DEFINED COTRIBUTIO - PSCA The Solution Source for Plan Sponsors ... HSAs are seen by many as an...

InsightsDEFINED CONTRIBUTION

The Solution Source for Plan Sponsors

Summer 2017 • Vol. 65, No. 2

Investments 2 Oh, Behave!

Awareness of key cognitive biases that affect decision making can help you create an investment menu with the best chance of increasing participant outcomes.By Jillian Perkins

Research 5 Health Savings Accounts

and RetirementHSAs are seen by many as an additional retirement savings vehicle.By Hattie Greenan

Signature Awards 6 2017 PSCA Signature

Award Winners36 awards were given recognizing plan sponsors and providers for excellence in DC plan education and communication.By Tobi Davis

Behavioral Finance 16 Building Retiree Solutions

that Recognize Retiree Decision Making and PreferencesA look at retiree behavior and how it can be used to inform plan design.By Neil Lloyd and Anna Rappaport IN EVERY ISSUE

Leadership Letter — page 1Jack Towarnicky brings his extensive experience as a plan sponsor to PSCA.

Washington Watch — page 20An overview of tax reform and the ACA repeal efforts.

Member Benefit Highlight — inside back coverA significant benefit of PSCA membership is access to our database of provider and advisor members that is sortable by specialty and connecting with other sponsors to learn which providers/advisors excel in certain areas.

https://www.psca.org/

New MembersBabcock Power Inc.5 Neponset Street Worcester, MA 01606 Contact: Kimberly Steinau

CBC Retirement Partners8820 Columbia 100 Pkwy, Suite 210 Columbia, MD 21045 Industry: Financial Services Contact: Jodie Dailey

Executive Compensation Planners20 Squadron Blvd., Suite 600 New City, NY 10956 Industry: Financial Services Contact: Hector May

HealthEquity Inc.15 W. Scenic Pointe Drive, Suite 100 Draper, UT 84096 Industry: Healthcare Contact: Bradley Bennion

intellicents inc100 North Broadway Albert Lea, MN 56007 Industry: Retirement Services Contact: Nick Austin

Lucid Advisors, Inc.2101 Fourth Avenue, Suite 2130 Seattle, WA 98121 Contact: Greg Ashihara

MCF Institutional50 East River Center Blvd., Suite 300 Covington, KY 41011 Industry: Investment Services (Advising/Management) Contact: Rocke Blair

Pacific Woodtech Corporation1850 Park Lane Burlington, WA 98233 Industry: Manufacturing Contact: Dan Milfred

Pioneer Investments60 State St., #1700 Boston, MA 02109-1896 Contact: Steven Forss

Plan Design Consultants, Inc.1810 Gateway Drive, Suite 300 San Mateo, CA 94404 Industry: Financial Services Contact: JD Carlson

PRM Consulting1814 13th Street, NW Washington, DC 20009 Industry: Consulting Services Contact: Ronald Huling

Regeneron Pharmaceuticals777 Old Saw Mill River Road Tarrytown, NY10591 Industry: Biotechnology Contact: Brian Fagan

Stifel | PearlStreet Investment Management4690 Fulton Street East, Suite 101 Ada, MI 49301 Industry: Advisory Contact: Joseph Horlings

Tufford-Hughes and Associates3300 Edinborough Way, Suite 550 Edina, MN 55435 Industry: Retirement Services Contact: Christina Hughes

Vantage Benefits Administrators1201 Elm Street, Suite 1600 Dallas, TX 75270 Industry: Retirement Services Contact: Alexander Mackenzie

Wadsworth Atheneum600 Main Street Hartford, CT 06103 Industry: Non-Profit Organization Contact: Cindy Martinez

Western States Water Council682 E. Vine Street, Suite 7 Murray, UT 84107 Industry: Government Contact: Michelle Bushman

Changes in member contacts should be faxed to PSCA at (312) 419-1864 or sent to [email protected].

Officers

ChairpersonKenneth A. Raskin* King & Spalding

1st Vice ChairMarjorie F. Mann* NextEra Energy, Inc.

2nd Vice ChairShirley Zabiegala* Nestle USA, Inc.

Immediate Past ChairStephen W. McCaffrey* National Grid USA Service Co., Inc.

TreasurerRobert Love* Custom Air Products and Service Co.

PSCA Board of Directors and Staff

Directors

Monica Chen* Exxon Mobil Corporation

Brandon M. Diersch Microsoft Corporation

Ira Finn Heidrick & Struggles

Tom Gordon Aon Corporation

Annette Grabow Sonepar USA

Robin Hope Haag Engineering

Colleen M. Houlihan Ingredion Incorporated

Peter M. Kelly Blue Cross and Blue Shield Association

Tim Kohn Dimensional Fund Advisors

Ted Moss Roscoe Moss Company

Karin Rettger Principal Resource Group

Cynda Reznicek Zachry Industrial, Inc.

Dawn Rich Cardinal Health

Michael A. Sasso* Portfolio Evaluations, Inc.

William Shaw Charles Schwab, Inc.

Tony Verheyen

Ann Zeibarth Gallup, Inc.

PSCA Staff

200 S. Wacker Dr., Suite 3100 Chicago, IL 60606 312-419-1863

Jack Towarnicky* Executive Director [email protected]

Hattie Greenan Director of Research and Communications [email protected]

Tobi Davis Director of Operations [email protected]

PSCA Washington Counsel

David N. Levine Principal Groom Law Group, Chartered 1701 Pennsylvania Ave. NW Suite 1200 Washington, DC 20006 202.861.5436 [email protected]

Brigen L. Winters Principal Groom Law Group, Chartered 1701 Pennsylvania Ave. NW Suite 1200 Washington, DC 20006 202.861.6618 [email protected]

*Executive Committee Member

PSCA publishes articles by its members in Defined Contribution Insights magazine. If you have an idea for an article of 1,000 to 3,000 words in length, please contact [email protected].

Subscriptions to Defined Contribution Insights magazine are part of PSCA membership, and are also available to non-members for $75.00 per year. Contact PSCA at 312-419-1863 for subscription or membership questions.

Defined Contribution Insights is published by the Plan Sponsor Council of America, 200 South Wacker Drive, Suite 3100, Chicago, IL 60606 . Subscriptions are part of PSCA membership. Opinions expressed are those of the authors. Nothing may be reprinted without the publisher’s permission. Information contained in Defined Contribution Insights is for general education purposes only. Contact your legal advisor for advice specific to your plan. Copyright ©2017 by the Plan Sponsor Council of America.

Plan Sponsor Council of America — Voice of the Plan Sponsor Since 1947

Plan Sponsor Council of America • PSCA.org Summer 2017 1

Plan Sponsor Council of America (PSCA) member organizations come from all industries, hail from every corner of our

nation, with sizes ranging from micro to jumbo plans. We include for-profit, non-profit, tribal, and governmental entities. Despite all of this diversity, all have a common role when it comes to benefit plans — plan sponsor.

As plan sponsors, we often have chal-lenges that affect us all. We would like to know what issues you face and what you are currently working on regard-ing financial wellness, your retirement savings and non-qualified plans, and health savings accounts. Similarly, we would also like to know what issues or opportunities you would be working on or investigating if you had unlim-ited resources.

Most of us are subject to ERISA, so we serve in the role of “plan sponsor” in a formal, legal sense, as defined by ERISA Section 3(16): “… (i) the employer … , (ii) the employee orga-nization … , or (iii) … the association, committee, joint board of trustees, … who establish or maintain the plan.” For plan sponsors not subject to ERISA, the plan sponsor role is almost the same.

