Plan Sponsor Attitudes 2015

Transcription

1 Plan Sponsor Attitudes 2015 Sixth Edition For investment professionals and plan sponsors Not FDIC Insured May Lose Value No Bank Guarantee

2 Sixth Edition Survey Background 952 plan sponsors who use a wide variety of recordkeepers This presentation covers data and trends for plans with up to 2,500 participants and up to $100+ million in AUM Focused on results of plans that use an advisor or consultant The survey was conducted by an independent 3 rd party research firm and Fidelity was not identified 2 See final slide for additional survey details.

3 Sixth Edition Survey Background % Plans/Job Function 22% Owner/CEO 35% HR/Benefits 29% CFO/Financial 14% Other Plan assets (Millions) % Plans Under $2.5 9% <10 19% 10 - <50 26% 50 - <75 17% 75 - < % $100 and up 16% Plan size (Participants) Advised Sponsors Total % hire financial advisor/ consultant 3 Percentages in the table may not add up to 100% due to rounding.

4 Agenda Trends Areas of survey focus Plan design Investments Fiduciary duties Sponsor engagement Fidelity resources and support 4

5 TRENDS Why Plan Sponsors Begin Using an Advisor or Consultant 84% of all respondents use an advisor TOP REASONS: Need help with plan investments Concerned about their fiduciary responsibilities Want a better understanding of how well the plan is working for employees We have less time to devote to the plan and need someone to help us 5 Across all plan sizes.

6 TRENDS Trends in Advisor and Consultant Satisfaction How satisfied are you with your 401(k) plan advisor/consultant? How much do you agree that you are getting a good value from having a financial advisor/ consultant involved in the 401(k) plan? 57% 60% 62% 66% 70% 50% 54% 58% 61% 62% ONLY % 53 of the smallest plans report they are getting good value from their advisor. 6 Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants. The smallest plans have $2.5 million or less in plan assets.

7 TRENDS Plan Sponsors are Looking for Retirement Experts Are you actively looking to switch your advisor at this time? Why did you switch your advisor? Most common reason needed one who was more knowledgeable 16% 14% 10% 13% 17% 25% 30% 31% 42% 46% Top areas in which the sponsors need a more knowledgeable advisor: Offers proactive suggestions for improving plan performance Proactively consults on plan design Consults with us on how to best manage fiduciary responsibilities Helps us select and monitor investment options Helps us minimize costs Keeps us informed of regulatory changes 7

8 TRENDS Trends in Plan Sponsor Satisfaction Top 3 goals of Plan Sponsors: % 29 % Attracting 23 new employees 35 Preparing participants for retirement reducing costs % related to the plan Plan meets company goals Plan meets participant needs 49% 56% 54% 47% 62% 45% 52% Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants. Percentages may not add up to 100% due to rounding.

9 TRENDS Leverage Plan Design to Improve Savings Rates % % say participants do not save enough, up from 54% in did not implement a design change to avoid potential negative impact to or feedback from participants. Features Sponsors Used To Improve Savings Rates Auto-enrollment 43% 38% Employee education 35% 39% Matching contribution 27% 26% Annual increase program (AIP) Increase auto-enrollment default 21% 24% 17% 18% Automatic AIP 14% 18% 9 Based on top 2 scores on a 7-point scale. Plans with 25 to 2,500 participants.

10 TRENDS Recordkeeper Offerings are Expanding Services offered Investment performance Advisor Offers Recordkeeper Offers Offered within 3 years Offered within 5 years 93% 51% 64% 77% Participation rates 67% 63% 70% 87% Employee communications Employee investment education Fee and fiduciary disclosure General investing and asset allocation Legislative and fiduciary information Retirement and rollover planning Plan design and testing information Day-to-day troubleshooting 73% 60% 71% 92% 75% 59% 68% 89% 78% 64% 71% 89% 81% 51% 69% 83% 77% 54% 63% 84% 76% 62% 62% 89% 71% 63% 66% 88% 59% 68% 73% 91% % 92 advised plans have a relationship manager from a recordkeeper who plays an important role for their plan Advisors and consultants are the primary provider of a wide array of services. Recordkeeper capabilities are expanding. 10 Percentages in the table may not add up to 100% due to multiple answer options. Plans from 25-2,500 participants.

