MetLife Qualified Retirement Plan Barometer

Transcription

1 Corporate Benefit Funding 11 A Study of Retirement Income Culture Among the Fortune 1000 MetLife Qualified Retirement Plan Barometer January 2011

2 About metlife MetLife, Inc. is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers in over 60 countries. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and the Middle East. For more information, visit The MetLife enterprise serves 90 of the top 100 FORTUNE 500 -ranked companies and has $617 billion in total assets and over $570 billion in liabilities. 1 The operating companies, Metropolitan Life Insurance Company and MetLife Insurance Company of Connecticut, have $383 billion in total assets and $364 billion in liabilities. 2 These operating companies manage $67 billion of group annuity assets 3 and lead the market 4 with over $36 billion of transferred pension liabilities. 3 The company also has over a 35-year track record in stable value with $32 billion of stable value business 3 and has $18 billion of nonqualified benefit funding assets. 3 About the Research Partners Mathew Greenwald & Associates, Inc. is a full-service market research company that specializes in serving the needs of the financial services industry. They have conducted customized research for more than 200 organizations, the large majority of them financial services companies. Mathew Greenwald & Associates is a member of the Council of American Survey Research Organizations (CASRO), an invitation-only industry governing body comprised of the 325 leading survey research practitioners in the United States. Asset International is a privately held publisher and information provider to global pension funds, asset managers, financial advisers, banking service providers and other financial institutions in the private and public sector. Asset International produces and distributes print and digital publications, conferences, research and data resources via its industry-leading brands PLANSPONSOR, PLANADVISER, Global Custodian, aicio, ai5000, Strategic Insight, The Trade and most recently Plan for Life in Australia. The company was acquired in January 2009 by Austin Ventures and has offices in New York, London, Hong Kong, Melbourne and Stamford, CT. January MetLife, Inc. as of September 30, Total assets include general account and separate account assets and are reported under accounting principles generally accepted in the United States of America. 2 Metropolitan Life Insurance Company and MetLife Insurance Company of Connecticut as of September 30, Total assets include general account and separate account assets and are reported on a statutory basis. 3 As of September 30, LIMRA, Terminal Funding and Single Premium Buyouts Survey, Third Quarter, 2010.

3 Despite Retirement Plan Costs, Plan Sponsors Leaving Value on Table Contents Executive Summary Major Findings Barometer Scores Reveal Wide Variations in Progress Toward a Retirement Income Culture, with Room for All to Improve Despite Good Intentions on the Part of Many, Plan Sponsors Are Struggling to Translate Retirement Income Philosophy into the Creation of a Retirement Income Culture Retirement Income Plays Second Fiddle to Accumulation in Employee Education and Communications; Online Calculators No Substitute for Effective Educational Support Plan Design Focuses on Encouraging Savings and Stable Investments Rather than Creation of Lifetime Income Many DC Plan Sponsors Cite Fiduciary Concerns as a Barrier to More Widespread Offering of Income Annuities Unless Retirement Income is a Primary Plan Objective, Program Success Measures Place More Emphasis on Participation Than Income Conclusion/Call to Action Methodology > MetLife Qualified Retirement Plan Barometer

4 January 2011

5 Executive Summary At the peak of defined benefit (DB) coverage in 1980, about 84% of all private-sector employees were covered under DB pension plans, 1 representing about 38 million active workers. 2 However, while the number of private-sector workers covered by DB plans has stayed relatively stable since it reached about 40 million in 1985, the number of DB plans and the percentage of active workers covered have both dropped dramatically over the last few decades to their current levels of about 48,000 3 and 19%, 4 respectively. Competitive pressures, increased worker mobility, corporate cost cutting, the movement towards employee self-sufficiency and the heavy marketing of defined contribution (DC) plans, such as 401(k) plans, by financial institutions have all fueled this movement away from traditional DB pension plans to DC plans, which have grown in number to over 650,000 in place today at firms of all sizes. 5 Today, even among those employers that sponsor one or more DB plans, some are closing the plans to new workers, ending or limiting current workers accrual of benefits or, in some instances, doing both as employers have come to understand what being in the pension business means once their retired employees reach significant numbers. DC plans have now become the primary source of retirement savings for an increasing number of employees. Yet, they were originally designed as supplemental retirement savings vehicles and were generally never intended to do the same job as a pension provide for guaranteed lifetime income once active working years were over. In addition to the movement away from DB plans, which typically accrue benefits for workers based on years of service and earnings, many plan sponsors introduced lump sum features for all or a portion of their DB plan benefits. This, combined with the ascendancy of DC plans, under which participants by and large finance their own retirements, has increased the degree to which the critical burden 1 U.S. Department of Labor statistics show that in 1980, the percentage of private sector workers covered by private DB plans was at a high of 84%, which at that time represented 38 million active workers. In subsequent years, the number of beneficiaries grew to about 40 million, where it has remained level since 1985, but the percentage of active workers covered by such plans has dropped steadily to 19% in U.S. Department of Labor, Bureau of Labor Statistics, Employee Benefits in Industry, May, U.S. Department of Labor, Private Pension Plan Bulletin, Abstract of 2008 Form 5500 Annual Reports, December, Note that 2008 is the most recent year for which this data is available. 4 u.s. Department of Labor, Bureau of Labor Statistics, National Compensation Survey, Employee Benefits in the United States, March, U.S. Department of Labor, Private Pension Plan Bulletin, Abstract of 2008 Form 5500 Annual Reports, December, > MetLife Qualified Retirement Plan Barometer

6 According to the Social Security Administration, one of the first company pension plans was introduced in 1882 by the Alfred Dolge Company, a builder of pianos and organs. Dolge argued that the company s pension was a business cost like any other just as his company had to provide for the depreciation of its machinery, it should also provide for the depreciation of its employees. 6 january of providing for retirement adequacy sits on the shoulders of the American worker. These changes have caused both plan sponsors and participants to focus, almost exclusively in the short-term, on increasing participation levels and growing account balances in DC plans. However, as the recent instability of both the stock market and the general economy have highlighted all too clearly, a focus on asset accumulation alone will not result in long-term retirement security. Hence going forward, the new challenge laid before plan sponsors and participants of DC and DB plans is to utilize these vehicles to create retirement income and, in turn, long-term retirement security in America. Even assuming that changes are made so that Social Security will continue to play a role for tomorrow s retirees, it is important to note that at about $12,000 annually, 7 the average Social Security benefit is not, and was never intended to, provide the majority of retirement income for workers eligible for its benefits. MetLife commissioned this research of FORTUNE 1000 plan sponsors to assess whether and to what extent a new culture is taking hold in the largest U.S. companies one which places equal emphasis on retirement savings and retirement income. The survey also sought to determine the extent to which employers are contemplating how to help DC participants convert a portion of their retirement savings into guaranteed lifelong income. This shift in focus is generally thought of as changing the conversation with employees to help them recognize that defined contribution plans should increasingly be thought of as retirement income plans. Outlined below are the key findings from MetLife s inaugural Qualified Retirement Plan Barometer: Barometer Scores Reveal Wide Variations in Progress Toward a Retirement Income Culture, with Room for All to Improve The MetLife Qualified Retirement Plan Barometer was constructed to measure, at a point in time, how companies are doing with regard to creating a retirement income culture within their respective companies. The mean Barometer score for all plan sponsors who participated in the survey is 59 out of a possible 100 points. Individual company scores ranged from a low of 19 to a high of 89. Companies that make both DB plans and DC plans broadly available to their employees 8 score higher than average on the Barometer at 74. This Barometer score is notably higher than the overall Barometer score for all respondents as well as the score ascribed to companies that only offer a DC plan or that offer a DC plan with an incidental DB plan (55 points). 6 U.S. Social Security Administration, Historical Background and Development of Social Security, Social Security Online, 7 In the beginning of 2010, the average monthly Social Security benefit for a retired person was $1,164 according to the U.S. Social Security Administration, 8 For the purposes of this study, broad coverage DB plans are defined as where at least 70% of the employee population is covered by a DB plan. Incidental DB plans are those where less than 70% of the firm s employee population overall is covered.

