Goal-Oriented Savings

Give employees a GPS for retirement savings

Your clients set goals for their employees at work. Why shouldn't they do the same for their retirement?

When retirement plans were introduced as tax-deferred savings programs, there were few behavioral studies or tools to help employees determine how much they needed to save.

Over time, a wealth of information has been gathered on saving habits and retirement income needs. What has been discovered is that savers have difficulty seeing themselves 15, 20, or even 30 years from now, and often find the concept of retirement income too abstract to grasp when they don’t have defined goals.

Goal-oriented savings allows employees to set and monitor progress—just as they do at work—and can help them better prepare for retirement.

Providing access to an online retirement calculator is an easy way to encourage goal-oriented savings. This often involves a simple interview that steps employees through a few key questions to let them set up and track how they’re doing in terms of their retirement savings. These questions include:

·         What is your current annual salary?
Determines how much employees need to save annually to meet their retirement goals and what their annual income needs might be when they retire.

·         What are your retirement goals?
Establishes when employees want to retire and how much income they’ll want annually during retirement.

·         How much are you saving for retirement?
Records the percentage of current income that employees are saving for retirement each year, including any amount that your clients are contributing.

·         How much have you saved for retirement?
Includes savings from employees’ current plan, along with any other savings that are specifically for retirement, such as an IRA or a retirement plan from a previous employer.

·         What investment return do you expect?
Captures the return that employees expect to earn on their retirement savings before retirement begins.

Once this information has been collected, goal-oriented savings tools like the Ascensus online retirement calculator below can provide real-time information as the contribution rate, retirement age, income percentage, and rate of return are adjusted. 

This allows employees to fine-tune their goals and see what steps they should take to better ensure that they stay on track to meet their retirement goals. If their personal circumstances change, they simply update the calculator to get an instant update on how their retirement planning is affected.

Experts believe that providing a visual reminder for retirement savings via an online retirement calculator can help employees become more retirement ready.

“The very act of thinking about how to do a task makes you more likely to follow through and do the task,” says Annamaria Lusardi, Denit Trust Distinguished Scholar and Professor of Economics and Accountancy at the George Washington School of Business. “Saving more is hard, and if people don’t do the calculations and see the numbers, they don’t save more.”¹

When clients express concern about their retirement plans due to low employee contributions or interest, talk to them about the possibility of implementing a goal-oriented savings tool like an online retirement calculator. Through interactive planning, participants can build a better retirement strategy based on realistic expectations and goals.

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¹Source: Novack, Janet. Forbes, "These Calculators Can Raise Your Odds of Retiring Well." January 9, 2013. http://www.forbes.com/sites/janetnovack/2013/01/09/these-calculators-can-raise-your-odds-of-retiring-well/.

Targeted Communications

Help your clients tell employees a story they can relate to

As your clients’ financial professional of choice, you recognize that retirement plans represent a great way to help their employees save for retirement.

As such, you've taken the necessary steps to design the best plans possible.

However, low participation rates and contribution levels could negatively impact employees’ retirement savings goals and can lead to potential compliance issues.

In many instances, the fact that employees don’t fully understand how the plan can work for them is the primary reason for low participation.

In the past, employers provided generic retirement scenarios that assumed contribution rates, savings, and nest eggs to drive participation. It wasn't all that surprising that employees had a hard time relating to these stories. 

Today, advances in technology can help your clients encourage savings and participation among employees by customizing retirement scenarios for each individual.

Targeted communications are a series of educational materials designed to explain the advantages of saving for retirement through illustrative employee scenarios. Each focuses on a specific audience, allowing readers to gain a better understanding of a particular message.

Depending on the individual situation, these communications demonstrate the benefits of:

• Enrolling in the plan
• Contributing enough to maximize a company match
• Increasing contribution amounts to maintain a desired lifestyle in retirement

Ascensus has witnessed the positive results of targeted communications firsthand: Employees who chose to enroll in a plan after receiving a targeted communication deferred, on average, nearly 6% of pay.¹

Targeted communications are good for your clients, too.

By helping their employees save more and feel better about their retirement planning, they can generate higher participation and ensure the success of the plan for everyone.

In addition, these communications help fulfill your clients’ fiduciary responsibility, providing ongoing education to all employees—not just those who are already participating in the plan.

