2017 Hot Topics in Retirement and Financial Wellbeing - · PDF fileAon Hewitt 1 Executive...

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Aon HewittRetirement & Investment

2017 Hot Topics in Retirement and Financial Wellbeing

Table of Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

2017 Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Financial Wellbeing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Tools for Near-Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Retirement Income Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Defined Contribution Plan Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Communication Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

DOL Fiduciary Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

DC Plan Investment Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

DC Plan Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

DC Plan Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

DC Plan Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

DB Plan Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

DB Plan Investment Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

PBGC Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Lump-Sum Windows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Plan Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Respondent Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

About This Survey

Aon Hewitt’s Hot Topics in Retirement and Financial Wellbeing is an annual benchmarking report that examines employers’ financial benefit focus areas for the upcoming year. The 2017 version marks the 13th installment of the report and is based on survey responses from roughly 250 employers covering nearly 9 million workers.

By looking at the trends shown in this report, employers can help benchmark their offerings against those of other companies and help craft their benefits offerings to better align with their overall objectives.

Aon Hewitt 1

Executive Summary

Based on the responses retirement plan sponsors provided to Aon Hewitt’s 2017 Hot Topics in Retirement and Financial Wellbeing survey, this year should be a very busy year for them.

We are hearing from employers that they do not intend to sit on the sidelines waiting for the environment to dictate their next move. Instead, they are taking action in an effort to bolster employee benefits and help their workers plan for a secure financial footing—both today and in retirement.

For many employers, these efforts are concentrated on assembling a broad financial wellbeing program. Some employers’ initiatives are focused on enhancing their defined contribution (DC) plans, while other employers are making adjustments to their defined benefit (DB) pension plans to mitigate the plans’ financial risk. Overall, three main themes emerged from the data:

1. Far and away, the top initiative for employers is focusing on workers’ financial wellbeing.

• Nearly six out of 10 employers (59%) are very likely and another 33% are moderately likely to focus on the financial wellbeing of workers in ways that extend beyond retirement decisions. While financial wellbeing has been a hot topic for the past several years, 60% of employers feel its importance has increased at their organization over the last 24 months. • Roughly half of companies (49%) are still in the process of creating their financial wellbeing strategy, but that is not stopping them from offering tools, services, and educational campaigns on various financial matters to their workforces. As of the beginning of the year, 58% of employers have a tool available to workers covering at least one aspect of financial wellbeing.1 By the end of the year, the percentage is expected to climb to 84%. • Integrating health and wealth will be a key message to workers, given that 86% of employers are very or moderately likely to communicate this link to their workforces.

2. Employers are focused on enhancing both the accumulation and decumulation phases for their defined contribution plan participants. • Increasing savings rates is the primary focus of many employers. Only 15% of respondents are comfortable with the average savings rate in their plan. Of the rest, 62% are very likely to take strides to increase the level in 2017 through measures such as increasing defaults, changing contribution escalation provisions, or sending targeted communications to participants. • Only 10% of employers feel satisfied with their workers’ knowledge about how much they need to save to achieve an adequate retirement savings amount, and nearly all of the employers (87%) that are not satisfied are likely to take action this year to help workers make plans to reach their retirement goals.

• More employers than ever are providing options for participants to convert their balances into retirement income. Just over half of employers (51%) now allow individuals to receive automatic payments from the plan over an extended period of time.

3. Defined benefit pension plan sponsors are revisiting the ways they are removing risk from their plan. • In an effort to dampen the impact of market fluctuations on their plan’s funded status, employers are adopting asset portfolios that match the characteristics of the plan’s liabilities. Currently, 40% of employers are using this strategy, but the prevalence is expected to grow to more than 50% by year-end. • Nearly three out of 10 employers (28%) are very likely or moderately likely to purchase annuities for at least some of their plan participants—an increase of 10 percentage points from 2016. • Nearly one-third (32%) of employers intend to offer a lump-sum window to terminated vested participants.

1 We asked employers about seven different categories that fall under the umbrella of financial wellbeing: debt management, budgeting, simple investing, financial planning, health care education, savings prioritization, and assistance with saving for specific life events like buying a home or paying for college.

