Automated Retirement Savings & More

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1 Automated Retirement Savings & More 2016 Benefits U The Importance of Automatic Features Research has shown that behavioral factors impact employees ability to save, especially younger employees, and that automatic features can help employees achieve success. The only thing that works is making savings automatic. Richard Thalor, Behavioral Economics Pioneer Over 75% of employees favor automatic enrollment and automatic escalation according to the JP Morgan 2016 National Survey The Importance of Automatic Features Employees insist everyday obstacles and other debt obligations keep them from saving for retirement. Why is this a problem? You can t take out a loan to fund your retirement. The median plan balance is $4,000, which produces only $19 a month in retirement income (25 years, 3% return). Classic Time Value of Money employees that start saving earlier can save less and end up with a larger nest egg 1

2 Time Value of Money Example Lana Saved from age 25 to 34 Saves $2,000 per year for 9 years Total Contributions: $18,000 Clark Saved from age 35 to 57 Saves $2,000 per year for 22 years Total Contributions: $44,000 Lana s Balance at Retirement $ 181,780 Clark s Balance at Retirement $ 86,785 Lana s balance at retirement is $94,995 (over twice as much) more than Clark s balance and she contributed $26,000 less. Note: Both Lana and Clark, earned a 6% annual rate of return on investments and retired at age 57 Auto Enrollment Beginning on July 1, 2012, new permanent full-time and part-time employees are automatically enrolled at a 1% contribution each pay period. Excludes universities, rehires and previous temporary or seasonal non-benefit eligible employees. Why Auto Enrollment? Helps new and younger employees start saving early in their career Offers a portable retirement savings solution to employees Auto Enrollment Current Auto Enrollment Statistics 11,359 active employees have been auto-enrolled in the plan as of June 30, 2016 totaling over $11,405,782 in retirement savings. 2

3 Percentage-Based Contributions Allows participants to elect to contribute a percentage of their pay each pay period. Must defer a minimum 1% of pay each pay period. Adjustments over 1% can be made in as little as 0.1% increments As of September 30, 2016, the plan will only allow percent-based contributions for new deferrals. Why Percentage-Based Contributions? Ensures contributions grow automatically with salary increases Method important when coupled with automatic increase Dollar to Percent Calculator Auto Increase Allows participants to automatically increase their contribution by a percentage they set on an anniversary date they establish. Deferrals must be set in percentages to use auto increase. Contribution increases can be set as low as one-tenth of one percent (0.1). Why Auto Increase? Puts saving for retirement on cruise control Lowers plan maintenance throughout an employees career by increasing contributions each year automatically Participant chooses the amount and month of the annual increase Can be adjusted/stopped at any time Auto Increase For example, an employee with a starting salary of $30,000 Stays at the 1% contribution= $18,578 1% contribution + 0.1% annual auto increase = $36,389 1% contribution + 0.2% annual auto increase= $54,201 Assumes 25 years, 6% return, 1% salary increases (Grow your Savings Calculator) 3

4 Automatic Features & SAM II Functionality Given numerous automatic plan features, it s imperative that employee records are entered accurately and promptly into SAM II. Address of Record Date of Birth Hire Date Status ( permanent part-time or full-time flags) Plan s record keeper sends OA deferral change file daily All deferral changes happen on the 15 th of the following month Automatic Features & SAM II Functionality How Auto Enroll Works with SAM II All new permanent part-time and full-time employees, as of July 1, 2012, are auto enrolled in the plan MO Deferred Comp s record keeper receives a daily feed from SEBES SAM II drives the actual 1% deduction Remember some employees with prior service may receive an auto enroll letter even though SAM II may never pull the 1% Other Plan Resources RetiremenTrack This calculator uses your personal information to develop a custom savings forecast that takes into consideration pension, social security, the deferred compensation plan and other savings. Grow Your Savings Calculator Financial Planning Services Spouses can combine account balances to apply toward a free plan Currently approx. 1,500 employees are eligible for a free Goal-Specific Financial Plan. 4

5 Presentations Pocket Change This seminar is a comprehensive financial wellness program that teaches you about saving money for both long-term and short-term goals. Completing the Retirement Paycheck Puzzle This seminar helps you examine: your retirement-income sources, how your retirement plan works, and how much you'll need to save for your desired retirement lifestyle. For early- to mid-career employees Also available as a short 4-part video series modeferrdcomp.org New Logo New Tagline Retirement Savings, Simplified New Website Biggest change of all Responsive, mobile friendly design Simplified navigation MO Deferred Comp Questions? Contact Us modeferredcomp.org Connect with us on social media for important news, savings tips, and more state-of-missouri-deferred-compensation-plan 5