2011 Qualified Retirement Plan Barometer Study · of group annuity assets3 and lead the market4 with over $36 billion of transferred pension ... executive Summary Major findings barometer

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Corporate Benefit funding

A Study of Retirement Income Culture Among the FoRtune 1000™

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MetLife Qualified retirement plan Barometer

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MetLife, Inc. is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers in over 60 countries. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and the Middle East. For more information, visit www.metlife.com.

The MetLife enterprise serves 90 of the top 100 FORTUNE 500®-ranked companies and has $617 billion in total assets and over $570 billion in liabilities.1 The operating companies, Metropolitan Life Insurance Company and MetLife Insurance Company of Connecticut, have $383 billion in total assets and $364 billion in liabilities.2 These operating companies manage $67 billion of group annuity assets3 and lead the market4 with over $36 billion of transferred pension liabilities.3 The company also has over a 35-year track record in stable value with $32 billion of stable value business3 and has $18 billion of nonqualified benefit funding assets.3

1 MetLife, Inc. as of September 30, 2010. total assets include general account and separate account assets and are reported under

accounting principles generally accepted in the united States of America.2 Metropolitan Life Insurance Company and MetLife Insurance Company of Connecticut as of September 30, 2010. total assets include

general account and separate account assets and are reported on a statutory basis.3 As of September 30, 2010.4 LIMRA, Terminal Funding and Single Premium Buyouts Survey, third Quarter, 2010.

Mathew greenwald & associates, inc. is a full-service market research company that specializes in serving the needs of the financial services industry. They have conducted customized research for more than 200 organizations, the large majority of them financial services companies. Mathew Greenwald & Associates is a member of the Council of American Survey Research Organizations (CASRO), an invitation-only industry governing body comprised of the 325 leading survey research practitioners in the United States.

asset international is a privately held publisher and information provider to global pension funds, asset managers, financial advisers, banking service providers and other financial institutions in the private and public sector. Asset International produces and distributes print and digital publications, conferences, research and data resources via its industry-leading brands PLANSPONSOR, PLANADVISER, Global Custodian, aiCIO, ai5000, Strategic Insight, The Trade and most recently Plan for Life in Australia. The company was acquired in January 2009 by Austin Ventures and has offices in New York, London, Hong Kong, Melbourne and Stamford, CT.

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> MetLife Qualified Retirement Plan Barometer

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Contentsexecutive Summary

Major findings

barometer Scores Reveal Wide Variations in Progress toward a Retirement Income Culture, with Room for All to Improve

Despite Good Intentions on the Part of Many, Plan Sponsors Are Struggling to translate Retirement Income Philosophy into the Creation of a Retirement Income Culture

Retirement Income Plays “Second Fiddle” to Accumulation in employee education and Communications; online Calculators no Substitute for effective educational Support

Plan Design Focuses on encouraging Savings and Stable Investments Rather than Creation of Lifetime Income

Many DC Plan Sponsors Cite Fiduciary Concerns as a barrier to More Widespread offering of Income Annuities

unless Retirement Income is a Primary Plan objective, Program Success Measures Place More emphasis on Participation than Income

Despite Retirement Plan Costs, Plan Sponsors Leaving Value on table

Conclusion/Call to action

Methodology

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executive SummaryAt the peak of defined benefit (Db) coverage in

1980, about 84% of all private-sector employees

were covered under Db pension plans,1 representing

about 38 million active workers.2 however, while

the number of private-sector workers covered by

Db plans has stayed relatively stable since it reached

about 40 million in 1985, the number of Db plans

and the percentage of active workers covered have

both dropped dramatically over the last few decades

to their current levels of about 48,0003 and 19%,4

respectively. Competitive pressures, increased worker

mobility, corporate cost cutting, the movement

towards employee self-sufficiency and the heavy

marketing of defined contribution (DC) plans, such as

401(k) plans, by financial institutions have all fueled

this movement away from traditional Db pension

plans to DC plans, which have grown in number to

over 650,000 in place today at firms of all sizes.5

today, even among those employers that sponsor

one or more Db plans, some are closing the plans

to new workers, ending or limiting current workers’

accrual of benefits or, in some instances, doing both

as employers have come to understand what “being

in the pension business” means once their retired

employees reach significant numbers.

DC plans have now become the primary source

of retirement savings for an increasing number of

employees. Yet, they were originally designed as

supplemental retirement savings vehicles and were

generally never intended to do the same job as a

pension – provide for guaranteed lifetime income

once active working years were over.

In addition to the movement away from Db plans,

which typically accrue benefits for workers based on

years of service and earnings, many plan sponsors

introduced lump sum features for all or a portion

of their Db plan benefits. this, combined with the

ascendancy of DC plans, under which participants

– by and large – finance their own retirements, has

increased the degree to which the critical burden

1 u.S. Department of Labor statistics show that in 1980, the percentage of private sector workers covered by private Db plans was at a high of

84%, which at that time represented 38 million active workers. In subsequent years, the number of beneficiaries grew to about 40 million,

where it has remained level since 1985, but the percentage of active workers covered by such plans has dropped steadily to 19% in 2010.

2 u.S. Department of Labor, bureau of Labor Statistics, Employee Benefits in Industry, May, 1980.

3 u.S. Department of Labor, Private Pension Plan Bulletin, Abstract of 2008 Form 5500 Annual Reports, December, 2010. note that 2008 is

the most recent year for which this data is available.

4 u.S. Department of Labor, bureau of Labor Statistics, National Compensation Survey, Employee Benefits in the United States, March, 2010.

5 u.S. Department of Labor, Private Pension Plan Bulletin, Abstract of 2008 Form 5500 Annual Reports, December, 2010.

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of providing for retirement adequacy sits on the

shoulders of the American worker. these changes

have caused both plan sponsors and participants

to focus, almost exclusively in the short-term, on

increasing participation levels and growing account

balances in DC plans. however, as the recent

instability of both the stock market and the general

economy have highlighted all too clearly, a focus on

asset accumulation alone will not result in long-term

retirement security. hence going forward, the new

challenge laid before plan sponsors and participants

of DC and Db plans is to utilize these vehicles to

create retirement income and, in turn, long-term

retirement security in America. even assuming that

changes are made so that Social Security will continue

to play a role for tomorrow’s retirees, it is important

to note that at about $12,000 annually,7 the average

Social Security benefit is not, and was never intended

to, provide the majority of retirement income for

workers eligible for its benefits.

MetLife commissioned this research of FoRtune

1000™ plan sponsors to assess whether and to what

extent a new culture is taking hold in the largest

u.S. companies – one which places equal emphasis

on retirement savings and retirement income. the

survey also sought to determine the extent to which

employers are contemplating how to help DC

participants convert a portion of their retirement

savings into guaranteed lifelong income. this shift

in focus is generally thought of as “changing the

conversation” with employees to help them recognize

that defined contribution plans should increasingly be

thought of as “retirement income” plans.

outlined below are the key findings from MetLife’s

inaugural Qualified Retirement Plan barometer:

BAROMETER SCORES REVEAL WIDE VARIATIONS IN PROGRESS TOWARD A RETIREMENT INCOME CULTURE, WITH ROOM FOR ALL TO IMPROVE

the MetLife Qualified Retirement Plan barometer

was constructed to measure, at a point in time,

how companies are doing with regard to creating

a retirement income culture within their respective

companies. the mean barometer score for all plan

sponsors who participated in the survey is 59 out

of a possible 100 points. Individual company scores

ranged from a low of 19 to a high of 89.

• Companies that make both DB plans and DC

plans broadly available to their employees8 score

higher than average on the barometer at 74. this

barometer score is notably higher than the overall

barometer score for all respondents as well as the

score ascribed to companies that only offer a DC

plan or that offer a DC plan with an incidental Db

plan (55 points).

6 u.S. Social Security Administration, Historical Background and Development of Social Security, Social Security online,

www.socialsecurity.gov.

7 In the beginning of 2010, the average monthly Social Security benefit for a retired person was $1,164 according to the u.S. Social Security

Administration, www.socialsecurity.gov.

8 For the purposes of this study, “broad coverage” Db plans are defined as where at least 70% of the employee population is covered by a

Db plan. “Incidental” Db plans are those where less than 70% of the firm’s employee population overall is covered.

