Building the Perfect Retirement Plan...Plan Health + Benchmarking While you may never be able to build the “Perfect” Retirement Plan, following a defined roadmap may dramatically

Building the Perfect Retirement Plan A PROCESS TO BRIDGE THE GAP BETWEEN THE NATIONAL RETIREMENT CRISIS AND DRAMATICALLY IMPROVING PARTICIPANT OUTCOMES

SCOTT COLANGELO, AIF Managing Director, Qualified Plan Advisors

BUILDING THE PERFECT

RETIREMENT PLAN

The formula to build “the Perfect Plan” has two consistent ingredients: Plan Health + Benchmarking

Building the Perfect Retirement Plan: While you may never be able to build the “Perfect” Retirement Plan, following a defined roadmap may dramatically impact your participants lives, and your company’s financial future.


RETIREMENT PLAN

Define The Problem


RETIREMENT PLAN

The National Retirement Crisis; and the millions who stand to retire with indignity: THE SIGNIFICANT CHALLENGES FACING OUR NATION, OUR INDUSTRY, AND THE FAMILIES IMPACTED BY OUR FAILURES

National Retirement Crisis

Among working households age 25 to 64, a shocking 92% do not have retirement account balances that meet minimum savings benchmarks National Institute on Retirement Security, “The Retirement Savings Crisis: Is it Worse Than We Think?” June 2013

This leaves the country with an estimated retirement savings gap of $6.8 to $14.0 trillion National Institute on Retirement Security, “The Retirement Savings Crisis: Is it Worse Than We Think?” June 2013

4 out of 5 working households have retirement savings less than one times their annual income. National Institute on Retirement Security, “The Retirement Savings Crisis: Is it Worse Than We Think?” June 2013

We are seeing what ought to be thought of as great changes-people are living longer, they’re living healthier lives, opportunities and possibilities are getting better. Yet the institutions to help people through retirement aren’t getting better. Joshua Gotbaum, Director of Pension Benefit Guaranty Corporation, June 23, 2013


RETIREMENT PLAN

Participant Challenges • Retirement Readiness Crisis

• Poor Financial Product / Investment Option Knowledge

• “Internet” Based Solutions have failed (Digital Exclusion)

• Significant Under-Performance

Define The Problem


RETIREMENT PLAN

Participant Challenges

Define The Problem

• Retirement Readiness Crisis • Poor Financial Product / Investment

Option Knowledge • Digital Exclusion • Significant Under-Performance

Plan Sponsor / Participant Disconnect

PLAN SPONSOR MINDSET

85% of Plan Sponsors say that Participants don’t save more because they can’t afford to.

PARTICIPANT REALITY

84% of Participants don’t save more because they are afraid of the investment selection or ongoing management of their investments.

Vanguard Survey “How America Saves”


RETIREMENT PLAN


Define The Problem

• Retirement Readiness Crisis • Poor Financial Product / Investment Option Knowledge • Digital Exclusion • Significant Under-Performance

Three Primary Challenges Causing the Retirement Ready Crisis •Loss Aversion: The strong (crippling) negative response to loss •Inertia: The preference of the staus quo, (i.e. inaction, appearance of lack of interest) •Myopia: A detrimental focus on the short term Save More Tomorrow; Shlomo Benartzi 2012


RETIREMENT PLAN


Define The Problem

• Retirement Readiness Crisis • Poor Financial Product /

Investment Option Knowledge

• Digital Exclusion • Significant Under-

Performance


RETIREMENT PLAN

Missing the Target

Regardless of the investments participants choose, they have little, if any, knowledge of the risk they are exposed to

Over 64% of Participants believe that Target Date Funds guarantee income at retirement*

There is no requirement or simple method for them to identify the appropriate allocation based on their risk

*February 15th, 2012- Investor Testing of Target Date Retirement Fund Comprehension


Define The Problem




Performance


RETIREMENT PLAN

“When presented with requirements to actively choose

their investments online, less than 4% of participants do so. When the same presentation uses paper, and

is executed at the time of the enrollment meeting, over 97% of

them make an active election” *QPA Study of 51 plan transitions over 3 years (2011-2014)


Define The Problem




Performance


RETIREMENT PLAN

Without help the average investor who invested in equities, over a 20 Year Period, underperformed the SP500 by an annual difference of 5.31%

Dalbar, Inc., “2011 Quantitative Analysis of Investor Behavior”

Participants utilizing Target Date Funds or Managed Accounts had median returns 3.32% higher annually, than those who did not Financial Engines / Aon Hewitt, “Help in Defined Contributions”, May 2014

We Need to do Better. Yet with so much focus on fiduciary enhancements, fee

disclosure, and various regulatory factors, we have forgotten about the most important factor.

