Trends and Experiences in Retirement Plans

Transcription

1 Trends and Experiences in Retirement Plans 2010

2 About This Material The 2010 Trends and Experience in Retirement Plans survey results reveal emerging trends in 1165(e) plan design and administration. These findings and other insights are presented in the following report. Aon Hewitt in conjunction with the Asociación de Profesionales de Planes de Retiro de Puerto Rico conducted the second survey during the winter of Information on key aspects of 1165(e) plan design, investments, education, expenses, and compliance was collected from a cross-section of plan sponsors. Fourteen percent of all targeted local and multinational companies participated in the survey. The following topics are measured and analyzed in this year s report: Basic design and participation Employee and employer contributions Investment Options Loan, withdrawals, and final distributions Compliance Other retirement plans Participating employer information The Trends and Experiences in Retirement Plans Survey was conducted for the second time in Puerto Rico in Ninety-three employers participated in the survey, sharing information on the 1165(e) plan that covers their employees. The surveyed plans have a combined total of approximately 63,000 participants and $604 million in assets. This report shows comparisons and trends throughout the participating companies. These results do not represent a constant sample of employers. Please note that percentages in this report are rounded to the nearest whole number. Therefore, some totals will not equal 100% due to rounding. Aon Hewitt 3

3 Table of Contents Survey Highlights 5 Basic Design and Participation 7 Employee and Employer Contributions 15 Investment Options 19 Loans, Withdrawals, and Final Distributions 23 Education 29 Plan Administration 33 Compliance 37 Other Retirement Plans 41 Participating Employer Information 45 4 Trends and Experiences in Retirement Plans 2010

4 Survey Highlights Executive Summary With increasing importance placed on the 1165(e) industry to deliver retirement income, the 1165(e) plan environment continues to be dynamic. Some new trends emerged, while many existing trends accelerated. Employers increasingly design their 1165(e) plans in a way that encourages positive saving and investing behaviors and helps employees meet their increasing retirement income needs. Employers have increased efforts to automate their 1165(e) plans and default employees in a way that leads to better potential long-term outcomes. This change is evident due to the significant increase in automatic features such as automatic enrollment and automatic increase. Further, defaults under automatic enrollment have continued to migrate to diversified investment options. The impact of automatic enrollment on participant rates continues to be gradual given that a vast majority of plans with automatic enrollment mostly default only new hires, as opposed to existing non participants. The 2008 financial crisis has had a significant impact on some companies, as employer contributions have been decreased, temporarily suspended, or eliminated among a minority of companies. That being said, many employers are providing employees with the ability to start saving in their 1165(e) savings plan more quickly than in years past, and thus leverage the employer match sooner. Investment fund design continues to be more simplified and streamlined. Clearly, a tiered structure has grown in prevalence, with target date portfolios. Further, while the number of funds offered in the plan has risen in total, the bulk of this movement has been from the adoption of target date portfolios. Many companies are offering funds and advice tools that simplify investment decisions and help employees make wise choices. The prevalence of target date portfolios has increased significantly in the past two years. Finally, plan expenses are top priority with employers; this topic has gained significant attention among the media, regulators, and litigators. Many plan sponsors have analyzed their current fee structure as well as the appropriate way(s) to communicate these messages to employees. Additional detail on these and other trends are summarized below. Basic Design and Participation 1165(e) plans will clearly be the predominant source of retirement wealth for many Puerto Ricans. Over half of employers 53% report that the 1165(e) plan is the primary retirement savings vehicle for the employees they cover. Participation in the 1165(e) plan is mostly allowed based on months or years of service, 54%. The employee group covered by most plans are Salaried Employees, 94%. Forty-nine percent of 1165(e) plans are also qualified as 401(k) plans, even though 88% have a Puerto Rico Trust or paying agent. Employee and Employer Contributions Almost all responding employers 93% contribute employer money to their plans, and almost two-thirds provide a fixed employer matching contribution. The most common type of match is $0.50 per $1.00 up to a specified percentage of pay (most commonly 6% of pay), reported by 30% of all plans. These numbers are consistent with the 2008 survey. Aon Hewitt 5