According to the Social Security Administration, one of the first company pension plans was introduced in 1882 by the Alfred Dolge Company, a builder of pianos and organs. Dolge argued that the company’s pension was a business cost like any other – just as his company had to provide for the depreciation of its machinery, it should also “provide for the depreciation of its employees.”6

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DESPITE GOOD INTENTIONS ON THE PART OF MANY, PLAN SPONSORS ARE STRUGGLING TO TRANSLATE RETIREMENT INCOME PHILOSOPHY INTO THE CREATION OF A RETIREMENT INCOME CULTURE

A substantial majority of plan sponsors appear to

recognize the importance of cultivating a retirement

philosophy that not only focuses on providing cost-

effective retirement benefits that help them remain

competitive but also inculcates the importance of

their employees creating retirement income for their

futures.

• When asked about their corporate philosophy

when it comes to retirement benefits, plan

sponsors most often focus on a desire to offer

cost-effective retirement benefits that help them

to be competitive. the second-largest share of

respondents believes their corporate philosophy

is most closely aligned with supporting their

employees’ needs to create retirement income.

• Despite recognizing the importance of retirement

income, plan sponsors remain more focused

on retirement savings than on income as a key

objective of their programs. For example, while

93% say that retirement savings is extremely or very

important as a focus of their retirement plans, only

65% say retirement income has a comparable level

of importance for their retirement program.

• How plan sponsors structure their retirement

programs supports this focus on retirement savings

as well. For example, across all companies, most

(82%) say their company does not set income

replacement goals for any or all of its qualified

plans. Likewise, fewer than half of the companies

have written policy statements that deal with more

than just investment issues (44% of all companies),

and fewer than one-third of them address

retirement income in these statements.

• Across all DB plans, respondents reported that, on

average, employees would receive about 17% of

their current salary after 10 years of service, rising to

41% of their current salary after 30 years of service.

Among the Db plan sponsors that also have a DC

plan, few estimated income replacement levels

generated by their DC plans.

RETIREMENT INCOME PLAYS “SECOND FIDDLE” TO ACCUMULATION IN EMPLOYEE EDUCATION AND COMMUNICATION; ONLINE CALCULATORS NO SUBSTITUTE FOR EFFECTIVE EDUCATIONAL SUPPORT

With most plan sponsors focused on the importance

of savings and investing, less emphasis is given to

retirement income as a focus of retirement education

and communication.

• Retirement plan communications are skewed

toward encouraging employees to save rather than

to plan for retirement income. While the majority

of plan sponsors provide education about the need

to save for retirement and the risks of investing,

very few include information about retirement

income-related issues such as longer life spans

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(longevity risk), how to create retirement income,

the pros and cons of taking a lump sum versus

periodic payments, and when to begin taking Social

Security benefits. Given this focus, plan sponsors –

even those who fund traditional Db plans – appear

to be under-communicating with employees about

the importance of retirement income.

• A majority of plan sponsors gravitate towards

educational programs and support, such as

online calculators, yet many give such tools low

effectiveness ratings in encouraging employees

to make appropriate decisions regarding their

retirement plans. Further, retirement planning

seminars are held infrequently by most companies

for plan participants and there is considerably less

emphasis on providing this type of educational

opportunity to non-participants in DC plans.

PLAN DESIGN FOCUSES ON ENCOURAGING SAVINGS AND STABLE INVESTMENTS RATHER THAN CREATION OF LIFETIME INCOME

Plan sponsors focus on encouraging retirement

savings through automatic enrollment and auto-

allocation features, as well as stable investments.

• Roughly half of sponsors report that they include

all employees in automatic enrollment features and

default allocation to a target date fund.

• Stable value funds are the most popular investment

option offered by plan sponsors overall, followed

by target date funds.

• Although for decades most DB plans only paid

benefits in the form of an annuity, about half of

Db plans now allow a full lump sum to be paid. An

additional one-third allow a partial lump sum.

• While nearly all employers correctly say their

qualified retirement program has standard annuity

distributions within their defined benefit plan (if they

offer a Db plan), the incidence of an annuity option

from a DC plan is much less prevalent, as is partial

annuitization.

MANY DC PLAN SPONSORS CITE FIDUCIARY CONCERNS AS A BARRIER TO MORE WIDESPREAD OFFERING OF INCOME ANNUITIES

• Among those firms that offer any type of annuity

option in connection with their DC plans, a

standard annuity is offered more frequently than

more flexible annuity options.

• Over half of respondents indicated that fiduciary

concerns are discouraging them from offering

lifetime annuity options. As a point of reference,

two-thirds of plan sponsors believe they are

knowledgeable about fiduciary standards in

general.

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UNLESS RETIREMENT INCOME IS A PRIMARY PLAN OBJECTIVE PROGRAM SUCCESS MEASURES PLACE MORE EMPHASIS ON PARTICIPATION THAN INCOME

In general, plan sponsors indicate they use measures

pertaining to plan participation to gauge their

program’s success, whether or not they rate other

areas as important or more important. the large

majority of plan sponsors measure the success of

their retirement plan by their employees’ overall

participation rate or the participation rate of non-

highly compensated employees, followed by the

overall deferral rate of non-highly compensated

employees and the percentage of eligible employees

taking full advantage of the company match.

• On average, only about half of plan sponsors think

that the ability to generate retirement income

is extremely or very important in determining

how successful their retirement plan is in relation

to their corporate philosophy. A slightly lower

percentage assigns very high importance to

average balances.

• One notable exception is that plan sponsors who

have retirement income as a key focus of their

philosophy regarding their retirement plans are

much more likely than other plan sponsors to

recognize the ability to generate retirement income

as a very important measure of plan success

(68% vs. 23%).

DESPITE RETIREMENT PLAN COSTS, PLAN SPONSORS LEAVING VALUE ON THE TABLE

Although retirement plans represent a major

investment by companies, plan sponsors do not

seem to be using them as strategically as they might.

Specifically, while attraction and retention are the

primary objectives stated for retirement programs,

two-thirds of plan sponsors have not conducted a

survey of employees to measure their satisfaction

with the education and support they receive about

retirement plans – meaning that they never evaluate

if the programs are successful.

Plan sponsors also report that they do not believe

that many of their employees fully appreciate the

value of the guaranteed income associated with Db

plans.

• Plan sponsors who offer both DB and DC plans

report that their employees are fairly evenly split

in terms of whether they appreciate their DC plan

more than their Db plans, which raises the question

of whether or not companies are reaping the

benefits of the value of this rich benefit.

• When asked what improvements they would

like to make to their retirement plans if cost and

regulations were not barriers, plan sponsors are

most likely to mention plan design features, such

as increasing the company match, rather than

additional flexibility on communication

or education.

As 401(k) plans look back at their 30th birthday, especially following the effects of the economic crisis of 2008-2009, it is clear that the expectations and assumptions held by many in 1978 – that individual choice and direction would foster employee engagement, involvement and financial success – have not developed that way in actual practice.

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• Annuities, in some form, are most often viewed as

a way that employees can receive part of their DC

plan savings for as long as they live when

they retire.

overall, it’s notable that while some plan sponsors

whose only retirement program is a DC plan do

see retirement income or retirement security as a

program goal, a sizeable minority do not. As 401(k)

plans look back at their 30th birthday, especially

following the effects of the economic crisis of

2008–2009, it is clear that the expectations and

assumptions held by many in 1978 – that individual

choice and direction would foster employee

engagement, involvement and financial success

– have not developed that way in actual practice.

Since these same assumptions lay at the heart of

the tax preferences associated with DC plans, this

recognition has set the stage for current efforts

by public policymakers to grapple with aligning

regulatory rulemaking and tax incentives with public

policy goals of retirement adequacy.


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MaJor findingSBAROMETER SCORES REVEAL WIDE VARIATIONS IN PROGRESS TOWARD A RETIREMENT INCOME CULTURE, WITH ROOM FOR ALL TO IMPROVE

A key goal of this research study was to measure

whether large companies are moving beyond their

well-ingrained culture of retirement accumulation

toward the creation of a culture that places

equal emphasis on retirement accumulation and

retirement income. Specifically, the study sought

to assess the extent to which plan sponsors at the

FoRtune 1000 companies are encouraging and

supporting ways for workers to prepare for their

income needs in retirement. toward that end a

barometer was constructed to measure, at a point

in time, how companies are doing with regard to

creating a retirement income culture within their

respective companies. Reported in the aggregate,

the barometer score in this inaugural Qualified

Retirement Plan barometer Study should serve as

a baseline against which future changes may be

measured.

the barometer score was constructed in four steps:

Step 1

A composite barometer score was calculated for

each company, based on responses to 60 of the

survey questions that covered four distinct areas:

objectives/philosophy; program/plan design;

communications/education; and evaluation.