Define The Problem


RETIREMENT PLAN

THE HUMAN FACTOR THE OBLIGATION WE HAVE TO DO

EVERYTHING IN OUR POWER TO IMPROVE OTHER PEOPLES’ LIVES.

BOTTOM LINE Advisors, Record-Keepers, Fund Companies, Administrators and Plan Sponsors alike have failed participants.

1) Define The Problem


RETIREMENT PLAN

WE CAN DO BETTER

1) Define The Problem


RETIREMENT PLAN

•Building the Perfect Retirement Plan starts by understanding the concept of Plan Health.

• Who can define Plan Health? • Plan Health is often defined by terms such as;

Retirement Readiness On-Track Financial Wellness GAP Analysis


RETIREMENT PLAN

UNDERSTANDING PLAN HEALTH

UNDERSTANDING PLAN HEALTH • While industry experts define Plan Health in various ways, it is generally

tied to terms such as Retirement Readiness, Financial Wellness and “On-Track” rates. In reality, it is a convergence of all these ideas, ideals, and best practices.

• Plan Health, or a plan that has strong Plan Health, is one that has: High Participation Rates (95%+) High Average Deferrals (8%+) High Diversification Metrics (10+ Average Funds Held) On-Site, Human-Based and Customized Education Services And is one in which ALL interested parties benefit greatly (Plan

Sponsor, Participants, Advisors, Fund Companies, and Retirement Services Providers) BUILDING THE

PERFECT RETIREMENT PLAN

BENEFITS OF PLAN HEALTH • Participant Benefits:

• Financial Wellness: Higher Participation, Better Savings Rates, Better Performance, Risk Appropriate Allocations: ON TRACK FOR RETIREMENT (i.e. Retire with Dignity)

• Employer Benefits:

• Overall Plan Health: Healthier Employees Financially, Lower Insurance Costs Over the Long-Term, Better Overall Company Productivity, Employee Happiness: LESS LIABILITY WITH MORE RETURN ON INVESTMENT (Congruent HR and CFO Priorities)

• Service Provider Benefits:

• Improved Margins: Higher Contribution Levels, Higher Average Balances, Higher Client Retention, Less Liability: INCREASED MARGINS IN AN ENVIRONEMNT OF FEE COMPRESSION

• Advisory Industry Benefits:

Improved Margins: Higher Average Balances, Higher Client Retention, Less Liability: INCREASED MARGINS IN AN ENVIRONMENT OF FEE COMPRESSION, SIGNIFICANT INDUSTRY BENEFITS


RETIREMENT PLAN

18

Individual-Based Solutions, Scalable for the Masses

Results-Driven Services

http://www.hfecorp.com/

http://www.hfecorp.com/

www.PlanHealth.com

DESIGN MEASUREMENT IMPLEMENTATION EDUCATION

REVIEW PLAN GOALS / CURRENT PLAN DESIGN KNOW YOUR PARTICIPANT / CUSTOMIZE EDUCATION DESIGN & PLAN EFFECTIVE DELIVERY ESTABLISH GOALS & CONTINUOUISLY MEASURE THEM

What do you want your plan to accomplish?

1) Establish Your Goals

• We view it as a necessary evil and just don’t want to be sued. • We want our plan to meet requirements and is a necessary

benefit we must have. • Our plan is a necessary tool to improve the productivity of our

employees and reduce our long term health care costs. • We view our employees as our most valuable asset and we want

to help them all reach retirement successfully.

BUILDING THE


DESIGN

What are specific, attainable goals for your plan?

1) Establish Your Goals

• 90/10/90- 90% Participation – 10% Average Defferal – 90% On-Track Percentage

• We want our plan to meet requirements and is a necessary benefit we must have.

• Our plan is a necessary tool to improve the productivity of our employees and reduce our long term health care costs.

• We view our employees as our most valuable asset and we want to help them all reach retirement successfully.

BUILDING THE


DESIGN

2) Know Your Participants Are the majority of your participants sophisticated or unsophisticated?

Are the majority of your participants able to use a core funds list properly?

~ How America Saves 2015, Vanguard

“ Yet, with all the focus on diversification, online education tools available to participants, and basic investing principles believed to be understood by employer’s participants, the average number of funds held by participants dropped from 3.3 in 2010 to 2.9 in 2015.”