2 2017 Hot Topics in Retirement and Financial Wellbeing

2017 Initiatives

As has been the case for the past few years, employers are setting their sights on creating financial wellbeing programs in 2017. Nearly six out of 10 employers (59%) are very likely to create or focus on a program that extends beyond retirement decisions. Three years ago, this percentage was 30%.

However, financial wellbeing is not the only area of focus for employers. Nearly half (44%) said they were very likely to measure the competitive position of the retirement program, and more than one-third (35%) are very likely to project the retirement income adequacy of their population. Both of these measures are high-water marks in the 13 years Aon Hewitt has conducted this survey.

How likely is your organization to address the following initiatives?

Very Likely (2017) Moderately Likely (2017) Very Likely (2016) Moderately Likely (2016)

59%

44%

33%

35%

9%

Create or focus on financial wellbeing of employees that expands beyond retirement

decisions

Measure the competitive position of the retirement program

Implement initiatives to address retirement saving gaps within your

employee population

Measure/project the expected retirement income adequacy of

your employee population

Evaluate phased retirement alternatives

0% 20% 40% 60% 80% 100%

33%

39%

47%

42%

29%

33%

42%

48%

49%

36%

56%

41%

29%

29%

6%

Aon Hewitt 3

Financial Wellbeing

Often, one of the first steps in developing a financial wellbeing program is to create an overall strategy. At the beginning of 2017, nearly half of companies (49%) are in the process of developing their strategy. Roughly one out of six (16%) has already created a strategy and is in the process of executing on it. The reason for the increased focus is clear—60% of employers think the importance of financial wellbeing has increased at their organization over the past 24 months.

What statement best describes your organization’s development of a financial wellbeing strategy?

Has the importance of financial wellbeing changed within your organization during the past 24 months?

We are in the process of creating a financial

wellbeing strategy49%

At this time, we do not intend to create a broad financial wellbeing strategy

28%

We have created a financial wellbeing strategy and are in the

process of executing on it16%

Our financial wellbeing strategy is fully executed

7%

— + — + — +

2% 38% 60%D E C R E A S E D S A M E I N C R E A S E D


Financial Wellbeing (Continued)

Perhaps because many employers are in the process of developing their strategy, the prevalence of financial wellbeing tools and services currently offered to workers is low. However, the appetite is strong for adding these in 2017.

Does your organization already offer (or how likely is it to offer) services, tools, or educational campaigns to address the following financial wellbeing topics?

Already Offer Very Likely to Offer* Moderately Likelyto Offer*

Not at All Likelyto Offer*

Basics of financial markets/simple investing 43% 42% 36% 22%

Health care education and planning 37% 38% 40% 22%

Financial planning 35% 37% 37% 26%

Budgeting 34% 36% 33% 31%

Prioritizing savings 29% 38% 36% 26%

Debt management 26% 26% 42% 32%

Assistance with savings during life stages 26% 28% 41% 31%

*Percentages are among companies that do not already offer.

One emerging area of focus is on student loan debt. According to Aon Hewitt’s 2016 Financial Mindset Study, more than one-quarter of workers (28%) have an outstanding student loan, and for some, their debt situation is perilous. As a result, employers are increasingly looking into programs that assist with paying off the existing student loan and/or helping them—and in some cases, their children— to avoid future loans.

Aon Hewitt 5


30%

25%

20%

15%

10%

5%

0%

30%

25%

20%

15%

10%

5%

0%

15%

3%2%

6%

7%5%

3%

7%

22%24%

7%

28%

College savings assistance

Employer contributions to 529 plan

College savings assistance

Employer contributions to 529 plan

Student loan repaymentEmployer moneyto pay off existing

student loans

Student loan repaymentEmployer moneyto pay off existing

student loans

Student loan consolidation

Employer tool to consolidate/refinance loans

Student loan consolidation

Employer tool to consolidate/refinance loans

College savingsfacilitation

Employer tool for529 contributions

College savingsfacilitation

Employer tool for529 contributions

Does your organization already offer (or how likely is it to offer) the following benefits related to student loans and college savings?