Step 2

Questions were identified in terms of whether or not

they aligned more closely with asset accumulation at

one end of the spectrum or retirement income at the

other. Scores are scaled from zero (extremely weak

retirement income culture) to 100 (extremely strong

retirement income culture).

Step 3

the scoring algorithm was tailored to the company’s

plan configuration – different weights were used for

companies with:

A) DC Plans only;

b) Incidental Db plans (covering <70% of salaried,

non-highly compensated employees) and DC

plans; and,

C) DC plans and broad coverage Db plans (covering

_> 70% of salaried, non-highly compensated

employees).

the major impact of using a different scoring system

by plan configuration was to give companies with

broad coverage Db plans ”extra credit” in their

score for the income replacement they provide

to a large majority of their workers. For reporting

purposes, sponsors with DC plans only and those

with incidental Db plans as well as DC plans were

combined since there were minimal differences in the

scores of the two groups.

Step 4

the overall barometer score is the average of

the composite barometer score for all survey

respondents.

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As shown above, the mean aggregate barometer

score across all plan types is 59 out of a possible 100

points. the higher the value on the barometer, the

stronger the overall culture of retirement income.

Individual company scores ranged from a low

of 19 to a high of 89. Companies with a broad

coverage Db plan and a DC plan scored higher than

average at 74, whereas companies with DC plans

or incidental Db plans and DC plans scored only 55

on the barometer scale. broad coverage Db plan

and a DC plan, as one might imagine, scored much

higher in certain areas such as plan design, and

communication and education.

DESPITE GOOD INTENTIONS ON THE PART OF MANY, PLAN SPONSORS ARE STRUGGLING TO TRANSLATE RETIREMENT INCOME PHILOSOPHY INTO THE CREATION OF A RETIREMENT INCOME CULTURE

Qualified plan philosophy

While a plurality of plan sponsors (45%) describe

their corporate philosophy regarding the provision

of retirement benefits based on a desire to “be

successful in a competitive workforce environment

and focus primarily on providing them in the most

cost-efficient manner possible,” quite a few plan

sponsors recognize the importance of cultivating

a culture of retirement income. More than one-

third (35%) of the plan sponsors surveyed describe

their retirement benefits philosophy as “to support

employees’ efforts to create retirement income

for the future when taken together with Social

Security and their personal savings.” even fewer

plan sponsors (20%) describe their philosophy

as “our business needs are served by proactively

creating a program that offers the best financial and

other resources to support our employees’ needs

to determine and achieve their retirement savings

goals.”

Interestingly, companies with participation rates of

70% or higher are more likely than those with lower

participation rates to have a corporate philosophy

that emphasizes supporting employees’ retirement

income goals (43% vs. 17% for those with

participation rates less than 70%).

While the ”competitive and cost-effective”

philosophical approach is the most common, the fact

that one-third of employers say they are seeking to

create a “retirement income” culture is significant.

When the survey delved deeper into the objectives

and practices, it’s apparent that, at this juncture, a

Qualified retirement plan Barometer Scores (Among Plan Sponsors, n =117)9

All Plan Sponsors

DC only or Incidental Db and DC Plans

broad Coverage Db and DC Plans

Strong100

Weak 0

74

5955

Retirement Income Culture

9 ten of the 127 total respondents to the survey were excluded from the barometer construction due to their pattern of non-response or

other data quality issues.


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Corporate philosophy regarding retirement Benefits (All Plan Sponsors, n=127)

20%

35%

45%

10 unlike the question on corporate philosophy where the responses are mutually exclusive, plan sponsors could have

said that both retirement savings and retirement income are very important objectives of their retirement program.

culture of retirement income hasn’t yet taken hold,

even among these companies. this is perhaps not

surprising, since focus on retirement income in DC

plans at the plan sponsor level is relatively recent.

overall plan objectives

today, while the lion’s share of plan sponsors (93%)

say that retirement savings10 is an extremely or very

important objective of their retirement plans, only

two-thirds (65%) say that retirement income has a

comparable focus. Further, plan sponsors are two

and a half times more likely to say that retirement

savings, as opposed to retirement income, is an

extremely important objective (42% vs. 17%). It is

notable that one in 10 respondents indicated that

retirement income was not at all/not too important

While the “competitive and cost-effective” philosophical approach is the most common, the fact that one-third of employers say they are seeking to create a “retirement income” culture is significant.

retirement plan objectives* (All Plan Sponsors, n=127)

42%

17%

51%47%

6%

23%

1%

11%

Retirement savings

Retirement income

Retirement savings = 93%Retirement income = 65%

extremely Important

Very Important Somewhat Important

not too/not At All Important

*Figures have been rounded to nearest whole number.

We provide retirement benefits primarily because our business needs are served by proactively creating a program that offers the best financial and other resources to support our employees’ needs to determine and achieve their retirement savings goals.

We provide retirement benefits primarily to support our employees’ efforts to create retirement income for the future, when taken together with Social Security and their personal savings.

We provide retirement benefits primarily to be successful in a competitive workforce environment and we focus primarily on providing them in the most cost-efficient manner possible.

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Written policy Statement Broader than investment issues (All Plan Sponsors, n=127)

56% No

44% Yes

Does this policy statement typically deal with the subject of retirement income?

Percent of Plan Sponsors (n=56)

Yes 29%

no 68%

Don’t know/refused 4%

Savings Sufficiency by Corporate philosophy (All Plan Sponsors, n=127)

Strongly agree Somewhat agree

Meeting Retirement Savings Goals (n=26)

Creating Retirement Income (n=44)

being Competitive/Cost effective (n=57)

an objective for their qualified plans, suggesting

that some plan sponsors either do not see a need

to connect savings to income in their qualified

retirement plan design, or do not see this as part of

the sponsor’s role.

Savings Sufficiency

Although nearly all plan sponsors believe retirement

savings is an important plan objective, they are evenly

divided about whether employees are accumulating

sufficient assets in their retirement plans – 42%

agree and 42% disagree. only 1 in 10 (11%) strongly

agree.

notably, companies with both a Db and a DC plan

are twice as likely as those with just DC plans to

think that non-highly compensated employees are

doing a good job of accumulating assets in their

retirement plans (49% vs. 24%). belief that their rank

and file employees are saving enough increases as

participation rates increase.

Perhaps not surprisingly, confidence that their non-

highly compensated employees are accumulating

sufficient assets is especially high (65%) among

those whose corporate philosophy is aligned most

with supporting employees’ savings goals. but it

is also more prevalent among companies in which

retirement income is considered a very important plan

objective, compared to those who feel retirement

income is less important as a plan objective (48% vs.

33%).

addressing retirement income

in policy Statements

of the companies that have written policy statements

that deal with more than just investment issues (44%

of all companies), fewer than one-third (29%) address

65%19% 46%

37%14% 23%

35%5% 35%


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11 For the purposes of this study, these are defined as firms established in 1970 or prior.

12 employee benefit Research Institute, Measuring Retirement Income Adequacy: Calculating

Realistic Income Replacement Rates, September 2006, ebRI Issue brief #297.

13 Aon Consulting and Georgia State university, 2008 Replacement Ratio Study, August, 2008.

retirement income. over two-thirds (68%) of plan

sponsors who have written policy statements say they

do not deal with the subject of retirement income.

the likelihood of having a written policy statement

that deals with more than investment issues increases

as plan participation rates increase.

Among companies that have a written policy

statement, those with both DC and Db plans are

more likely than those with only DC plans to have

statements that deal with retirement income (36%

vs. 15%). Companies founded before 1970, whose

plans are generally more mature,11 are also more apt

than younger companies to have a written policy

statement that addresses retirement income (34%

vs. 13%). not surprisingly, companies that feel

retirement income is very important as a focus of their

retirement plan are more likely than those that place

lower importance on retirement income to have a

written policy statement on that same subject (38%

vs. 6%).