5 Investment Options The process of selecting and monitoring investment options continues to be top priority with employers. Seven out of ten plans 71% have a written investment policy statement. An investment policy statement provides a framework for decision making. Over three-quarters of employers 77% offer a premixed portfolio and or target-date funds. This is up from 65% in The average number of investment options increased from 6 to 10 fund range to over 10 funds in the past two years. However, much of this increase is attributable to the utilization of premixed portfolios. The most popular asset classes offered remain mutual funds, target-date and pre-mixed portfolios. Employer stock is an investment option within 13% of plans, continuing a downward trend A primary driver of this change is the Pension Protection Act s diversification requirements as well as plan sponsor concerns about fiduciary risk and exposure. Loans, Withdrawals, and Final Distributions More than half 53% of the surveyed plans have a loan provision, 100% of all plans offer general purpose loans and 29% offer home loans. It is most common for plans to offer one or two loans, 95%. Most plans 79% have a hardship withdrawal provision, further, 71% of plans allow in-service withdrawals for participants who have attained age 59½. All plans surveyed offer lump-sum payments, 73% offer rollover distributions, 35% percent offer installment payments, 32% offer partial distributions and 26% offer annuities as forms of payment for final distributions. Education Consistent with the previous survey, the vast majority of employers provide investment education to employees. Nearly all respondents use written materials for communicating investment concepts, and 57% report that they are somewhat effective. Ninety percent of plan sponsors use on-site seminars/workshops in their education efforts, and 57% report that they are very effective. Seventy-six percent of employers offer outside investment advisory services to employees (including advice, guidance, and managed accounts). This is a slight increase from 2008, when 20% offered such services. Plan Administration and Compliance Three-fourths of employers 76% out-source the administration of their 1165(e) plan and 53% use a financial institution as the record keeper. Based on the survey findings most plans are in compliance in regards to government filings 97% and not incurring penalties due to late remittances 96%. Other Retirement Plans Even though pension plans are not prevalent 56% still allow new hires to participate in the plan. Forty-four percent of pension plans are either closed to new hires or have frozen the benefit accrual. 6 Trends and Experiences in Retirement Plans 2010

6 Basic Design and Participation Aon Hewitt 7

7 Basic Design and Participation In this section of the report, several plan design and participation features are examined, including: 1165(e) plan as primary retirement vehicle Eligible employee groups Eligibility requirements Qualification and Trust Retirement benefit changes, and Automatic enrollment Primary Retirement Plan Is the 1165(e) plan the primary retirement income plan for the employees it covers? 1165(e) plans have increasingly become the primary retirement income plan for employees. More than half of employers (53%) report that the primary retirement income plan for the employees they cover is the 1165(e). This is consistent with the 2008 survey. 1165(e) Primary Retirement Plan 60% 50% 43% 53% 40% 30% 20% 10% 0% Eligible Employees In addition to offering the 1165(e) plan to their employees, over three-quarters of employers offer the same plan to nonunion hourly employees and 79% of employers offer the 1165(e) plan to part-time employees, an increase from Trends and Experiences in Retirement Plans 2010

8 Eligible Employee Groups Salaried 93% 94% Nonunion hourly 73% 79% Part-time 36% 45% Commissioned salespersons 22% 27% Temporary employees 9% 9% Union hourly 11% 2% Other (e.g., regular employees, 7% 2% non-exempt,) (Multiple responses) (n=45) (n=93) Eligibility Requirements What requirements must employees satisfy in order to be eligible to participate in this 1165(e) plan? What requirements must be satisfied for employer matching contributions? Table A: illustrates over half of plans (54%) allow employees to begin making before-tax contributions after months or years of service an increase from the 2008 survey where only 34% of plans based their eligibility on months or years of service. Table A: Eligibility Requirements: Before-Tax Contributions* Immediate eligibility (i.e., no service requirements) 59% 37% Based on months or years of service 34% 54% Based on hours of service 7% 9% (n=45) (n=90) Table B: illustrates sixty-eight percent of plans have a service requirement based on months or years of service for participants to receive employer matching contributions. This is a significant increase from Table B: Eligibility Requirements: Employer Matching Contributions* Immediate eligibility (i.e., no service requirements) 42% 20% Based on months or years of service 48% 68% Based on hours of service 10% 12% (n=45) (n=90) Table C: illustrates plans that offer an additional employer nonmatching contribution, of which sixty-nine percent offer nonmatching contributions based on months or years of service. Aon Hewitt 9