As a plan sponsor, we are respon-sible for adoption, maintenance, and compliance with respect to our benefit plans — the day-to-day requirements:

• Plan documents must be in writing,• Administration must follow

the terms of the plan document,• Ensure plan operations are consis-

tent with the plan document and adoption agreement,

• Obtain the support called for in our service agreements,

• Periodically reconfirm that the fees we pay are reasonable,

• Implement updates required by law and regulatory changes,

• Provision for claims and appeals processes,

• Mandated disclosures to participants,• Reporting to IRS/DOL/PBGC,• Maintain essential records/docu-

mentation regarding participants (age, service, compensation, hard-ship withdrawals, loans, etc.),

• Meeting fiduciary duties, or man-aging/reviewing entities who were delegated fiduciary responsibilities, and,

• So much more…

We at PSCA exist to help you in your role as a plan sponsor — both in the day-to-day and in your strategic, tactical, and compliance decision-making. We accomplish this in a number of ways:

• We serve as your voice, confirming plan sponsor needs and positions to federal, state, and local government

officials, in terms of legislation, ordi-nances, and regulations.

• We survey to gather your opinions and activities affecting benefit plans — both annual surveys of 401(k), 403(b), and non-qualified deferred compensation plans, as well as snap-shot surveys of the issues of the day (student loans, Roth/Tax Reform, etc.).

• We regularly investigate and report on issues and opportunities regard-ing benefit plans in periodicals such as Defined Contribution Insights.

• We offer personalized assistance in the form of a Help Desk — where we will answer your questions and investigate issues for you concerning benefit plans, or, if we are unable to provide an answer, provide you some direction or suggestions on next steps. Our decades of experi-ence is also available if you need a “second opinion.”

As the commercial used to say, “mem-bership has its privileges.” It is our privilege to serve you. We can help. Give us a try.

Call us at 312.419.1863 or send us an e-mail at [email protected] anytime.

Jack Towarnicky is PSCA’s Executive Director

PSCA Welcomes New Executive DirectorJack Towarnicky has more than 30 years experience as a plan sponsor.By Jack Towarnicky

Leadership Letter


DEFINED CONTRIBUTIONS INSIGHTS2 Summer 2017

Oh, Behave!How behavioral economics can guide the construction of your investment menu.By Jillian Perkins

Investments

Idon’t know about you, but I have yet to meet “economic man.” Chances are, none of your partic-ipants fit this profile either. Like

most of us, they are complex human beings who make decisions for a variety of reasons, many of them less than completely rational. Fortunately, the field of behavioral economics has helped us to identify some of the com-mon irrationalities we see in financial decision-making, making it possible to address or counter them. We know, for example, that people tend to be risk-averse, feeling the weight of a loss more than they would feel the pleasure of an equal gain. We know that people are overconfident in their ability to predict the future, and overestimate even their hindsight or ability to have predicted past events.

The study of behavioral economics has helped serve as a guide in designing retirement plan features. Automatic enrollment and automatic deferral increases are based on two major principles of behavioral economics. The first is hyperbolic discounting, in which people prefer an immediate payoff to a future gain — in many cases even if that future gain is greater. In other words, people have trouble saving because the future gain is discounted relative to having the immediate cash. The second is inertia, which, as a law of physics states, a body at rest will stay at rest unless acted on by an outside force (or a body in motion will stay in motion).

Applied to people, it illustrates our tendency to not take action, otherwise known as procrastination. We tend to leave things as they are unless they require our immediate attention. Auto-matic features have helped to counter these behaviors by relieving people of the need to take any action to save, and they have been very successful. PSCA’s 59th Annual Survey reported that almost 60 percent of retirement plans now use automatic enrollment.

But the usefulness of behavioral economics doesn’t end with enrollment. Plan sponsors and their providers can also utilize the findings of behavioral economic scientists to construct an investment menu that will best serve their participants. Better understanding how people make decisions can help plan sponsors direct that decision-making process toward improving outcomes.

Defined contribution plans generally place the responsibility for investing on the participant. Ideally, each participant would evaluate their personal situation and goals, diligently research each investment option, construct an asset allocation that fits their risk tolerance and objectives, and then monitor their portfolio to rebalance as necessary. It doesn’t take a behavioral scientist to know that this rarely happens in prac-tice. But what prevents it from happen-ing? Our brains implement cognitive biases, or shortcuts, which generally help make decision-making easier and quicker, but can get in the way when it actually makes sense to stop and look at something analytically. Following are a few of the key “heuristics,” or cognitive biases, that may prevent the optimal use of retirement plan invest-ment options:

Key HeuristicsLoss aversion and the endowment effectWe already mentioned loss aversion above. People feel the pain of loss more than the pleasure of a gain. Additionally, people will “endow” assets that they own with greater value simply because they own them. Losing $100 that you own, for instance, may be more painful than it is pleasing to gain $200 that you didn’t own before. People will try to avoid risk or loss. When people talk about investing being driven by fear and greed, this is the “fear” side.

Economic ManAn imaginary individual created in classical economics conceived of as behaving perfectly rationally and maximizing his or her economic welfare. This model is often used to make economic predictions.

Summer 2017 3Plan Sponsor Council of America • PSCA.org

Investments | Oh, Behave!

Mental accountingTraditional economics tells us that money is fungible, meaning one dollar is the same as the next. How-ever, studies continually show that all money is not, in fact, equal. For instance, people are more likely to splurge when they receive a windfall of money because psychologically, it’s outside the household budget. We use mental accounting to divide our assets into categories, and then apply different rules to different categories. For instance, participants may view their retirement plan as money separate from their actual household savings and thus take greater risks with it (or the opposite: refuse to take risks with hard-won savings).

Availability and anchoringPeople will take the information they have at hand and use it to make judg-ments and predictions, often regardless of its actual relevance or accuracy. For example, a participant hears about their colleague’s nephew running a successful business in Europe and based on that information, decides to invest heavily in international stocks. Anchoring is a related heuristic — it describes the tendency to focus on a single piece of available information as a reference point, even if that informa-tion is insignificant or irrelevant. An example of anchoring can be seen in a study where behavioral economists Amos Tversky and Daniel Kahneman had people spin a random wheel of fortune and then guess what percent-age of African countries are in the United Nations. Those who spun a ten answered much lower (median guess of 25%) than those who spun a 65 (median guess of 45%).

RepresentativenessThis heuristic reflects the tendency to use a small sample to represent a large sample. When applied to people, this is stereotyping. When it comes to financial decisions, it may cause people to guess probabilities based on very small samples.

OverconfidenceIn tests, people consistently rate their accuracy higher than their actual accu-racy, implying more confidence than correctness. The overconfidence bias results in people having confidence in their own judgment rather than accept-ing outside information or listening to conflicting opinions or ideas.

Cognitive dissonanceCognitive dissonance refers to the uncomfortable feeling when a person is faced with simultaneous conflicting ideas, motivating an individual to relieve this tension by adjusting their beliefs or actions or by rationalizing. For example, if a person is placed in a position to encourage colleagues to save more for retirement, they may increase their own savings as well so as not to feel hypocritical.

Paralysis of choiceWhen faced with an abundance of options, people become overwhelmed and may fall into a paralysis of indeci-sion. This heuristic is particularly crit-ical as it applies to making retirement plan investment choices.

Investment Menu ConstructionThe key to using behavioral economics to construct an investment menu is to provide the right guidance at each step of the decision-making process. To prevent the paralysis of choice, choices at each stage should be as minimized as possible. We have developed a tiered menu system that we believe is optimized for participant behavior and decision-making based on behavioral economics principles.

In the tiered menu system, the first decision point is the most important. Participants are asked to self-identify themselves into one of three groups:

• Do it for me. (I want as much help as possible investing my retirement savings. The less I have to make decisions, the better.)

• Help me do it. (I want some control over my investments and I want to be able to make the decisions, but I’d like some help and guidance in doing it.)

• Do it myself. (I consider myself a sophisticated investor and I feel confident making my own invest-ment decisions without guidance.)

This initial decision, which should be fairly easy, will set the stage for all sub-sequent decisions, informing how the menu is presented to participants.

Do It for MeParticipants who identify themselves as the “do it for me” group are directed to a suite of target-date funds (or risk-based funds). Because this group is not interested in making complex investment choices, they are presented with the simplest options — target-date (or risk-based) funds — and have only to select their age or expected retire-ment date to complete their investment election. The process has been rendered as simple as possible for this group; they have two decision points and both should be fairly straightforward. The best part is that once they have made those decisions, they are done.