Setting income replacement goals

According to the employee benefits Research

Institute, retirement income replacement rates “have

traditionally been used to establish minimum targets

for future retirees by calculating the amount needed

to provide the same amount of after-tax income in

retirement as that received prior to retirement after

adjusting for differences in savings, age, and work-

related expenses.”12 Since calculating how much

income one should have in retirement is such a critical

component of retirement planning, one would think

that nearly all companies would offer guidance to

employees about income replacement rates. Yet,

across all companies surveyed, 82% say that their

company does not set income replacement goals for

any or all of its qualified plans; only 17% say their

company does this. Among the few companies who

have income replacement goals, two-thirds (68%) say

they set the bar at less than a 70% replacement level;

this includes 23% whose goals are between 60%

to 69%, 36% with goals between 50% and 59%,

and 9% who say their goals are less than 50%. the

median replacement goal is 62%, which is well below

the 77% to 94% recommended by experts.13

Companies that offer both a Db and DC plan are

more likely than those with only a DC plan to set

income replacement goals for at least one of their

plans (24% vs. 3%); companies with a cash balance/

hybrid plan are especially inclined to do so (34%).

Setting income replacement goals

(All Plan Sponsors, n =127)

82% No

17% Yes

1% Don’t Know/

Refused

Income Replacement GoalsPercent of Plan Sponsors (n=22)

Less than 50% 9%

50% to 59% 36%

60% to 69% 23%

70% to 79% 18%

80% or higher 9%


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percentage of Salary from dB plan

(All Defined benefit Plans, n=217)*

average income replacement from dB plans

one way to measure the “richness” of a Db plan is to

examine the approximate percentage of current salary

that an employee covered by the Db plan would

receive if that employee retired after a given number

of years of service. In the survey, plan sponsors

responded about the estimated benefit relative to

earned income at the point of retirement. It should

be noted, however, that it was difficult for many

respondents to estimate the income replacement level

for all the Db plans they offer, which is reflected in a

high level of “Don’t know” responses.

on average, the estimated share of salary that Db

plans replace more than doubles from 10 years of

service to 30 years of service. Across all Db plans,

employees would receive 17% of their current salary

after 10 years of service and 41% of their current

salary after 30 years of service. however, actual

benefit levels earned vary as a result of both voluntary

and involuntary job changing.

The Employee Benefit Research Institute notes that one of the biggest weaknesses of replacement rate models is that one or more of the most important retirement risks are ignored: investment risk, longevity risk and risk of potentially catastrophic health care costs.14

14 employee benefit Research Institute, Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates, September

2006, ebRI Issue brief #297.

17%

41%

35%

3%6% 5% 6%

46%

52%

47%

Average Replacement Rate of Salary

under 20% of Salary

20% to 29% of Salary

30% or more of Salary

Don’t Know/Refused

For employees with 10 years of service

For employees with 30 years of service

*In some cases survey respondents said they offered multiple Db plans.


13

For the most part, our employees are aware of the company-provided materials available to them pertaining to the importance of saving for retirement and tax-deferred savings

The materials/tools/personal support we provide to employees gives them a clear idea of how to generate retirement income from their retirement plan(s)

We provide extensive material on the pros and cons of taking a lump sum versus a periodic income distribution from a DB plan (if has a DB plan, n=89)

RETIREMENT INCOME PLAYS “SECOND FIDDLE” TO ACCUMULATION IN EMPLOYEE EDUCATION AND COMMUNICATIONS; ONLINE CALCULATORS NO SUBSTITUTE FOR EFFECTIVE EDUCATIONAL SUPPORT

perceived awareness/impact of Materials

provided

With most plan sponsors focused on the importance

of savings and investing, less emphasis is paid to

retirement income as a focus of retirement education

and communication. While the majority of plan

sponsors provide education about the need to save

for retirement and the risks of investing, very few

plan sponsors concentrate on providing education

on retirement income-related issues such as longer

life spans/longevity risk, how to create retirement

income, the pros and cons of taking a lump sum

versus periodic payments, and when to begin taking

Social Security benefits. Given their current focus,

plan sponsors – even those who fund traditional Db

plans – appear to be under-communicating with

employees about the importance of retirement

income.

over three-fourths (77%) agree that their employees

are aware of company-provided materials available

to them pertaining to the importance of saving

for retirement and tax-deferred savings. Further

demonstrating that retirement plan communications

tend to be skewed toward savings rather than

income, a lower share (58%) think that the materials,

tools and/or other support their company provides

to employees gives them a clear idea of how to

generate retirement income from their retirement

plans. only 15% strongly agree with this assertion

and just over four in 10 (43%) somewhat agree.

Perhaps even more telling, just 20% of companies

offering a Db plan agree that they provide extensive

materials on the pros and cons of taking a lump

sum vs. a periodic income distribution from a Db

perceived awareness/impact of Materials provided* (All Plan Sponsors, n=127)

Strongly agree

Somewhat agree

neither agree nor disagree

Somewhat disagree

Strongly disagree

not applicable

*Figures have been rounded to nearest whole number. “Don’t know/Refused” responses have not been included.

3%19%43% 20%15%

3%11%59% 9%18%

28%16%12% 20%8% 15%

Jan

uary

201

1

14

plan. this suggests that even among large plan

sponsors, lump sum features are not as universal as

is commonly supposed, and that where lump sums

are offered as a feature, they are generally offered

without much related communication.

Communication focused on assets

More than income

Information provided by plan sponsors focuses

on savings topics such as investment risks and the

purpose of the plan rather than retirement income.

Communications to employees are more likely

to focus on investment issues than they are on

various income-related topics. Seven in 10 plan

sponsors (69%) report that all their employees

receive information on the risks of investing, which

is likely attributed to the regulations under eRISA,

(among them eRISA Section 404(c)), which requires

that companies that offer individual account plans

provide employees with enough fee, expense

and performance information about their plans’

investments to make educated investment decisions.

Perhaps because no similar requirement exists

regarding retirement income, only a minority (38%)

say all employees receive communications about

retirement income throughout the participant’s

tenure in the plan. Additionally, over half of plan

sponsors (54%) report that all their employees

Information provided by plan sponsors focuses on savings topics such as investment risks and the purpose of the plan rather than retirement income.

Communications on Various topics: extent of Coverage* (All Plan Sponsors, n=127)


All employees Most employees About half of employees

Some employees no employees

5%20% 7%69%

3%5%30% 5%57%

2%14%24% 10%50%

12%19%17% 14%38%

14%18%20% 15%32%

15%24%20% 13%28%

24%30%13% 11%20%


15

are exposed to programs designed to encourage

non-contributors to start investing in the retirement

plan. A similar share (53%) say all employees have

access to their corporate website which has a general

retirement focus.

even fewer plan sponsors report that the following

retirement-income related topics are communicated

to all employees: the importance of establishing

target retirement income levels for retirement in

relation to current pay (32%); the potential impact of

longer life spans on retirement security (28%); and

strategies for coordinating retirement benefits with

Social Security benefits (20%).

Fewer than half say that all their employees receive

each of the following: participant statements that

show both their balance and what it would convert

to as an income stream in retirement (46%), and for

those with a Db plan, information on income earned

to date in the Db plan (44%). Finally, just 7% of plan

sponsors report that all employees are offered an

analysis to help them determine when they should

begin claiming Social Security benefits, and two-

thirds (65%) say no employees receive information

on this issue.

one silver lining is that companies for which

retirement income is a strong objective in their

retirement program place greater emphasis on both

savings and income in their communications. these

companies are more likely than other plan sponsors

to agree that their employees are aware of company-

provided materials pertaining to the importance of

saving (87% vs. 60%). they are also more likely to

agree that their company provides materials and

support that gives their employees a clear roadmap

on how to generate retirement income from their

plan (62% vs. 47%). this suggests that positioning

the DC plan in this way pays dividends to the degree

in which employees understand, engage with and

appreciate the plan, in addition to an increased

likelihood of using it in an effective manner for

retirement security.

educational programs and Support: extent offered* (All Plan Sponsors, n=127)

Programs designed to encourage non-contributors to start contributing

access to your corporate website which has a retirement focus

Participant statements that show both their balance and what it would convert to as an income stream in retirement

Defined benefit communications that provide information on income earned to date (if has a DB plan, n=89)

DB communications targeted to employees at key milestones (if has a DB plan, n=89)

analysis to determine the time to begin Social Security benefits




3%19%17% 7%54%

20%6%17% 3%53%

35%7%9% 3% 46%

19%20%13% 3%44%

35%30%11% 3%19%

65%18%6% 3%7%

Jan

uary

201

1

16

tools and online Calculators are prevalent

About 8 in 10 plan sponsors (85%) say that all

their employees have access to online calculators to

assess retirement savings goals. A comparable (82%)

say that all employees have access to calculators

or modeling support that focuses on determining

retirement income needs.

