Insights for Advisors

Transcription

1 Insights for Advisors 2013/2014 VERISIGHT AND M C GLADREY COMPENSATION, RETIREMENT AND BENEFITS TRENDS REPORT

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3 Insights for Advisors 2013/2014 VERISIGHT AND M C GLADREY COMPENSATION, RETIREMENT AND BENEFITS TRENDS REPORT 3

4 DISCUSSION GUIDE INTRODUCTION SURVEY BACKGROUND KEY FINDINGS AND IMPACTS WRAP UP 4

5 PURPOSE OF SEMINAR INTRODUCTION Special insights for advisors from our recently released annual Compensation, Retirement and Benefits Trends survey How you can use the information to enhance your value to your clients and prospects INTRODUCTION OF SPEAKERS Brad Kirschman, Verisight Cynthia Hayes, President, Oculus Partners 5

6 SURVEY BACKGROUND The annual Compensation, Retirement and Benefits Trends Survey is designed to reveal key trends across a full range of compensation, retirement, health and welfare benefits and employee rewards programs. The result is a comprehensive view of firms total employee rewards programs that is rarely available from a single source. The 2013 survey includes information from more than 1,000 organizations across the country. Respondents span a range of industries, with the deepest penetration in manufacturing, not-for-profit, health care and professional services. 6

7 SURVEY BACKGROUND DISTRIBUTION BY INDUSTRY SECTOR Manufacturing 15% DISTRIBUTION BY SIZE FULL TIME EQUIVALENTS (FTEs) Professional Services 15% Not-For-Profit Healthcare Finance & Banking Retail Distribution/Wholesale Construction/Real Estate Technology 3% 5% 5% 5% 8% 13% 13% 19% 8% 5% 6% 24% 50 or Fewer ,000 1,001-5,000 Insurance Energy/Utility 3% 3% 38% 5,000+ Transportation 2% Education 2% Government Other 1% 7% Base =

8 SURVEY BACKGROUND DISTRIBUTION BY REGION 8% 24% 42% Midwest West South Northeast 26% Base = 820 8

9 SURVEY BACKGROUND Executive Summary As the fragile economic recovery continues, employers face a difficult balancing act. They must simultaneously keep benefits costs in check while providing effective total rewards programs that attract and retain the best and brightest employees. Over the past 12 months, employers have responded to this challenge by offering rewards strategies aimed at providing employees with more choices and opportunities to tailor their benefits to their specific needs. With these choices and opportunities comes a shared responsibility between the employer and employee to achieve successful outcomes. Looking ahead to 2014, employers remain wary of future economic conditions. In keeping with the theme of shared responsibility, one in three employers plans to improve their wellness programs in Among those expecting to expand wellness offerings, nearly half (49%) anticipate providing an employee discount/credit for actively participating in these expanded programs. 9

10 KEY FINDINGS AND IMPACTS Strategic Compensation and Benefits Opportunities Retirement Program Opportunities Participant Opportunities 10

11 STRATEGIC OPPORTUNITIES What is their big focus? How do they make HR decisions? What is their philosophy? How do they plan to change their programs? 11

12 Strategic Big Focus Closely managing HR costs is clearly a very high priority for 2014, but in looking at the company overall, the retirement plan is not at the top of the list for consideration. Increase Employee Share of Health/Welfare Costs 17% 14% 32% 63% Overtime Reduction 28% 4% 10% 42% Staff Reduction 19% 3% 9% 31% Reduce Health/Welfare Benefits 4% 3% 15% 22% Pay Freeze Hiring Freeze Reduce/Suspend 401(k) Match Shift Compensation to Variable Compensation Reduce Incentive/Variable Compensation Unpaid Leave/Furlough Reduce Paid Time Off 14% 10% 1% 6% 7% 1% 4% 7% 2% 6% 5% 1% 5% 2% 1% 3% 1% 5% 1% 9% 20% 20% 14% 13% 12% 7% 5% Implemented in Past 12 Months Plan to Implement in Next 12 months Considering Implementing at Some Point Base =