With the primary responsibility for retirement planning now in the hands of employees, getting an early start on saving for retirement is critical to helping them reach their retirement goals. Think about incorporating a targeted communications strategy in your clients’ plans to get employees involved sooner and encourage them to take full advantage of their program.

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1 As of April 2013.

Professional Investment Management

Outsource account management

As we mentioned in our previous blog about qualified default investment alternatives (QDIAs), investing can seem complicated to employees. Many individuals struggle with investment concepts such as diversification, asset allocation, and rebalancing. They can also be overwhelmed by the responsibility of selecting and monitoring their investments.

As such, the traditional approach of providing educational materials detailing every aspect of investing in a retirement plan can be ineffective. Instead, many of your clients’ employees simply want someone or something to do the work for them.

This has resulted in the development of “do-it-for-me” solutions that shift or outsource that responsibility to another party. These solutions include risk-based (or lifestyle) investments, target-date (or lifecycle) funds, and managed accounts.

Risk-based investments can place an individual’s contributions in a mix of funds based on personal risk tolerance—the greater the risk tolerance, the more aggressive the investment strategy.

Target-date investments can place an individual’s contributions in a mix of funds based on the amount of time until retirement—the closer to retirement, the more conservative the investment strategy.

If market activity impacts the investment strategy, both types of investments will automatically rebalance the individual’s account to return it to the intended mix.

Risk-based and target-date investments have become especially popular as QDIA selections in defined contribution plans with automatic enrollment. According to Cerulli Associates, target-date funds are used as the QDIA in these plans 69.8% of the time, while risk-based funds are used 10.6% of the time.¹

Typically, there is no additional cost to your clients or their employees for risk-based or target-date options.

Managed accounts provide another alternative for the hands-off investor. Individuals can choose to pay a fee to have a professional money manager step in to analyze their personal profile. The manager then uses this information to select appropriate investments, make savings rate recommendations, allocate assets, and provide ongoing account oversight and maintenance.

Managed money solutions are garnering more and more attention among fee-based advisors. According to a Cogent Reports study from Market Strategies International, 76% of fee-based advisors now use a managed account solution. This accounts for 61% of their total assets under management, on average.²

Offering your clients and their employees access to managed accounts allows for the greatest level of customization and personal attention. In addition, the money manager will also act as a 3(38) fiduciary, taking on fiduciary status with respect to the employee. This approach satisfies the needs of a plan’s “do-it-for-me” investors without interfering with the preferences of “do-it-myself” investors.

When your clients mention “do-it-for-me” investors in their plans, talk to them about how their employees might benefit from professional investment management. Risk-based investments, target-date funds, and managed accounts can be extremely useful to participants who have neither the time nor the desire to become investment experts.

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1 Source: Cerulli Quantitative Update, U.S. Retirement Markets 2012.
2 Source: Advisor Trends in Managed Accounts™, quoted in Fallon, Anne. "Cogent Reports: Managed Account Use Expected to Grow Three Times Faster for ETFs than Mutual Funds." Market Strategies International, November 14, 2013. http://www.marketstrategies.com/news/2291/1/Cogent-Reports--Managed-Account-Use-Expected-to-Grow-Three-Times-Faster-for-ETFs-than-Mutual-Funds.aspx. 

QDIAs

Make investing easier with a default option for growth

Retirement plan participants sometimes struggle with figuring out how to invest their contributions. Perhaps that is why recent trends have seen many individuals forgo making these decisions themselves, opting instead to use professionally managed investment options.

According to data published by Vanguard, 36% of all Vanguard participants had their entire account balance invested in a single target-date fund, a single target-risk or traditional balanced fund, or a managed account advisory service in 2012 (compared with just 17% in 2007). The company believes that the growing popularity of these options demonstrates “a shift in responsibility for investment decision-making away from the participant and back to employer-selected investment and advice programs.”¹

To make investing easier for participants, all of the investment options mentioned above can be used as qualified default investment alternatives (QDIAs) within a retirement plan.

A QDIA is an investment fund that can keep your client’s plan running smoothly if employees enroll but don't provide investment direction for their assets. Contributions are automatically invested in this fund unless employees make an alternative investment election.