Among those with multiple retirement plans, only

58% report that all their employees have access

to a consolidated view of their benefits across all

their retirement plans so they can make appropriate

decisions about retirement security.

Although plan sponsors also appear to gravitate

toward offering online tools and calculators, only

one in 10 plan sponsors (11%) believes that the

tools and calculators offered provide a great deal

of influence in terms of encouraging employees to

make appropriate decisions regarding retirement.

retirement planning Seminars not

frequently Held

Retirement planning seminars are held relatively

infrequently by most respondent companies, with

most of the emphasis placed on providing this

type of educational opportunity to employees

currently participating in a DC plan. While half of

plan sponsors (49%) say that they hold retirement

planning seminars for their DC plan participants on

an occasional basis, 12% report that they never do

so. Another 39% report holding retirement planning

seminars for plan participants very often or fairly

often.

only 19% say their company holds seminars or

webinars that are specifically targeted to non-

participants in their DC plan(s) very or fairly

frequently. Indeed, nearly half (46%) never hold

meetings for employees who are not participating in

their DC plan. Among the FoRtune 1000 companies

with a Db plan, just over one-third (36%) say they

tools and Calculators availability*

(All Plan Sponsors, n=127)

Online calculators to assess retirement savings goals

Calculators or modeling support that focus on determining retirement income needs

access to a consolidated view of their benefits if employees are covered by multiple plans (if has multiple plans, n=102)

tools and Calculators: extent of influence in encouraging appropriate decision-Making*


27% Little

influence

3% No

influence

11% A great deal of

influence

58% Some

influence





2%1%11%85% 2%

6%11% 2%82%

24%6%10% 3%58%


17

frequency of Seminars or Webinars* (All Plan Sponsors, n=127)

10%

5%

29%

14%

49%

34%

12%

46%

Very often Fairly often occasionally never

For employees who participate in DC plan(s)

For employees who do not participate in DC plan(s)

hold seminars or webinars, either directly or through

a third party, that include the Db plan.

Interestingly, plan sponsors with both DC and Db

plans are twice as likely as those with DC plans only

to hold seminars directed at non-participants in the

DC plan at least fairly often (22% vs. 11%).

Plan sponsors who say retirement income is an

important objective of their retirement plans are

more likely than other plan sponsors to offer, at

least fairly often, retirement planning seminars or

webinars for plan participants (45% vs. 30%) as

well as for non-participants (24% vs. 9%). Sponsors

offering retirement planning seminars very or fairly

often are twice as likely as those offering them

occasionally or never to have deferral rates of 7%

or higher (46% vs. 23%). A similar relationship is

evident in the share with high deferral rates (7% or

higher) among companies offering seminars targeted

to non-participants very/fairly often compared

to occasionally/never (45% vs. 29%). Among

companies with Db plans, those offering seminars/

webinars that focus on the Db plan are far more

likely than those who do not to have deferral rates of

7% or higher (47% vs. 26%).

nearly half (48%) of plan sponsors say they give

access to accredited financial planning professionals

to all their employees, with another 14% providing

it to executives or management-level only. nearly

four in 10 (38%) report giving no access to financial

professionals at all. Although the use of accredited

financial planners can create fiduciary concerns

Holding Seminars or Webinars that focus on dB plan(s) (Among Plan Sponsors that have a Db plan, n=89)

64% No

36% Yes


Jan

uary

201

1

18

dC plan design options: extent of participation* (All Plan Sponsors, n=127)

Default allocation with target date fund as the vehicle

auto enrollment features

automatic escalation or step-up of contributions

re-enrolling non-participants periodically

Bump ups in employer match based on age and/or tenure

among plan sponsors, strategies such as utilizing

non-commissioned planners and reviewing the

presentations beforehand can help to alleviate this

concern.

PLAN DESIGN FOCUSES ON ENCOURAGING SAVINGS AND STABLE INVESTMENTS RATHER THAN CREATION OF LIFETIME INCOME

auto features introduced by Many

encouraged by provisions in the Pension Protection

Act of 2006, automatic enrollment of participants in

401(k) plans, which is designed to get more workers

to save in their DC plan, appears to have taken hold

among large plan sponsors. Slightly fewer than half

of sponsors report that they include all employees in

automatic enrollment features (47%) and many have

implemented a default allocation to a target date

fund (52%).

take up of other DC plan features is far less

common. Almost 3 in 10 plan sponsors (28%) say

that all their defaulted employees participate in

automatic step-ups of their contributions. only 1 in

10 (11%) reports that all their employees are subject

to features in which non-participants are re-enrolled

periodically in the DC plan; over three-quarters

(76%) say that they have not implemented this

option for any of their employees.

Stable Value is the Most popular

investment option

Stable value funds are the most popular investment

option offered by plan sponsors, followed by

target date funds. eighty-seven percent say that all

employees across their corporation are offered stable

value funds. A strong majority (76%) of plan sponsors

also include target date funds in the investment lineup

offered to all their employees. Just over half (54%)

of plan sponsors say all their employees are offered

a range of target date funds that are targeted to

employees with different risk tolerances.

Companies that have both Db and DC plans are twice

as likely as those with only DC plans to offer Db-like

investment vehicles in their DC plans to all employees

(26% vs.13%). the likelihood of offering Db-like

investments, such as collective trusts or individually

managed non-registered options, in DC plans

increases with company size (as measured by number


24%14%5%52% 4%

13% 31%6% 3%47%

38%27%4% 3%28%



84%6%2% 2%7%

76%2%11% 9%


19

of employees), total assets of retirement plan and

average deferral rate.

distribution options don’t Currently encourage

Creation of Lifetime income

While nearly all employers correctly say their qualified

retirement program has standard annuity distributions

within their defined benefit plan (if they offer a Db

plan), the incidence of an annuity option from a DC

plan is much less prevalent, as is partial annuitization.

A Db plan must offer to pay a monthly benefit for

the life of a retired worker, no matter how long the

worker lives. If the value of the benefit is $5,000 or

less, the plan may pay the benefit in a single payment.

ninety-four percent of plan sponsors who offer a

Db plan say those plans provide standard annuity

distributions. Although, for decades, most Db plans

only paid benefits in the form of an annuity, today a

little more than half (54%) of the study respondents

now offer full lump sum distributions from a Db plan.

Additionally, one-third (35%) of these sponsors now

allow a partial lump-sum to be paid under their Db

plan. Younger companies16 are more likely than older

firms to offer full lump-sum distributions from a Db

plan (79% vs. 45%).

Among all plan sponsors, the most popular non-

mandated distribution option at retirement is

installment payments (e.g., for a defined time period)

(61%), followed by systematic withdrawal plans

(46%). one in four plan sponsors (24%) reports that

their program offers lifetime annuity payment options

from a DC plan, a number that skews higher than

other industry studies.17 Partial annuitization options

are less common, with about one in five (21%)

reporting that such an option is available.

Plan sponsors were informed about a recent study that

shows that 55% of employees would prefer to receive

According to MetLife’s 8th Annual Employee Benefits Trends Study, 4 in 10 employees (40%) are interested in learning more about how they could use annuities as part of their DC plan, and 44% would like their employer to offer an annuity option in their 401(k), 403(b) and/or 457 plan.15

investment options in dC plans: extent offered* (All Plan Sponsors, n=127)

Stable value funds

Target date funds

range of target date funds targeted to employees with different risk tolerances

replacing all or some DC plan mutual fund options with vehicles more commonly employed in DB plans

15 MetLife, 8th Annual Study of Employee Benefits Trends, 2010.

16 For the purposes of this study, this is defined as firms established after 1970.

17 towers Watson, 2010 Defined Contribution Survey, June 2010; Aonhewitt, Trends and Experience in 401K Plans, 2009.