Already Offer Very Likely to Offer* Moderately Likely to Offer*




Why are you creating or expanding your financial wellbeing program?

2017 2016

The reasons employers are turning their attention to financial wellbeing programs are diverse. As was the case last year, a large majority of employers (84%) believe offering these benefits is the right thing to do. More than three-quarters (78%) think financial wellbeing will help increase employee engagement.

In 2017, many employers will be looking at financial wellbeing programs to improve drags on productivity. More than one-half (57%) are hoping that financial wellbeing initiatives will decrease the time workers spend on the job dealing with financial issues—up from 44% in 2016.

84%We believe it is the right thing to do

85%

0% 20% 40% 60% 80% 100%

49% of workers acknowledge they spend time at work dealing with personal finances. —Aon Hewitt’s 2016 Financial Mindset Study

78%Increase employee engagement80%

60%Improve retirement statistics (e.g., improved adequacy, decreased

leakage, higher participation rate) 58%

57%Decrease employee time spent addressing financial issues (either on

the job or through absenteeism) 44%

37%Decrease medical costs (e.g., health care, disability,

workers’ compensation) 26%

36%Employees are asking for these types of benefits 33%

Aon Hewitt 7


More than one-third of employers (37%) are building their financial wellbeing program in an effort to decrease medical costs. As a result, many employers are planning to communicate the links between financial stress and physical health. This number increased 14 percentage points from 2016. However, integration of financial and physical wellbeing remains light—only 34% of companies have an integrated wellness program that combines financial and physical components.

How likely are you to address the following initiatives related to integrating retirement planning with health and welfare decisions?


45%

41%

26%

22%

14%

14%

Communicate the link between financial stress and

health and wellbeing

Incorporate reminders and education about the savings program into annual enrollment

communications

Provide employees with help on prioritizing and optimizing their

health and retirement decisions

Include health care education and plan choices in the retirement

commencement process

Show projected health care costs in retirement projections

Incorporate defined contribution plan elections in annual health

care enrollment

0% 20% 40% 60% 80% 100%

41%

38%

51%

34%

30%

22%

49%

39%

51%

34%

39%

21%

31%

37%

24%

18%

9%

14%



40%

30%

20%

10%

0%

36%34%

3%

27%

We have a physical wellbeing initiative,

but no financialwellbeing strategy

We have a financial wellbeing strategy,

but no physicalwellbeing initiatives

We have separatefinancial wellbeing

and physical wellbeing approaches

We include financial wellness as a pillar

of a wellbeing program that includes

physical health

What statement best describes your organization’s approach to financial wellbeing and physical wellbeing?

Aon Hewitt 9

Tools for Near-Retirees

Three-quarters of employers believe they will see an increase in their retirement- eligible population within the next three years. In response, many employers are ramping up their communication to near-retirees and increasing the level of automation and self-service available.

Which of the following actions does your organization plan to take to deal with the increase in retirement-eligible participants?

Completed Recently Very Likely to Take Action*

Moderately Likely to Take Action*

Not at All Likely to Take Action*

Providing retirement planning education to retirees 19% 49% 30% 21%

Increasing the level of automation, service,

and/or web access15% 37% 28% 35%

Providing help with Medicare planning 15% 16% 40% 44%

Providing help with Social Security planning 15% 24% 36% 40%

Increasing communication about the retirement process 10% 50% 37% 13%

Outsourcing additional services to an outside party 10% 10% 25% 65%

*Percentages are among companies that have not already taken action.


Retirement Income Solutions

Within defined contribution plans, more employers than ever are allowing participants to receive their payments over an extended period of time.

Does your organization already offer (or how likely is it to offer) the following features to help participants convert their savings plan account balances into lifetime income?