7 Despite Good Intentions on the Part of Many, Plan Sponsors Are Struggling to Translate Retirement Income Philosophy into the Creation of a Retirement Income Culture A substantial majority of plan sponsors appear to recognize the importance of cultivating a retirement philosophy that not only focuses on providing costeffective retirement benefits that help them remain competitive but also inculcates the importance of their employees creating retirement income for their futures. When asked about their corporate philosophy when it comes to retirement benefits, plan sponsors most often focus on a desire to offer cost-effective retirement benefits that help them to be competitive. The second-largest share of respondents believes their corporate philosophy is most closely aligned with supporting their employees needs to create retirement income. Despite recognizing the importance of retirement income, plan sponsors remain more focused on retirement savings than on income as a key objective of their programs. For example, while 93% say that retirement savings is extremely or very important as a focus of their retirement plans, only 65% say retirement income has a comparable level of importance for their retirement program. How plan sponsors structure their retirement programs supports this focus on retirement savings as well. For example, across all companies, most (82%) say their company does not set income replacement goals for any or all of its qualified plans. Likewise, fewer than half of the companies have written policy statements that deal with more than just investment issues (44% of all companies), and fewer than one-third of them address retirement income in these statements. Across all DB plans, respondents reported that, on average, employees would receive about 17% of their current salary after 10 years of service, rising to 41% of their current salary after 30 years of service. Among the DB plan sponsors that also have a DC plan, few estimated income replacement levels generated by their DC plans. Retirement Income Plays Second Fiddle to Accumulation in Employee Education and Communication; Online Calculators No Substitute for Effective Educational Support With most plan sponsors focused on the importance of savings and investing, less emphasis is given to retirement income as a focus of retirement education and communication. Retirement plan communications are skewed toward encouraging employees to save rather than to plan for retirement income. While the majority of plan sponsors provide education about the need to save for retirement and the risks of investing, very few include information about retirement income-related issues such as longer life spans 3 > MetLife Qualified Retirement Plan Barometer

8 january (longevity risk), how to create retirement income, the pros and cons of taking a lump sum versus periodic payments, and when to begin taking Social Security benefits. Given this focus, plan sponsors even those who fund traditional DB plans appear to be under-communicating with employees about the importance of retirement income. A majority of plan sponsors gravitate towards educational programs and support, such as online calculators, yet many give such tools low effectiveness ratings in encouraging employees to make appropriate decisions regarding their retirement plans. Further, retirement planning seminars are held infrequently by most companies for plan participants and there is considerably less emphasis on providing this type of educational opportunity to non-participants in DC plans. Plan Design Focuses on Encouraging Savings and Stable Investments Rather Than Creation of Lifetime Income Plan sponsors focus on encouraging retirement savings through automatic enrollment and autoallocation features, as well as stable investments. Roughly half of sponsors report that they include all employees in automatic enrollment features and default allocation to a target date fund. Stable value funds are the most popular investment option offered by plan sponsors overall, followed by target date funds. Although for decades most DB plans only paid benefits in the form of an annuity, about half of DB plans now allow a full lump sum to be paid. An additional one-third allow a partial lump sum. While nearly all employers correctly say their qualified retirement program has standard annuity distributions within their defined benefit plan (if they offer a DB plan), the incidence of an annuity option from a DC plan is much less prevalent, as is partial annuitization. Many DC Plan Sponsors Cite Fiduciary Concerns as a Barrier to More Widespread Offering of Income Annuities Among those firms that offer any type of annuity option in connection with their DC plans, a standard annuity is offered more frequently than more flexible annuity options. Over half of respondents indicated that fiduciary concerns are discouraging them from offering lifetime annuity options. As a point of reference, two-thirds of plan sponsors believe they are knowledgeable about fiduciary standards in general.

9 As 401(k) plans look back at their 30 th birthday, especially following the effects of the economic crisis of , it is clear that the expectations and assumptions held by many in 1978 that individual choice and direction would foster employee engagement, involvement and financial success have not developed that way in actual practice. Unless Retirement Income is a Primary Plan Objective Program Success Measures Place More Emphasis on Participation Than Income In general, plan sponsors indicate they use measures pertaining to plan participation to gauge their program s success, whether or not they rate other areas as important or more important. The large majority of plan sponsors measure the success of their retirement plan by their employees overall participation rate or the participation rate of nonhighly compensated employees, followed by the overall deferral rate of non-highly compensated employees and the percentage of eligible employees taking full advantage of the company match. On average, only about half of plan sponsors think that the ability to generate retirement income is extremely or very important in determining how successful their retirement plan is in relation to their corporate philosophy. A slightly lower percentage assigns very high importance to average balances. One notable exception is that plan sponsors who have retirement income as a key focus of their philosophy regarding their retirement plans are much more likely than other plan sponsors to recognize the ability to generate retirement income as a very important measure of plan success (68% vs. 23%). Despite Retirement Plan Costs, Plan Sponsors Leaving Value on the Table Although retirement plans represent a major investment by companies, plan sponsors do not seem to be using them as strategically as they might. Specifically, while attraction and retention are the primary objectives stated for retirement programs, two-thirds of plan sponsors have not conducted a survey of employees to measure their satisfaction with the education and support they receive about retirement plans meaning that they never evaluate if the programs are successful. Plan sponsors also report that they do not believe that many of their employees fully appreciate the value of the guaranteed income associated with DB plans. Plan sponsors who offer both DB and DC plans report that their employees are fairly evenly split in terms of whether they appreciate their DC plan more than their DB plans, which raises the question of whether or not companies are reaping the benefits of the value of this rich benefit. When asked what improvements they would like to make to their retirement plans if cost and regulations were not barriers, plan sponsors are most likely to mention plan design features, such as increasing the company match, rather than additional flexibility on communication or education. 5 > MetLife Qualified Retirement Plan Barometer

10 Annuities, in some form, are most often viewed as a way that employees can receive part of their DC plan savings for as long as they live when they retire. Overall, it s notable that while some plan sponsors whose only retirement program is a DC plan do see retirement income or retirement security as a program goal, a sizeable minority do not. As 401(k) plans look back at their 30 th birthday, especially following the effects of the economic crisis of , it is clear that the expectations and assumptions held by many in 1978 that individual choice and direction would foster employee engagement, involvement and financial success have not developed that way in actual practice. Since these same assumptions lay at the heart of the tax preferences associated with DC plans, this recognition has set the stage for current efforts by public policymakers to grapple with aligning regulatory rulemaking and tax incentives with public policy goals of retirement adequacy. january