9 Table C: Eligibility Requirements: Employer Nonmatching Contributions* Immediate eligibility (i.e., no service requirements) 0% 23% Based on months or years of service 13% 69% Based on hours of service 0% 8% (n=40) (n=64) *While the percentage of survey respondents basing eligibility on months or years of service has increased, this is not indicative of an increase in prevalence over the 2008 results for immediate eligibility, but rather the result of an update to the structure of the question and an increase in respondent group. Dual Qualified 1165(e) Plans Is the plan qualified under the United States Internal Revenue Code Section 401(a) and 401(k) as well as the under the Puerto Rico Internal Revenue Code Section 1165(a) and 1165(e)? Almost half (49%) of 1165(e) plans are dual qualified; this is consistent with plans that were implemented over a decade ago or more. Results are consistent with the 2008 survey results. Yes No (n=90) 51% 49% 10 Trends and Experiences in Retirement Plans 2010

10 Location of the Trust for 1165(e) Plans Eighty-eight percent of plans reported having a Puerto Rico Trust. Of the 12% that have a Trust in the United States; forty-five percent report having a paying agent in Puerto Rico. These results are consistent with the IRS window of 2008 allowing plans with US Trust only to transfer assets to a Puerto Rico Trust, with no penalty. Yes No 12% (n=90) 88% Changes to Retirement Benefits in the Past Two Years In the past two years, most employers have made no changes to their 1165(e) matching, non-matching and/or profit sharing contributions. Six percent respectively have eliminated or frozen their contributions. Retirement Benefit Changes Since 2008 No Change Increased Introduced Decreased Eliminated or Froze Contribution Contribution Contribution Contribution Employer matching contribution 88% 6% 0% 0% 6% Employer nonmatching contribution 75% 0% 0% 0% 6% Profit sharing 69% 6% 0% 13% 6% Multiple responses (n=16) Aon Hewitt 11

11 Automatic Enrollment Prevalence Do you automatically enroll employees in the 1165(e) plan? The percentage of employers who automatically enroll employees into the 1165(e) plan has decreased from 34% in 2008 to 28% in This decline is not indicative of a decrease in prevalence since the 2008 results, but rather the result of an increase in respondent group. Automatic Enrollment Prevalence 60% 50% 40% 30% 20% 10% 34% 28% 0% Automatic Enrollment Default Contribution Rate If you do automatically enroll employees in the plan: What is the default contribution rate? While most plans continue to use a 3% default contribution rate, nearly one-third of plans (33%) continue to default employees at a rate of 4% or higher. Nineteen percent of plans have automatic enrollment of after-tax contributions. Default Before-Tax Contribution Rates Under Automatic Enrollment % 8% 14% 2% 8% 29% 3% 38% 24% 4% 8% 9% Greater than 4% 38% 24% (n=13) (n=21) 12 Trends and Experiences in Retirement Plans 2010

12 Automatic Increase in Conjunction with Automatic Enrollment Increase of contribution rate is being utilized as part of automatic enrollment to promote gradual savings rate increases over time. Forty-three percent of plans that automatically enroll participants also use automatic contribution increase as part of the automatic enrollment process. In late 2006, the Pension Protection Act, (PPA) created a safe harbor option with automatic enrollment that requires participants be defaulted at a minimum of 3% initially and the minimum increases each year up to 6%. But, in no case can defaulted contributions exceed 10% of pay. As a result of this safe harbor provision, more plans are likely to include automatic contribution increase in the future. Among employers that utilize contribution escalation, 79% of plans initially default at a rate of 2% or 3%, which is lower than the typical default rate absent contribution escalation. While the initial rate does not provide significant savings levels, by starting low and increasing the rate gradually, employers are able to promote significantly higher ultimate savings while decreasing the one-time impact to employees paychecks. Prevalence of Automatic Contribution Increase as Part of Automatic Enrollment Yes No 57% 43% (n=21) Among Plans with a Specific Increase Rate 1% per year 78% 2% per year 0% 3% per year or greater 22% (n=9) Aon Hewitt 13