Many of the cognitive biases we see in behavioral economics are solved for this group, since most decision-making is done for them.

Help Me Do ItThose participants who select “help me do it” are offered a wider choice. This cluster has identified themselves as willing and interested in putting more time into selecting their investments. However, offering a traditional menu of 15–20 investment options from which to build an asset allocation is still likely to cause a paralysis of choice. It’s overwhelming, and studies show that often participants will simply divide their allocation evenly among the investment choices in cases like these, rather than putting together a thoughtful allocation.



Investments | Oh, Behave!

To best support this group, we suggest providing a simplified menu of investment options. A simplified menu might look like this:

• Stable Value Fund• Bond Fund• Large Company Stock Fund• Small/Mid Company Stock Fund• International Company Stock Fund

Within each option, you might want to diversify across different styles, including, for instance, both a growth and value fund. Or you may want to include both a passive and active approach to keep costs down. With a simplified menu, the plan sponsor can construct more sophisticated invest-ment blends within each fund, while offering a menu that is easy for partic-ipants to understand and use. Further-more, this is a perfect opportunity to white label the funds with the company name, if so desired.

In this group, education is crucial, especially as they are still susceptible to cognitive biases like representative-ness, availability, and overconfidence. Participants should have access to

guidance that will provide a reference point from which to understand their investment options and instructions on how to construct an appropriate asset allocation. Providing methods for mak-ing asset allocation decisions that are based on objective criteria rather than subjective judgment can be very helpful in overcoming irrationality. For exam-ple, a risk tolerance/time horizon quiz that directs people to model portfolio constructions based on their answers can be valuable guidance while still providing a range of options.

Do It MyselfThis group doesn’t exist among all par-ticipant populations, and where it does exist is often a very small proportion of participants, but it can be a very vocal minority, passionate about having a wide variety of choices. For those plan sponsors who are host to a significant “do it myself” group, a self-directed brokerage option can provide the flexi-bility and choice this group desires.

Of course, with this option, par-ticipants are highly susceptible to irrational decision-making. It may be

worthwhile to provide this cohort with some background and information about behavioral economics and the most common cognitive biases that can affect financial decision-making.

ConclusionThe field of behavioral finance has unlocked the door of participant behavior, making it possible to create structures that will help rather than hinder participant outcomes. We have the science to build a menu to support the ways that people actually think and behave, avoiding paralysis of choice and countering overconfidence, repre-sentativeness, and availability. We can help participants help themselves.

We have found our three-tiered menu approach to be highly successful, and are excited to share this idea. There may be other ways to use behavioral econom-ics wisdom to build a plan that really works, and we look forward to further exploring this fascinating science.

Jillian Perkins is the Communications Director for Arnerich Massena, Inc.

Introducing Jack Towarnicky, PSCA’s Executive Director

Experience:• 31 years in plan sponsor roles

for four Fortune 500 employers.• 5 years of benefits consulting

experience in legal/research/ compliance roles.

Board/Committee Member — Trade Associations/Councils:

• Department of Labor, Employee Benefits Security Administration, ERISA Advisory Council

• World at Work, Benefits Advisory Board

• American Benefits Council• Council on Employee Benefits

• International Foundation of Employee Benefit Plans, Corporate Board

Education:• LLM — Employee Benefits,

John Marshall Law School• JD — South Texas College of Law• MBA — Cleveland State University• BBA — Business Economics,

Cleveland State University• CEBS

Visit Jack’s linked-in profile to learn more about him and to connect: https://www.linkedin.com/in/ jack-towarnicky-5878787/

Plan Sponsor Council of America • PSCA.org Summer 2017 5

In 2016, PSCA created a new com-mittee to focus on Health Savings Accounts (HSAs) and how they inter-sect with defined contribution plans.

The first task of the new committee was to create a snapshot survey to gauge where plan sponsors are with regard to HSAs and to assess plan sponsors’ per-ceptions of the HSA’s importance as a retirement savings vehicle. We received responses from 255 employers, 181 of whom sponsor an HSA-qualifying High Deductible Health Plan.

Summary of FindingsBenefits of the HSAThe majority (75.3 percent) of employ-ers view the HSA as part of their retire-ment benefits strategy. See Exhibit 1. Nearly 60 percent of employers believe HSAs should replace Flexible Spending Accounts (FSAs), and nearly three-fourths of employers think that HSAs should be open to all employees, not just those enrolled in a high-deductible health plan.

Eligibility and ParticipationAbout 80 percent of all employees are eligible to participate in the HSA, when offered by the employer. Nearly 60 per-

cent of eligible employees participate in an HSA. See Exhibit 2. The average HSA account balance was $3,161. A little more than 40 percent of plans indicate that 25 percent or fewer of their participants use up the entire HSA balance every year and an additional 35 percent of plans state that 26–50 percent of their participants use their entire bal-ance every year. So, many respondents clearly perceive the HSA to be a vehicle for accumulating savings.

Plan Design FeaturesMore than 80 percent of employers contribute to the HSA. Two-thirds of employers that provide a contribution provide a set dollar amount based on the HDHP coverage tier. The majority of plans (40 percent) front-load contribu-tions at the start of the year while 30 per-cent contribute each payday. More than half of employers pay HSA maintenance fees for active employees and 6 percent pay them for terminated employees. Only 21 percent of surveyed employers

are concerned about fiduciary liability from sponsoring an HSA-HDHP.

ConclusionAbsent legislative action that would cur-tail HSA tax preferences, HSA accounts are popular employee benefit options and enjoy plan sponsor support and, for the foreseeable future, are here to stay. As HSA growth continues, look for PSCA to conduct HSA benchmarking surveys to track HSA trends, highlight HSA innovations and seek ways to sup-port PSCA members with their utiliza-tion, education, and development.

The results highlight the enthusiasm and interest of PSCA members for HSAs. Those who responded see the flexibility of Health Savings Accounts as more than just a Flexible Spending Account with carry-over, but also as an additional vehicle to save for retirement needs.

The respondents were enthusiastic about HSAs in their current form with majorities making a contribution to the HSA and paying the administrative fees, but also recognizing the potential advantages of HSAs replacing FSAs and expanding availability.

Hattie Greenan is PSCA’s Director of Research and Communications

Health Savings Accounts and RetirementPSCA snapshot survey results on HSAs and their impact on retirement.By Hattie Greenan

Research

Exhibit 2: Percentage of Eligible Employees That Participate in the HSA

Plan Size (Number of Total Employees)

1–199 200–999 1,000–4,999 5,000+ All Plans

Percentage 71.7% 55.1% 48.6% 46.2% 57.5%

Exhibit 1: Percentage of Companies That Regard the HSA as Part of Their Retirement Benefits

Plan Size (Number of Total Employees)

1–199 200–999 1,000–4,999 5,000+ All Plans

Percentage 71.7% 77.4% 75.0% 78.1% 75.3%



2017 PSCA Signature Award WinnersWinners were announced at PSCA’s 70th Annual Conference in May.By Tobi Davis

Signature Awards

PSCA’s Signature Awards recognize excellence in retire-ment plan communications to both plan sponsors and plan

participants. Effective education and communications are key in helping employees understand why saving is important, how much to save, and how to save. Campaigns that are creative and go beyond the basics of education are

worthy of recognition, as the hard work of the benefits team is helping Ameri-cans become more financially secure.

Award-winning campaigns are those that engage employees and drive action, helping employees be better prepared for retirement. The winners are exam-ples of what can work when a com-pany values its retirement plan and its

employees by striving to make the plan a best-in-class benefit for participants.

Congratulations to the 2017 winners! We commend them and all the entrants for their hard work helping their participants. This year the judges chose 36 winners in 12 categories. Below is a complete listing of the winners and, on the following pages, a more detailed summary of each of the winners.

Signature Awards 2017 Full Winners List

Digital Communications

1st Place AutoNation, Inc.