11 MAJOR FINDINGS Barometer Scores Reveal Wide Variations in Progress Toward a Retirement Income Culture, with Room for All to Improve A key goal of this research study was to measure whether large companies are moving beyond their well-ingrained culture of retirement accumulation toward the creation of a culture that places equal emphasis on retirement accumulation and retirement income. Specifically, the study sought to assess the extent to which plan sponsors at the FORTUNE 1000 companies are encouraging and supporting ways for workers to prepare for their income needs in retirement. Toward that end a Barometer was constructed to measure, at a point in time, how companies are doing with regard to creating a retirement income culture within their respective companies. Reported in the aggregate, the Barometer score in this inaugural Qualified Retirement Plan Barometer Study should serve as a baseline against which future changes may be measured. The Barometer score was constructed in four steps: Step 1 A composite Barometer score was calculated for each company, based on responses to 60 of the survey questions that covered four distinct areas: objectives/philosophy; program/plan design; communications/education; and evaluation. Step 2 Questions were identified in terms of whether or not they aligned more closely with asset accumulation at one end of the spectrum or retirement income at the other. Scores are scaled from zero (extremely weak retirement income culture) to 100 (extremely strong retirement income culture). Step 3 The scoring algorithm was tailored to the company s plan configuration different weights were used for companies with: A) DC Plans only; B) Incidental DB plans (covering <70% of salaried, non-highly compensated employees) and DC plans; and, C) DC plans and broad coverage DB plans (covering _> 70% of salaried, non-highly compensated employees). The major impact of using a different scoring system by plan configuration was to give companies with broad coverage DB plans extra credit in their score for the income replacement they provide to a large majority of their workers. For reporting purposes, sponsors with DC plans only and those with incidental DB plans as well as DC plans were combined since there were minimal differences in the scores of the two groups. Step 4 The overall Barometer score is the average of the composite Barometer score for all survey respondents. 7 > MetLife Qualified Retirement Plan Barometer

12 Qualified Retirement Plan Barometer Scores (Among Plan Sponsors, n =117) 9 Retirement Income Culture Strong All Plan Sponsors DC only or Incidental DB and DC Plans Broad Coverage DB and DC Plans Weak 0 january As shown above, the mean aggregate Barometer score across all plan types is 59 out of a possible 100 points. The higher the value on the Barometer, the stronger the overall culture of retirement income. Individual company scores ranged from a low of 19 to a high of 89. Companies with a broad coverage DB plan and a DC plan scored higher than average at 74, whereas companies with DC plans or incidental DB plans and DC plans scored only 55 on the Barometer scale. Broad coverage DB plan and a DC plan, as one might imagine, scored much higher in certain areas such as plan design, and communication and education. Despite Good Intentions on the Part of Many, Plan Sponsors Are Struggling to Translate Retirement Income Philosophy into the Creation of a Retirement Income Culture Qualified Plan Philosophy While a plurality of plan sponsors (45%) describe their corporate philosophy regarding the provision of retirement benefits based on a desire to be successful in a competitive workforce environment and focus primarily on providing them in the most cost-efficient manner possible, quite a few plan sponsors recognize the importance of cultivating a culture of retirement income. More than onethird (35%) of the plan sponsors surveyed describe their retirement benefits philosophy as to support employees efforts to create retirement income for the future when taken together with Social Security and their personal savings. Even fewer plan sponsors (20%) describe their philosophy as our business needs are served by proactively creating a program that offers the best financial and other resources to support our employees needs to determine and achieve their retirement savings goals. Interestingly, companies with participation rates of 70% or higher are more likely than those with lower participation rates to have a corporate philosophy that emphasizes supporting employees retirement income goals (43% vs. 17% for those with participation rates less than 70%). While the competitive and cost-effective philosophical approach is the most common, the fact that one-third of employers say they are seeking to create a retirement income culture is significant. When the survey delved deeper into the objectives and practices, it s apparent that, at this juncture, a 9 ten of the 127 total respondents to the survey were excluded from the Barometer construction due to their pattern of non-response or other data quality issues.

13 While the competitive and cost-effective philosophical approach is the most common, the fact that onethird of employers say they are seeking to create a retirement income culture is significant. Corporate Philosophy Regarding Retirement Benefits (All Plan Sponsors, n=127) We provide retirement benefits primarily because 20% our business needs are served by proactively creating a program that offers the best financial and other resources to support our employees needs to determine and achieve their retirement savings goals. 45% 35% We provide retirement benefits primarily to support our employees efforts to create retirement income for the future, when taken together with Social Security and their personal savings. We provide retirement benefits primarily to be successful in a competitive workforce environment and we focus primarily on providing them in the most cost-efficient manner possible. culture of retirement income hasn t yet taken hold, even among these companies. This is perhaps not surprising, since focus on retirement income in DC plans at the plan sponsor level is relatively recent. Overall Plan Objectives Today, while the lion s share of plan sponsors (93%) say that retirement savings 10 is an extremely or very important objective of their retirement plans, only two-thirds (65%) say that retirement income has a comparable focus. Further, plan sponsors are two and a half times more likely to say that retirement savings, as opposed to retirement income, is an extremely important objective (42% vs. 17%). It is notable that one in 10 respondents indicated that retirement income was not at all/not too important retirement Plan Objectives* (All Plan Sponsors, n=127) Retirement savings = 93% Retirement income = 65% 42% 51% 47% 17% 6% 23% 1% 11% Retirement savings Retirement income 9 Extremely Important Very Important Somewhat Important Not Too/Not At All Important *Figures have been rounded to nearest whole number. 10 unlike the question on corporate philosophy where the responses are mutually exclusive, plan sponsors could have said that both retirement savings and retirement income are very important objectives of their retirement program. > MetLife Qualified Retirement Plan Barometer

14 Savings Sufficiency by Corporate Philosophy (All Plan Sponsors, n=127) Meeting Retirement Savings Goals (n=26) 19% 46% 65% Creating Retirement Income (n=44) 14% 23% 37% Being Competitive/Cost Effective (n=57) 5% 35% 35% Strongly agree Somewhat agree an objective for their qualified plans, suggesting that some plan sponsors either do not see a need to connect savings to income in their qualified retirement plan design, or do not see this as part of the sponsor s role. Savings Sufficiency Although nearly all plan sponsors believe retirement savings is an important plan objective, they are evenly divided about whether employees are accumulating sufficient assets in their retirement plans 42% agree and 42% disagree. Only 1 in 10 (11%) strongly agree. Notably, companies with both a DB and a DC plan are twice as likely as those with just DC plans to think that non-highly compensated employees are doing a good job of accumulating assets in their retirement plans (49% vs. 24%). Belief that their rank and file employees are saving enough increases as participation rates increase. Perhaps not surprisingly, confidence that their nonhighly compensated employees are accumulating sufficient assets is especially high (65%) among those whose corporate philosophy is aligned most with supporting employees savings goals. But it is also more prevalent among companies in which retirement income is considered a very important plan objective, compared to those who feel retirement income is less important as a plan objective (48% vs. 33%). Addressing Retirement Income in Policy Statements Of the companies that have written policy statements that deal with more than just investment issues (44% of all companies), fewer than one-third (29%) address january 2011 Written Policy Statement Broader Than Investment Issues (All Plan Sponsors, n=127) 10 56% No 44% Yes Does this policy statement typically deal with the subject of retirement income? Percent of Plan Sponsors (n=56) Yes 29% No 68% Don t know/refused 4%

