Part I: Best Practices for Defined Contribution Plans. DC Best Practices Webinar Series -

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1 DC Best Practices Webinar Series - Part I: Best Practices for Defined Contribution Plans Blue Prairie Group Matt Gnabasik Managing Director October 4 th, 2012

2 Introduction Source: Diversified s Prescience

3 Introduction (Forward) Why host a webinar on defined contribution best practices? Recent macro events and new research have systematically exposed the main structural flaws of 1 st and 2 nd generation participant-directed defined contribution plans: - Chronic under participation and low savings rates; - Poor investment allocations leave participants exposed to unnecessary risk levels; - High costs and difficult-to-understand cost structures; - Excessive leakage out of plans through loans and cashing out account balances; - Lack of an established way to turn retirement assets into guaranteed income for life. 3

4 Introduction (Forward) In summary, there is a growing consensus that traditional DC plans need to be structurally modified to address their inherent limitations - this is what people often refer to as the DB-ification of DC plans. As concerned sponsors and consultants, it s up to us to redesign the basic structure of our plans in order to drive as many participants toward retirement security as possible. That is how we will solve the looming retirement crisis, one plan at a time. With so much complexity, we thought it necessary to host a this webinar series that will explain in detail best practices for defined contribution plans. These webinars will provide a roadmap for plan sponsors to objectively evaluate their plan and to redesign it with the explicit goal of putting as many people as possible on the path towards retirement security, while minimizing organizational and fiduciary risk. 4

5 Introduction continued Why a webinar and am I qualified to host it? - This webinar series is based on my soon-to-be-published book, DC Best Practices: Solving the Retirement Crisis One Plan at a Time. - I ve spent my entire 20-year career working with all types of ERISA plans around the country. - I am the author of Smart Choices: Selecting and Administering a Safe 401k Plan, that covered best practices. - I founded Blue Prairie Group, a fee-based retirement and investment consulting firm that has a long track record of embracing best practices in the institutional ERISA marketplace. 5

6 Blue Prairie Group s DC Best Practices Checklist 6

7 The Retirement Crisis (Chapter #1) - Average Company Contributions: 3.3% - Average Participation Rate: 76% - Average Salary Deferral (for 401k plans): 5.9% - Average 401k Account Balance: $78,276 - Median 401k Account Balance: $25,550-75% of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts 7

8 Best Practice #1 Resolve to improve your plan; benchmark; and set strategic goals The Blue Prairie Group Prairiedigm compliance & fiduciary governance retirement income Maximize employee retirement readiness. Minimize employer fiduciary risk profile. automatic plan design 8

9 Plan Participation Rates 9

10 Participation Rates by Plan Size 10

11 Participation Rates by Industry Sector,

12 Deferral Rates 12

13 Deferral Rates by Plan Size 13

14 Deferral Rates by Industry Sector,

15 Median Returns Source: Hewitt 15

16 Median Portfolio Risk Source: Hewitt 16

17 Diversification and the Average Investor 17

18 Seven Essential Habits of Highly Confident Retirees Source: BlackRock Annual Retirement Survey 18

19 Best Practice #1 Resolve to improve your plan; benchmark; and set strategic goals 19

20 Best Practice #1 Resolve to improve your plan; benchmark; and set strategic goals 20

21 Best Practice #2 Implement Auto Features and Revisit Key Plan Data Features 21

22 Best Practice #2 Implement Auto Features and Revisit Key Plan Data Features 22

23 Best Practice #2 Implement Auto Features and Revisit Key Plan Data Features 23

24 Best Practice #2 Implement Auto Features and Revisit Key Plan Data Features 24

25 Best Practice #2 Implement Auto Features and Revisit Key Plan Data Features 25

26 Best Practice #2 Implement Auto Features and Revisit Key Plan Data Features 26

27 Best Practices Summary I. Benchmark Your Plan From the Perspective of Maximizing Retirement Readiness for Employees and Minimizing Organizational/Personal Fiduciary Risk II. Implement Automatic Plan Design Features and Revisit the Employer Matching Contribution and Eligibility Provisions To be continued in Part II of the webinar series 27

28 Bio & Contact Info Thank you Matt Gnabasik 140 S Dearborn St, Ste 300 Chicago, IL matt@blueprairiegroup.com 28