13 Strategic Big Focus Closely managing HR costs is clearly a very high priority for 2014, but in looking at the company overall, the retirement plan is not at the top of the list for consideration. Is there an opportunity to engage your most senior contacts with a more strategic discussion first? Once you establish what they are thinking then you can better recommend companion actions to take in the retirement programs to complement or leverage other initiatives. For example: Introduction of HSAs may warrant a companion 401(k) campaign Restructuring of compensation may warrant a redefinition of compensation in the retirement programs Planned staff reductions may warrant a targeted distribution educational campaign 13

14 Strategic Decision Making In making decisions for HR changes overall, direct retirement plan costs fall almost to the bottom of the list in terms of importance. What factors had significant impact on your total compensation/rewards (salary, bonus, benefits, and retirement) decisions for 2013? Health/Welfare Benefits Costs 59% Corporate Performance 50% Challenge of Retaining Key Employees 47% Challenge of Attracting Key Employees 42% Desire to Incent Employee Performance 38% Labor Costs 25% Challenge of Engaging Key Employees 25% Retirement Plan Costs 16% Other 5% Base =

15 Strategic Decision Making In making decisions for HR changes overall, direct retirement plan costs fall almost to the bottom of the list in terms of importance. Industry studies have shown that few employers can articulate clearly how they make decisions about retirement programs. A strategic conversation may be needed to state more specific objectives for the retirement program in the context of overall decision-making. For example: An expected increase in healthcare costs may mean that the employer funding for retirement programs must be reduced. How could that best be accomplished? The need to attract specific types of key employees may warrant a plan design change in the retirement program. Retention problems may warrant a closer look at how the retirement program could help such as altering vesting schedules, employer contribution formulas, or retirement age and incentives. 15

16 Strategic Philosophy HR Costs should be managed with a specific philosophy in mind. How do you want to compensate and reward your employees compared to your competitors? However, there is still room for clarification on this philosophy when it comes to most benefits and rewards programs. What is your organization s total compensation philosophy? 12% 19% 35% 26% 67% 42% 8% 47% 50% Position Above Market Position at Market Position Below Market No Formal Philosophy 11% 10% 31% 7% 4% 14% 17% Base Salary Incentive Compensation Health and Welfare Benefits Retirement Benefits Base =

17 Strategic Philosophy HR Costs should be managed with a specific philosophy in mind. How do you want to compensate and reward your employees compared to your competitors? However, there is still room for clarification on this philosophy when it comes to most benefits and rewards programs. If a compensation philosophy is not in place at the company, is there an opportunity to help institute one? If compensation philosophies exist for other types of pay and benefits, but not retirement, why not? Is this an opportunity to add value? If one is in place for the retirement program, do benchmarking studies provide the necessary information? 17

18 Strategic Changes Consistent with last year, most employers plan to make no changes in 2014 to dental, vision, life insurance, short-term disability and long-term care benefits. However, 30 percent expect to increase wellness programs, giving employees new ways to take an active role in their health and overall wellness. Please indicate which of the following actions you intend to take for each of the following benefits in the upcoming year. Wellness Programs -1% 30% Vision Insurance -1% 5% Dental Insurance -1% 3% Short-Term Disability -3% 3% Reduce/Discontinue Retiree Medical -11% 3% Increase Life Insurance -1% 2% Base = 455 Long-Term Care Insurance -2% 2% Long-Term Disability -1% 1% On-Site Health Centers 25% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 18

19 Strategic Changes Consistent with last year, most employers plan to make no changes in 2014 to dental, vision, life insurance, short-term disability and long-term care benefits. However, 30 percent expect to increase wellness programs, giving employees new ways to take an active role in their health and overall wellness. Have you thought about connecting wellness initiatives to financial wellness? Could this help get the participants to think of their retirement program as just as critical for their future? Could you look wellness type rewards as a basis for a redesigned match formula that incents better behavior? Can you put retirement program materials in the on-site health centers? Do you need to coordinate retiree medical changes with other retirement communications? Help your clients connect the dots for higher impact across the board 19

20 RETIREMENT PROGRAM OPPORTUNITIES What are the top concerns of employers? How do they use Advisors today? How do they choose providers? Do they understand their costs? How do they look at plan investments? How have they embraced automatic programs? 20

21 Retirement Concerns Identify the top THREE and single MOST IMPORTANT item that cause you the most concern about your retirement plan. Fiduciary Liability 77% 40% Compliance Issues 72% 21% Disclosure Requirements 47% 6% Lifetime Income for Participants 46% 22% Non-discrimination Testing 31% 7% Top THREE Difficulty in Providing Electronic Communications 16% 3% Single MOST IMPORTANT Base = 497 Other 4% 2% 21