15 Setting Income Replacement Goals (All Plan Sponsors, n =127) Income Replacement Goals Percent of Plan Sponsors (n=22) 82% No 17% Yes 1% Don t Know/ Refused Less than 50% 9% 50% to 59% 36% 60% to 69% 23% 70% to 79% 18% 80% or higher 9% Don t know/refused 5% retirement income. Over two-thirds (68%) of plan sponsors who have written policy statements say they do not deal with the subject of retirement income. The likelihood of having a written policy statement that deals with more than investment issues increases as plan participation rates increase. Among companies that have a written policy statement, those with both DC and DB plans are more likely than those with only DC plans to have statements that deal with retirement income (36% vs. 15%). Companies founded before 1970, whose plans are generally more mature, 11 are also more apt than younger companies to have a written policy statement that addresses retirement income (34% vs. 13%). Not surprisingly, companies that feel retirement income is very important as a focus of their retirement plan are more likely than those that place lower importance on retirement income to have a written policy statement on that same subject (38% vs. 6%). Setting Income Replacement Goals According to the Employee Benefits Research Institute, retirement income replacement rates have traditionally been used to establish minimum targets for future retirees by calculating the amount needed to provide the same amount of after-tax income in retirement as that received prior to retirement after adjusting for differences in savings, age, and workrelated expenses. 12 Since calculating how much income one should have in retirement is such a critical component of retirement planning, one would think that nearly all companies would offer guidance to employees about income replacement rates. Yet, across all companies surveyed, 82% say that their company does not set income replacement goals for any or all of its qualified plans; only 17% say their company does this. Among the few companies who have income replacement goals, two-thirds (68%) say they set the bar at less than a 70% replacement level; this includes 23% whose goals are between 60% to 69%, 36% with goals between 50% and 59%, and 9% who say their goals are less than 50%. The median replacement goal is 62%, which is well below the 77% to 94% recommended by experts. 13 Companies that offer both a DB and DC plan are more likely than those with only a DC plan to set income replacement goals for at least one of their plans (24% vs. 3%); companies with a cash balance/ hybrid plan are especially inclined to do so (34%) For the purposes of this study, these are defined as firms established in 1970 or prior. 12 employee Benefit Research Institute, Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates, September 2006, EBRI Issue Brief # Aon Consulting and Georgia State University, 2008 Replacement Ratio Study, August, > MetLife Qualified Retirement Plan Barometer

16 The Employee Benefit Research Institute notes that one of the biggest weaknesses of replacement rate models is that one or more of the most important retirement risks are ignored: investment risk, longevity risk and risk of potentially catastrophic health care costs. 14 Average Income Replacement from DB Plans One way to measure the richness of a DB plan is to examine the approximate percentage of current salary that an employee covered by the DB plan would receive if that employee retired after a given number of years of service. In the survey, plan sponsors responded about the estimated benefit relative to earned income at the point of retirement. It should be noted, however, that it was difficult for many respondents to estimate the income replacement level for all the DB plans they offer, which is reflected in a high level of Don t know responses. On average, the estimated share of salary that DB plans replace more than doubles from 10 years of service to 30 years of service. Across all DB plans, employees would receive 17% of their current salary after 10 years of service and 41% of their current salary after 30 years of service. However, actual benefit levels earned vary as a result of both voluntary and involuntary job changing. percentage of Salary from DB Plan (All Defined Benefit Plans, n=217)* 52% 46% 47% 41% 35% For employees with 10 years of service For employees with 30 years of service 17% january % 6% 5% 6% 12 Average Replacement Rate of Salary Under 20% of Salary 20% to 29% of Salary 30% or more of Salary Don t Know/ Refused *In some cases survey respondents said they offered multiple DB plans. 14 employee Benefit Research Institute, Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates, September 2006, EBRI Issue Brief #297.

17 perceived Awareness/Impact of Materials Provided* (All Plan Sponsors, n=127) For the most part, our employees are aware of the company-provided materials available to them pertaining to the importance of saving for retirement and tax-deferred savings 18% 59% 9% 11% 3% The materials/tools/personal support we provide to employees gives them a clear idea of how to generate retirement income from their retirement plan(s) 15% 43% 20% 19% 3% We provide extensive material on the pros and cons of taking a lump sum versus a periodic income distribution from a DB plan (if has a DB plan, n=89) 8% 12% 20% 16% 15% 28% Strongly agree Somewhat agree neither agree nor disagree Somewhat disagree Strongly disagree not applicable *Figures have been rounded to nearest whole number. Don t know/refused responses have not been included. Retirement Income Plays Second Fiddle to Accumulation in Employee Education and Communications; Online Calculators No Substitute for Effective Educational Support Perceived Awareness/Impact of Materials Provided With most plan sponsors focused on the importance of savings and investing, less emphasis is paid to retirement income as a focus of retirement education and communication. While the majority of plan sponsors provide education about the need to save for retirement and the risks of investing, very few plan sponsors concentrate on providing education on retirement income-related issues such as longer life spans/longevity risk, how to create retirement income, the pros and cons of taking a lump sum versus periodic payments, and when to begin taking Social Security benefits. Given their current focus, plan sponsors even those who fund traditional DB plans appear to be under-communicating with employees about the importance of retirement income. Over three-fourths (77%) agree that their employees are aware of company-provided materials available to them pertaining to the importance of saving for retirement and tax-deferred savings. Further demonstrating that retirement plan communications tend to be skewed toward savings rather than income, a lower share (58%) think that the materials, tools and/or other support their company provides to employees gives them a clear idea of how to generate retirement income from their retirement plans. Only 15% strongly agree with this assertion and just over four in 10 (43%) somewhat agree. Perhaps even more telling, just 20% of companies offering a DB plan agree that they provide extensive materials on the pros and cons of taking a lump sum vs. a periodic income distribution from a DB 13 > MetLife Qualified Retirement Plan Barometer

18 Information provided by plan sponsors focuses on savings topics such as investment risks and the purpose of the plan rather than retirement income. plan. This suggests that even among large plan sponsors, lump sum features are not as universal as is commonly supposed, and that where lump sums are offered as a feature, they are generally offered without much related communication. Communication Focused on Assets More Than Income Information provided by plan sponsors focuses on savings topics such as investment risks and the purpose of the plan rather than retirement income. Communications to employees are more likely to focus on investment issues than they are on various income-related topics. Seven in 10 plan sponsors (69%) report that all their employees receive information on the risks of investing, which is likely attributed to the regulations under ERISA, (among them ERISA Section 404(c)), which requires that companies that offer individual account plans provide employees with enough fee, expense and performance information about their plans investments to make educated investment decisions. Perhaps because no similar requirement exists regarding retirement income, only a minority (38%) say all employees receive communications about retirement income throughout the participant s tenure in the plan. Additionally, over half of plan sponsors (54%) report that all their employees Communications on Various Topics: Extent of Coverage* (All Plan Sponsors, n=127) 69% 20% 7% 5% 57% 30% 5% 5% 3% 50% 24% 10% 14% 2% january % 38% 17% 14% 20% 15% 18% 19% 12% 14% 14 28% 20% 13% 24% 15% 20% 13% 11% 30% 24% All employees Most employees About half of employees Some employees no employees *Figures have been rounded to nearest whole number. Don t know/refused responses have not been included.