13 Employee and Employer Contributions Aon Hewitt 15

14 Employee and Employer Contributions In this section of the report, employee contributions are reviewed, including: Types of employee contributions allowed Maximum allowed employee contributions Types of employer contributions Vesting requirements for employer match contributions Types of Employee Contributions Which types of employee contributions are allowed? Consistent from 2008, most plans allow before-tax contributions and almost half allow after-tax contributions. Increased from 2008 is allowing catch-up contributions. Rollover-in contributions, even though not measured in 2008 are extremely common in 1165(e) plans. Employee Contributions Allowed Before-tax contributions 90% 90% Before-tax catch-up contributions for employees age 50 or older 35% 46% After-tax contributions 45% 47% Rollover contributions 70% (Multiple responses) (n=40) (n=83) Maximum Employee Contribution Rate What is the maximum percentage of salary that an employee may contribute to the plan according to the plan document? Sixty-nine percent of plans have a maximum average before-tax contribution rate between 10% and 19% and the maximum average after-tax contribution in the same range is 88%. 16 Trends and Experiences in Retirement Plans 2010

15 Maximum Employee Before-Tax and After-Tax Contribution Rate Before-tax After-tax Less than 10% 0% 0% 10% 19% 69% 88% 20% 29% 6% 3% 30% 49% 3% 0% 50% 69% 10% 8% 70% 99% 1% 0% 100% 11% 0% (n=71) (n=36) Types of Employer Contributions Which types of employer contributions are made to this 1165(e) plan? Types of Employer Contributions Consistent with the 2008 survey findings, almost all plans offer some type of employer contribution. Sixty five percent of employers report that they provide a fixed match on employee contributions. Most prevalent fixed match is $0.50 per $1 up to 6% of pay Fixed match (e.g., $0.50 per $1.00 up to 6% of pay) 60% 65% Graded match (e.g., $1.00 per $1.00 on first 3%, $0.50 per $1.00 on next 3%) 20% 8% Profit sharing contribution (discretionary) 10% 22% Profit sharing contribution (based on formula) 8% 6% Fixed percentage of pay nonmatching contribution 8% 4% Match based on length of employee s service 8% 10% Other contributions (e.g., age-based match) 0% 8% No employer contribution 8% 2% (Multiple responses) (n=40) (n=83) (Figures do not add to 100% because some plans have more than one type of employer contribution) Aon Hewitt 17

16 Vesting Requirements for Employer Contributions What is the vesting requirement for employer contributions in this 1165(e) plan? Thirty percent of plans use a five-year graded schedule making this schedule the predominant vesting schedule of 1165(e) plans, closely followed by 3-year cliff vesting with 23%. Vesting Requirements for 1165(e) plan Employer Matching Contributions Immediate vesting 14% 16% 1-year cliff vesting 6% 1% 2-year cliff vesting 3% 5% 3-year cliff vesting 9% 23% 2-year graded vesting 5% 0% 3-year graded vesting 0% 4% 4-year graded vesting 3% 7% 5-year graded vesting 57% 30% 6-year graded vesting 3% 14% (n=35) (n=73) 18 Trends and Experiences in Retirement Plans 2010

17 Investment Options

18 Investment Options This section of the report covers a variety of 1165(e) plan investment option issues, including: Written investment policy statements The number of investment options available in the plan The type of investment options offered in the plan Investment Policy Statement Do you have a written investment policy statement (i.e., a statement covering fund selection criteria and monitoring) for this plan? Seventy-one percent of plans have a written investment policy statement. This is typical for multinationals in the included respondent group. Written Investment Policy Statement Puerto Rico United States Yes 71% 90% No 29% 6% Plan to write one in the next 12 months 0% 4% (n=78) (n=264) Number of Fund Options Offered What is the total number of investment funds available in this 1165(e) plan? On average, plans offer 10 investment funds to participants. Much of the increase in funds over recent years is due to the adoption of target-date fund options. Excluding these target-date options, the average number of funds offered is Trends and Experiences in Retirement Plans 2010