The following investment types have been approved by the Department of Labor as acceptable default investments that may meet QDIA requirements:

• Balanced Funds – designed to meet the needs of participants with a balanced mix of stocks and bonds
• Lifecycle Funds – designed to meet participant needs based on participant age, a target retirement date, or life expectancy
• Managed Accounts – accounts managed by an asset allocation service
  
  

It used to be that the default investment option for employees enrolled in their company’s retirement plan generally focused solely on capital preservation. Unlike “cash equivalent” savings instruments like money market funds that struggle to keep pace with inflation, QDIAs are growth- and diversification-oriented investment alternatives that today’s employers can put in place for employees who don’t feel comfortable allocating assets on their own. Knowing that their money will be invested in a diversified, professionally managed fund can help them feel better about their contributions.

A QDIA can be especially helpful for employees who have been automatically enrolled in a retirement plan, as it provides an instant, disciplined investment program. PLANSPONSOR’s 2012 Defined Contribution Survey revealed that 82% of plan sponsors use a QDIA as the default investment for participants who are automatically enrolled in their defined contribution plan.²

Despite this number, there are still opportunities to make plan sponsors aware of how a QDIA can encourage better long-term savings rates for participants while providing fiduciary protection for employers. “I am still surprised by how many plan sponsors are unaware of these protections,” says Kathleen Connelly, executive vice president of Client Service at Ascensus. “The amount of education that a plan sponsor has on this subject definitely influences its decision on whether or not to use a QDIA with its plan.”³

You can help your clients understand how a QDIA can work for them by presenting it as a win-win situation. For example, by selecting a QDIA as the default investment for their plan, they not only help their employees invest for retirement, but they are also relieved of fiduciary liability related to the fund's performance. Further QDIA benefits are listed in the table below.

QDIA Benefits

Employer	Participant
Easy to implement	Provides a simple way to start saving
Simplifies plan management	Ensures that assets are invested in a qualified fund
Includes fiduciary protection	Provides automatic diversification and a better risk-reward balance

A QDIA may be the answer for clients looking to help employees get invested, whether they are automatically enrolled in a plan or if they feel that they aren’t knowledgeable enough to pick funds from a plan lineup. Talk to your clients about how these funds give employees a default investment option to start and grow their retirement savings.

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1 Source: Vanguard, "How America Saves 2013: A report on Vanguard 2012 defined contribution plan data." June 2013. https://pressroom.vanguard.com/nonindexed/2013.06.03_How_America_Saves_2013.pdf.
2 Source: PLANSPONSOR 2012 Defined Contribution Survey, quoted in Yoon, JooHee. "Feature: Safe Harbor Investments." PLANSPONSOR, July 2013. http://www.plansponsor.com/MagazineArticle.aspx?id=6442494057.
3 Source: Yoon, JooHee. "Feature: Safe Harbor Investments." PLANSPONSOR, July 2013. http://www.plansponsor.com/MagazineArticle.aspx?id=6442494057. 

Asset Allocation Models, Target-Date Funds, and Automatic Rebalancing

Make diversifying and rebalancing accounts easier for employees

Historically, employees who didn't have the experience to make informed investment decisions were overwhelmed and intimidated by the prospect of manually diversifying and rebalancing their accounts.

With today’s retirement plans, you can provide your clients with access to asset allocation models, target-date funds, and automatic rebalancing so that their employees can easily manage their savings based on their personal risk preferences and goals.

Asset Allocation Models

Asset allocation models are built with a mix of investments across different asset classes. These models are created with specific investor profiles (e.g., conservative, moderate, aggressive, etc.) in mind to help align with particular objectives and risk tolerance.

When participants choose an asset allocation model that fits their personal savings goals, smart investing becomes quick and easy. Rather than selecting a number of individual investments, they can choose one of several portfolio models based on their age or risk tolerance.

In addition to reducing the number of choices that participants have to make, these models foster a disciplined approach to investing through built-in benefits such as proper diversification and rebalancing. Perhaps most importantly, they can help participants stay invested through extreme changes in the market. At Ascensus, we tracked plan participants who were invested in asset allocation models from the beginning of 2009 and through the end of 2011. In arguably one of the most volatile market periods ever, over 98% of those participants remained invested in asset allocation models.¹

Target-Date Funds
Like asset allocation models, target-date funds allow employees to choose a single, diversified investment option. However, the asset mix is adjusted toward more conservative allocations based on a specified target date.