9%1%4%87%

19%4% 1%76%

39%5% 1%54%



73%2%22% 1%

Jan

uary

201

1

20

18 Quotes from survey respondents.

19 MetLife, 8th Annual Study of Employee Benefits Trends, 2010.

plan distribution options at retirement (All Plan Sponsors, n=127)

Standard annuity distribution from a DB plan (if has DB plan, n=89)

Installment payments

Full lump sum distributions from a DB plan (if has DB plan, n=89)

Systematic withdrawal plans

Partial lump sum distributions from a DB plan (if has DB plan, n=89)

Lifetime annuity payment options from a DC plan

Partial annuitization options

part of their DC plan savings for as long as they live

when they retire, rather than all of it in a lump sum

that they would invest themselves.19 Respondents

were then asked what programs or options they might

offer employees to help them accomplish this goal.

Annuities – in some form – are most often mentioned

as a solution.

About one-quarter (24%) of plan sponsors answering

this question say they would include annuities as

a distribution option. twelve percent specify they

would add in-plan annuities. Another 16% mention

annuities, but do not specify whether they mean

in-plan annuities or annuities as a distribution option

following retirement. About 1 in 10 (9%) volunteer

that they would ask or encourage employees to buy

an annuity outside of the plan.

What Ideas Do Plan Sponsors Have about Annuities and Retirement Income?18

“ Add annuities to DC plan design. Robust communication effort to help participants understand how much they need for replacement income.”

“ Access to an annuity selection tool outside of the plan.”

“ Offer an ‘annuity exchange’ where selected providers with demonstrated financial stability and competitive pricing offered annuity conversions to our employees.”

“ In-plan annuity distribution options with the pricing power of the group giving more stability to the purchase process.”

94%

61%

54%

46%

35%

24%

21%


21

MANY DC PLAN SPONSORS CITE FIDUCIARY CONCERNS AS A BARRIER TO MORE WIDESPREAD OFFERING OF INCOME ANNUITIES

Although the majority of workers today are covered by

DC plans, the large majority of plans do not offer the

option to annuitize assets when workers retire. Many

plans have eliminated the annuity distribution option for

a number of reasons. Chief among them are fiduciary

liability concerns and the administrative issues related to

offering annuities.21

Most plan sponsors think they are extremely (20%) or

very knowledgeable (49%) about eRISA-based fiduciary

standards. Perhaps this is why more than half (54%)

of plan sponsors that do not offer lifetime annuity

payment options from their DC plans say that fiduciary

The chief advantage of an income annuity is that it provides guaranteed lifetime income. Another key advantage of income annuities is that they generally have the ability to produce the highest level of guaranteed income per dollar of assets, which provides the participant with the ability to maximize income. For example, an average retiree would need to save about one-third more to attempt to replicate the effect of a mortality pool and, even then, could still outlive their savings.20

Considerations to promote Lifetime income distributions from dC plans(All Plan Sponsors providing a response, n=93)

Programs or options Percent of Plan Sponsors

Annuities as a distribution option 24%

Annuities: non-specific 16%

In-plan annuities 12%

Financial advice/counseling/help with purchasing annuities 10%

Installment options 9%

Purchase annuity outside of plan 9%

Managed payout vehicles 5%

Information/education 4%

other 6%

no programs or options 17%

Knowledge of eriSa-Based fiduciary Standards* (All Plan Sponsors, n=127)

20% Extremely

knowledgeable

5% Not too

knowledgeable

27% Somewhat

knowledgeable

49% Very

knowledgeable

20 MetLife response to Department of Labor, treasury & IRS Request for Information Regarding Lifetime Income options for Participants and beneficiaries in Retirement Plans, May 3, 2010.

21 Aon hewitt, Trends and Experience in 401(k) Plans, 2009.


Jan

uary

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1

22

concerns are discouraging them from offering these

options.

notably, plan sponsors whose corporate philosophy

focuses on savings are less likely than those whose

corporate philosophy is most closely aligned with

retirement income to say that fiduciary issues

discourage them from offering lifetime income

annuities (28% vs. 63%), suggesting that, consistent

with their program objectives, they don’t see a need

to incorporate a retirement income feature into their

DC plan design.

the uncertainty of plan sponsors’ precise fiduciary

duties when offering annuities to their workers has

been an identified deterrent to including annuities as

a distribution option since the Department of Labor

– as directed by the Pension Protection Act of 2006

– issued a final regulation in october 2008 that was

intended to clarify the fiduciary standard relating to

the selection of an annuity provider for the purpose

of benefit distributions from individual account plans

such as 401(k) plans.22

the regulation, which the Department of Labor

appeared to structure as a safe harbor, sets out

factors that should be utilized in assessing the

annuity provider’s ability to make future payments

under the contract and in reviewing the costs of

the annuity in relation to the benefits and services

provided under the contract. Almost from the outset,

plan sponsors have been consistent in their feedback

that, as the factors are subjective in nature and not

sufficiently clear, they do not really constitute a

workable safe harbor. Consistent with this, the study

results indicate that many plan sponsors believe

the present fiduciary safe harbor does not provide

objective and simple factors upon which they can

select an annuity provider and that this lack of

clarity continues to be a barrier to more widespread

offering of these products in the workplace.

impact of fiduciary issues on offering Lifetime annuity options (Among Plan Sponsors that do not offer lifetime annuity options from their DC plans, n=97)

19%21%

33%

27%

to a Great extent to Some extent to a Little extent not At All

Discourage = 54%

22 u.S. Department of Labor, Selection of Annuity Providers – Safe Harbor for Individual Account Plans, Federal Register, pages

58447-58450, october 7, 2008.


23

Plan sponsors believe that government initiatives

could address some of the fiduciary concerns they

say are discouraging them from offering annuities.

When asked their reaction to the Department

of Labor’s and treasury Department’s interest in

strengthening Americans’ retirement through lifetime

income options, plan sponsors are twice as likely

to react positively than negatively (46% vs. 22%).

Among those plan sponsors who are critical of the

government’s focus on income for life options, the

major concern cited is fear of too much regulation

and government involvement. twenty-nine percent

of plan sponsors had either a mixed reaction,

no opinion, or feel neutral about the current

emphasis on lifetime income options coming from

Washington.

UNLESS RETIREMENT INCOME IS A PRIMARY PLAN OBJECTIVE, PROGRAM SUCCESS MEASURES PLACE MORE EMPHASIS ON PARTICIPATION THAN INCOME

Measuring retirement plan Success

In general, plan sponsors do not seem to be placing

as much importance on what many would logically

assume the ultimate goal of qualified retirement

plans should be – retirement income – as they are

on the more near-term issues pertaining to plan

participation.

the large majority of plan sponsors measure the

success of their retirement plan by their company’s

overall participation rate or the participation rate of

non-highly compensated employees, followed by

the overall deferral rate of non-highly compensated

employees and the percentage of eligible employees

taking full advantage of the company match. this

is not at all surprising; these traditional factors

are easily measured, and some are required in the

normal course of plan administration. Also, unless

threshold levels of participation are achieved, focus

on other goals may be viewed as premature or

impractical.

More than 8 in 10 (84%) plan sponsors say that

their company’s overall participation rate or the

participation rate of non-highly compensated

employees (81%) is extremely or very important

in gauging the success of their retirement plans in

relation to their corporate philosophy.

on average, a smaller percentage (52%) thinks that

the ability to generate retirement income is extremely

or very important in determining how successful

their retirement plan is in relation to their corporate

philosophy. one notable exception is that plan

sponsors that have retirement income as a key focus

of their retirement plans are more apt than other

plan sponsors to recognize the ability to generate

retirement income as a very important measure of

plan success (68% vs. 23%).

A slightly lower share assigns very high importance to

average balances (45%), and among those with a Db

plan, only 16% feel that the percentage of retirees

taking an annuity versus a lump sum payment

distribution from their Db plans is extremely or very

important in gauging success (44% say it is not at all

important).

As employers consider whether or not to offer DC plan participants the ability to create retirement income at the point of retirement, public policymakers are paying increased attention to these issues. The Department of Labor and Treasury Department issued a Request for Information in February 2010 and held hearings in September 2010 to explore, among other issues, ways to increase lifetime income and/or annuitization so that 401(k) plan participants have an opportunity to convert at least a portion of their retirement savings into lifelong income.