19 Number of Funds Offered 50% 46% 45% 40% 35% 30% 30% 25% 20% 15% 19% 10% 5% 5% 0% 1-3 Funds 4-6 Funds 7-10 Funds Over 10 Funds (N=57) Types of Available Investment Options What types of investment options are available to participants? The most prevalent asset class remains Mutual funds, followed by Target date 39% and pre-mixed portfolio 38%:. Employer stock is an investment option not prevalent in 1165(e) plans, only 13% of plans offer it. 70% 70% 60% 50% 40% 30% 20% 38% 39% 18% 13% 18% 5% 10% 0% Pre-mixed Target-date Mutual Commingled Company International Other Funds Funds Stock (Multiple responses n=43) Aon Hewitt 21

20 Loans, Withdrawals, and Final Distributions

21 Loans, Withdrawals, and Final Distributions In this section, we look at companies with loans, withdrawals, and final distribution provisions in their 1165(e) plans. Detailed here are: The percentage of plans offering loans Loan policy documented Loan interest fees Number of loans a participant may have at any given time In-service withdrawals Forms of final distribution payments Prevalence of Loan Provisions Does your plan have a loan provision? Decrease shown from 2008 to 2010 is due to the increase in respondent group. Half of the plans (53%) have a loan provision. Comparison of Loan Provisions in Plans, % 80% 60% 40% 20% 0% 64% 53% (2008 n=36, 2010 n=79) 24 Trends and Experiences in Retirement Plans 2010

22 Loan Policy Does the plan have a Loan Policy? Almost all plans that offer loans have a loan policy, 93% Yes No 93% (n=42) 7% Types of Loan Provisions What types of loans are offered? Among the plans that offer loans, virtually all allow participants the ability to take general purpose loans. Additionally, 29% percent of plans allow participants to take loans to purchase a home. Types of Loans Offered General purpose loans 96% 100% Home loans 68% 29% (Multiple responses) (n=22) (n=42) Number of Loans Allowed How many separate loans can a participant have outstanding at one time? Seventy-one percent of plans permit only one loan to be outstanding at any given time. Further, 41% of employers allow two loans, with 17% allowing two loans of any type and 7% allowing only one general purpose and one home loan. Aon Hewitt 25

23 Number of Loans Allowed at One Time 17% 7% 5% Only One Two, any Type One General Purpose + One Home Three, Any Type (n=42) 71% Loan Fees Do participants have to pay a loan fee? Three out every four plans have a loan fee deducted from the participant s loan disbursement. This fee is used to cover plan expenses. 80% 76% 70% 60% 50% 40% 30% 20% 10% 24% 0% Yes (n=42) No 26 Trends and Experiences in Retirement Plans 2010

24 In Services Withdrawal Does the plan allow participants to make in-service withdrawals and what types? Most plans have in-service withdrawal provisions seventy-nine percent offer Hardship withdrawal and 71% offer 591/2 withdrawal provisions. This is consistent with the previous surveys. 100% 90% 80% 79% 71% 70% 60% 50% 40% 30% 20% 10% 0% Hardship Age 59 1/2 (n=78) Final Distribution Payments What forms of payment are available for final distributions? All plans surveyed offer lump-sum payments followed by 73% that offer rollover distributions. Forms of Final Distribution Payments Offering Payment Form Lump sum 100% 100% Installment payments 33% 35% Partial distributions 31% 32% Annuity 28% 26% Rollover distributions % (n=29) (n=81) Aon Hewitt 27

25 Education

26 Investment Education This section examines investment education needs by looking at: Prevalence of investment education efforts among plan sponsors Goals of the education efforts Types of media used to communicate investment information Prevalence of providing outside investment advice Availability of Investment Education Do you make investment education available for employees? Consistent with the previous surveys, the vast majority of employers provide investment education to employees. Prevalence of Investment Education Efforts 100% 90% 80% 81% 70% 60% 50% 40% 30% 20% 10% 0% 57% (2008 n=35, 2010 n=79) 30 Trends and Experiences in Retirement Plans 2010