2nd Place Nielsen Company

3rd Place McLaren Health Care Corporation

Events and Workshops

1st Place Boscov’s

2nd Place MGM Resorts International

3rd Place Southern Illinois Healthcare

Fiduciary and Plan Decision Resources

1st Place BNY Mellon Investment Management

2nd Place California Institute of Technology

3rd Place Vanguard

Financial Wellness

1st Place Movement Mortgage

2nd Place Boscov’s

3rd Place Tie

Griffith Foods Group Inc.

State of New Jersey

Increasing Plan Participation and Savings Rates — Large Company

1st Place Hennepin Healthcare System, Inc.

2nd Place Southern Illinois Healthcare

3rd Place PPD

Increasing Plan Participation and Savings Rates — Small Company

1st Place Denver Art Museum

2nd Place Owens-Illinois, Inc.

3rd Place Port of Portland

Overcoming Obstacles

1st Place MGM Resorts International

2nd Place Illinois Health and Hospital Association

3rd Place Delhaize America, LLC

Plan Administration and Design Changes

1st Place WVU Medicine

2nd Place The City University of New York

3rd Place Albertsons Companies

Plan Publications — for Participants

1st Place Ingalls Health System

2nd Place J.P. Morgan Asset Management

3rd Place City and County of San Francisco

Plan Publications — for Plan Sponsors or Advisors

1st Place Tie

BNY Mellon Investment Management

Dimensional Fund Advisors

Provider Campaigns

1st Place AXA

2nd Place MassMutual Workplace Solutions

3rd Place Wells Fargo Institutional Retirement and Trust

Retirement Readiness

1st Place TIAA

2nd Place Fidelity Investments

3rd Place The Trust, Powered by the NFL Players Association


Signature Awards | 2017 PSCA Signature Award Winners

Digital Communications1st Place

AutoNation, Inc. with Wells Fargo Institutional Retirement and Trust

Objective• Increase awareness of the

401(k) plan and encourage participants to enroll through the new Text-to-Enroll feature.

• Increase participation rate in the targeted group and in the overall plan.

Method• Poster, web icon, mailer, and

e-mail with fun messaging like “Save today to make your retirement sizzle.”

• Text-to-Enroll option.

Results• 54 percent increase in alter-

native enrollment usage.• Plan participation rate of

those targeted increased 3.1 percent; average savings rate increased 4.7 percent.

Why Did They Win?• Clear/eye catching messaging.• Innovative text to enroll feature.• Success of the campaign.

Digital Communications2nd Place

Nielsen Companywith Fidelity Investments

Objective• Create a completely online

new hire experience.• Capture the Nielsen voice,

culture, and brand; deliver it via e-mail, with deadline reminders and actionable steps to take.

Method• E-mails with a link to a digital

guide providing an overview of the Nielsen benefits that employees are eligible for, and steps to enroll in each.

Results• The digital guide for new hires

had more unique views than total new hires for 2016.

• Employees are spending on average nine minutes reviewing the guide.

Why Did They Win?• E-mail communication was

clear and concise.• Unique opportunity to create a

combined benefits enrollment guide that was digital.

• Quick and easy to read with action items.

Digital Communications3rd Place

McLaren Health Care Corporationwith MassMutual Workplace Solutions

Objective• Reach new employees at

a critical time to encourage them to start saving for retirement in the 403(b) plan.

Method• E-mail with simple text and

a short video to explain the benefits of enrolling.

Results• In 2016, 3,502 e-mails were

sent and 597 participants enrolled, with an average deferral of 6.01 percent, which was a 17.05 percent response rate when the average indus-try response rate is 2 percent.

Why Did They Win?• Video was effective way of

getting online enrollments.

Events and Workshops1st Place

Boscov’s with Wells Fargo Institutional Retirement and Trust

Objective• Improve overall financial

health through plan participa-tion, increased contribution rates, promoting the match, and encouraging participants to create a plan for retirement.

Method• Onsite presentations and

corresponding materials.• Sought manager buy-in at

retail locations for local support and followed up with an infographic of results to showcase the locations with the most action taken.

Results• Participation rate increased

from 39 percent to 43 percent.• 28 percent of eligible partici-

pants attended a meeting.• 19 percent of employees

that attended a meeting enrolled or increased their deferral rate.

• Attendees’ meeting satisfac-tion was an average of 4.7 out of 5.

Why Did They Win?• Materials were creative and

engaging, leveraging the corporate logo and appealing to the target audience of primarily women.




Events and Workshops2nd Place

MGM Resorts International with Prudential Retirement

Objective• Build awareness and get peo-

ple to attend and take action at annual enrollment event.

Method• The Game of 401(k): Remind

employees that 401(k) is not a game — it’s life! PopSocket game pieces, imprinted with plan information, attach to the back of a mobile device and “pop” when you need a grip.

• Digital log-on station: iPads for attendees to take immediate action.

• Mobile bookmark station: Attendees were encouraged to bookmark the plan’s website on their mobile device in return for a custom-designed pin.

Results• 75 percent took positive action.

Why Did They Win?• They provided the ability to

take action right away, which improved overall results.

• The game, digital log on station, and mobile bookmark station are all innovative ways to engage the participants.

Events and Workshops3rd Place

Southern Illinois Healthcare with Wells Fargo Institutional Retirement and Trust

Objective• Promote financial health and

retirement awareness.

Method• Events included other benefits

and had a theme agreed upon by those participating.

Results• 47 percent engagement.• Contribution index increased

from 28.66 percent to 37.41 percent.

• Plan health index increased by 33 percent, from 23.25 percent to 30.91 percent.

• Enrollment was up 69 percent over the 2016 monthly average.

• Beneficiary updates were up nearly 18 percent over the 2016 monthly average.

Why Did They Win?• Worked with other vendors

and benefits to create an efficient way for employees to engage.

• Made it fun and inviting by creating a theme and activi-ties tied to the overall goals.

Fiduciary and Plan Decision Resources1st Place

BNY Mellon Investment Management with Deardorff

Objective• Elevate quality and fiduciary

focus.• Increase awareness and

credibility, thus, truly disrupt-ing the status quo among top providers.

Method• Key Partnership Marketing —

created customized materials for provider partners.

• Leveraged social media.• Built Planet DC landing page

with HTML article content.• Developed 2–3 value-added

sales presentations.

Results• 225 percent increase in

influencing sales opportunities in 2016 vs. 2015.

Why Did They Win?• High-quality, exceptional

marketing piece that success-fully helped to solidify BNY Mellon’s position as a thought leader in the DC environment.

• Layered, supportive marketing was a clear example of strate-gic supportive messaging to boost success.

Fiduciary and Plan Decision Resources2nd Place

California Institute of Technologywith TIAA

Objective• Spread the word to senior

leaders about the work that had been done for the custom brand, creating brand ambassadors.

Method• Video and PowerPoint

presentation chronicling the evolution of the “Science of Benefits” brand.

Results• Increase in participation in

the Caltech Voluntary Plan of 16 percent by faculty division members.

• “Science of Benefits” work-shop series saw an increase of 119 percent in attendance rates compared to 2015.

Why Did They Win?• Materials were forward

thinking, demonstrated their strategy, and were very professional and spot-on for the audience.

• They invested in their mission and are executing on a long-term strategy.



Fiduciary and Plan Decision Resources3rd Place

Vanguard

Objective• Create a modeling tool to

help plan sponsors fulfill their fiduciary obligations by evalu-ating the suitability of various target-date fund options.

Method• Vanguard GPS is a web-based

intranet site that their invest-ment consultants can access both on-site and remotely with clients.

Results• More than 50 plan sponsor

engagements using GPS.

Why Did They Win?• Innovative tool that offers a

lot to plan sponsors.

Financial Wellness1st Place

Movement Mortgagewith Financial Finesse

Objective• Help employees become

financially secure to be more productive at work, and also save marriages and reduce stress-related illnesses.

Method• Provided an online employee

financial assessment to deter-mine an employee’s current state of financial wellness, using peer examples to drive participation.

• Multiple media channels were used, including e-mail, a book, and coordinating videos.

Results• Approximately 70 percent of

the employees took the well-ness assessment, 60 percent watched the educational videos, and 25 percent went through the entire program.