The ease with which a target-date strategy can be implemented makes it a popular choice in retirement plans. According to Morningstar’s 2013 Target-Date Series Research Paper, target-date funds saw almost $55 billion in net new flows in 2012, bringing their total to nearly $485 billion. In the first quarter of 2013, target-date assets crossed the $500 billion threshold after taking in an additional $23 billion in new assets.²

Automatic Rebalancing
One of the most attractive features of asset allocation models and target-date funds is automatic rebalancing, which mitigates the redistribution of employees’ assets due to an up or down market. This can help make sure that employees’ investment strategies stay appropriate for their current goals, risk tolerance, and circumstances. Target-date funds are rebalanced on a schedule determined by their portfolio managers, while the employer selects the frequency (quarterly, semi-annually, or annually) with which asset allocation models are automatically rebalanced.

Automatic rebalancing may also be offered to employees as a standalone option outside of target-date funds and asset allocation models. This allows them to automatically have their account balances redistributed at a schedule they choose according to their investment elections at the time of rebalancing.

Research has shown that the portfolio rebalancing system is an effective way to help ensure that employees stay on track with their retirement saving strategy. Forbes compared two portfolios each starting with a $10,000 investment beginning in 1985 and ending in 2010. Both portfolios began with a 60/40 mix of stocks and bonds; one was never rebalanced, while the other was rebalanced annually back to its original target. At the end of the 25-year period, the rebalanced portfolio ended with a higher balance ($97,000) than the un-rebalanced portfolio ($89,000).³

Concepts like diversification and rebalancing can be overwhelming for employees participating in your clients’ retirement plans. Providing access to asset allocation models, target-date funds, and automatic rebalancing allows your clients to simplify those concepts so they can help their employees move closer to achieving their retirement goals.

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1 Source: Ascensus data, December 2013.

2 Source: Morningstar Fund Research, "Target-Date Series Research Paper 2013 Survey." June 2013. http://corporate.morningstar.com/us/documents/ResearchPapers/2013TargetDate.pdf.

3 Source: Brown, Janet. Forbes, "Does Portfolio Balancing Work?" November 16, 2011. http://www.forbes.com/sites/investor/2011/11/16/does-portfolio-rebalancing-work/.

Automatic Escalation

Strengthen employee saving habits with regular deferral increases

An earlier blog entry that focused on automatic enrollment discussed how this modern retirement plan feature simplifies the enrollment process for employees. It also noted that automatic enrollment is as effective as it is convenient: Participation rates among Ascensus plans that adopt automatic enrollment are almost 10% higher than those in plans that don’t.¹

Encouraging responsible savings habits can certainly start with automatically signing employees up for a plan. Once enrolled, however, most employees are content to simply leave their default deferral percentage—often between 3% and 4%²—untouched. More is needed to get them to prepare for the future through the use of higher deferral rates.

Today’s retirement plans utilize automatic escalation to boost savings rates among employees instead of relying on manual deferral increases that are unlikely to be elected.

Automatic escalation allows employees to gradually increase their deferral rates over time. The increases needn't be dramatic—upping deferral rates by just 1% each year can have a meaningful impact on retirement savings balances. When deferral rates are raised in tandem with an annual increase in pay, employees are less likely to notice the effect it has on their paychecks.

Support for automatic escalation of deferral rates has been growing. Ted Benna, creator of the first 401(k) retirement savings plan, has stated that he would make it mandatory for every company with such a plan to automatically enroll employees at 3% of pay and automatically increase that number by 1% every year to a maximum of 10%.³

Research conducted by WorldatWork and the American Benefits Institute suggests that Mr. Benna’s recommendations are being heard, as a survey of employer-sponsored retirement plans showed that 97% of companies that offer automatic escalation increase the default by 1% each year.⁴

At the employee level, plan features like automatic escalation can significantly affect how savers view their retirement security. Recently published findings by Putnam Investments revealed that employees using auto escalation were more confident about their retirement than those who didn't use the feature. In addition, households using automatic escalation had higher investable assets and a slightly higher average deferral rate.⁵

Plans that use automatic features are likely to see improvement in helping employees save for retirement. Automatically enrolling employees and gradually increasing their salary deferral rates over time can put them in a better position to achieve retirement readiness.