19 educational Programs and Support: Extent Offered* (All Plan Sponsors, n=127) Programs designed to encourage non-contributors to start contributing 54% 17% 7% 19% 3% Access to your corporate website which has a retirement focus 53% 17% 3% 6% 20% Participant statements that show both their balance and what it would convert to as an income stream in retirement 46% 9% 3% 7% 35% Defined benefit communications that provide information on income earned to date (if has a DB plan, n=89) 44% 13% 3% 20% 19% DB communications targeted to employees at key milestones (if has a DB plan, n=89) 19% 11% 3% 30% 35% Analysis to determine the time to begin Social Security benefits 7% 6% 3% 18% 65% All employees Most employees About half of employees Some employees no employees *Figures have been rounded to nearest whole number. Don t know/refused responses have not been included. are exposed to programs designed to encourage non-contributors to start investing in the retirement plan. A similar share (53%) say all employees have access to their corporate website which has a general retirement focus. Even fewer plan sponsors report that the following retirement-income related topics are communicated to all employees: the importance of establishing target retirement income levels for retirement in relation to current pay (32%); the potential impact of longer life spans on retirement security (28%); and strategies for coordinating retirement benefits with Social Security benefits (20%). Fewer than half say that all their employees receive each of the following: participant statements that show both their balance and what it would convert to as an income stream in retirement (46%), and for those with a DB plan, information on income earned to date in the DB plan (44%). Finally, just 7% of plan sponsors report that all employees are offered an analysis to help them determine when they should begin claiming Social Security benefits, and twothirds (65%) say no employees receive information on this issue. One silver lining is that companies for which retirement income is a strong objective in their retirement program place greater emphasis on both savings and income in their communications. These companies are more likely than other plan sponsors to agree that their employees are aware of companyprovided materials pertaining to the importance of saving (87% vs. 60%). They are also more likely to agree that their company provides materials and support that gives their employees a clear roadmap on how to generate retirement income from their plan (62% vs. 47%). This suggests that positioning the DC plan in this way pays dividends to the degree in which employees understand, engage with and appreciate the plan, in addition to an increased likelihood of using it in an effective manner for retirement security. 15 > MetLife Qualified Retirement Plan Barometer

20 Tools and Calculators Availability* (All Plan Sponsors, n=127) Online calculators to assess retirement savings goals 85% 11% 2% 1%2% Calculators or modeling support that focus on determining retirement income needs 82% 11% 2% 6% Access to a consolidated view of their benefits if employees are covered by multiple plans (if has multiple plans, n=102) 58% 10% 3% 6% 24% All employees Most employees About half of employees Some employees no employees *Figures have been rounded to nearest whole number. january Tools and Online Calculators Are Prevalent About 8 in 10 plan sponsors (85%) say that all their employees have access to online calculators to assess retirement savings goals. A comparable (82%) say that all employees have access to calculators or modeling support that focuses on determining retirement income needs. Among those with multiple retirement plans, only 58% report that all their employees have access to a consolidated view of their benefits across all their retirement plans so they can make appropriate decisions about retirement security. tools and Calculators: Extent of Influence in Encouraging Appropriate Decision-Making* (All Plan Sponsors, n=127) 58% Some influence 27% Little influence 11% A great deal of influence 3% No influence Although plan sponsors also appear to gravitate toward offering online tools and calculators, only one in 10 plan sponsors (11%) believes that the tools and calculators offered provide a great deal of influence in terms of encouraging employees to make appropriate decisions regarding retirement. Retirement Planning Seminars Not Frequently Held Retirement planning seminars are held relatively infrequently by most respondent companies, with most of the emphasis placed on providing this type of educational opportunity to employees currently participating in a DC plan. While half of plan sponsors (49%) say that they hold retirement planning seminars for their DC plan participants on an occasional basis, 12% report that they never do so. Another 39% report holding retirement planning seminars for plan participants very often or fairly often. Only 19% say their company holds seminars or webinars that are specifically targeted to nonparticipants in their DC plan(s) very or fairly frequently. Indeed, nearly half (46%) never hold meetings for employees who are not participating in their DC plan. Among the FORTUNE 1000 companies with a DB plan, just over one-third (36%) say they *Figures have been rounded to nearest whole number.

21 hold seminars or webinars, either directly or through a third party, that include the DB plan. Interestingly, plan sponsors with both DC and DB plans are twice as likely as those with DC plans only to hold seminars directed at non-participants in the DC plan at least fairly often (22% vs. 11%). Plan sponsors who say retirement income is an important objective of their retirement plans are more likely than other plan sponsors to offer, at least fairly often, retirement planning seminars or webinars for plan participants (45% vs. 30%) as well as for non-participants (24% vs. 9%). Sponsors offering retirement planning seminars very or fairly often are twice as likely as those offering them occasionally or never to have deferral rates of 7% or higher (46% vs. 23%). A similar relationship is evident in the share with high deferral rates (7% or higher) among companies offering seminars targeted to non-participants very/fairly often compared to occasionally/never (45% vs. 29%). Among companies with DB plans, those offering seminars/ webinars that focus on the DB plan are far more Holding Seminars or Webinars that Focus on DB Plan(s) (Among Plan Sponsors that have a DB plan, n=89) 36% Yes 64% No likely than those who do not to have deferral rates of 7% or higher (47% vs. 26%). Nearly half (48%) of plan sponsors say they give access to accredited financial planning professionals to all their employees, with another 14% providing it to executives or management-level only. Nearly four in 10 (38%) report giving no access to financial professionals at all. Although the use of accredited financial planners can create fiduciary concerns Frequency of Seminars or Webinars* (All Plan Sponsors, n=127) 49% 46% 29% 34% For employees who participate in DC plan(s) 10% 14% 12% For employees who do not participate in DC plan(s) 17 5% Very Often Fairly Often Occasionally Never *Figures have been rounded to nearest whole number. > MetLife Qualified Retirement Plan Barometer

22 dc Plan Design Options: Extent of Participation* (All Plan Sponsors, n=127) Default allocation with target date fund as the vehicle 52% 5% 4% Auto enrollment features Automatic escalation or step-up of contributions 28% 4% 3% Re-enrolling non-participants periodically 11% 2% 9% Bump ups in employer match based on age and/or tenure 7% 2% 2% 6% 47% 6% 3% 27% 14% 13% 31% 76% 84% 38% 24% All employees Most employees About half of employees Some employees no employees *Figures have been rounded to nearest whole number. Don t know/refused responses have not been included. among plan sponsors, strategies such as utilizing non-commissioned planners and reviewing the presentations beforehand can help to alleviate this concern. to features in which non-participants are re-enrolled periodically in the DC plan; over three-quarters (76%) say that they have not implemented this option for any of their employees. january Plan Design Focuses on Encouraging Savings and Stable Investments Rather Than Creation of Lifetime Income Auto Features Introduced by Many Encouraged by provisions in the Pension Protection Act of 2006, automatic enrollment of participants in 401(k) plans, which is designed to get more workers to save in their DC plan, appears to have taken hold among large plan sponsors. Slightly fewer than half of sponsors report that they include all employees in automatic enrollment features (47%) and many have implemented a default allocation to a target date fund (52%). Take up of other DC plan features is far less common. Almost 3 in 10 plan sponsors (28%) say that all their defaulted employees participate in automatic step-ups of their contributions. Only 1 in 10 (11%) reports that all their employees are subject Stable Value Is the Most Popular Investment Option Stable value funds are the most popular investment option offered by plan sponsors, followed by target date funds. Eighty-seven percent say that all employees across their corporation are offered stable value funds. A strong majority (76%) of plan sponsors also include target date funds in the investment lineup offered to all their employees. Just over half (54%) of plan sponsors say all their employees are offered a range of target date funds that are targeted to employees with different risk tolerances. Companies that have both DB and DC plans are twice as likely as those with only DC plans to offer DB-like investment vehicles in their DC plans to all employees (26% vs.13%). The likelihood of offering DB-like investments, such as collective trusts or individually managed non-registered options, in DC plans increases with company size (as measured by number