11 TRENDS Advisors and Recordkeepers are Both Servicing Plans DIFFERENCE FROM AVERAGE (PERCENTAGE POINTS) Satisfaction Plan Achieving Company Objectives (2.1) (0.5) 2.9 THEY HAVE EQUAL IMPACT MY PLAN RECORDKEEPER MY FINANCIAL ADVISOR/PLAN CONSULTANT Satisfaction Plan Achieving Participant Objectives Understanding of fees paid for recordkeeping services (10.7) (10.2) Together, advisors and recordkeepers raised scores Understanding of fees paid for advisor/ consultant services (14.8) Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants.

12 PERCENT PERCENT PLAN DESIGN Sponsors are Actively Making Changes In the past two years: % of plans have made an investment menu change % of plans have made a plan design change Points Points Plans from 25 to 2,500 participants.

13 PLAN DESIGN Changes Sponsors are Making Investment menu changes % % % % replaced an underperforming fund added investment options added lifecycle or target-date default option added an index fun Plan design changes % % % % auto-enrollment Roth 401(k) implement or restructure match annual increase program 13 Totals may not add up to 100% due to multiple answer options. Plans from 25 to 2,500 participants.

14 PLAN DESIGN Advisors Have the Greatest Impact on Plan Design MOST IMPACTFUL BY FUNCTION Overall 61% 15% 23% 1% ADVISOR OR CONSULTANT PLAN RECORDKEEPER EQUAL IMPACT OTHER Owner Finance HR 68% 14% 18% 61% 19% 19% 60% 14% 26% 69 % of plans with less than $50M pinpoint the advisor alone as the driver of plan design changes 0% 20% 40% 60% 80% 100% 14 Based on top 2 scores on a 7-point scale. Plans with 25 to 2,500 participants. Numbers may not total 100% due to rounding.

15 PLAN DESIGN Smaller Plans Need More Help Understanding Plan Design IMPORTANCE OF PLAN DESIGN ON PARTICIPANT OUTCOMES BY PLAN ASSETS AND IF THEY MADE A CHANGE 29% 46% Larger plans are more likely to make plan design changes to improve outcomes. Plans with less than $50M Plan with $50M or more 15 Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants.

16 INVESTMENTS Advisor Investment Expertise is Critical # 1 reason a sponsor begins to use an advisor is investment expertise. PLAN SPONSORS SAID: 97 % 83 % 89 % 63 % Review plan investments at least annually; 39% do it quarterly The advisor/consultant provides investment advice or guidance to participants about their 401(k) It is acceptable for the advisor to provide investment advice outside the plan An advisor s willingness to take on formal fiduciary duties is very important 16 Plans from 25 to 2,500 participants.

17 INVESTMENTS Investment menu changes to lower costs are trending up 80% 70% 60% 63% Despite the bull market, replacing an under performing fund is still the primary change. Cost sensitivity on fees continues, with index funds and lower cost share classes trending up. 50% 40% 30% 20% 10% 0% % 34% 33% 18% 16% 11% REPLACED AN UNDERPERFORMING FUND INCREASED NUMBER OF INVESTMENT OPTIONS ADDED A LIFE CYCLE OR TARGET DATE FUND ADDED AN INDEX FUND ADDED LOWER-COST CLASS OF SHARES REDUCED NUMBER OF INVESTMENT OPTIONS DESIGNATED A QUALIFIED DEFAULT INVESTMENT ALTERNATIVE (QDIA) 17 Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants.

18 INVESTMENTS Advisors and consultants drive investment menu changes Initial recommendation made by: Plan AUM Less than $50M $50M or More Financial Advisor 72% 65% Recordkeeper 11% 16% Internal Committee 15% 19% Across all job functions, 70% said the advisor was the driver of investment changes. As plan assets increase, the influence of the recordkeeper and internal committee roles increase. 18 Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants. May not total 100% due to multiple answer options.