Why Did They Win?• Use of peer examples to drive

participation.• CEO was involved.• Fun tagline — #loseamillion

to encourage reducing debt.

Financial Wellness2nd Place

Boscov’s with Wells Fargo Institutional Retirement and Trust

Objective• Improve overall financial

health through plan participa-tion, increased contribution rates, promoting the match, and encouraging participants to create a plan for retirement.

Method• Used different life stage

messages.• Got buy-in from store and

HR managers.• Communicated results back

to manager and thanked them for their help.

Results• Plan participation rate went

from 39 percent to 43 percent after the program, which is rare for the retail industry.

Why Did They Win?• The play on the “B” for

the theme was clever and engaging.

• Targeted communications.• Engaged the managers and

used a contest between stores for peer motivation.

• Use of floor stickers was a fun way to attract attention.

Financial Wellness3rd Place — Tie

Griffith Foods Group Inc. with Wells Fargo Institutional Retirement and Trust

Objective• Address the financial well-

ness and preparedness of all participants, with special focus on the large pre-retiree population.

• Increase the retirement replacement ratio.

Method• Combined the usual tools

of targeted mail, webinars, and virtual education with mandatory group meetings and voluntary one-on-one financial planning meetings.

Results• 35 percent of targeted

participants took action.• Average deferral rate

increased from 2.8 percent to 5.6 percent.

• Employee feedback was very positive, for example, someone said “I can't express the value this service brought to my family.”

Why Did They Win?• Use of advisors drove

good results.




Financial Wellness3rd Place — Tie

State of New Jersey with Prudential Retirement

Objective• Introduce employees to a new

website to engage with a wide variety of subjects that takes into account their full financial wellness picture, while also offering ways to immediately take action.

Method• Eight e-mails were sent, one

per month from May through December.

• Life-event based financial education website for employees integrating tools, info-graphics, and videos, all of which take five minutes or less to review.

Results• Nearly half opened at least

one e-mail, and 20 percent visited the financial wellness hub.

Why Did They Win?• Bite-sized information

was fantastic.• Articles were short and sweet.

Increasing Plan Participation and Savings Rates — Large Company1st Place

Hennepin Healthcare System, Inc. with Wells Fargo Institutional Retirement and Trust

Objective• Increase the employee partic-

ipation rate in the 403(b) plan.• Increase the number of

participants on track for an 80 percent income replacement in retirement.

Method• “Naked Truth” campaign

targeting different employee segments.

• Mailers, onsite game, one-on-one meetings.

Results• Each segment had increases

in participation and savings rates.

• Overall the plan participation rate increased from 10.79 percent to 13.6 percent and the average deferral rate increased from 15.95 percent to 17 percent.

Why Did They Win?• Fully thought out strategy

and comprehensive communi-cation plan.

• Great sponge bath theme and its relevance to the hospital/healthcare field.

Increasing Plan Participation and Savings Rates — Large Company2nd Place

Southern Illinois Healthcare with Wells Fargo Institutional Retirement and Trust

Objective• Promote overall financial

health through plan partic-ipation and encouraging participants to create a plan for retirement.

Method• Created an event to be highly

interactive, by using games and a creative theme to attract attendees to the event.

• E-mails, posters, web content to promote the event.

Results• Enrollment was up 69 percent

over the 2016 monthly average.• Beneficiary updates were up

nearly 18 percent.• Plan health index increased

by 33 percent, from 23.25 percent to 30.91 percent.

Why Did They Win?• Great theme throughout all

communications, “Your Future, Full Steam Ahead”

• Tie-in to the health fair and vaccinations was a clever way to capture the intended audience

Increasing Plan Participation and Savings Rates — Large Company3rd Place

PPD with MassMutual Workplace Solutions

Objective• Get non-participating employ-

ees or active employees con-tributing less than 6 percent to either enroll or save more.

• Leverage prior year’s theme.

Method• Postcards and e-mails from

participants’ future selves.• Luggage tags based on the

theme sent to participants.

Results• Save and Sign Up Campaigns:

overall success rate for each was 10.58 percent.

• Luggage Tag Mailer Campaign: overall success rate of 5.91 percent.

Why Did They Win?• Theme of travel throughout all

communications, including a fun factor with luggage tags.

• Very thoughtful use of piggy-backing on the prior year’s theme.

• Well-planned communication time line and great success rates.



Increasing Plan Participation and Savings Rates — Small Company1st Place

Denver Art Museum with OneAmerica

Objective• Engage employees through

branding using customized materials to match the colors and theme of the museum.

• Increase deferrals.• Educate employees on

the new plan provider and available resources.

Method• Mandatory onsite group

meetings and investment roundtables, voluntary one-on-one meetings.

• Flyers, e-mails, custom website landing page.

Results• Increased investment knowl-

edge for employees at all lev-els, plan size went from $4.67 million to $6.8 million, and the participation rate increased from 59 percent to 73 percent.

Why Did They Win?• Engaged employees using

customized materials appropriate to the corporate culture.

• A wow factor was achieved by designing the campaign to reflect aspects of the entity that were important to the employees.

Increasing Plan Participation and Savings Rates — Small Company2nd Place

Owens-Illinois, Inc. with John Hancock Retirement Plan Services

Objective• Educate employees about the

transition from the pension plan to the 401(k) plan and motivate everyone to either increase contributions or determine their income needs for retirement.

Method• Communicated with staff

through e-mail, company meetings, and mailers.

• Explained the added auto-enrollment and auto-increase features in the plan.

Results• Dramatically increased

retirement readiness as demonstrated by 80 percent increase in employees contributing enough to earn the full amount of the company match.

Why Did They Win?• Used branding on campaign

materials tied to the company’s business.

• Auto-enroll/auto-increase feature of the plan design was coupled with the campaign.

Increasing Plan Participation and Savings Rates — Small Company3rd Place

Port of Portland with Lincoln Financial Group

Objective• Increase enrollment.

Method• Four separate e-mails sent to

non-participants encouraging them to take part in a one-on-one meeting.

Results• 15 percent of the target group

scheduled a meeting with a Lincoln Retirement Consultant.

• 10 percent of the target group enrolled in the plan.

• Two percent consolidated retirement plan assets by rolling in assets from another qualified plan.

Why Did They Win?• Good results.• Used incentive of a giveaway

of a Paperwhite Kindle to encourage people to make and keep an appointment.

Overcoming Obstacles1st Place

MGM Resorts International with Prudential Retirement

Objective• Encourage diversification

of investments.

Method• Ready, Set, Diversify events.• E-mail, then personalized

letter followed• “Outsmart the Market” game

to try to predict the ups and downs of the market.

Results• Five percent attended

the event.• Three percent increased

number of funds used.• 241 new enrollments.

Why Did They Win?• Excellent alignment of a

creative idea (a game) to the industry (recreation) of the audience, drawing attention to the complex issue of diversification.




Overcoming Obstacles2nd Place

Illinois Health and Hospital Association with Blue Prairie Group and McDermott Will & Emery LLP

Objective• Harmonize benefits for

employees.• Provide competitive benefits

with contemporary features.• Design a uniform retirement

plan that decreased retirement costs for the organization.

• Increase participation and savings rates.

Method• On demand videos, onsite

meetings, comprehensive benefits brochure in print and digital formats.

Results• 99 percent of employees made

a deferral election before the merger.

• Employees deferring at least 6 percent increased to 84.7 percent from 51 percent and 61 percent in the separate plans.

Why Did They Win?• High-quality enrollment mate-

rials, FAQs, and retirement video, consistent with the professional-level audience, coupled with excellent feed-back and results

Overcoming Obstacles3rd Place

Delhaize America, LLC with Empower Retirement

Objective• Develop an entirely new look

and feel for the plan, along with the creation of a new plan “mascot” coinciding with migration to a new provider.

• Appeal to various populations and demographics.

Method• Magnets mailed to homes,

video, e-mails, and custom newsletter.

Results• 700+ video views in the first

few hours, with 62.2 percent average engagement.