23 According to MetLife s 8th Annual Employee Benefits Trends Study, 4 in 10 employees (40%) are interested in learning more about how they could use annuities as part of their DC plan, and 44% would like their employer to offer an annuity option in their 401(k), 403(b) and/or 457 plan. 15 of employees), total assets of retirement plan and average deferral rate. Distribution Options Don t Currently Encourage Creation of Lifetime Income While nearly all employers correctly say their qualified retirement program has standard annuity distributions within their defined benefit plan (if they offer a DB plan), the incidence of an annuity option from a DC plan is much less prevalent, as is partial annuitization. A DB plan must offer to pay a monthly benefit for the life of a retired worker, no matter how long the worker lives. If the value of the benefit is $5,000 or less, the plan may pay the benefit in a single payment. Ninety-four percent of plan sponsors who offer a DB plan say those plans provide standard annuity distributions. Although, for decades, most DB plans only paid benefits in the form of an annuity, today a little more than half (54%) of the study respondents now offer full lump sum distributions from a DB plan. Additionally, one-third (35%) of these sponsors now allow a partial lump-sum to be paid under their DB plan. Younger companies 16 are more likely than older firms to offer full lump-sum distributions from a DB plan (79% vs. 45%). Among all plan sponsors, the most popular nonmandated distribution option at retirement is installment payments (e.g., for a defined time period) (61%), followed by systematic withdrawal plans (46%). One in four plan sponsors (24%) reports that their program offers lifetime annuity payment options from a DC plan, a number that skews higher than other industry studies. 17 Partial annuitization options are less common, with about one in five (21%) reporting that such an option is available. Plan sponsors were informed about a recent study that shows that 55% of employees would prefer to receive Investment Options in DC Plans: Extent Offered* (All Plan Sponsors, n=127) Stable value funds Target date funds Range of target date funds targeted to employees with different risk tolerances 54% Replacing all or some DC plan mutual fund options with vehicles more commonly employed in DB plans 22% 2% 1% 76% 87% All employees Most employees About half of employees 5% 1% *Figures have been rounded to nearest whole number. Don t know/refused responses have not been included. 73% 4% 1% 39% 4% 1% 19% 9% Some employees no employees MetLife, 8th Annual Study of Employee Benefits Trends, For the purposes of this study, this is defined as firms established after towers Watson, 2010 Defined Contribution Survey, June 2010; AonHewitt, Trends and Experience in 401K Plans, > MetLife Qualified Retirement Plan Barometer

24 What Ideas Do Plan Sponsors Have about Annuities and Retirement Income? 18 Add annuities to DC plan design. Robust communication effort to help participants understand how much they need for replacement income. Access to an annuity selection tool outside of the plan. Offer an annuity exchange where selected providers with demonstrated financial stability and competitive pricing offered annuity conversions to our employees. In-plan annuity distribution options with the pricing power of the group giving more stability to the purchase process. plan Distribution Options at Retirement (All Plan Sponsors, n=127) Standard annuity distribution from a DB plan (if has DB plan, n=89) 94% Installment payments 61% Full lump sum distributions from a DB plan (if has DB plan, n=89) 54% Systematic withdrawal plans 46% Partial lump sum distributions from a DB plan (if has DB plan, n=89) Lifetime annuity payment options from a DC plan 24% 35% Partial annuitization options 21% january part of their DC plan savings for as long as they live when they retire, rather than all of it in a lump sum that they would invest themselves. 19 Respondents were then asked what programs or options they might offer employees to help them accomplish this goal. Annuities in some form are most often mentioned as a solution. About one-quarter (24%) of plan sponsors answering this question say they would include annuities as a distribution option. Twelve percent specify they would add in-plan annuities. Another 16% mention annuities, but do not specify whether they mean in-plan annuities or annuities as a distribution option following retirement. About 1 in 10 (9%) volunteer that they would ask or encourage employees to buy an annuity outside of the plan. 18 Quotes from survey respondents. 19 MetLife, 8th Annual Study of Employee Benefits Trends, 2010.

25 The chief advantage of an income annuity is that it provides guaranteed lifetime income. Another key advantage of income annuities is that they generally have the ability to produce the highest level of guaranteed income per dollar of assets, which provides the participant with the ability to maximize income. For example, an average retiree would need to save about one-third more to attempt to replicate the effect of a mortality pool and, even then, could still outlive their savings. 20 Considerations to Promote Lifetime Income Distributions from DC Plans (All Plan Sponsors providing a response, n=93) Programs or Options Percent of Plan Sponsors Annuities as a distribution option 24% Annuities: non-specific 16% In-plan annuities 12% Financial advice/counseling/help with purchasing annuities 10% Installment options 9% Purchase annuity outside of plan 9% Managed payout vehicles 5% Information/education 4% Other 6% No programs or options 17% Many DC Plan Sponsors Cite Fiduciary Concerns as a Barrier to More Widespread Offering of Income Annuities Although the majority of workers today are covered by DC plans, the large majority of plans do not offer the option to annuitize assets when workers retire. Many plans have eliminated the annuity distribution option for a number of reasons. Chief among them are fiduciary liability concerns and the administrative issues related to offering annuities. 21 Most plan sponsors think they are extremely (20%) or very knowledgeable (49%) about ERISA-based fiduciary standards. Perhaps this is why more than half (54%) of plan sponsors that do not offer lifetime annuity payment options from their DC plans say that fiduciary Knowledge of ERISA-Based Fiduciary Standards* (All Plan Sponsors, n=127) 27% Somewhat knowledgeable 49% Very knowledgeable 20% Extremely knowledgeable 5% Not too knowledgeable *Figures have been rounded to nearest whole number MetLife response to Department of Labor, Treasury & IRS Request for Information Regarding Lifetime Income Options for Participants and Beneficiaries in Retirement Plans, May 3, Aon Hewitt, Trends and Experience in 401(k) Plans, > MetLife Qualified Retirement Plan Barometer

26 concerns are discouraging them from offering these options. Notably, plan sponsors whose corporate philosophy focuses on savings are less likely than those whose corporate philosophy is most closely aligned with retirement income to say that fiduciary issues discourage them from offering lifetime income annuities (28% vs. 63%), suggesting that, consistent with their program objectives, they don t see a need to incorporate a retirement income feature into their DC plan design. The uncertainty of plan sponsors precise fiduciary duties when offering annuities to their workers has been an identified deterrent to including annuities as a distribution option since the Department of Labor as directed by the Pension Protection Act of 2006 issued a final regulation in October 2008 that was intended to clarify the fiduciary standard relating to the selection of an annuity provider for the purpose of benefit distributions from individual account plans such as 401(k) plans. 22 The regulation, which the Department of Labor appeared to structure as a safe harbor, sets out factors that should be utilized in assessing the annuity provider s ability to make future payments under the contract and in reviewing the costs of the annuity in relation to the benefits and services provided under the contract. Almost from the outset, plan sponsors have been consistent in their feedback that, as the factors are subjective in nature and not sufficiently clear, they do not really constitute a workable safe harbor. Consistent with this, the study results indicate that many plan sponsors believe the present fiduciary safe harbor does not provide objective and simple factors upon which they can select an annuity provider and that this lack of clarity continues to be a barrier to more widespread offering of these products in the workplace. impact of Fiduciary Issues on Offering Lifetime Annuity Options (Among Plan Sponsors that do not offer lifetime annuity options from their DC plans, n=97) Discourage = 54% 33% 27% january % 19% 22 To a Great Extent To Some Extent To a Little Extent Not At All 22 u.s. Department of Labor, Selection of Annuity Providers Safe Harbor for Individual Account Plans, Federal Register, pages , October 7, 2008.