27 Media Used for Communication Initiatives If investment education is provided to employees, which medium has been used and how effective was it in communicating investment concepts to employees? Nearly all respondents use written materials for communicating investment concepts, 57% report that they are somewhat effective. Ninety percent of plan sponsors use on-site seminars/workshops in their education efforts, 57% report that they are very effective. Communicating Investment Concepts Media Effectiveness Medium Very Effective Somewhat Effective Not Very Effective Not Used Written materials (n=47) 24% 57% 19% 0% communication (n=42) 17% 45% 10% 28% On-site seminars/workshops/meetings (n=49) 57% 31% 2% 10% Online modeling tools (including investment advice or guidance modeling) (n=41) 22% 37% 17% 24% One-on-One counseling or financial planning (n=40) 30% 20% 0% 50% Others (n=3) 67% 33% 0% 0% (Multiple responses) Channel Used for Delivery of Compliance Notices What channel do you use to distribute notices to participants such as: SAR, Diversification Notice, QDIA, etc? Sixty-four percent of plan sponsors use the United States Postal Service to deliver compliance notices to their participants. and hand delivery are the second most used, 44% and 40% respectively. 70% 64% 60% 50% 40% 30% 20% 10% 44% 30% 12% 40% 0% USPS Plan Intranet Hand Website Delivery (Multiple responses n=43) Aon Hewitt 31

28 Plan Administration

29 Plan Administration This section of the report reviews plan administration and focuses on: Administration Who pays for plan expenses Action Plan Administration 11% Has a Plan Committee been established? Almost ninety percent of respondents have a Plan Committee established. Yes No (n=79) 89% Managing Plan Expenses Have you made any efforts in the past two years to reduce fund or plan expenses in this 1165(e) plan? What actions or future actions have been taken or will be taken to reduce plan expenses? Thirty-eight percent of plan sponsors say they have made efforts to reduce fund or plan expenses in their 1165(e) plans over the past two years. In terms of additional opportunities to manage costs in the future, 29% of employers say they will pay plan administration fees from plan assets and reduce or change investment options, respectively. Employers Who Made Efforts to Reduce Plan Expenses Yes 38% No, but plan to in the next 12 months 14% No 48% (n=78) 34 Trends and Experiences in Retirement Plans 2010

30 Future Actions Planned to Manage Plan Fees Reduce or eliminate company match 15% Pay plan administration related expenses from plan assets 29% Reduce or change investment fund options 29% Transfer plan administration to in-house 0% Terminate the plan 0% Charge withdrawals and/or loan processing fees to participants 6% Other (e.g., change asset class of funds) 21% (Multiple responses) (n=34) Who Pays Plan Expenses Who pays for plan expenses? How Are Administrative-Recordkeeping Costs Paid Sixty-five percent of plan sponsors say that administrative/recordkeeping costs are paid (all or partially) through fund revenue sharing or plan assets (in essence costs are bundled into the fund expenses). Fees are paid directly by the plan sponsor (per participant fee paid by employer) 87% Fees are paid though plan assets and allocated to participants 17% Fees are paid by both plan sponsor and plan assets allocated to participants 3% Other (e.g., forfeitures) 1% (Multiple responses) (n=77) Aon Hewitt 35

31 Compliance

32 Compliance This section looks at the following: Resources for compliance and plan questions Actions taken/anticipated to pass a failing test Penalties paid due to prohibited transactions Government filings Administration audits Resources Used for Plan Questions What resources do you use to answer you 1165(e) plan questions? Seventy percent of plans use their recordkeeper to answer plan related questions and 65% also use their plan Trustee. 41% go to their in house or independent legal counsel. 80% 70% 60% 50% 41% 41% 70% 65% 40% 30% 20% 10% 19% 0% Hacienda In-house Independent Recordkeeper Trustee Legal Legal (n=81) Actions to Pass a Failing ADP Test What actions have you taken to pass a failing ADP Test for the 1165(e) plan? Fifty-two percent of plans make additional employer contributions (QNEC s) to help pass a failing test and 33% make refunds to the HCE s. 38 Trends and Experiences in Retirement Plans 2010