1 As of February 1, 2012.

2 Source: WorldatWork and the American Benefits Institute, "Trends in 401(k) Plans and Retirement Rewards." March 2013. http://www.americanbenefitscouncil.org/documents2013/abc-waw-surveytrendsin401kplans-2013.pdf.

3 Source: Kujawa, Patty. Workforce, "A ‘Father's' Wisdom: An Interview With Ted Benna." January 20, 2012. http://www.workforce.com/articles/a-father-s-wisdom-an-interview-with-ted-benna.

4 Source: Source: WorldatWork and the American Benefits Institute, "Trends in 401(k) Plans and Retirement Rewards." March 2013. http://www.americanbenefitscouncil.org/documents2013/abc-waw-surveytrendsin401kplans-2013.pdf.

5 Source: Van Harlow, W. Putnam Investments, "Lifetime Income Scores III: Our latest assessment of retirement preparedness in the United States." April 2013. https://www.putnam.com/literature/pdf/DC939.pdf.

Third-Party Benchmarking Services

Present employers with an easier way to measure value for cost

In 2012, the Department of Labor (DOL) issued rules requiring certain retirement plan service providers to clearly and effectively communicate expense information to employers and employees. The goal of this disclosure was to assist plan fiduciaries with understanding the costs for services provided.

The requirement offered financial professionals a unique opportunity to demonstrate their skills and expertise in terms of making it easy for employers to analyze and compare providers.

To take advantage of that opportunity, some have engaged third-party benchmarking services to help employers conduct a thorough review of service providers for their retirement plans. Main areas of focus include recordkeeping services, trust services, and the plan’s investments. In addition to looking closely at expenses, the range and quality of services provided is taken into consideration.

While third-party benchmarking services don’t completely replace traditional evaluation practices, they can offer a more cost-effective and objective way to carry out and document a prudent retirement plan review. In the past, financial professionals had to take on cumbersome reviews alone, usually by soliciting and analyzing requests for proposals (RFPs) from a number of providers. This involved sifting through copious amounts of data to determine if there was good value for cost.

Since RFPs didn't always provide a true “apples-to-apples” comparison of plans, this proved to be an arduous task. The questions were standardized, but the responses varied greatly. In the end, financial professionals and their clients were left to seek additional information elsewhere or make judgment calls without complete certainty.

Today, third-party benchmarking makes it easier to obtain:

• Plan comparisons that show what an employer is getting relative to what is happening in the marketplace in similar plans
• Facts that are broken out to objectively analyze:
• Plan design features
• Employee success measures
• Employer and employee services
• Documentation for fiduciary purposes

The recent emphasis on fee disclosure has made third-party benchmarking services a valuable tool for comparing pricing among providers, as the information provided can go a long way toward helping financial professionals and employers choose the most appropriate services for their plans.

According to independent investment consulting firm NEPC, vendor comparisons in 2011 resulted in savings, on average, of 40% on recordkeeping costs.¹ Furthermore, a study by human resources consulting firm Aon Hewitt found that 52% of defined contribution employers are interested in working with a third-party benchmarking service in 2013 to compare fund, recordkeeping, and trustee expenses. This is up from 35% the previous year.²

In addition to potential cost savings, third-party benchmarking services can help satisfy DOL and ERISA fiduciary requirements, as they demonstrate that a prudent process has been followed for:

• selecting and monitoring plan investment alternatives and plan service providers; and
• ensuring that service provider costs and other plan expenses are reasonable in light of the level and quality of services provided.³

The current regulatory and legal environment has made financial professionals and their clients more accountable for determining the reasonableness of expenses and the suitability of investment offerings. Third-party benchmarking services can assist them in satisfying their fiduciary obligations by providing the data that can help them analyze the elements that will ultimately lead to successful plan operation and high-quality service. 

1Source: NEPC’s Defined Contribution Practice Group’s 2012 Plan & Fee Survey.

2Source: Aon Hewitt, 2013 Hot Topics in Retirement

3Source: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Fees

Investment Fiduciary Programs

Provide guidance that maximizes fiduciary protection for clients

Retirement plan fiduciaries are
held to high performance standards and are legally accountable for many aspects of plan oversight. This includes the
time- and resource-intensive endeavor of conducting continual due diligence on the investments offered by a plan.

