Retirement Income Analysis Executive Summary

Transcription

1 Plan Meter Retirement Income Analysis Executive Summary T. Rowe Price Prepared for: RockTenn Measuring and improving retirement preparedness T. Rowe Price s proprietary Plan Meter report is an analytical tool that helps plan sponsors assess the retirement readiness of their employees and better understand the impact of implementing automated strategies and other solutions within their plans. It is designed to quantify the ability of plan participants to replace their current income on retirement. Each Plan Meter report is customgenerated and is based on the investment options and rules of your retirement program. It provides plan sponsors with information about how a retirement program is currently performing and compares that with the projected outlook, assuming the adoption of suggested behaviors that can help employees save more for retirement, including employee adoption of age-appropriate asset allocation strategies; employee contributions reaching targeted levels and maximizing catch-up contributions, where applicable; and employees delaying retirement for three years.

2 Current and Projected Income Scenarios CURRENT OUTLOOK % % 16% % CURRENT RI Rock-Tenn Company 41(k) Retirement Savings Plan for Certain Hourly Employees (JSC) CURRENT OUTLOOK 13% 13% % 2% CURRENT RI Rock-Tenn Company 41(k) Retirement Savings Plan for Certain Employees (SSCC) Summarizes plan-level results for the current state and for projected income scenarios. Moving left to right on the projected income scenarios illustrates potential impact of adopting certain suggested behaviors and plan solutions. the current scenario yields a median projected income of % and 13% across the total population. Changes to the asset allocation aren t likely to meaningfully impact the projected Retirement Income. However, increases in contribution rates to target levels as well as moderate delays of retirement can yield a 1% increase in projected incomes across the aggregate population. 2 t. rowe price.

3 Impact Analysis Summary: Tenure and Age Age <29 Age 3-39 Age <29 Age 3-39 TENURE: 1 19 TENURE: TENURE: <= 9 TENURE: <= T A LEGEND LEGEND RI:CURRENT RI:CURRENT 2% % 7% 1% 2% % 7% 1% # EMPLOYEES # EMPLOYEES Rock-Tenn Company 41(k) Retirement Savings Plan for Certain Hourly Employees (JSC) Rock-Tenn Company 41(k) Retirement Savings Plan for Certain Employees (SSCC) Analyzes the population by both age and tenure and illustrates current and projected Retirement Income for each of the subpopulations. illustrates the potential impact of adopting certain suggested behaviors and plan solutions. With each additional suggested behavioral change/solution, projected Retirement Income increases. A large population of participants who are younger and have less tenure is the most likely to benefit from the suggested solutions to help them reach the suggested Retirement Income of %. t. rowe price. 3

4 Demographic Analysis CONTRIBUTION % CONTRIBUTION % #EMPL / MED. AGE / MED. TENURE #EMPL / MED. AGE / MED. TENURE REPLACEMENT INCOME RANGES AS % OF CURRENT SALARY >=1% % % 99% % 8% 89% % 7% 79% % 6% 69% % % 9% % 4% 49% % 3% 39% % % 29% % 1% 19% % >% <1% % % % REPLACEMENT INCOME RANGES AS % OF CURRENT SALARY >=1% % % 99% % 8% 89% % 7% 79% % 6% 69% % % 9% % 4% 49% % 3% 39% % % 29% % 1% 19% % >% <1% % % % $ 11K $ 21K $ 32K $ 42K $ 3K $ 1K $ 3K $ 44K $ 9K $ 74K SALARY SALARY Rock-Tenn Company 41(k) Retirement Savings Plan for Certain Employees (JSC) Rock-Tenn Company 41(k) Retirement Savings Plan for Certain Employees (SSCC) Shows specific details about those participants currently at or above target and those who are not. participants who are above the % Retirement Income level are generally those who are younger and have higher contribution levels. participants who are contributing 1% (including employer contributions) are close to or are exceeding the suggested % Retirement Income. participants who are older and contributing less have a lower Retirement Income ( %) These are the three largest populations represented in the bands on this page (1,362,679 and 29). This population has a median tenure of eleven years These are the two largest populations represented in the bands on this page (1,478 and 1,6). This population has a median tenure of thirteen years. while these are the hardest groups to affect because of their age, older participants with less tenure are more likely to have retirement assets elsewhere. 4 t. rowe price.