19 FIDUCIARY Sponsors understanding of fiduciary responsibilities Plan sponsors overall understanding of their fiduciary responsibilities: 62 % 38 % are certain/very certain still need help THEY UNDERSTAND: 73% Participant communications and education 71% Investment options 65% Plan documents 65% Service provider selection 64% Plan expenses 57% Testing and reporting 19 Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants. Totals may not add up to 100% due to multiple answer options.

20 FIDUCIARY Who understands fiduciary duties best? DIFFERENCE FROM AVERAGE BY JOB FUNCTION (PERCENTAGE POINTS) OWNER HUMAN RESOURCES FINANCE Understand Plan Expenses Understand Provider Selection Understand Testing/Reporting Understand Plan Documents Understand Handling Contributions Understand Part Communications Understand Investments -7% -6% -6% -3% -4% -2% -1% 0% 0% 0% 1% 2% 2% 2% 3% 3% 3% 4% 6% 6% 7% 20 Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants.

21 SPONSOR ENGAGEMENT Respondents plan responsibilities and focus vary Ensure all job functions understand how advisors are helping meet their goals for the plan DIFFERENCE FROM AVERAGE (PERCENTAGE POINTS) Owner 2.95 Owners focus seems more high-level Advisor selection HR Other Finance 1.89 HR and Finance vary, but not as much as you might expect Finance: Broadly focused on multiple concerns, including plan design HR: Broadly focused on participant needs, but may need more help understanding the impact of plan design on participant outcomes. 21 Plans from 25-2,500 participants.

22 SPONSOR ENGAGEMENT All job functions play a role in plan decisions Owners top focus was finding an advisor, then appear more removed 48% 74% 54% Finance roles focus on recordkeeper selection and investment options HR was involved across the board but less involved with investments 70% 69% 70% 69% 63% 64% 60% 59% 58% 56% 55% 55% RECORDKEEPING AND ADMINISTRATIVE SERVICES FINANCIAL ADVISOR OR PLAN CONSULTANT SELECTION PLAN FEATURES OR DESIGN INVESTMENT LINEUP MANAGING COSTS RELATED TO THE PLAN Owner Finance HR 22 Percentages represent the % of respondents that indicated they are responsible for each decision type. Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants. Totals may not add up to 100% due to multiple answer options.

23 SPONSOR ENGAGEMENT Delaying retirement has consequences 86 % of plan sponsors said they have participants who delay retirement due to a lack of savings TODAY S REALITY 78% of workers age 50+ cite the need for money or health insurance as their primary reason for working 1 55% of working Americans are in fair or poor financial condition relative to covering all of their estimated expenses in retirement 2 25% of the U.S. labor force will be age 55+ by 2020, up from 13% in FUTURE CONSIDERATIONS Increasing health care costs due to age rating of health plan premiums (up to 3X higher for older workers) 4 Longer duration (from 53 to 66 days) and higher costs (from $2,227 to $3,485) of disability claims 5 As employment rates for older workers increase, employment rates of younger workers decrease, and may limit employment opportunities for younger workers AARP, June 2012; 2. Retirement Savings Assessment: A national online survey of 2,265 working households earning at least $20,000 annually with respondents age 25 and older from June October Data collection was completed by GfK and sponsored by Fidelity Investments , Stanford Center on Longevity; 4. AHIP.org, "Age Rating Restrictions", America's Health Insurance Plans, "Workers Compensation and the Aging Workforce," December 2011, National Council on Compensation Insurance, Inc. Younger workers are defined as those ages and older workers are those ages EBRI Notes, April 2014, "Labor-force participation rates of the population ages 55 and older."