Already Offer Very Likely to Offer*

Moderately Likely to Offer*

Not at All Likely to Offer*

Online modeling tools or mobile apps to help participants determine how much they can spend

each year in retirement66% 25% 40% 35%

Plan distribution option allowing participants to elect an automatic payment from the plan over an

extended period of time51% 10% 32% 58%

Within the plan: Professional management (managed accounts) with a drawdown feature (provider

allocates participant assets for income and manages the annual amount paid from the plan)

29% 10% 24% 66%

Within the plan: Managed payout funds (those with a specific annual target payout percentage

with no insurance guarantees)14% 4% 21% 75%

Facilitation to purchase annuities outside the plan as options for plan distributions 12% 3% 16% 81%

Within the plan: Annuity or insurance products as part of fund lineup (e.g., guaranteed minimum withdrawal

benefits, minimum annuity payout, fixed annuities, other)8% 3% 11% 86%

Qualified longevity annuity contract (QLAC) that permits an in-plan deferred annuity purchase 3% 2% 10% 88%

Ability to transfer assets to a defined benefit plan in order to receive an annuity 3% 2% 5% 93%


Aon Hewitt 11

Retirement Income Solutions (Continued)

Historically, the largest barrier cited by plan sponsors to implementing in-plan income solutions was a desire to see the market evolve more. While market evolution is still a significant barrier, fiduciary concerns are now cited by more employers as a major barrier.

What are the reasons your organization does not intend to add in-plan income solutions?

Major Reason (2017) Minor Reason (2017) Major Reason (2016) Minor Reason (2016)

46%

41%

40%

33%

24%

19%

8%

Fiduciary concerns

Waiting to see the market evolve more

Operational or administrative concerns

Participant utilization concerns

Difficulty with participant communications

Cost barriers

Preference for participants leaving the plan upon termination

0% 20% 40% 60% 80% 100%

32%

34%

39%

38%

42%

42%

22%

30%

29%

45%

41%

43%

40%

27%

48%

53%

40%

34%

28%

20%

10%


Defined Contribution Plan Initiatives

Lifetime income is just one area employers plan to address in 2017. They are also focusing on ensuring that workers are participating in the plan and saving at appropriate rates. Most plan sponsors intend to focus on multiple fronts.

Please indicate your organization’s satisfaction with the current level of each aspect of employee behavior and any plans to address the topic.

Satisfied with Current Position;

Not Likely to Address This Year

Very Likely to Address This Year*

Moderately Likely to Address

This Year*

Although We Would Like to Improve Our

Current Position, Unlikely to Address

This Year*

Increasing participation: Increasing the number of eligible employees actively

saving in the plan42% 60% 28% 12%

Retaining assets: Encouraging individuals to keep their assets in the plan upon

retirement or termination31% 15% 34% 51%

Consolidating assets: Encouraging individuals to roll assets into the plan 27% 12% 34% 54%

Discouraging cash-outs: Encouraging terminated employees to keep their assets

focused on retirement and not cashing out their retirement savings

25% 19% 31% 50%

Improving diversification: Encouraging participants to invest in a diversified asset mix

with “appropriate” risk22% 54% 31% 15%

Encouraging lifetime income: Supporting participants in the process of converting

account balances to lifetime income21% 14% 35% 51%

Minimizing leakage: Discouraging participants from taking loans and

withdrawals from the plan16% 30% 37% 33%

Encouraging higher contribution rates: Supporting participants in contributing more

to help meet their future retirement needs15% 62% 29% 9%

Assessing long-term savings opportunities: Helping participants understand various

options available (pretax, Roth, HSAs, college savings, stock programs, etc.) and

how to choose

12% 37% 39% 24%

Recognizing retirement readiness: Helping participants understand their

retirement savings needs and having plans in place to reach retirement savings goals

10% 54% 33% 13%

Addressing broad financial wellbeing: Focusing on underlying reasons individuals do not participate or save more in the plan

8% 43% 37% 20%

*Percentages are among companies that are not satisfied with their current position.

Aon Hewitt 13

Defined Contribution Plan Initiatives (Continued)

Encouraging higher contribution rates

Increasing participation

Addressing broad financial wellbeing

Improving diversification

Encouraging lifetime income

Recognizing retirement readiness

Minimizing leakage

Discouraging cash-outs

What is the most important aspect of participant behavior your organization should address?