5 Current and Projected Income Scenarios Aggregate Summary CURRENT OUTLOOK % 37% 3% 7% CURRENT RI DEFINED BENEFIT RI SOCIAL SECURITY RI: 37% DEFINED CONTRIBUTION RI: % Rock-Tenn Company 41(k) Retirement Savings Plan for Certain Employees (JSC) CURRENT OUTLOOK % 44% 1% 6% CURRENT RI DEFINED BENEFIT RI SOCIAL SECURITY RI: 31% DEFINED CONTRIBUTION RI: 13% Rock-Tenn Company 41(k) Retirement Savings Plan for Certain Employees (SSCC) these are the same data as the first chart, but they include Social Security benefits. For many participants in this plan, Social Security will provide a significant source of income (median 37% and 31%). Target replacement ratio increases from % to 7%. The plan is still falling short of suggested Retirement Income with Social Security benefits. t. rowe price.

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8 T. Rowe Price Retirement Plan Services, Inc. troweprice.com Monte Carlo Simulation Material assumptions The investment results shown in the various Plan Meter charts were developed with Monte Carlo modeling using the following material assumptions, as well as those outlined in the PlanMeter report Appendix. The underlying long-term expected annual return assumptions for the asset classes indicated in the charts are not historical returns. Rather, they are based on our best estimates for future long-term periods. Our annual return assumptions take into consideration the impact of reinvested dividends and capital gains. We use these expected returns along with assumptions regarding the volatility for each asset class and the intra-asset class correlations to generate a set of simulated, random monthly returns for each asset class over the specified period of time. These monthly returns are then used to generate 1, simulated market scenarios. These scenarios represent a spectrum of possible performance for the asset classes being modeled. The success rates are calculated based on these scenarios. We take taxes and required minimum distributions (RMDs) into consideration, as described in the Appendix, but we assume no early withdrawal penalties. Investment expenses in the form of an expense ratio are subtracted from the expected annual return of each asset class. These expenses are intended to represent the average expenses for a typical actively managed, no-load fund within the peer group for each asset class modeled. The analysis includes all of a participant s assets in the defined contribution plan(s) but categorizes them simply as individual stocks, diversified stock funds, bonds, and short-term investments. Other asset classes not considered or modeled may have characteristics similar or superior to those being analyzed. IMPORTANT: The PlanMeter projections or other information generated by a T. Rowe Price investment analysis tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The simulations are based on a number of assumptions. There can be no assurance that the projected or simulated results will be achieved or sustained. The charts present only a range of possible outcomes. Results may vary with each use and over time, and such results may be better or worse than the simulated scenarios. Clients should be aware that the potential for loss (or gain) may be greater than demonstrated in the simulations. The replacement income (in current dollars) is the percentage of the participant s current annual salary withdrawn in the first year of retirement; in each subsequent year, the amounts withdrawn are adjusted to reflect a particular annual rate of inflation. The underlying long-term expected annual return assumptions (gross of fees) used in each of the Monte Carlo simulations are 1% for large-cap individual stocks; 11% for mid-/small-cap individual stocks; 1% for stock funds; 6.% for intermediate term, investment-grade bonds; and 4.7% for money market/stable value investments. The following expense ratios are then applied to arrive at net-of-fee expected returns: % for individual stocks; 1.211% for stock funds;.726% for intermediate-term, investment-grade bonds; and.648% for money market/stable value investments. The simulation success rate of each participant s retirement planning strategy is identified for a sponsor s plans in the Rules and Assumptions section of the PlanMeter report. Simulation success is defined as having at least one dollar remaining in the portfolio at the end of retirement. (The retirement period in the simulations is assumed to end at age 9.) The simulation success rate of a particular retirement strategy is determined by counting the number of simulation scenarios that result in at least one dollar remaining and dividing this figure by the total number of simulation scenarios of that strategy used. Limitations of the model Material limitations of the investment model include: Extreme market movements may occur more frequently than represented in our model. Some asset classes have relatively limited histories. While future results for all asset classes in the model may materially differ from those assumed in our calculations, the future results for asset classes with limited histories may diverge to a greater extent than the future results of asset classes with longer track records. Market crises can cause asset classes to perform similarly over time, reducing the accuracy of the projected portfolio volatility and returns. The model is based on the long-term behavior of the asset classes and, therefore, is less reliable for short-term periods. The model assumes that there is no correlation between asset class returns from month to month. This means that the model does not reflect the average periods of bull and bear markets, which can be longer than those modeled. Inflation is assumed. ROC_bro_sum_prs_312 4/