24 SPONSOR ENGAGEMENT Plans need to be structured for retirement 66% of sponsors don't define clear savings or retirement income goals Fidelity believes plans should be structured to provide a minimum 50% level of income replacement throughout retirement A hypothetical participant may need to reach a savings rate of 15% combined with annual returns of 5.7% * Plan sponsors can use a combination of plan design features and investment menu options to help participants reach this goal. 24 * For illustrative purposes only. This statement illustrates what the plan design could potentially yield based on the following participant profile: starting age: 25; retirement age: 67; life expectancy to age 93; starting salary: $40,000; ending salary: $73,649; real salary growth rate: 1.5% annually; 3% annual employer contribution; starting deferral rate: 6% with an annual 1% increase; assumed annual rate of return: 5.7% (3.2% net of inflation; assumes no loans or withdrawals until retirement. This hypothetical example is based on monthly contributions to a tax-deferred retirement plan and illustrates the percentage of ending salary that annual distributions lasting to age 93 would equal. A participant s account may earn more or less than this example. Tax-deferred earnings and taxable contributions will be taxed at the time of withdrawal at the federal income tax rate in effect at that time. Investing in this manner does not ensure a profit or guarantee against loss in declining markets. Past performance is no guarantee of future results.

25 SPONSOR ENGAGEMENT Relationships continue to be key Choosing advisors 29% Referral from business contact 23% Existing relationship with an executive of your firm 13% existing personal relationship unrelated to your firm 6% Attorney or CPA referral 5% Marketing material and advertising Choosing recordkeepers 41% Advisor recommendation 24% Strong brand 17% Internal referral from employee or decision maker 12% RFP or Finals presentation 5% Other 4% Unsolicited call 3% Employee referral 2% Recordkeeper referral 14% Don t know/other 59 % changed their financial advisor without immediately changing their recordkeeper 25 Totals may not add up to 100% due to multiple answer options. Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants.

26 SPONSOR ENGAGEMENT Plan sponsors expect a lot from their advisor HOW FREQUENTLY ADVISOR/ CONSULTANT EVALUATED TOP EXPECTATIONS: Longer than a year 23% 62% Value delivered 14% No fixed schedule 63 % At least annually 59% Investment performance 57% Costs and fees SIX OTHER HIGH SCORERS: 44% Plan compliance 42% Fiduciary responsibilities 34% Experience 30% Improving plan measures 30% Improving participant outcomes 24% Reputation 26 Totals may not add up to 100% due to multiple answer options. Based on top 2 scores on a 7-point scale. Plans from 25 to 2,500 participants.

27 RESOURCES Support for your success FUND ANALYTICS & MAPPING RETIREMENT LEADERSHIP INVESTMENT INSIGHTS 27 For illustrative purposes.

28 For more information Please contact me or your Fidelity representative at For more information visit advisor.fidelity.com/dcio 28

29 For investment professional and plan sponsor use only. Not for use with plan participants. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. This information is provided to investment professionals and plan sponsors for educational purposes only and should not be relied on as the primary basis for any investment, financial, or tax planning decisions. This information should not be construed as investment advice, as defined under the Employee Retirement Income Security Act of 1974, as amended ( ERISA ). The information provided herein is general and educational in nature and should not be construed as legal advice or opinion. Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money. You must make a determination whether an investment in any particular security or securities is consistent with your client's investment objectives, risk tolerance and overall financial situation. IMPORTANT: All data and information are from the following sources unless otherwise specified: Survey summary: E-rewards, an independent market research company, conducted an online survey of 952 plan sponsors on behalf of Fidelity in March Respondents were identified as the primary person responsible for managing their organization s 401(k) plan (ranging in size between 25 and 10,000 participants), and the survey focused on those plan sponsors (803, or approximately 84%) using the services of a financial advisor or plan consultant. Fidelity Investments was not identified as the survey sponsor. The experiences of the plan sponsors who responded to the March 2015 survey may not be representative of those other plan sponsors who use the services of an advisor. Building Futures, data as of 12/31/2014. Based on Fidelity analysis of 21,300 corporate defined contribution (DC) plans (including advisor-sold DC) and over 13 million participants as of 12/31/2014. Fidelity's recordkept database of DC plans excludes tax-exempt plans, nonqualified plans, and the FMR Co. plan. Third-party trademarks and service marks are the property of their respective owners. All other trademarks and service marks are the property of FMR LLC or an affiliated company FIDELITY INVESTMENTS INSTITUTIONAL SERVICES COMPANY, INC., 500 SALEM STREET, SMITHFIELD, RI