• Average salary deferral rates increased from 4.1 percent to 4.5 percent.

Why Did They Win?• Excellent choice of mascot

tied to their brand (Food Lion) supporting a fun, on-going theme to encourage a young audience to explore their retirement plan, resulting in impressive rate of access to the new website.

Plan Administration and Design Changes1st Place

WVU Medicine with TIAA

Objective• Communicate plan changes

in a clear and simple way.• Excite and motivate plan

participants to engage in planning for their retirement.

• Deliver a superior retirement benefit.

Method• Multiple touchpoints including

mailings, customized website, posters, flyers, e-mails, group and individual meetings, onsite counseling, and a walk-up information desk next to the coffee shop.

Results• Engagement rate for

participants was 66.76 percent (double the baseline).

• Increased participation.

Why Did They Win?• Compelling and creative

tagline and theme: “Even Superheroes Want to Retire” tied to the hospital mission of putting others’ well-being first

• Focused on the importance of employees planning for their own needs, specifically their long-term financial security.

Plan Administration and Design Changes2nd Place

The City University of New York with TIAA

Objective• Communicate to the diverse

population about the upcom-ing conversion from three pro-viders to one single provider.

• Increase participation and overall engagement.

• Introduce plan changes including a new investment lineup and Roth contributions.

Method• Multiple touchpoints:

announcement postcard, transition guide, quick start enrollment guide, onsite live seminars across 24 locations, Brainshark, post-transition reminder, and customized retirement plan website.

Results• High engagement in online

and in-person advice sessions.• Higher-than-normal web activity.• 5,796 participants accessed

their accounts.

Why Did They Win?• Well-executed, highly orga-

nized rollout of a compre-hensive communication plan for a complex and diverse employee population.

• Creatively used a NY-transit theme throughout campaign and successfully wove its “Make a Connection” theme throughout all materials in a cohesive manner.



Plan Administration and Design Changes3rd Place

Albertsons Companies with Vanguard

Objective• Communicate transition of

multiple plans to a single provider with a common look and feel.

• Inform employees of plan and investment changes implemented to bring the plan features in closer alignment.

Method• Used six versions of the

multi-channel communications to target each plan’s population through 30 highly customized versions of postcards, mailers, newsletters, plan-specific websites, and workshops.

Results• 30 percent of impacted

participants registered on the new provider’s website within 45 days after the last plan conversion.

Why Did They Win?• “Fresh Start” campaign had

a clean and simple look and feel that conveyed the key message and was one that Albertsons can easily build on in the future.

• Communications were engag-ing and industry appropriate.

• Multi-channel approach that reached a diverse population with different communication preferences.

Plan Publications — for Participants1st Place

Ingalls Health System with MassMutual Workplace Solutions

Objective• Provide a retirement planning

resource to employees who were contemplating retirement and/or getting ready to retire.

Method• Retirement readiness brochure.• Print materials, online

resources, and in-person meetings.

Results• Human resources staff has an

easy-to-understand brochure to guide their conversations with associates who are contemplating retirement.

Why Did They Win?• Brochure was eye-catching

and easy to understand.• Good idea of providing HR

staff with a tool to aid their conversations on retirement with employees.

Plan Publications — for Participants2nd Place

J.P. Morgan Asset Management

Objective• The goal of the Principles for

a successful retirement bro-chure is to provide advisors with a tool to help facilitate better client conversations.

• Provide education on seven key retirement principles, and how to explain the com-plexities of each topic in an understandable way.

Method• E-mail campaign and webcast

for financial advisors, followed by a customized website landing page with tools to help advisors share the story.

Results• Webcast had 1,684 attendees,

640 of them first-time attendees.• Distributed 17,000 guides

through client advisors in the field, various training meet-ings, industry conferences, and more than 67 road show engagements.

Why Did They Win?• Comprehensive yet easy

to understand guide for participants.

• Good tool for advisors to help explain retirement planning concepts.

Plan Publications — for Participants3rd Place

City and County of San Francisco with Prudential Retirement

Objective• Provide a quarterly e-newslet-

ter to participants that keeps them active and engaged in retirement planning, informing them about changes to the plan, and the tools that are available to assist them in preparing for retirement.

Method• E-newsletter

Results• 55 percent of recipients

opened the e-mail, far exceeding the industry average of 22.1 percent.

• 15.4 percent of them made unique clicks to view the newsletter.

Why Did They Win?• Created a digital newsletter

with links to content relevant to its audience.




Plan Publications — for Plan Sponsors or Advisors1st Place – Tie

BNY Mellon Investment Management with Deardorff

Objective• Become a thought leader in

the DC space, using its Planet DC publication.

• Significantly and aggressively increase value, awareness, and targeted communications.

Method• Segmented digital outreach.• Key partnership marketing —

customized for other service providers.

• Public relations and social media outreach.

• Planet DC landing page with HTML article content.

Results• 225 percent increase in

influencing sales opportuni-ties in 2016 vs. 2015.

• Comments from readers such as: “I found the content and the layout of this publication to be the best I have seen in the industry.”

Why Did They Win?• Visually interesting

throughout.• Not overly text heavy.• Presented sponsor-relevant

content in very digestible snippets.

Plan Publications — for Plan Sponsors or Advisors1st Place – Tie

Dimensional Fund Advisors

Objective• Produce an objective,

globally-focused publication on current issues relevant to those involved in the defined contribution market.

• Goal of each issue is to inform industry stakeholders of developments, trends, and thought-leadership in the defined contribution space.

Method• Hardcopy and electronic

delivery of publication.• Past issues available for

free to the public.

Results• Grown their subscription base

from zero in 2011 to about 8,000 in 2016 with a diverse collection of subscribers including plan sponsors and providers.

Why Did They Win?• Consistently deliver high-

quality thought leadership on topics applicable to plan sponsors and service providers.

• Well written and in-depth articles, often featuring plan sponsors sharing best practices.

Provider Campaigns1st Place

AXA

Objective• With only 30 percent of eligi-

ble public school employees currently saving through a 403(b) plan, the objective was to build awareness and encourage plan participation by offering educational content, targeted messaging, and multiple ways to enroll.

Method• Multi-faceted campaign

including e-mails, banner advertising, social media, direct online enrollment, live chat/call center, and in-person meetings with financial professionals.

Results• Enrollments in grew

118 percent in 2016.• Employee engagement

increased 38 percent.• Eligible employees are

viewing the site nine percent longer per engagement.

Why Did They Win?• Creative and easy to

understand.• Mirrored the lesson plan

approach of teachers, simplifying the concept of a 403(b) plan.

• Engaging and welcoming graphics grabbed attention.

• Subtle animation brought the digital pages to life.

Provider Campaigns2nd Place

MassMutual Workplace Solutions

Objective• Inspire diverse and large

population using pet-themed material to enroll, increase contributions, consolidate retirement accounts, and/or review allocation mix in an effort to build a more secure retirement,

Method• Multiple touchpoints

including e-mails, postcards, microsite, and one-on-one appointments.

Results• 5.37 percent increased contri-

butions; average deferral rate increased 2.66 percent.

• 907 participants rolled over $7.1 million in assets.

• 3,294 new participants enrolled.

• 400 participants reallocated assets.

Why Did They Win?• Creative and engaging

materials targeted 96 different groups based on age, gender, and recordkeeping data.

• Results reflect the message was successfully received “like a pet, a retirement plan needs care, nurturing, and attention.”



Provider Campaigns3rd Place

Wells Fargo Institutional Retirement and Trust

Objective• Provide communications to

participants that are proac-tive, personal, and relevant to reinforce positive saving behaviors and help partici-pants succeed financially.

Method• Personalized trigger e-mails

to reinforce positive behaviors and reach people at key moments to encourage a certain behavior or action.

• Retirement website with age-based checklists, articles, and videos.

Results• Trigger e-mails reached

over 500,000 participants with 49 percent average e-mail open rate, more than double the industry average of 22.4 percent.

• 17 percent of participants took an additional action after receiving the e-mails.