27 As employers consider whether or not to offer DC plan participants the ability to create retirement income at the point of retirement, public policymakers are paying increased attention to these issues. The Department of Labor and Treasury Department issued a Request for Information in February 2010 and held hearings in September 2010 to explore, among other issues, ways to increase lifetime income and/or annuitization so that 401(k) plan participants have an opportunity to convert at least a portion of their retirement savings into lifelong income. Plan sponsors believe that government initiatives could address some of the fiduciary concerns they say are discouraging them from offering annuities. When asked their reaction to the Department of Labor s and Treasury Department s interest in strengthening Americans retirement through lifetime income options, plan sponsors are twice as likely to react positively than negatively (46% vs. 22%). Among those plan sponsors who are critical of the government s focus on income for life options, the major concern cited is fear of too much regulation and government involvement. Twenty-nine percent of plan sponsors had either a mixed reaction, no opinion, or feel neutral about the current emphasis on lifetime income options coming from Washington. Unless Retirement Income is a Primary Plan Objective, Program Success Measures Place More Emphasis on Participation Than Income Measuring Retirement Plan Success In general, plan sponsors do not seem to be placing as much importance on what many would logically assume the ultimate goal of qualified retirement plans should be retirement income as they are on the more near-term issues pertaining to plan participation. The large majority of plan sponsors measure the success of their retirement plan by their company s overall participation rate or the participation rate of non-highly compensated employees, followed by the overall deferral rate of non-highly compensated employees and the percentage of eligible employees taking full advantage of the company match. This is not at all surprising; these traditional factors are easily measured, and some are required in the normal course of plan administration. Also, unless threshold levels of participation are achieved, focus on other goals may be viewed as premature or impractical. More than 8 in 10 (84%) plan sponsors say that their company s overall participation rate or the participation rate of non-highly compensated employees (81%) is extremely or very important in gauging the success of their retirement plans in relation to their corporate philosophy. On average, a smaller percentage (52%) thinks that the ability to generate retirement income is extremely or very important in determining how successful their retirement plan is in relation to their corporate philosophy. One notable exception is that plan sponsors that have retirement income as a key focus of their retirement plans are more apt than other plan sponsors to recognize the ability to generate retirement income as a very important measure of plan success (68% vs. 23%). A slightly lower share assigns very high importance to average balances (45%), and among those with a DB plan, only 16% feel that the percentage of retirees taking an annuity versus a lump sum payment distribution from their DB plans is extremely or very important in gauging success (44% say it is not at all important). 23 > MetLife Qualified Retirement Plan Barometer

28 Measuring Retirement Plan Success (All Plan Sponsors, n=127) Overall participation rate 37% 47% 84% Participation rate of non-highly compensated employees 31% 50% 81% 81% Overall deferral rate of non-highly compensated employees 22% 54% 76% Percentage of eligible employees taking full advantage of match 29% 43% 72% Ability to generate retirement income 13% 39% 52% Average balances 7% 38% 45% Percentage of retirees taking an annuity versus a lump-sum payment distribution from their DB plan(s) (if has a DB plan, n=89) 7% 9% 16% Extremely important Very Important Participation Goals A surprisingly high share of plan sponsors 75% do not have formal participation goals for their non-highly compensated employees. Among the one in four (24%) plan sponsors with formal participation goals, only one-third (32%) feel their company has been very successful in reaching those goals. Another 52% report being somewhat successful, and 16% report their company has not been too successful. Plan sponsors with $1 billion or more in total plan assets are twice as likely as plan sponsors with lower plan assets to have formal participation goals for non-highly compensated employees (32% vs. 16%). Setting Formal Participation Goals* (All Plan Sponsors, n=127) january % No 24% Yes 1% Don t Know/ Refused How successful plans are in reaching those goals: Percent of Plan Sponsors with Participation Goals (n=31) Very successful 32% Somewhat successful 52% Not too successful 16% *Figures have been rounded to nearest whole number.

29 Despite Retirement Plan Costs, Plan Sponsors Leaving Value on the Table Although retirement plans represent a major investment by companies, plan sponsors do not seem to be using them as strategically as they might. Few Plan Sponsors Survey Participants About Retirement Plan Satisfaction Few plan sponsors are tracking the impact of their plans on employee satisfaction. Only one-third (34%) of plan sponsors have conducted an employee survey to help gauge how satisfied employees are with the education and support they receive about their retirement plan. Plan sponsors who do not view the ability to generate retirement income as an important measure of the success of their retirement plan are less likely than average to have conducted an employee satisfaction survey on the education and support employees receive about their retirement plan (13% vs. 34%). Value Under-communicated Fewer than half (44%) of plan sponsors who offer DB plans believe their companies successfully communicate the value of these plans, including only 13% who strongly agree. Another 22% neither agree nor disagree with this assertion and 32% disagree. Of course, since two-thirds do not conduct evaluation surveys to ask their employees what they think about the education and support employees receive about their retirement plan, respondents may not have informed opinions about how well they are communicating the value of their plans since they are not getting formal employee feedback. And in companies that offer both DB and DC plans, only 40% say their employees appreciate their DB plans (which offer guaranteed streams of income) more than their DC plans (which do not); 29% are unsure and 29% disagree. Improvements Center on Plan Design Changes When asked what changes they would most like their company to make so their retirement plans could better meet employee needs if cost and regulations were not barriers, plan sponsors are more likely to mention a plan design feature than they are some type of improvement in communication or education. Seven in ten plan sponsors (70%) mention some type of program or plan design change as key changes they would like their company to make. Within that broad category, the company s match is most often mentioned: increase it (20%); introduce it (5%); or restore it (3%). About one in eight (12%) would like to have automatic enrollment and a similar share (11%) believe the employer contributing more to the plan, including through profit sharing increases, would help to better meet employee needs. Nearly half (48%) call for some type of education and communication, including 23% who specifically Attitudes Regarding Value of Plan* (All Plan Sponsors with DC and DB plan, n=89) Our company communicates successfully about the value of our DB plan(s) Our employees appreciate their DB plans more than they appreciate their DC plan 13% 31% 16% 24% 22% 29% 25% 13% 16% 7% 25 Strongly agree Somewhat agree neither agree nor disagree Some disagree Strongly disagree *Figures have been rounded to nearest whole number. Don t know/refused responses have not been included. > MetLife Qualified Retirement Plan Barometer