28%

15%

25%

7%

2%

16%

6%

1%

Employers Are Helping Workers Improve Their Financial Situation

More employers than ever are likely to expand their financial wellbeing programs in 2017

Top financial topics for employers to provide workers with tools, services, or education:

Employers will be creating a broad financial wellbeing strategy in 2017

59% 49%

33%

43% 37% 35%

23%

A R E V E R Y L I K E L Y

( O F F E R A S O F B E G I N N I N G O F Y E A R )

I N T E N D T O C R E A T E A S T R A T E G Y T H I S Y E A R

A R E M O D E R A T E L Y L I K E L Y A L R E A D Y H A V E A S T R A T E G Y

Basics of Investing Health Care Education Financial Planning

84%

34%

37% 57%

1 B E L I E V E I T I S T H E R I G H T T H I N G T O D O

O F E M P L O Y E R S H A V E A N I N T E G R A T E D W E L L B E I N G P R O G R A M T H A T

F E A T U R E S B O T H F I N A N C I A L A N D P H Y S I C A L W E L L B E I N G

O F E M P L O Y E R S A R E B U I L D I N G A F I N A N C I A L W E L L B E I N G P R O G R A M I N A N

E F F O R T T O D E C R E A S E M E D I C A L C O S T

78%

2 I N C R E A S E E M P L O Y E E E N G A G E M E N T

60%

3 I M P R O V E R E T I R E M E N T P L A N S T A T I S T I C S

4 D E C R E A S E W O R K E R T I M E S P E N T A D D R E S S I N G F I N A N C I A L I S S U E S

Making the connection between health and wealth

Most popular reasons for expanding financial wellbeing programs:


9%

11%

12%

Communication Approaches

Employers are increasingly taking a more personalized and mobile approach to getting the word out to workers about the plan.

Personalized communication

Real-time chat sessions (Ask an Expert)

Mobile websites or apps

Text messages

On-site meetings

Games/gamification

Video

Social media—internal (Chatter, Yammer, etc.)

Webinars

Podcasts

Virtual events or environments

Social media—external (Facebook, Twitter, YouTube, etc.)

0% 100%

38%

How much does your organization use each of the following communication channels to encourage and educate plan participants?

Use Extensively Use Selectively Rarely Use

45% 13%

13%26% 55%

30%

30%

51% 11%

46% 14%

13% 45% 25%

8% 33% 23%

9% 18% 30%

16%2%

2%

34%

4% 14% 30%

26%

3% 24%

1% 22%

The percentage of companies extensively using mobile websites or apps has increased from 18% in 2016 to 30% in 2017.

Aon Hewitt 17

DOL Fiduciary Rule

In 2016, the U.S. Department of Labor (DOL) announced a new law that defines “fiduciary advice.” Most employers (63%) believe this will have a low impact on their plans. Nonetheless, many employers are taking action.2

2 The Hot Topics survey was conducted several weeks before the U.S. national election was held and therefore captures employer sentiment on the DOL fiduciary rule at that time.

How much impact do you believe the new Department of Labor (DOL) rule that defines fiduciary advice will have on your plan?

No Impact15%

Low Impact 63%

Moderate Impact 21%

Significant Impact1%


DOL Fiduciary Rule (Continued)

What steps do you plan to take as a result of the new DOL rule that defines fiduciary advice?




Hire a 3(21) fiduciary (i.e., an outside party who

provides advice on the funds)40% 3% 14% 83%

Confirm plan governance and expectations

of committee members29% 70% 23% 7%

Review employee communications 15% 67% 26% 7%

Review the roles of third-party advisors 13% 47% 32% 21%

Evaluate existing investment education materials 12% 67% 24% 9%

Change recordkeepers 8% 1% 8% 91%

Hire a 3(38) fiduciary (i.e., an outside party who has

discretion, authority, and control over the plan’s assets)

4% 2% 9% 89%


Aon Hewitt 19

DC Plan Investment Consultants

Most employers have relationships with outside investment consultants for their DC plans, with advisors who serve in a 3(21) capacity particularly favored.3 In terms of investment actions, companies are focusing on cost. More than one-third of employers (36%) have changed fund options to reduce cost, while nearly three-fourths of the rest (71%) are very or moderately likely to do so in 2017. Furthermore, half of employers are very likely to negotiate more favorable pricing with vendors and/or fund managers in 2017.