In the past, this responsibility was shouldered by employers, despite the fact that they were completely unfamiliar with this type of research. This was particularly problematic for small business owners, as many weren’t even aware that they were acting as fiduciaries when it came to selecting and monitoring their plans’ menus.

Today, financial professionals can help employers of all sizes manage their fiduciary exposure by offering investment fiduciary services, either directly or through a third-party vendor.

Providing fiduciary protection can help employers manage risk related to a retirement plan’s investments, and are typically conducted by financial professionals and/or independent investment consulting firms that specialize in manager due diligence and asset allocation.

These individuals and firms assume fiduciary responsibility for identifying and monitoring suitable investment options for retirement plans, taking into account items such as investment performance, organizational changes, style consistency, and expenses.

A program that manages fiduciary risk offers several benefits, including:

• Years of specialized experience—Financial professionals and independent investment consulting firms have insight into areas that are mostly unknown to individuals acting as fiduciaries.
• A degree of safety—Protection may be provided for employers against certain claims and expenses brought about by employee lawsuits.
• Improved investment selection—A formal process for protecting against fiduciary risk helps ensure that employers create an appropriate investment menu through documented procedures. 

Two of the most popular approaches to providing investment fiduciary protection are designated 3(38) and 3(21) fiduciary protection. The primary distinction between the two is discretionary authority over the selection and monitoring of plan investments.

3(38) Fiduciary Protection	3(21) Fiduciary Protection
Level of Protection
A financial professional or consulting firm assumes full fiduciary responsibility and discretion for the plan's investments and acts as an investment manager.	A financial professional or consulting firm shares fiduciary responsibility with an employer for the plan's investments.
Investment Selection
An employer selects the initial investment menu from an approved fund list options. A financial professional or consulting firm manages the menu from there.	An employer creates the investment menu from the approved fund list. A financial professional or consulting firm provides recommendations for how to update it going forward.
Best for
Employers looking to hand over control of ongoing investment decisions in return for complete fiduciary coverage.	Employers who want to stay involved in the investment selection process while reducing fiduciary liability.

With the Department of Labor currently working to re-define what it means to be a fiduciary, there’s a strong possibility that investment fiduciary services will gain greater prominence in the retirement plan landscape. In fact, all asset managers in a Cerulli Associates survey of investment-only managers expect this to be the case.

For retirement plan fiduciaries that are required to always act in the best interests of plan participants, investment fiduciary programs offer reduced risk exposure and a simple way to oversee a plan’s investments. They also provide an added layer of independent protection that allows financial professionals to provide both the guidance their clients depend on and the coverage their clients seek.

1Source: Cerulli Quantitative Update, U.S. Retirement Markets 2012.

Open-Architecture Investment Platforms

Offer a diverse range of investments to suit any retirement strategy

In the days of guided architecture (or focused investment platforms), employees often had to choose from an investment menu containing proprietary funds to build their retirement strategies. Investment platforms were limited, and fund lineups were therefore more constrained.

In the 21^st century, open-architecture investment platforms can help employees avoid investment restrictions.

Developed to accommodate a broad range of investment needs, platforms today seek to ensure that financial professionals and employers can construct plan investment menus that are consistent with their Investment Policy Statements.

Industry trends and statistics show that these platforms are now the standard for modern retirement plans, as they have made substantial gains in popularity and usage over the past 10 years.

According to Cerulli Associates, the shift to open-architecture investment platforms is evidenced by the growth of defined contribution investment-only assets and the diminished use of proprietary-only investment products: 75% of 401(k) assets were addressable¹ for investment-only managers in 2011, compared with 50% in 2003.²

Furthermore, Ernst & Young notes that a majority (79%) of wealth management firms plan to add open-architecture investment platforms to their overall client and product strategies within the next two to five years.³

Open-architecture investment platforms are favored because they can support any combination of proprietary and non-proprietary strategies, along with both traditional and non-traditional investment options that include:

• mutual funds
• ETFs
• stable value funds
• collective trust funds
• unitized company stock
• alternative investments

These platforms are also flexible enough to adapt to new developments—such as target date funds and model portfolio solutions—that can address distinctly different employee investment preferences.

A 21^st century retirement plan allows employees to select from a wide range of fund families and investment options in order to choose the best investments for their retirement needs. This makes open-architecture investment platforms an essential retirement plan tool for both financial professionals and employers.

