and improved) way to report on plan health

A call to action


INDUSTRY TRENDS

Participant Readiness: Current State According to the Employee Benefits Research Institute’s (EBRI) retirement readiness ratings in 2010, the percentage of participants “at risk” of having insufficient income:*

*For basic retirement expenses and uninsured health costs.

Generation X ages 36-45

44.5% Late Boomers

ages 46-55

43.7% Early Boomers

ages 56-62

47.2%


THE NEED FOR BENCHMARKING

Plan Participation Benchmarking A critical measure of a successful retirement plan is a healthy

participation rate. It is important to understand what drives participant behavior, helping you increase both participation rates and increased contribution to the plan.

Key metrics include:

– The participation rate in your plan among eligible employees

– The percentage of active participants deferring enough of their salary to take full advantage of the employer match offered

– The average number of investment options held by plan participants



Plan Design Benchmarking It is important to keep up with new features to ensure your plan

stays competitive, and addresses the needs of your participants. Comparing your plan’s features with the industry benchmark averages provides a basis for comparison.

Key metrics include: – Do you provide a match? – If yes, how does the match your company provides compare to industry

benchmarks? – Are you using automatic-enrollment?

– Have you established a Qualified Default Investment Alternative (QDIA)?

– How many investment options are available to your participants in the plan?



Plan Review Benchmarking

It is imperative for plan sponsors to implement a well-documented process for reviewing plan features. Plan sponsors are ultimately responsible for the oversight of the plan.

Partnering with a financial advisor who understands the

retirement plan space can help you stay on course.

Key metrics include: – How often you review the investment options available in the plan

– How often you review the plan’s total costs and fees – How often you evaluate your plan’s current service providers – Implementation/review of an investment committee for your plan – Design/implement/review an Investment Policy Statement (IPS) – Utilizing the services of a financial advisor


BY THE NUMBERS

30% Participation Rate

24% Not Maximizing Employer

Match

25% Do Not Offer Employer Match

70% Do Not Use Auto Enrollment

21 Investment Options

Source: PLANSPONSOR Defined Contribution Survey, 2010.

The average rate of eligible employees NOT participating in a defined contribution plan being offered by their employer

Over half the plans surveyed reported that nearly 24% of active participants DO NOT defer enough salary to take full advantage of the employer match offered

25% of plans DO NOT offer either an employer match or non-elective contribution

Nearly 70% of plans DO NOT automatically enroll eligible employees into the plan

Across all industries, plans offer an average of 21 investment options


ON AN ANNUAL BASIS

Source: PLANSPONSOR Defined Contribution Survey, 2010.

Across all industries


TRADITIONAL METRICS


WHAT’S IMPORTANT?

The #1 goal is a dignified retirement for every participant

One key to retirement dignity is having enough money

Replacement ratio is the benchmark we use to determine likelihood of a dignified retirement

Participation rate, account balance and investment performance data points give us insight into desirable plan design attributes

Plan fees help determine if investment performance is likely to deliver sufficient results to arrive at a dignified retirement


NEW EVALUATION TECHNIQUES

Funding Metrics Investment Metrics Participant Metrics

Focusing on average deferral rates and account balances

From:

Focusing on the number of employees

participating in the plan

From:

Focusing on the number of participants that are invested in a particular

investment option

From:

Focusing on the average income replacement

ratio

To: Focusing on the number of participants that are on track to meet their

retirement goals based on income replacement

benchmarks

To: Focusing on whether

participants are properly diversified to pursue income replacement targets and tolerance

for risk

To:


A CALL TO ACTION

The Retirement Plan Health Check Report

It is essential that an accurate measurement of a plan’s value exists

This comprehensive and sophisticated program will provide qualitative plan statistics in a simple, straightforward format

The Retirement Plan Health Check report allows advisors to report on the "Health" of a plan by presenting key plan attributes compared to a valid peer group


THE RETIREMENT PLAN HEALTH CHECK

Historic and age group based plan participation, deferral rates and average account balances

Highly and non-highly compensated employee statistics Age group segmented and total participant

contribution levels

Current and historic portfolio diversification data shown in total and divided by age groups

Aggregate plan performance Plan fees Ability to save historical results regardless of

plan provider


THANK YOU!

Ed Gimenez, CFP®, AIF®, RPA Direct: 240-403-2563 E-mail: [email protected]

mailto:[email protected]

2016-09-20 retirement readiness

Economy & Finance