RETIREMENT PLAN

DESIGN

Do the majority of my participants understand how to use Target Date Funds?

“ 86.8% of all participants misused TDF funds, mixing them with other TDFs, or Core Fund offerings, causing increases in risk exposure and reducing the likelihood of a an adequate outcome.”

Step 2: Know Your Participants

~ Help in Defined Contribution Plans: Aon Hewitt & Financial Engines, May 2014


RETIREMENT PLAN

DESIGN

Customized Investments For Your Participants

• Knowing the facts about these clearly defined Participant

Challenges, do you make available appropriate investment options for your specific participants?

• Should you consider a customized approach?

Thinking Differently About How You Select The Investments For Your Plan


RETIREMENT PLAN

DESIGN

Step 3: Benchmark Your Plan


RETIREMENT PLAN

DESIGN

Under ERISA, fiduciaries must fulfill the duties of loyalty and prudence • In general, this means they must follow a prudent process

and make decisions in the interests of participants and beneficiaries

• Benchmarking helps to demonstrate prudence and loyalty Leaving aside ERISA –Do you want them to have the best tools and service available?



RETIREMENT PLAN

DESIGN

How Do You Do It? An overview of the most common Benchmarking options

available to you.

Three Basic Types of Benchmarking:

1. Utilization of Industry Averages 2. Third Party Services 3. Plan Specific Market Pricing



RETIREMENT PLAN

DESIGN

Utilization of Industry Averages This method includes utilizing readily available information provided by sources that either; 1) Compiles averages from 5500 data, or 2) Utilizes Specific Record-Keeper Data.

Benefits: • Source is easy to document • Typically an “inexpensive” way to gauge your expenses compared to averages

Shortcomings: • These sources tend to overstate average fees, not accounting for revenue sharing

and other “enterprise” revenue sources • Record-Keepers benefit from showing averages higher • While better than not completing this exercise, illustrates a minimum

commitment by the plan sponsor to attain best pricing for participants.



RETIREMENT PLAN

DESIGN

Utilization of Third Party Services This method includes remaining an advisor or paying a fee for off-the-shelf product to Benchmark your plan.

Benefits: • Professional service and willingness to pay a fee indicates commitment by plan sponsor to

achieve results for plan and participants • Depending on the quality of the service or advisor, process may drive marginal to

significant savings Shortcomings: • Tend to be expensive • Contrary to other employee benefits pricing approaches • Often the Plan Sponsor is paying a mark-up on services provided third parties



RETIREMENT PLAN

DESIGN

Plan Specific Market Pricing This method includes competitively shopping your plan to find aggressive market pricing throughout various interested suitors.

Benefits: • Pricing specific to your plan • Savings tend to far exceed other methods • Represents a “Best Practices” approach • Typically attain more value/more services while achieving savings at the same time

Shortcomings: • Nothing documented, other than possible additional time commitment

A Benchmarking Case Study Plan Highlights:

• New Jersey Based Corporation • 20+ Locations • 2,400+ Participants • Average Balance: $45,800 • Plan Assets: $111,000,000

DESIGN


RETIREMENT PLAN

A Benchmarking Case Study DESIGN


RETIREMENT PLAN

Utilization of Industry Averages: This method includes utilizing readily available information provided by sources that either; 1) Compiles averages from 5500 data, or 2) Utilizes Specific Record-Keeper Data.

Source: 401k Averages Book: Pension Data Source

Pricing Overview: • 2,000 Participants, $100,000,000 in Plan Assets,

Average Account Balance: $50,000 • Average Total Bundles Expense: .87% • Services Included: Record-Keeping, Mutual Fund

Management, Custodial Services



RETIREMENT PLAN

Utilization of Third Party Services This method includes retaining an advisor or paying a fee for off-the-shelf product to Benchmark your plan.

Source: Fiduciary Benchmarks; Leading Industry Benchmarking Service Provider


Average Account Balance: $50,000 • Average Total Bundles Expense: .83% • Services Included: Record-Keeping, Mutual Fund

Management, Custodial Services



RETIREMENT PLAN

Plan Specific Market Pricing This method includes competitively shopping your plan to find aggressive market pricing throughout various interested suitors.

