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Thrive. Grow. Achieve.
Retirement Readiness: Evaluating plan health to define success
Ed Gimenez, CFP®, AIF® September 20th, 2016
Securities offered through LPL Financial, Member FINRA/SIPC.
POP QUIZ…
Securities offered through LPL Financial, Member FINRA/SIPC.
AGENDA
Industry trends
The need for benchmarking
Review of the traditional plan health metrics
The new (and improved) way to report on plan health
A call to action
Securities offered through LPL Financial, Member FINRA/SIPC.
INDUSTRY TRENDS
Participant Readiness: Current State According to the Employee Benefits Research Institute’s (EBRI) retirement readiness ratings in 2010, the percentage of participants “at risk” of having insufficient income:*
*For basic retirement expenses and uninsured health costs.
Generation X ages 36-45
44.5% Late Boomers
ages 46-55
43.7% Early Boomers
ages 56-62
47.2%
Securities offered through LPL Financial, Member FINRA/SIPC.
THE NEED FOR BENCHMARKING
Plan Participation Benchmarking A critical measure of a successful retirement plan is a healthy
participation rate. It is important to understand what drives participant behavior, helping you increase both participation rates and increased contribution to the plan.
Key metrics include:
– The participation rate in your plan among eligible employees
– The percentage of active participants deferring enough of their salary to take full advantage of the employer match offered
– The average number of investment options held by plan participants
Securities offered through LPL Financial, Member FINRA/SIPC.
THE NEED FOR BENCHMARKING
Plan Design Benchmarking It is important to keep up with new features to ensure your plan
stays competitive, and addresses the needs of your participants. Comparing your plan’s features with the industry benchmark averages provides a basis for comparison.
Key metrics include: – Do you provide a match? – If yes, how does the match your company provides compare to industry
benchmarks? – Are you using automatic-enrollment?
– Have you established a Qualified Default Investment Alternative (QDIA)?
– How many investment options are available to your participants in the plan?
Securities offered through LPL Financial, Member FINRA/SIPC.
THE NEED FOR BENCHMARKING
Plan Review Benchmarking
It is imperative for plan sponsors to implement a well-documented process for reviewing plan features. Plan sponsors are ultimately responsible for the oversight of the plan.
Partnering with a financial advisor who understands the
retirement plan space can help you stay on course.
Key metrics include: – How often you review the investment options available in the plan
– How often you review the plan’s total costs and fees – How often you evaluate your plan’s current service providers – Implementation/review of an investment committee for your plan – Design/implement/review an Investment Policy Statement (IPS) – Utilizing the services of a financial advisor
Securities offered through LPL Financial, Member FINRA/SIPC.
BY THE NUMBERS
30% Participation Rate
24% Not Maximizing Employer
Match
25% Do Not Offer Employer Match
70% Do Not Use Auto Enrollment
21 Investment Options
Source: PLANSPONSOR Defined Contribution Survey, 2010.
The average rate of eligible employees NOT participating in a defined contribution plan being offered by their employer
Over half the plans surveyed reported that nearly 24% of active participants DO NOT defer enough salary to take full advantage of the employer match offered
25% of plans DO NOT offer either an employer match or non-elective contribution
Nearly 70% of plans DO NOT automatically enroll eligible employees into the plan
Across all industries, plans offer an average of 21 investment options
Securities offered through LPL Financial, Member FINRA/SIPC.
ON AN ANNUAL BASIS
Source: PLANSPONSOR Defined Contribution Survey, 2010.
Across all industries
Securities offered through LPL Financial, Member FINRA/SIPC.
TRADITIONAL METRICS
Securities offered through LPL Financial, Member FINRA/SIPC.
WHAT’S IMPORTANT?
The #1 goal is a dignified retirement for every participant
One key to retirement dignity is having enough money
Replacement ratio is the benchmark we use to determine likelihood of a dignified retirement
Participation rate, account balance and investment performance data points give us insight into desirable plan design attributes
Plan fees help determine if investment performance is likely to deliver sufficient results to arrive at a dignified retirement
Securities offered through LPL Financial, Member FINRA/SIPC.
NEW EVALUATION TECHNIQUES
Funding Metrics Investment Metrics Participant Metrics
Focusing on average deferral rates and account balances
From:
Focusing on the number of employees
participating in the plan
From:
Focusing on the number of participants that are invested in a particular
investment option
From:
Focusing on the average income replacement
ratio
To: Focusing on the number of participants that are on track to meet their
retirement goals based on income replacement
benchmarks
To: Focusing on whether
participants are properly diversified to pursue income replacement targets and tolerance
for risk
To:
Securities offered through LPL Financial, Member FINRA/SIPC.
A CALL TO ACTION
The Retirement Plan Health Check Report
It is essential that an accurate measurement of a plan’s value exists
This comprehensive and sophisticated program will provide qualitative plan statistics in a simple, straightforward format
The Retirement Plan Health Check report allows advisors to report on the "Health" of a plan by presenting key plan attributes compared to a valid peer group
Securities offered through LPL Financial, Member FINRA/SIPC.
THE RETIREMENT PLAN HEALTH CHECK
Historic and age group based plan participation, deferral rates and average account balances
Highly and non-highly compensated employee statistics Age group segmented and total participant
contribution levels
Current and historic portfolio diversification data shown in total and divided by age groups
Aggregate plan performance Plan fees Ability to save historical results regardless of
plan provider
Securities offered through LPL Financial, Member FINRA/SIPC.
THANK YOU!
Ed Gimenez, CFP®, AIF®, RPA Direct: 240-403-2563 E-mail: [email protected]