Jan

uary

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24

Measuring retirement plan Success (All Plan Sponsors, n=127)

Overall participation rate

Participation rate of non-highly compensated employees

Overall deferral rate of non-highly compensated employees

Percentage of eligible employees taking full advantage of match

ability to generate retirement income

average balances

Percentage of retirees taking an annuity versus a lump-sum payment distribution from their DB

plan(s) (if has a DB plan, n=89)

50%31% 81%

extremely important Very Important

participation goals

A surprisingly high share of plan sponsors – 75%

– do not have formal participation goals for their

non-highly compensated employees. Among the one

in four (24%) plan sponsors with formal participation

goals, only one-third (32%) feel their company has

been very successful in reaching those goals. Another

52% report being somewhat successful, and 16%

report their company has not been too successful.

Plan sponsors with $1 billion or more in total plan

assets are twice as likely as plan sponsors with lower

plan assets to have formal participation goals for

non-highly compensated employees (32% vs. 16%).

Setting formal participation goals* (All Plan Sponsors, n=127)

75% No 24%

Yes

how successful plans are in reaching those goals:

Percent of Plan Sponsors with Participation Goals (n=31)

Very successful 32%

Somewhat successful 52%

not too successful 16%


1% Don’t Know/

Refused

84%47%37%

76%54%22%

72%43%29%

52%39%13%

45%38%7%

16%9%7%

81%50%31%


25

DESPITE RETIREMENT PLAN COSTS, PLAN SPONSORS LEAVING VALUE ON THE TABLE

Although retirement plans represent a major

investment by companies, plan sponsors do not seem

to be using them as strategically as they might.

few plan Sponsors Survey participants about

retirement plan Satisfaction

Few plan sponsors are tracking the impact of their

plans on employee satisfaction. only one-third (34%)

of plan sponsors have conducted an employee survey

to help gauge how satisfied employees are with

the education and support they receive about their

retirement plan. Plan sponsors who do not view the

ability to generate retirement income as an important

measure of the success of their retirement plan

are less likely than average to have conducted an

employee satisfaction survey on the education and

support employees receive about their retirement

plan (13% vs. 34%).

Value under-communicated

Fewer than half (44%) of plan sponsors who offer

Db plans believe their companies successfully

communicate the value of these plans, including

only 13% who strongly agree. Another 22% neither

agree nor disagree with this assertion and 32%

disagree. of course, since two-thirds do not conduct

evaluation surveys to ask their employees what they

think about the education and support employees

receive about their retirement plan, respondents may

not have informed opinions about how well they are

communicating the value of their plans since they are

not getting formal employee feedback.

And in companies that offer both Db and DC plans,

only 40% say their employees appreciate their Db

plans (which offer guaranteed streams of income)

more than their DC plans (which do not); 29% are

unsure and 29% disagree.

improvements Center on plan design Changes

When asked what changes they would most like

their company to make so their retirement plans

could better meet employee needs if cost and

regulations were not barriers, plan sponsors are more

likely to mention a plan design feature than they

are some type of improvement in communication or

education.

Seven in ten plan sponsors (70%) mention some type

of program or plan design change as key changes

they would like their company to make. Within that

broad category, the company’s match is most often

mentioned: increase it (20%); introduce it (5%); or

restore it (3%). About one in eight (12%) would like

to have automatic enrollment and a similar share

(11%) believe the employer contributing more to

the plan, including through profit sharing increases,

would help to better meet employee needs.

nearly half (48%) call for some type of education

and communication, including 23% who specifically

attitudes regarding Value of plan* (All Plan Sponsors with DC and Db plan, n=89)

Our company communicates successfully about the value of our DB plan(s)

Our employees appreciate their DB plans more than they appreciate their DC plan


Strongly agree Somewhat agree neither agree nor disagree

Some disagree Strongly disagree

7%25%22%13% 31%

16%13%29%16% 24%

Jan

uary

201

1

26

would like their company to provide access to

professional financial or investment advice, as well

as financial planning tools. however, they may be

overlooking an opportunity to communicate about

their plan which could help to increase the plan’s

perceived value. For example, information about

Db plan earned income to date is only offered, on

average, to 53% of employees.

Very few plan sponsors mention introducing some

kind of retirement income option, even among

companies that only offer DC plans. For example,

only 7% say they would like to add a plan design

feature or allocation option such as an annuity that

would provide guaranteed income, and a similar

share (6%) would like investment options, such as a

Roth IRA or managed accounts.

retirement plan Changes desired (All Plan Sponsors providing a response, n=101)

Changes Desired Percent of Plan Sponsors24

program or design Changes (net) 70%

Increase match 20%

Automatic enrollment 12%

Increase or provide employer contributions or profit sharing 11%

Add annuities or annuity distribution options/guaranteed income option 7%

Provide/restore/unfreeze Db plan 7%

Add other investment options, e.g., Roth, managed accounts, etc. 6%

Introduce match 5%

Automatic increases/escalation in contributions 4%

Restore match 3%

eliminate limit on contributions/raise IRS limits 3%

Provide more generous benefits/more benefits 3%

other change in plan design, e.g., reduce waiting period, begin catch-up at age 45, freeze cash balance plan 14%

Communication/education (net) 48%

More education/communication 27%

Access to professional financial advice/investment advice/planning tools 23%

other 7%

no changes are needed/wanted 3%

don’t know 1%

23 Quotes from survey respondents.

24 Categories add up to more than 100% because multiple responses were accepted.


27

What Changes Would Plan Sponsors Like to See in their Own Plans? 23

“Design the 401(k) plan to be more automated. DB-ification of the 401(k) plans.”

“Automatic enrollment and periodic re-enrollment, automatic step-up, education campaigns regarding various aspects, including why to contribute, the value of the plan, how to invest, etc.”

“Currently we offer pre-retirement seminars to employees within 2 years of retirement eligibility; feedback is that it would be better to offer by age 40 – if we had the funds/resources, we would offer this seminar to more employees.”

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Conclusion/Call to action In 2011, America will reach the five-year anniversary

of the Pension Protection Act (PPA), which contained

as many changes for DC plans as it did for Db

plans. From a DC plan perspective, this landmark

legislation represented the first major and broad-

based public recognition that the outcomes expected

for 401(k) and other individual account plans

had failed to materialize without more regulatory

intervention. From a Db perspective, it represented

an acknowledgement that the combined and

unintended effect of years of narrowly focused

regulation had resulted in a recipe for underfunded

promises.

this study was conducted against a backdrop

of incipient change in the landscape of qualified

retirement plans. As the long-anticipated and well-

known demographic changes related to the aging

baby boomer generation have begun, the direct

and indirect effects are only beginning to emerge.

Such effects on qualified retirement plans are no

exception.

Cultural change comes slowly to both plans and

to their participants. the Qualified Retirement Plan

barometer baseline measure of the extent to which

a retirement income culture exists is only a starting

point, and it is our hope that it will help sponsors to

develop greater levels of insight about their plans,

and help public policymakers to gauge emerging

success of new regulatory initiatives.

the study findings suggest that large plan sponsors

fall into three overall groups:

• a leading vanguard of plan sponsors may be

emerging that have taken a step beyond the

traditional norms, standard practices and areas of

measurement that have been with the DC industry

almost from its inception in 1978; these plan

sponsors are beginning to shift the focus of their

qualified retirement plans from assets to income

• a middle majority are grounded in maintaining the

status quo, with a governing principle of staying

competitive with others and offering benefits that

will enable them to do so; and

• a minority core of plan sponsors that does not

acknowledge a connection between savings and

income as central to qualified plan design.

even among the first group, there appears to be

incomplete alignment between their stated desire

to help employees “create retirement income

for the future” and a generally underdeveloped

set of common goals, decision support tools,

communications and policies designed to help

workers make smart income decisions. Whether

this contingent represents forward-thinking early

adopters of change or a minority with distinct goals

centered in their corporate culture is yet to be

determined. however, these firms will be in the best

position to capitalize on the new thinking and new

tools emerging in the marketplace – as the matter of

retirement income as a means to retirement security

– are developed and brought to market.