33 ADP Test Results Action Set limit on HCE s 0% Increase plan participation 19% Refund excess contributions to HCE s 33% Re-characterize before- tax contributions as after-tax contributions 0% Make an additional employer contribution to NHCE s (QNEC) 52% Other (e.g., QMAC) 5% Multiple Responses (n=21) Penalties Paid for Prohibited Transactions Have you paid penalties due to prohibited transactions (late remittances) on your 1165(e) plan? If so, how much did you pay in penalties, including lost earnings? Only four percent of respondents indicated having paid penalties in the past for prohibited transactions on their 1165(e) plan and having paid penalties up to $5,000 including lost earnings. Government Filings and Administration Audit Have you complied with filing all government forms that apply to your 1165(e) plan? Have you audited the administration of your 1165(e) plan in the past 5 years? Over ninety percent of all respondents comply with filling all applicable government forms for their 1165(e) plan. 77% indicated that they have audited their 1165(e) plan administration for compliance as per the Plan Document, ERISA and PR Code. Government Forms/Audit 5500 with the IRS 97% 480.7(OE) with the Department of the Treasury (Hacienda) 92% Administration Audit 77% (n=79) Aon Hewitt 39

34 Other Retirement Plans

35 Other Retirement Plans This section looks at the following: Status of other retirement plans Changes to defined benefit plans Pension plan calculations Other Retirement Plans What other retirement plan(s) do you offer in addition to the 1165(e)? If yes, what is the status of this plan(s)? Fifty-four percent of respondents cover their employees under a traditional defined benefit pension plan in addition to the 1165(e) plan*. Among the employers that provide a traditional defined benefit plan in addition to the 1165(e) plan 56% of the plans allow new hires to participate. Twenty-two percent of the plans are closed to new entrants and 22% are frozen to all future accruals. Other Retirement Plans Active Plan Closed Plan Frozen Plan 22% 22% (n=50) 56% *While the percentage of survey respondents offering a pension plan has increased from 2008 (43%), this is not indicative of an increase in prevalence of pension plans, but rather the result of an update to the structure of the question and a change in respondent group. 42 Trends and Experiences in Retirement Plans 2010

36 Pension Plan Calculations Are your pension plan calculations fully in-sourced, out-sourced, or co-sourced (e.g., an outside party performs calculations or review, but you retain the participant contact? More than half (60%), out-source their pension plan calculations, few companies do their pension plan calculations in-house and 22% out-source part of the administration. 80% 70% 60% 60% 50% 40% 30% 20% 10% 18% 22% 0% In-sourced Out-sourced Co-sourced (n=50) Aon Hewitt 43

37 Participating Employer Information

38 Participating Employer Information The following section provides some basic demographic information about the employers participating in this survey including industry classification, number of participants, and asset size. Number of 1165(e) Plan Participants Fifty-six percent of employers have 250 employees or less. 80% 70% 60% 56% 50% 40% 30% 20% 10% 15% 20% 10% 0% < ,000 1,001< (n=93) Value of Total Plan Assets Over three-quarters of plans have $10 million or less in assets. In total, participating plans have assets of $604 million. Total Plan Assets $1 million or less 26% $1.1 $5 million 39% $5.1 $10 million 11% $10.1 $25 million 19% More than $25.1 5% Total plan assets $604 million (n=93) 46 Trends and Experiences in Retirement Plans 2010

39 Industry Classification Percent of Employers Percent of Employers Diversified Manufacturing 3% Financial Services 4% Aerospace/Defense 1% Food 4% Associations/Foundations 1% Government 0% Automotive/Transport Manufacturing 1% Health Care 6% Banking 2% Industrial Manufacturing 6% Business Services 3% Insurance 9% Chemicals 3% Leisure 3% Computer Hardware 0% Media 1% Computer Services 0% Metals/Mining 0% Conglomerate 0% Pharmaceuticals 2% Construction 3% Retail (includes wholesale and distribution) 16% Consumer Products Manufacturing 5% Telecom Services 5% Education 1% Transportation Services 2% Electronics/Electrical 3% Other 9% Energy/Utilities 2% Entertainment/Comm./Publishing 0% Environmental Services/Equipment 1% (n=93) Aon Hewitt 47

40 Aon Hewitt 2011