One way employers are achieving cost reductions is by moving from actively managed to indexed funds. One-quarter have already done this, while 43% of the remaining group are very or moderately likely to do so in 2017.

3 An ERISA Section 3(21) fiduciary serves as an advisor only. An ERISA Section 3(38) fiduciary has discretion, authority, and control over a plan’s assets.

What category best describes your organization’s relationship with investment consultants for your DC plan?

We use outside investment consultants, and they serve as

3(21) fiduciaries 56%

We use investment consultants, and they serve

as 3(38) fiduciaries 3% We use outside

investment consultants, but they do not serve

as fiduciaries to our plan 16%

We do not use outside investment consultants

13%

We use outside investment consultants, but I do not know whether they

are fiduciaries or not 12%

Overall, 87% of employers use outside investment consultants for their DC plans.


DC Plan Expenses and Fees

What action is your organization likely to take with respect to plan expenses and fees?




Review the plan’s total plan cost (including fund expenses, recordkeeping

fees, trustee fees, etc.)

34% 80% 18% 2%

Restructure fees in the plan so administrative fees are

assessed to participants in a more equitable manner

(e.g., consistent, asset-based revenue sharing or per-person

charge to participants)

33% 14% 27% 59%

Hire a third party to benchmark or evaluate costs 32% 39% 25% 36%

Have participants share less of the plan expenses 12% 8% 9% 83%

Have participants share more of the plan expenses 7% 8% 14% 78%


Aon Hewitt 21

DC Plan Investments

What action is your organization likely to take with respect to your defined contribution plan investments?




Implement a self-directed brokerage window 39% 6% 10% 84%

Change/alter fund options to reduce costs 36% 30% 41% 29%

Negotiate more favorable pricing with vendor and/or

fund managers35% 50% 33% 17%

Delegate management to a third-party fiduciary 31% 4% 14% 82%

Move to a customized solution for target-date funds (underlying

investments and/or glide path)31% 7% 20% 73%

Move mutual funds to institutional/separately

managed funds28% 6% 26% 68%

Change some or all funds from actively managed to indexed 25% 10% 33% 57%

White-label the funds (i.e., by removing the name of the fund manager or creating

fund-of-funds)

17% 5% 18% 77%

Add fund(s) designed to provide enhanced diversification

(inflation protection, real assets, hedge funds, etc.)

15% 6% 34% 60%

Change funds to a manager-of-manager or fund-of-funds

approach14% 2% 15% 83%

Consolidate the funds and group by investment objective rather

than asset class7% 3% 19% 78%



DC Plan Investments (Continued)

As plan sponsors hone their investment lineups, the trend of using fewer of the investment funds offered by their recordkeepers is taking shape slowly among employers.

Do you offer the target-date fund that is managed by your plan’s recordkeeper or affiliated company?

2017 2016

What change, if any, do you expect to make regarding the bundling of your administration and investment providers?

2017 2016

50%

40%

30%

20%

10%

0%

80%

60%

40%

20%

0%

41%

3%

23%

5%

29%

71%

9%

21%

Yes No, because ourrecordkeeper does not offer

a target-date fund

No; although our recordkeeper offers a

target-date fund, we have adifferent investment

manager’s target-date fund

No, because we do not offer target-date funds

We plan to use more of our administration provider’s

investment options

We plan to use fewer of our administration provider’s

investment options

We do not anticipate making a change to our strategy

Not applicable; our administration provider does

not offer investment options

39%

0%

27%

6%

25%

75%

7%

19%

Aon Hewitt 23

DC Plan Loans

Among plans that have loan provisions, nearly eight out of 10 (79%) are somewhat or very concerned about participants taking loans against their plan balances.