22 Retirement Concerns Clients are clearly worried about fiduciary liability but less than half use an outside fiduciary is this part of your core value proposition? Compliance, disclosures and non-discrimination testing are all high on the list of concerns, but are they really being addressed fully today by you and the client s other providers? Employing electronic communications is in the top 6 how are you and the recordkeeper solving this challenge? 22

23 Retirement Advisor Usage Though plan sponsors overwhelmingly rely on the assistance of third-party advisors, fewer than half of the employers surveyed said they currently use an advisor or consultant for cost analysis or management. Does your plan currently utilize an outside advisor/consultant? If yes, please select the types of retirement plan services for which you engage them. No 18% Plan Design Cost Analysis/Management 42% 63% ERISA 3(21) 33% ERISA 3(38) 9% Yes 82% Investment Advisor Who Is Not a Fiduciary 32% Vendor Selection 29% Base = 500 Base = 500 ERISA Section 3(21) - plan sponsors and advisors have co-fiduciary responsibilities regarding the plan s investments and both parties share in the liability. ERISA Section 3(38) - advisors select and adjust investment options without explicit direction from sponsors. 23

24 Retirement Advisor Usage Is there an opportunity for you to better package a service that includes plan cost analysis and management? Do you have an opportunity to insert yourself in improving the compliance process design? If you are currently not acting as a fiduciary, are you vulnerable? 24

25 Retirement Choosing Providers Top THREE and most important SINGLE item that you consider when evaluating your retirement plan offering. Cost of Investments 63% 19% Cost of Services 57% 12% Level and Quality of Services 54% 24% Number of Investment Options 39% 13% Availability of Specific Investment Options Reputation of Provider 25% 25% 11% 10% Top THREE Single MOST IMPORTANT Recommendation of Advisor 17% 7% Continuity of Service Provider 6% 2% Ability to Offer Company Stock 3% 1% Option for Bundled/Unbundled Plan 2% 1% Other 3% 2% Base =

26 Retirement Choosing Providers While costs are always at the top of the list, investment versus service costs matter differently to different industries and different size segments. If you perform provider searches for your clients, do you use a similar type of process to getting them to state their priorities in rating the providers? When do you go so far as to recommend specific providers? This is more important in the smaller markets than with larger plans. How do you arrive at your recommendations? Do your preferred providers understand your criteria? 26

27 Retirement Costs Nearly one-third of employers said they don t understand plan costs after receiving the disclosures, up from just 16 percent when surveyed in 2012 in the midst of the initial disclosure period. After reviewing fee disclosures from service providers, have you calculated the total cost of your plan? 31% 7% Yes, I didn't realize the total costs before the disclosure Yes, I already understood the total costs 62% No, I still do not understand the plan costs Base = % now say they understand plan costs and yet... 27

28 Retirement Costs What is the total annual cost of the plan on a per participant basis? $1-$50 $51-$100 $101-$200 $201-$300 $301 or more Don t Know 5% 8% 10% 19% 18% Base = % What is the total annual cost for recordkeeping services on a per participant basis? $1-$50 $51-$100 $101-$200 $201-$300 $301 or more Don t Know 2% 2% 8% 15% 33% Base = % Who pays for the recordkeeping costs of the plan? How well do you think plan participants understand the full cost of their plan? Plan sponsor Deducted from participant accounts Paid from forfeiture account Paid from ERISA budget account Other 4% 4% 15% 39% Base = % 60% 4% 36% Fully understand Moderate understanding Very limited understanding Base =

29 Retirement Costs Do you go beyond the typical fee disclosures to help your clients understand costs? Have you used any special fee review type of tool that would help you decipher and explain fees with more clarity? Have you talked to your clients about how to help participants understand their fees? Do you have an approach you ve suggested? 29

30 Retirement Investments How many investment options are participants able to choose from in your plan, excluding brokerage windows? Please indicate your Qualified Default Investment Alternative (QDIA). Total 34% 4% 11% Cash Money Market 32% Stable Value/GIC 9% Asset Allocation Target Date 53% Balanced 14% Managed Investment Accounts/Model Portfolios 12% Lifestyle 5% Base 764 What type of investments do you offer in the plan? % Mutual Funds Model Portfolios ETFs 16% 35% 95% 21 or more Brokerage Window 14% Collective Funds 10% Insurance Funds Other 7% 5% Base =