Why Did They Win?• Creative, timely, and engaging

materials that motivated action and reinforced positive responses.

Retirement Readiness1st Place

TIAA

Objective• Provide unbiased education

and advice to pre-retirees and those in transition due to retirement or a job change.

Method• Stay Smart for Life program

is a plan service supported by the institution to ensure employees have the informa-tion and education they need to make solid decisions during times of transition.

• Used direct mail, e-mails, personalized URLs, videos, flyers, “Contact Me” form, and outbound calls.

Results• 86 percent adoption rate

by employers.• Higher than usual open

and click-through rates.

Why Did They Win?• Provided information that was

easy to read in a way that made it easy to take action.

Retirement Readiness2nd Place

Fidelity Investments

Objective• In the age of BuzzFeed and

eight-second attention spans, design a program to invite the audience to engage by surprising them, making them smile, and making them curious.

Method• Monthly seasonal infographics

to help employers engage their employees in both retire-ment planning and financial wellness.

• Print-ready posters, online article pages for clients and participants, screen savers, digital signage, social media, and newsletters.

Results• “Frightful Facts” was the No. 1

content on the client-facing website for that month.

• Clients reported using the content in a variety of ways: on intranet sites, digital signage, in employee newsletters, and as posters in common areas.

Why Did They Win?• Their message was short,

focused, whimsical, and makes you want to open and see what's next.

• Clients could easily insert and use the banners on posters, mailers, and screens.

Retirement Readiness3rd Place

The Trust, Powered by the NFL Players Association with Financial Finesse

Objective• Design a program to include

six innovative pillars and act as the concierge service for players to improve their well-ness in all areas of their lives.

Method• Personal counselors to assess

needs and develop a plan.• Marketed through social

media, phone apps, e-mails, and an advocate program.

Results• 98 percent of former

players said they were better prepared to make a financial decision.

• 100 percent of those surveyed who attended a workshop took at least one step within 30 days to improve their finances.

Why Did They Win?• Marketing was easy to follow

and targeted to different phases of the athletes life.

• Campaign was well thought out.



Building Retiree Solutions that Recognize Retiree Decision Making and PreferencesUnderstanding behavioral finance and its relationship to benefit management.By Neil Lloyd and Anna Rappaport

Behavioral Finance

A lot is spoken about behavioral science — also often referred to as behavioral finance. Behavioral science addresses

the fact that individuals are not rational decision makers and frequently make a number of judgemental errors.

Experimental psychology research-ers have classified a number of these biases/errors and knowledge of these biases can be used to better understand decisions being made by retirees. Part of our hypothesis is that when consid-ering retirees, too often their behavioral biases are ignored. Too often we focus on what decisions we think retirees should make — maybe more time should be spent considering what retirees say impacts their decisions, or, better still, understanding the actual choices made by retirees.

One example of this is the annuity paradox. Essentially, the annuity par-adox is that, based on pure economic factors, one would expect retirees to select an annuity at retirement — yet when given the choice, retirees tend not to select the annuity option. This was explored in a paper by Schreiber and Weber1 that found “that people behave time inconsistent: older people have a stronger tendency to choose the lump sum than younger people when they are asked to predict today what to choose when they retire.”

Part of the explanation for the observations of Schreiber and Weber is that, as people age, the “wealth effect” kicks in. Put simply, when you have no

wealth, the idea of annuitizing some of it seems very reasonable. However, once you have accumulated a reason-able amount of wealth (possibly the largest asset an individual will ever have), the likelihood of them turning the assets over to an insurance com-pany is far lower.

In a similar vein, Sudipto Baner-jee of Employee Benefits Research Institute (EBRI) has been conducting some research, as yet unpublished, that raises questions as to the validity of the lifecycle theory of consumption. His work raises the possibility that capital preservation is the guiding principle behind retirement strategies, and ultimately retirees will live on what-ever income results. Browning, Chang, Gao, and Finke2 have performed similar research which suggests that the assumption “that clients spend the same amount every year in retirement and that the withdrawal rate to fund spending is based on spending down a percentage of ‘retirement savings’ is not necessarily correct.”

While neither pieces of research are totally conclusive, they do highlight that relying on the lifecycle theory of

consumption and ignoring the wealth effect is likely to lead to products or strategies that are not embraced by retirees.

So how do we learn about retiree decision-making?One clear way to learn what retirees do is to assess what happens in the wealth management arena. While one can debate the extent to which wealth management reaches the mass affluent, or lower, market, the approaches used by wealth managers has developed in response to retiree behavior.

In 2005, Chhabra3 wrote a paper “Beyond Markowitz.” Chhabra sets out that a conventional risk-return framework does not apply to individu-als (the “Beyond Markowitz” point). He indicated that individuals wanted to use an asset allocation framework that addressed the risks shown in Exhibit 1.

What’s interesting with this frame-work is that it explains why lottery tickets are so popular — the rational economic arguments are weak but

Personal Risks Protective assets that protect against a material decline in standard of living, “stop you from falling materially behind the Joneses.”

Market Risk Market assets that move in line with the general market and wealth segment, “keeping pace with the Joneses.”

Aspirational Risks Aspirational assets that, if they perform, will enable them to move up in their wealth standing, “possibly moving ahead of the Joneses.”

Exhibit 1


lottery tickets offer a potentially aspira-tional benefit.

Similarly, the “bucket approach” to asset allocation is not in theory economically efficient, however it is an approach that retirees seem to relate to. The Capital Group in 20154 set out the following picture in Exhibit 2 which explained how they found their wealth clients, particularly retirees, considered “or bucketed” their money.

There are other behavioral issues that impact retirees — for example, it appears retirees struggle to contemplate a time more than 20 years hence. This is one explanation of why longevity annuities (deferred annuities that are typically purchased at 65 where the income is payable from 85) aren’t naturally attrac-tive to retirees, despite the fact that if you put a number of experts in a room they will extol the virtues of them.

One challenge with trying to understand what retirees, or in fact any individual, wants is the “say-do” complex. One always needs to be careful that what people say and what they do can be very different. Nir Eyal, a well-known behavioral scientist, remarks: “Don’t ask people what they want, watch what they do.”

The general thesis of this paper is that too many retiree solutions begin with what we think retirees want. Our belief is that a better result will come from focusing on what retirees want or, ideally, be guided by their actions.

What Retirees and Near Retirees SayThe Society of Actuaries (SOA) has been focusing on understanding the

risks retirees face, the needs of retirees, and the perceptions of retirees and those nearing retirement. The SOA has conducted public attitude research on this topic since 2001. In 2015, it com-pleted a three-part research project including the 8th biennial survey of retirees5 and those nearing retirement, focus groups of individuals retired 15 years or more6, and interviews with caregivers of 15 year+ retirees needing long-term care7.

The focus groups followed up two earlier sets of focus groups with recent retirees. The focus groups with longer-term retirees were designed to understand how people were doing and whether their perceptions and plans were generally consistent with those of recent retirees. The interviews were designed to provide perspec-tive with regard to those retirees who needed major help and could not par-ticipate directly.

Results over the entire period show some generally-compatible findings, and there are new findings in each sur-vey. Major repeated findings over the period indicate consistent risk concerns and top risk-management strategies8. Note that the surveys are reflective of the middle market. Repeated findings from the survey series plus focus group results include:

• There are many gaps in knowledge. The SOA surveys started before behavioral finance was widely known to retirement benefits professionals. Results are generally compatible with behavioral finance findings.

• Individuals do not do what experts think they should do and expect that they will do. This is true in plan-ning, in spending decisions, and in the draw down of assets. It is very important to understand actions and perceptions and not to make assump-tions about what people will do.

• Pre-retirees have consistently been more concerned than retirees about most risks. The survey team has discussed this issue and thinks that perhaps this is because the retirees have figured out how to manage. The focus groups with 15 year+ retirees found that they were less anxious than the recent retirees.

• The top concerns in 2015 and prior surveys with regard to post-retirement risks are inflation, health care expenses, and paying for long-term care. These top concerns have been found consistently over repeated iterations of the survey for both retirees and pre-retirees. The order and priority of concerns changes from survey to survey.