30 would like their company to provide access to professional financial or investment advice, as well as financial planning tools. However, they may be overlooking an opportunity to communicate about their plan which could help to increase the plan s perceived value. For example, information about DB plan earned income to date is only offered, on average, to 53% of employees. Very few plan sponsors mention introducing some kind of retirement income option, even among companies that only offer DC plans. For example, only 7% say they would like to add a plan design feature or allocation option such as an annuity that would provide guaranteed income, and a similar share (6%) would like investment options, such as a Roth IRA or managed accounts. Retirement Plan Changes Desired (All Plan Sponsors providing a response, n=101) Changes Desired Percent of Plan Sponsors 24 Program or Design Changes (net) 70% Increase match 20% Automatic enrollment 12% Increase or provide employer contributions or profit sharing 11% Add annuities or annuity distribution options/guaranteed income option 7% Provide/restore/unfreeze DB plan 7% Add other investment options, e.g., Roth, managed accounts, etc. 6% Introduce match 5% Automatic increases/escalation in contributions 4% Restore match 3% Eliminate limit on contributions/raise IRS limits 3% january Provide more generous benefits/more benefits 3% Other change in plan design, e.g., reduce waiting period, begin catch-up at age 45, freeze cash balance plan Communication/Education (net) 48% More education/communication 27% Access to professional financial advice/investment advice/planning tools 23% 14% Other 7% No changes are needed/wanted 3% Don t know 1% 23 Quotes from survey respondents. 24 Categories add up to more than 100% because multiple responses were accepted.

31 What Changes Would Plan Sponsors Like to See in their Own Plans? 23 Design the 401(k) plan to be more automated. DB-ification of the 401(k) plans. Automatic enrollment and periodic re-enrollment, automatic step-up, education campaigns regarding various aspects, including why to contribute, the value of the plan, how to invest, etc. Currently we offer pre-retirement seminars to employees within 2 years of retirement eligibility; feedback is that it would be better to offer by age 40 if we had the funds/resources, we would offer this seminar to more employees. 27 > MetLife Qualified Retirement Plan Barometer

32 Conclusion/Call to Action january In 2011, America will reach the five-year anniversary of the Pension Protection Act (PPA), which contained as many changes for DC plans as it did for DB plans. From a DC plan perspective, this landmark legislation represented the first major and broadbased public recognition that the outcomes expected for 401(k) and other individual account plans had failed to materialize without more regulatory intervention. From a DB perspective, it represented an acknowledgement that the combined and unintended effect of years of narrowly focused regulation had resulted in a recipe for underfunded promises. This study was conducted against a backdrop of incipient change in the landscape of qualified retirement plans. As the long-anticipated and wellknown demographic changes related to the aging Baby Boomer generation have begun, the direct and indirect effects are only beginning to emerge. Such effects on qualified retirement plans are no exception. Cultural change comes slowly to both plans and to their participants. The Qualified Retirement Plan Barometer baseline measure of the extent to which a retirement income culture exists is only a starting point, and it is our hope that it will help sponsors to develop greater levels of insight about their plans, and help public policymakers to gauge emerging success of new regulatory initiatives. The study findings suggest that large plan sponsors fall into three overall groups: a leading vanguard of plan sponsors may be emerging that have taken a step beyond the traditional norms, standard practices and areas of measurement that have been with the DC industry almost from its inception in 1978; these plan sponsors are beginning to shift the focus of their qualified retirement plans from assets to income a middle majority are grounded in maintaining the status quo, with a governing principle of staying competitive with others and offering benefits that will enable them to do so; and a minority core of plan sponsors that does not acknowledge a connection between savings and income as central to qualified plan design. Even among the first group, there appears to be incomplete alignment between their stated desire to help employees create retirement income for the future and a generally underdeveloped set of common goals, decision support tools, communications and policies designed to help workers make smart income decisions. Whether this contingent represents forward-thinking early adopters of change or a minority with distinct goals centered in their corporate culture is yet to be determined. However, these firms will be in the best position to capitalize on the new thinking and new tools emerging in the marketplace as the matter of retirement income as a means to retirement security are developed and brought to market. Firms in the second group may follow the first over time, as what it takes to stay competitive begins to change. This group, today, may be leaving significant value on the table by skewing their plan design and communication dollars so significantly to savings.

33 The third group of firms does not seek to do anything more than provide employees with a savings vehicle, and without a dynamic to trigger a change in core philosophy, this group is unlikely to change its objectives or approach. The study s findings suggest a number of ideas for plan sponsors to consider for the future: Although most of the ultimate burden for retirement security has shifted to employees, plan sponsors still play a critical role. As plan sponsor experience with auto-enrollment and auto-escalation has shown, while participant actions will always be part of the ultimate DC plan equation, plan sponsor decisions about plan design, plan objectives and how the plan and its objectives are communicated are likely to have an overriding effect on plan outcomes. plan sponsors will need to move beyond their comfort zones in order to change the norm. Safety in numbers practice norms has long been a hallmark of the qualified retirement plan system. As alternate options for outcome measurement and new education tools and communication strategies become available, plan sponsors will have new options to consider for their programs. Plan sponsors should carefully consider whether they should gear up to meet employee demand for lifelong income products. Indications are early, but they appear remarkably consistent across multiple studies and a wide range of plan sizes that employees are seeking a solution that will enable them to retire. Coupling this with the well-established findings that employees exhibit a strong preference for accessing benefits of all kinds through their employer suggests that plan sponsors should begin to consider how this might apply to retirement income features. Fiduciary concerns must be addressed by public policymakers before income annuities will take hold as a mainstay feature of DC plans. It is clear that while a workable safe harbor is needed, undue fiduciary risk is not the only obstacle to adoption of a guaranteed income component to qualified retirement plans. Addressing fiduciary concerns in a straightforward and simple manner is a prerequisite to more widespread adoption of income annuities in 401(k) plans. a balance between accumulation and income may be an optimal balanced scorecard for qualified retirement programs in the future. It is important that plan sponsors not lose the focus they have demonstrated in promoting the importance of accumulation as a retirement plan objective. What may be emerging for the future is the addition of income-related outcomes to traditional accumulation measures such as percentage participation and deferral percentage. If and as tools become available to promote a retirement income culture, plan sponsors will face some decisions about the future of their programs and how they support overall workforce management goals, from attracting and retaining 29 > MetLife Qualified Retirement Plan Barometer

34 talent to managing an older workforce through its glide path to retirement. Clear guidance on fiduciary risk will be an important supporting structure for such change. Sponsors will need to feel comfortable that they can introduce new goals in a manner that will not, in and of itself, add to fiduciary risk. The stakes are very high given the central role that our employment system plays in the process and especially given the growth of DC plans every plan sponsor interviewed in this survey has at least one DC plan as a component of their overall retirement program. Without sufficient savings in employersponsored accumulation vehicles, there would be too few funds available to convert to income for many employees. And without an articulated focus on income, too few employees may understand why high levels of savings are necessary for a secure financial future after they retire. january

35 Cultural change comes slowly to both plans and to their participants. The Qualified Retirement Plan Barometer baseline measure of the extent to which a retirement income culture exists is only a starting point, and it is our hope that it will help sponsors to develop greater levels of insight about their plans, and help public policymakers to gauge emerging success of new regulatory initiatives. 31 > MetLife Qualified Retirement Plan Barometer