1Addressable assets are defined by Cerulli Associates as those in which the plan is not restricted to using a recordkeeper’s proprietary investment product.

2Source: Cerulli Quantitative Update, U.S. Retirement Markets 2012.

3Source: Ernst & Young 2011 US Wealth Management Study: A Focus on Product and Client Trends.

Automatic Enrollment

Put employees on the path to retirement while increasing participation rates

Since the introduction of the employer-sponsored retirement plan, employees have been encouraged to participate in order to prepare for the future.

In the past, advisors and employers relied on enrollment meetings to help employees get involved in their plans. These gatherings could often be tedious, complicated, time-consuming, and expensive.

Unsurprisingly, enrollment meetings didn’t always inspire employees to sign up for their plans, select the proper investments, or choose suitable deferral rates. As a result, they became a decidedly 20^th century concept desperately in need of updating.

Recent times have seen the development of such an update in automatic enrollment.

The benefits of automatic enrollment are many. For employers, it can help with avoiding compliance testing issues in addition to increasing participation. It also allows them to replace meetings about enrollment procedures with sessions that focus on financial and investment education.

For employees, it simplifies the enrollment process and helps them save for a more secure retirement. Employees also incur no additional costs, and they can opt out at any time should their circumstances change. 

Employers can help employees get off to an even better start by setting default deferral percentages at an appropriate rate. In many cases, this means 5% or greater. Recent research has shown that over 80% of employees would contribute 5% of their salary in return for reliable income in retirement.¹

Furthermore, plans that automatically enroll participants at a rate greater than 3% of their salary have a 95% overall participation rate—7% more than those with lower deferral rates.²

Ascensus has found that auto enrollment has proven to be effective, as participation rates among Ascensus plans that adopt our auto enrollment program are almost 10% higher than those in plans that don’t.³

In terms of sparking employee participation, automatic enrollment is a true 21^st century tool that no modern retirement plan should be without.

¹Source: Bank of America Merrill Lynch's 2012 Workplace Benefits Report

²Source: New York Life Retirement Plan Services, June 2012

³As of February 1, 2012.

Are You and Your Clients Taking Advantage of 21st Century Retirement Plan Tools?

The retirement plan landscape is constantly changing.

The employer-sponsored retirement plan—an invention of the 20^th century—has undergone several rounds of legislative, technological, and operational evolution. Yet, it has endured and continues to be as important as ever. At the end of 2012, Americans had $5.1 trillion in employer-sponsored defined-contribution retirement plans, accounting for 9.1% of U.S. household financial assets.¹

For advisors and employers alike, 21^st century changes to employer-sponsored retirement plans have meant keeping up with the latest on multiple fronts—from advances in smartphone technology to changes to fee-disclosure rules. They've also meant smarter options for managing retirement plans.0

Over the next several weeks, Ascensus will examine the benefits of these retirement plan changes via a series of blog posts. Follow along to find out if you and your clients are taking advantage of everything that 21^st century retirement plan tools have to offer.

20th Century Retirement Plan	21st Century Retirement Plan
Depends on enrollers and employee meetings to enroll participants	Uses automatic enrollment plans to automatically enroll eligible employees
Offers a limited number of funds	Uses an open-architecture platform to create investment menus from a wide range of investment options
Needs to perform continual due diligence and research on all investments, even if it’s not a strength	Relies on expert independent research and recommendations for fiduciary protection
Periodically solicits proposals from several providers to ensure that costs are reasonable	Validates value through independent, third-party benchmarking services
Relies on manual deferral increases to boost savings rates among participants	Uses convenient auto-increase feature to automatically increase participants’ savings rates
Allows participants to manually diversify and rebalance their accounts	Works with an advisor to offer automatic rebalancing, models, and target-date funds so participants can balance and diversify based on their personal risk profiles and goals
Focuses on capital preservation	Offers qualified default investment alternatives to help employees get more out of their retirement savings
Lets participants manage their own accounts	Gives participants the option to self-manage accounts or provides access to professional investment management
Provides generic information on benefits of investing to drive participation	Sends targeted participant-specific communication to help employees plan for retirement
Concerned with deferral amount rather than employee goals	Provides goal-oriented savings tools to help participants measure retirement readiness

¹ Source: Retirement Assets Rise 8% in 2012: ICI, www.advisorone.com