Source: Competitive Blind Bid Process, Fidelity, Empower, Prudential, Mass Mutual, Transamerica


Average Account Balance: $50,000 • Average Total Bundled Expense: .41% • Services Included: Record-Keeping, Mutual Fund

Management, Custodial Services, Onsite Education and Investment Manager Fiduciary Services under ERISA 3(38)

4) Simplify the Process • On-Site or Webinar Based Meetings • Remove the Fear • Give them a Roadmap • Paper, Paper, Paper (or onsite/email linked electronic

enrollment)


RETIREMENT PLAN

IMPLEMENTATION EDUCATION

4) Simplify the Process Risk Profile Process


RETIREMENT PLAN

“Remove the Fear”


4) Simplify the Process Risk Profile Process


RETIREMENT PLAN

“Remove the Fear”


4) Simplify the Process


RETIREMENT PLAN

“Make It Simple”




RETIREMENT PLAN

“Give Them a Roadmap”




RETIREMENT PLAN

“Three Simple Steps”

1) “Do It Myself” or “Do It For Me”

2) Deferral Amount with “Highlighted Amounts”

3) Sign and Date


5) Review Your Results


RETIREMENT PLAN

MEASUREMENT

• Review Your Initial Goals • Measure Your Actual Results • Examine Effective Methods (Onsite

Results vs Web-Based) • Establish The Next Steps In Your Plans

To Meet Your Goals

5) Review Your Results


RETIREMENT PLAN

MEASUREMENT

What Should You Measure? Metrics Based Measurements: Participation Deferral Intuitive Measurements: Diversification (Number of Funds) Proper TDF/Risk-Based Usage On-Track Percentages Single Fund Usage Percentages Default Enrollments vs Active Enrollments (Maybe the most important measurement)

Who we are…….


RETIREMENT PLAN

Who we are…….


RETIREMENT PLAN

Who we are…..


RETIREMENT PLAN

How We Do It


RETIREMENT PLAN

PLAN HEALTH

How We Do It


RETIREMENT PLAN

PLAN HEALTH

How We Do It


RETIREMENT PLAN

PLAN HEALTH

How We Do It


RETIREMENT PLAN

PLAN HEALTH

How We Do It


RETIREMENT PLAN

PLAN HEALTH

How We Do It


RETIREMENT PLAN

PLAN HEALTH

Individual Plan Case Studies

How We Do It


RETIREMENT PLAN

PLAN HEALTH


How We Do It


RETIREMENT PLAN

PLAN HEALTH


How We Do It


RETIREMENT PLAN

BENCHMARKING

1. Recordkeeping Analysis 2. Investment Expense Analysis 3. Fiduciary Investment Analysis 4. Revenue Sharing “Decoding” 5. Fiduciary Snapshot

How We Do It


RETIREMENT PLAN

BENCHMARKING

$238,000,000+ Plan, 2,400+ Employees Prior Benchmarking .32% to .24% QPA Benchmarking .24% to .08%

$135,000,000+ Plan, 2,400+ Employees Prior Benchmarking .69% to .48% QPA Benchmarking .48% to .09%

How We Do It


RETIREMENT PLAN

KNOW YOUR PARTICIPANTS

1. Risk-Based Collective Trusts

2. Sponsored by Comerica

3. ERISA 3(38) Offering

4. No Comp from underlying funds

5. No more than 20% with any one active Money Manager

How We Do It


RETIREMENT PLAN







How We Do It


RETIREMENT PLAN







How We Do It


RETIREMENT PLAN


1. Use Plan Health and Benchmarking to Improve your plan 2. Start by Setting Your Plan Goals 3. Then, Clearly Know / Define Your Participant 4. Next, Benchmark Your Plan with Providers Whose Services Meet Your Participants

Needs 5. Simplify the Process / Practical Implementation 6. Finally Review the Results 7. Repeat At Least Annually

More than a number: 88% vs 97%..... • But 9% is more than a number. It is not 9%.

In a plan with 3,000 employees, it is 270 more people on track for retirement .

• But it’s not 270 people. It’s 270 families.

• And if each family has 4 members, You have positively affected the lives of over 1,200 people.


RETIREMENT PLAN

Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.

Investment Advisory Services offered through Lawing Financial, Inc., A Registered Investment Adviser.

Lawing Financial, Inc., doing business as Qualified Plan Advisors “QPA”.

Cambridge and Lawing Financial, Inc., are not affiliated.

THE GROWTH OF CUSTOMIZED INVESTMENTS FOR YOUR PARTICIPANTS

Documents

Building the Perfect Retirement Plan...Plan Health + Benchmarking While you may never be able to build the “Perfect” Retirement Plan, following a defined roadmap may dramatically