31 Retirement Investments There appears to be a significant opportunity to enhance the use of more current types of QDIAs. How do you incorporate that into your practice? For those of you who offer model portfolios, there appears to be opportunity especially in mid-size plans. Jumbo plans use Insurance Funds significantly more frequently than any other segment. Should you consider some insurance products in your smaller segment clients? Global investments still seem to be missing in a number of sponsor line ups, especially in fixed income and indexed strategies. How have you introduced these types of investments to your clients? 31

32 Retirement Automatic Programs Does your plan have an automatic enrollment feature? If yes, does your plan include an automatic escalation feature? No 65% Yes 35% Yes 27% No 73% Base = 895 Base =

33 Retirement Automatic Programs Do you believe in automatic programs? If so, do you know how to help sponsors overcome their concerns and objections? There is still significant opportunity to utilize automatic programs, especially in the smaller market segments, and in the distribution/wholesale industry. Do you have what you need to have those types of conversations effectively? How are you leveraging partners in preparing for these conversations? 33

34 PARTICIPANT OPPORTUNITIES State of Participation Employer Match Impacts Distribution Behavior Communications Channels 34

35 Participants Participation Nearly three quarters of all employees are covered by defined contribution plans, and more than three in four employees made salary deferrals into their plans in On average, what percentage of eligible employees make contributions to the DC plan with employee contributions? 24% Employee Contributes 76% Employee Does Not Contribute Base =797 35

36 Participants Participation Participation rates overall have continued to rise helped by automatic programs enrolling new hires. How are you measuring the impact of traditional enrollment programs? Have you discussed a one-time auto-enroll for existing employees? 36

37 Participants Employer Match Please indicate the current cap to employee contributions that you match. Employer matches 100% of employee contributions Employer matches 50% of employee contributions Up to 3% of pay 15% Up to 3% of pay 7% Up to 4% of pay 38% Up to 4% of pay 14% Up to 5% of pay 13% Up to 5% of pay 20% Up to 6% of pay 54% Up to 6% of pay 16% No cap 2% Other 12% Other 10% Base = 170 Base =

38 Participants Employer Match The vast majority of employers do offer some type of employer contribution. Usually in the form of a match. As you can see, match formulas have not really changed much since the beginning of the 401(k) over 30 years ago. With the incorporation of automatic enrollment and automatic escalation programs, matches are not really as needed to drive behaviors. How could you help your clients see how they might redesign their contribution formulas to better meet their objectives? For those that haven t incorporated auto programs could a redesign help defray some of the costs of the program? 38

39 Participants Distributions What form of distribution payment is frequently requested by plan participants? Installment Payment 10% Annuity 3% Lump Sum 87% Base =

40 Participants Distributions A growing number of participants are beginning to tap their plan accounts for periodic distributions. And possible DOL actions may trigger more annuity payout options. How do you talk about this option in your distribution counseling? What types of support does the recordkeeper provide to support these options? Do you have the resources you need to determine your future approach? 40

41 Participants Channels Please indicate the items your plan provides to participants as investment advice or education. Education - online tools 85% Advice - do-it-yourself internet tools 77% Education - hard copy materials 76% Education - group meetings 53% Advice - one-on-one counseling 49% Advice - managed personal accounts 17% Base =

42 Participants Channels We have learned that better utilizing electronic channels is a concern of plan sponsors. We are seeing more and more advisors get involved with the sponsor and the recordkeeper / communications firm in PLANNING and DESIGNING the participant communications and advice programs. And they are demanding more in the way of measurement information as to how the programs are working. Do you get involved in the communications program design whether or not you actually communicate with the participants themselves? Do you have strong tools to help you add value to the conversation? 42

43 TOP TAKE AWAYS Review your approach Align your value Ask more questions Take advantage of other plan providers as partners 43

44 Oculus Partners Ask of You Our role how we can help you How you can help us Cynthia Hayes, CFA, CEBS President Oculus Partners, LLC

45 Wrap Up Submitting Follow Up Questions or Ideas Accessing the Research Report Accessing this Webinar recording Contacting Us