How concerned is your organization about loan usage in the plan?

Very concerned 14%

Not at all concerned 21%

Somewhat concerned 65%


DC Plan Loans (Continued)

What action is your organization likely to take with respect to plan loans?




Allow terminated participants to continue loan repayments (via

direct debit or other method)44% 12% 22% 66%

Implement a waiting period between a loan payoff date and

a new loan origination28% 10% 24% 66%

Reduce the number of loans available 13% 11% 13% 76%

Study demographic data on the participants taking loans 9% 27% 45% 28%

Target communication to those taking out a loan or who

have a loan outstanding7% 22% 46% 32%

Reduce the amount of balance eligible for loans (e.g., restrict to

employee deferrals only)7% 5% 12% 83%

Increase loan origination fees 7% 5% 13% 82%

Increase education on the impact of loans on retirement income 5% 46% 44% 10%

Collect data on the underlying reasons participants

are taking loans5% 8% 36% 56%

Require participants requesting a loan to speak with a financial

counselor prior to loan approval1% 5% 20% 75%


Aon Hewitt 25

DB Plan Initiatives

Roughly three-quarters of employers (78%) in this survey have a defined benefit pension plan—evenly split among plans that are ongoing, closed, and frozen. These plan sponsors are concerned about the ongoing interest rate environment.

26%

8%

7%

Increased cash contributions as a result of inflated liabilities

Inability to execute on our settlement strategy

Depleted participant retirement income adequacy

0% 20% 40% 60% 80% 100%

Please indicate your level of concern regarding the following implications of the current period of historically low interest rates.

Very Concerned Moderately Concerned

51%

37%

45%

Has your company performed a mortality study? If not, are you interested in having a mortality study completed this year?

Do not plan to conduct a study in 2017

87%

Plan to conduct a study in 2017

13%

54%

Completed Recently


DB Plan Initiatives (Continued)

To understand how investment markets and their expected costs and risks could impact pension plan funded status, employers are increasingly running asset-liability studies.

How likely is your organization to take the following action with respect to your defined benefit plan’s asset portfolio?




Conduct an asset-liability study 45% 18% 35% 47%

Adjust plan investments to better match the characteristics

of the plan’s liabilities (e.g., liability-driven investing, or LDI)

40% 21% 30% 49%

Move to a pre-established and preapproved glide path with

increasing exposure to fixed income securities and other

risk-hedging strategies as funded status of the plan improves

27% 13% 22% 65%

Monitor the funded status on a daily basis either by partnering

with an outside organization or enhancing internal tools

20% 13% 20% 67%

Delegate management to a qualified third-party fiduciary 14% 4% 7% 89%

Fully immunize the portfolio 4% 4% 16% 80%


Aon Hewitt 27

DB Plan Investment Consultants

As with DC plans, most employers have relationships with outside investment consultants for their DB plans—particularly with consultants who serve in a 3(21) capacity.4

What category best describes your organization's relationship with investment consultants for your DB Plan?

4 An ERISA Section 3(21) fiduciary serves as an advisor only. An ERISA Section 3(38) fiduciary has discretion, authority, and control over a plan’s assets.

We use investment consultants, and they serve

as 3(38) fiduciaries 11%

We use outside investment consultants, but they do not serve

as fiduciaries to our plan 16%

We do not use outside investment consultants

18%

We use outside investment consultants, and

they serve as 3(21) fiduciaries 40%

We use outside investment consultants, but

I do not know whether they are fiduciaries or not

15%


PBGC Premiums

Faced with increasing payments to the Pension Benefit Guaranty Corporation (PBGC), two-thirds of employers are looking for ways to reduce their premiums. Nearly half of companies (46%) plan to use settlement strategies to reduce their plan’s headcount, and over one-third (35%) will contribute more than required in an effort to improve the plan’s funded status. About one-quarter of all plans covered by the PBGC plan to take a multipronged approach.

Does your organization plan to take any action to decrease PBGC premiums?