Firms in the second group may follow the first over

time, as what it takes to stay competitive begins to

change. this group, today, may be leaving significant

value on the table by skewing their plan design and

communication dollars so significantly to savings.


29

the third group of firms does not seek to do

anything more than provide employees with a

savings vehicle, and without a dynamic to trigger a

change in core philosophy, this group is unlikely to

change its objectives or approach.

the study’s findings suggest a number of ideas for

plan sponsors to consider for the future:

• although most of the ultimate burden for

retirement security has shifted to employees,

plan sponsors still play a critical role. As plan

sponsor experience with auto-enrollment and

auto-escalation has shown, while participant

actions will always be part of the ultimate DC

plan equation, plan sponsor decisions about plan

design, plan objectives and how the plan and its

objectives are communicated are likely to have an

overriding effect on plan outcomes.

• plan sponsors will need to move beyond their

comfort zones in order to change the norm.

Safety in numbers – practice norms – has long been

a hallmark of the qualified retirement plan system.

As alternate options for outcome measurement and

new education tools and communication strategies

become available, plan sponsors will have new

options to consider for their programs.

• plan sponsors should carefully consider

whether they should gear up to meet

employee demand for lifelong income

products. Indications are early, but they appear

remarkably consistent across multiple studies and

a wide range of plan sizes that employees are

seeking a solution that will enable them to retire.

Coupling this with the well-established findings

that employees exhibit a strong preference for

accessing benefits of all kinds through their

employer suggests that plan sponsors should begin

to consider how this might apply to retirement

income features.

• fiduciary concerns must be addressed by

public policymakers before income annuities

will take hold as a mainstay feature of dC

plans. It is clear that while a workable safe

harbor is needed, undue fiduciary risk is not

the only obstacle to adoption of a guaranteed

income component to qualified retirement plans.

Addressing fiduciary concerns in a straightforward

and simple manner is a prerequisite to more

widespread adoption of income annuities in 401(k)

plans.

• a balance between accumulation and income

may be an optimal “balanced scorecard” for

qualified retirement programs in the future.

It is important that plan sponsors not lose the

focus they have demonstrated in promoting

the importance of accumulation as a retirement

plan objective. What may be emerging for the

future is the addition of income-related outcomes

to traditional accumulation measures such as

percentage participation and deferral percentage.

If and as tools become available to promote a

retirement income culture, plan sponsors will

face some decisions about the future of their

programs and how they support overall workforce

management goals, from attracting and retaining

Jan

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talent to managing an older workforce through its

glide path to retirement. Clear guidance on fiduciary

risk will be an important supporting structure for

such change. Sponsors will need to feel comfortable

that they can introduce new goals in a manner that

will not, in and of itself, add to fiduciary risk.

the stakes are very high given the central role that

our employment system plays in the process and

especially given the growth of DC plans – every plan

sponsor interviewed in this survey has at least one

DC plan as a component of their overall retirement

program. Without sufficient savings in employer-

sponsored accumulation vehicles, there would be

too few funds available to convert to income for

many employees. And without an articulated focus

on income, too few employees may understand

why high levels of savings are necessary for a secure

financial future after they retire.


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Cultural change comes slowly to both plans and to their participants. The Qualified Retirement Plan Barometer baseline measure of the extent to which a retirement income culture exists is only a starting point, and it is our hope that it will help sponsors to develop greater levels of insight about their plans, and help public policymakers to gauge emerging success of new regulatory initiatives.

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MethodologyIn order to gain greater insight into the steps that

large corporations are taking to help their workforce

prepare for retirement, MetLife engaged the services

of Mathew Greenwald & Associates and Asset

International, Inc., publisher of PLAnSPonSoR and

PLAnADVISeR magazines, to conduct a survey of

FoRtune 1000™ companies.

A key goal of the survey was to develop a barometer

to measure the extent to which a company promotes

a culture of retirement income as well as retirement

savings. the barometer provides a composite

measure in four areas that relate to the company’s

retirement plan culture: corporate objectives/

philosophy; communications/education; plan

design; and plan success. the survey instrument was

developed by MetLife in collaboration with Mathew

Greenwald & Associates and Asset International, Inc.

Asset International provided the sample of plan

sponsors and deployed the e-mails and reminders

to the sample containing a link to the online survey.

to maximize response, there was follow-up for all

non-responders by telephone and they were given

the option to complete the survey online or by

telephone. A total of 127 interviews were completed

between September 29 and november 8, 2010.

to be eligible for the study, participants needed to

work for a FoRtune 1000 company that offers at

least one DC or Db plan (including cash balance/

hybrid plans). Participants had to have at least

a moderate amount of influence over decisions

regarding their company’s retirement benefits policy

and plan design. Further, they needed to have at

least a working knowledge of the retirement plans

that cover most of their eligible u.S. employees (81%

of respondents report being very knowledgeable

about all of the plans their corporation offers to u.S.

employees).

plan types25

on average, the plan sponsors surveyed offer four

different retirement plans across their corporation to

employees. this considers domestic u.S. retirement

plans only, and includes both active and non-active

plans. by plan type, companies offer, on average, 1.5

Db plans, 2.1 DC plans and 0.4 cash balance/hybrid

plans. All companies surveyed have at least one DC

plan. one-quarter of companies (24%) have more

than four retirement plans.

25except where a distinction is specifically drawn in this report, a broad definition of Db plans is used that includes cash balance/hybrid plans.

33


the chart below shows that seven in 10 (70%) have

some combination of DC with Db or cash balance/

hybrid plans, with only three in 10 (30%) having DC

plans only. the most common plan configuration

is a combination of DC and Db plans (40%), while

the least common is DC plans paired only with cash

balance/hybrid plans (7%). nearly one-quarter (23%)

have a combination of all three plan types: DC,

Db, and cash balance/hybrid (23%).

and low importance and low success.

number of plans offered by plan type


number of plans

total retirement

plans

defined Benefit plans

defined Contribution

plans

Cash Balance/Hybrid plans

none 0% 37% 0% 70%

one 20% 33% 57% 26%

two 28% 15% 21% 3%

three to Four 28% 9% 16% 0%

Five or more 24% 6% 6% 1%

Mean 4 1.5 2.1 0.4

retirement plan Configurations (All Plan Sponsors, n=127)

30% DC only

7% DC and Cash

Balance/Hybrid only

23% DC, DB and Cash Balance/Hybrid

40% DC and DB only

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Company and Workforce profile (All Plan Sponsors, n=127)

Type of Business Total

Manufacturing 21%

Finance (banking, insurance, investments) 19%

trade (retail and wholesale) 13%

utilities 11%

technology, software, hardware and services 8%

transportation and warehousing 6%

Mining, quarrying, oil and gas extraction 3%

other 20%

Year Company Was Founded

Prior to 1900 23%

1900 to 1939 25%

1940 to 1969 17%

1970 to 1999 18%

2000 or later 6%

Mean year founded 1932

Number of Employees (full- and part-time)

Less than 5,000 23%

5,000 to 9,999 23%

10,000 to 24,999 26%

25,000 or more 28%

Mean number of employees 27,200

Average Percentage of Employees by Type: (mean)

hourly employees 47%

Salaried, non-highly compensated employees 41%

Salaried, highly compensated employees 12%


35

Company retirement plan profile (All Plan Sponsors, n=127)

Participation Rate Total

under 50% 9%

50% to 59% 8%

60% to 69% 11%

70% to 79% 12%

80% to 89% 28%

90% to 100% 27%

Mean participation rate 75.80%

Average Deferral Rate

under 5% 26%

5% to 6% 39%

7% or higher 30%

Total Assets of All Retirement Plans

Less than $100 million 4%

$100 million to $249 million 12%



$1 billion or more 50%


Metropolitan Life insurance Company200 Park Avenue, New York, NY 10166www.metlife.com

1211-3994L1113350753[exp1215][All States][DC]© 2012 MetLIFe, InC.

The information in this document is for historical purposes only. It has not been updated since it was originally published and may not accurately reflect the current state of affairs with respect to the subject matter. MetLife makes no warranty concerning the accuracy of the content or its suitability for any particular purpose.

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2011 Qualified Retirement Plan Barometer Study · of group annuity assets3 and lead the market4 with over $36 billion of transferred pension ... executive Summary Major findings barometer