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Simplified and AutomaticEnrollment

Progress and National Trends

Presented by:

Steve Banks

Joe Rollins

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Why is voluntary retirement plan enrollment critical?

• Pensions Across the US – Since 2007– 48 states changed pensions– 28 states increased employee

contribution rates– 14 states have adjusted COLAs– 12 states changed multipliers

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Why is voluntary retirement plan enrollment critical?

• FRS Pension Plan– Instituted 3% employee contributions– Increased AFC from high 5 to high 8

• Decreased pension payments by 3.5%

– COLA decreasing the more years you work after 2011

• FRS Investment Plan– Contributions vary each year

• Based on Pension Plan contributions• Added Pension Plan unfunded liability payments

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Effects of Pension Plan Changes on Retirement Security

Center for State and Local Government Excellence & National Association of State Retirement Administrators

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Why is voluntary retirement plan enrollment critical?

FRS Contribution Rates

Blended Rates as Enacted 2.91 Uniform UAL on all payroll bases 2.65 PEORP Administration 0.04 HIS Contribution 1.66 Total Employer Contribution Rate 7.26 Employee Contribution Rate 3.00

10.26

Source: Florida Department of Management Services

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Why is voluntary retirement plan enrollment critical?

• Sample:– FRS Pension: • AFC $60,000• Factor 1.60%• Years 30

– Pension = $ 28,800

– FRS Investment • 28,800/.05 = $576,000

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Effects of Pension Plan Changes on Retirement Security

Center for State and Local Government Excellence & National Association of State Retirement Administrators

Effects of pension Plan Changes on retirement securityTable 2. Additional Supplemental Savings Needed to Attain Lower and Higher Level Savings Targets

State Employee Group

Lower Level Savings Plan

Higher Level Savings Plan

(75% of Final Salary) (85% of Final Salary)

Florida Pre $368,724 $494,632 Post $389,104 $515,013

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Existing 403(b) and 457(b) Plans

• In place in Florida school districts since 1960’s

• National average participation rate is 29% – Florida – 30.1%

• National average account balance is $31,000– Florida K-12 = $25,400

• Therefore, the majority of the remaining 70% will certainly be required to lower their standard of living in retirement

• Savings rates are at present not enough to reach the goals from the previous slide

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Florida Enrollment statistics403(b) and 457(b) Plans

• 19,907 New enrollments 2013 to 2014

• 9,648 Retirements with open accounts

• Net increase of 10,259– 3.1% of total full-time employees

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Use of Automatic Enrollmentin Private Industry

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Private industry401(k)

• Use of Automatic Enrollment (Deloitte Consulting Survey)– 86% said higher participation rates– 57% said contribution rates increased– 62% attributed increased participant awareness

to automatic enrollment

– 3% average initial deferral rate– 18% include auto-escalation

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Private industry401(k)

• Companies using Automatic Enrollment– Alcoa– Apple– AT&T– Boeing– Citigroup– IBM– Kraft Foods– Johnson & Johnson– Lowes– Macy– Verizon

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Private industry401(k)

• Employees that were helped the most–Women–Minorities– Younger Workers–Moderate Income employee – most

likely to under-saveEvidence shows that participation in these groups can go from 1 of every 5 participants to 4 of every 5

Source: Retirement Made Simpler – Coalition formed by AARP, FINRA and Retirement Security Project

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Initiatives by National Tax-deferred Savings Association (NTSA)

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NTSA• Began talking about Automatic Enrollment in

2014• Created a task force in Winter of 2015 to

research the use of auto-enrollment plans for Non-ERISA employers– Consisted of TPAs, NTSA legal counsel, nationally

recognized investment advisors

• Established Best Practices guide published in May 2015

• A main meeting topic at national conference in June 2015

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NTSA• Our view– Good overall message – Good employee communication layout– Good information on considerations prior to

implementation• Our approach more focused

– Focused on pure Automatic Enrollment• We think Acknowledged Enrollment best

– Referenced advisors providing program• We think TPA is only one to provide unbiased and

effective program

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Federal Thrift Savings Program(FTSP)

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FTSP• Comments from Renee Wilder, Director

– Office of Enterprise Planning for the FTSP Board– The Federal Agency that administers the Thrift

Savings Plan

• “In 2010 we introduced Automatic Enrollment to all employees in the Federal Government’s Thrift Plan. There were many issues, which all got worked out and today the employees and employee groups are happy with the program. As previously stated, less than 4% opt out.”

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FTSP• Quick facts• Enabling authorization with the TSP Enhancement Act of 2009 – an

amount up to 5%• Automatic enrollment implemented August 2010• 3% level established but legislation required default investment of

the G Fund (special Treasury securities)• Legislation passed 2014 authorizing default investment into the

age appropriate Lifecycle fund – change to be implemented before sept 18 of this year

• Auto-enrollment has captured approximately 96-97% of all new federal employees (excluding the uniformed services).  In other words, less than 4% opt-out

• Many of those auto-enrolled have not made other allocations or increases in contributions

• Those who have made changes have largely increased their contribution levels

• Auto-enroll is a major win.  Participants like it and it gives us the opportunity to reach out and encourage many people to save and increase (many of whom would not have been saving)

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Progress by TSACG

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Progress• Several Florida districts have taken it

to their unions and have received support for our method of enrollment

• One district asked for a legal opinion on the use of our methodology not being in conflict with the State of Florida wage and garnishment statues. We have secured that opinion.