50%

40%

30%

20%

10%

0%

1%

35%

46%

34%

No, we do not plan to take any action

Yes, we plan to reduce the number

of participants in the plan through our

plan settlement strategies to reduce our premiums

Yes, we plan to borrow money

to increase our cash contributions over

the next 2 years

Yes, we plan to increase our cash

contributions over the next

2 years to reduce our premiums

Aon Hewitt 29

Lump-Sum Windows

Lump-sum windows continue to be a popular activity, with one-third of companies planning to implement a window. Nearly four out of 10 companies (38%) that have offered a lump-sum window in the past are considering another window in 2017. However, employers are also expanding their de-risking scope, with 28% indicating they are likely to purchase annuities for some participants—a signal that perhaps these transactions are becoming more favorable for plan sponsors.

What action is your organization likely to take with respect to the defined benefit plan design?


11%

8%

6%

6%

4%

Add or liberalize a lump-sum feature as an ongoing optional

form of payment

Purchase annuities for some participants

Freeze benefit accruals for all or a portion of participants

Close participation and no longer allow new employees to enter the

defined benefit plan

Reduce benefits, but continue to offer a defined benefit plan

0% 20% 40% 60% 80% 100%

18%

20%

16%

10%

10%

18%

17%

9%

12%

12%

4%

5%

6%

4%4%


Lump-Sum Windows (Continued)

What steps does your organization plan to take to prepare for lump-sum windows and/or annuity purchases?




Carefully review and update individual data used for

pension calculations28% 29% 22% 49%

Provide written communication to retirees and/or terminated

vested participants in advance of action date

20% 37% 15% 48%

Hire outside vendor to create communications, perform benefit calculations, and/or handle calls

from impacted participants

17% 13% 17% 70%

Gather annuity purchase bids from insurance companies 3% 13% 15% 72%

Increase HR staff to prepare for additional calculations

and questions from impacted individuals

2% 1% 3% 96%

*Percentages represent likelihood among companies that have not already taken action.

2/3

of employers have recently offered a lump-sum window

38%

of employers who have offered a lump-sum window intend to offer another one within the next 2 years

22%

of employers who have not yet offered a lump-sum window intend to offer one within the next 2 years

Aon Hewitt 31

Plan Termination

Roughly one-quarter of employers (23%) indicated that they are interested in terminating their plan once its funded status improves. This trend is particularly pronounced among closed and frozen plans.

100%

80%

60%

40%

20%

0%

73%

94%

80%

46%

46%

Frozen plansClosed plansOngoing plansOverall

What statement best reflects your organization’s attitude toward terminating the pension plan?

Not interested in terminating Interested in terminating once the funded status improves Currently in the process of terminating

23%

4% 3%

6%

17%

8%


Respondent Demographics

Under 1,0007%

1,000–4,99918%

10,000–24,99920%

401(k)87%

238 Total respondents with nearly 9 million employees

37,504Average number of employees

12,250

Median number of employees

5,000–9,99919%

25,000 or more36%

By Size of Employee Base

By Type of Plan Sponosor

401(a) 3%

Profit Sharing 4%

Other 1%

457(b) 1%

403(b) 4%

Contacts

About Aon Hewitt

Aon Hewitt empowers organizations and individuals to secure a better future through innovative human capital solutions. We advise, design, and execute a wide range of solutions that enable our clients’ success. Our teams of experts help clients achieve sustainable performance through an engaged and productive workforce; navigate the risks and opportunities to optimize financial security; redefine health solutions for

greater choice, affordability, and wellbeing; and help their people make smart decisions on managing work and life events. Aon Hewitt is the global leader in human resource solutions, with nearly 34,000 professionals in 90 countries serving more than 20,000 clients worldwide across 100+ solutions. For more information on Aon Hewitt, please visit aonhewitt.com.

Rob Austin, FSA, EADirector of Retirement [email protected]

MacKenzie LucasMedia [email protected]

Amy McCarvilleResearch [email protected]

Risk. Reinsurance. Human Resources.

About Aon Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 72,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com.

© Aon plc 2017 . All rights reserved .The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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