• Retirees retired at an earlier median age than pre-retirees expected to retire. In 2015, the median retire-ment age was 60 compared to an expected retirement age of 65. The gap has been as large as 7 years. Focus group and survey research in 2013 explored the rationale for retirement of people who had retired voluntarily. That study found that most voluntary retirees had been pushed into retirement by unpleasant working conditions, family needs, or health concerns.

• Working in retirement is another area where expectations of pre-retir-ees differ from the actual experience of retirees. While many pre-retirees say they expect to continue working longer, fewer current retirees have actually done so.

• There continue to be gaps in plan-ning and the use of shorter planning horizons at retirement than are rec-ommended for comprehensive plan-ning. Individuals often will not even

Behavioral Finance | Recognize Retiree Decision Making and Preferences

LIVING

Money toCoverDaily

LivingExpenses

EMERGENCY

Reserves forUnexpectedEmergenciesand Expenses

LIFESTYLE

Money toMaintain a

DesiredLifestyle

LEGACY

Money aRetiree

Wants toLeave

Behind

NEEDS WANTS

Exhibit 2



attempt to do a quantitative analysis before an important decision. When they do the analysis, they will often do only a partial analysis.

• The repeated top risk management strategies are reductions in spend-ing, increasing savings, and paying off debt. However, risk protection products, other than health insur-ance, are not used very often. Annu-ities and long-term care insurance are not very popular with retirees.

• Many retirees prefer to hold onto assets rather than spending them down. Many prefer to make sub-stantial adjustments in spending rather than spending down assets. Retirees who withdraw the required minimum distribution may not see this as spending down assets because it is required. This topic was explored in the 2013 focus groups.

• The thinking of shorter and longer- term retirees seems to be generally consistent. The 2013 focus groups found retirees commenting on risks by saying I will deal with when it happens, rather than developing risk management strategies. The 2015 focus groups explored how this has worked out and found that it had worked out for many but certainly not all retirees.

• Retirees and pre-retirees seem to have relatively little concern about some important risks such as fraud. This has been a repeated finding over the years.

The results give us a picture of how many middle-market people plan. The quotations9 give us a sense about the voices of retirees. Focus group quotes offer insight into planning for retirement:

“I didn’t plan my retirement. I was a little bit scared, because all of a sudden... I went from making lots of money to getting what Social Security is going to send to me and I was scared. I was worried about it, but it worked out fine.” Male, Dallas, TX

The survey and focus group results give us a picture of planning

for retirement. This picture provides insights that can be helpful in selecting retirement planning support services, software, and education. It can also be helpful in structuring wellness programs.

A major finding is that some people do not plan and for those who do, plan-ning horizons are often too short. In the focus groups, people were asked to describe how they plan. Often it is short-term and cash-flow oriented. People are very aware of their regular expenses, but not very aware of the unexpected. For example, they will be very aware of premiums for medical insurance, but are surprised at dental bills and at some drug payments. Like-wise, they are very aware of the monthly payments made to a condominium asso-ciation, but often surprised at special assessments. Relatively few people buy financial products such as long-term care insurance and annuities, but many more buy supplemental health insur-ance. A common approach is to deal with things as they happen. This is an area where employers can help.

The focus on dealing with things as they happen led the SOA Committee to focus on shocks and unexpected expenses10 as a major part of the 2015 focus groups and risk survey. Here are some comments from retirees:

“It’s the things that you don’t have control over, like a furnace or something, that I can’t do. I was raised by a widowed mother since I was 6-years-old. So there was never a father in the house. It was kind of do-it-yourself, and I’ve been good at that. But when the big expenses come, that is the thing you just have to throw caution to the wind.” Female, Chicago, IL

“You think [the money is] going to go on forever, then you get sideswiped. So, I probably would have planned for probably healthcare, better healthcare, long-term care, planned more for health issues.“ Female, Dallas, TX

The findings with regard to shocks and unexpected expenses were not as expected. The survey group expected a focus on major life events, but the most

commonly-mentioned unexpected expenses were home repair and dental expenses. There is an opportunity to build more realistic expectations and do better planning. Retirees experi-encing a single shock were often able to adjust and move forward. Some reduce spending and some withdraw money from assets. Those experiencing multiple shocks, particularly if there were lower income, had a much more difficult time. The shocks that were cited as having the biggest impact were a major long-term care event, divorce after retirement, and children with major problems that needed help on a continuing basis. The retirees could not adjust to these shocks.

The financial impact of shocks varied by retiree. About 3 in 4 retirees were able to manage reasonably well within the new constraints. More than 1 in 3 who experienced shocks had asset reductions of 25 percent or more. More than 1 in 10 who experienced shocks had to reduce spending by 50 percent or more.

The focus groups also offered insights about how people think about spending in retirement:

“When we retired, we spent/wanted. Now I am spending a greater percentage on needing and not as high a percentage on wanting.” Female, Chicago

“When I was working and making a considerable amount of money every year, I didn’t shop. If I needed something, I would go buy it. I never thought about shopping. I will tell you something, my wife and I have made shopping and coupon clipping, of course using the Internet, a hobby.” Male, Baltimore, MD

“We don’t have a lot of money, but we never needed it. We never lived above our needs I guess. I take a couple of trips every year and my wife goes up and visits her brothers. We do basically what we want. We are happy.” Male, Dallas, TX

They also offer comments about confidence at the time of retirement:

“At the time I was confident. I’ll tell you why. While we were getting ready for



retirement we knew it was coming soon and so what we were looking for was a smaller house. We had the equity we had built up in the house we were living in to not only pay for the smaller house, but we had money left over.” Male, Kitchener, ON

“I was very confident, because I think I’m a person of little wants. I have every-thing that I want.” Female, Kitchener, ON

Retirees talked about the lessons they learned from their parents’ experiences:

“My father passed away fairly early, but my mom retired and the one thing that we learned from her and from my husband’s parents is pay everything off and whatever you buy, buy it with cash and that way you don’t owe anything. It was just like your utilities.” Female, Dallas, TX

“I watched my mother in extended care and I got lots of bills. It was the worst three years I’ve ever been through in my life and the money, jeepers. They’re going to sock it to you if you’ve got it. They’re going to take it to help with the guy who hasn’t got it. You’re in the same room. You can’t buy anything once you get to that point.” Female, Edmonton, AB

What Should Employers Do?Behavioral science teaches us that if we only focus on the rational, we may not capture the realities of how decisions are made.

Given this, it is important to rec-ognize two realities: what we think retirees (or near-retirees) need, and what the retirees want and will accept — and these can be very different. It is important to listen and structure programs that respond to the reality of the retirees and near-retirees. This mix leads us to several important messages:

• Focus on areas where expectations do not line up with reality. Three areas of focus are planning horizons, timing of retirement, and expec-tations about work in retirement. Employers can help employees be more realistic.

• Life is a mixture of the expected and the unexpected. Emergency funds are

very important, can easily be forgot-ten, and they are often inadequate.

• It is important to plan for the long term, and to understand the expected period of retirement. Many retirees underestimate their expected period of retirement and that life spans are very uncertain. Some of us will live past age 100 and a couple should plan for the life span of the longer-lived person. Planning needs to recognize the uncertainly and not plan to the average. Planning to the average is planning for 50 percent of people to fail.

• Help employees focus on the need for paycheck replacement in retire-ment. Regardless of the method used to distribute plan funds, a primary goal is to be able to live reasonably in retirement.

• Some retirement planning just gets us to retirement date. But things change after retirement and we may need more money to deal with those changes.

• Plan design and particularly defaults can encourage better plan results.

Plan sponsors also have an opportunity to help employees get more focused on risk protection and to provide some risk protection within their programs. And they can provide a variety of tools and information. Many employers have good credibility with employees and they can use it to help employees improve their security.

But in all this remember that as an employer you do not need to address all these issues in one go, it’s OK if you want to keep things simple and maybe only tackle one issue at a time. (We would rather see employers tackle one issue than none at all.)

Neil Lloyd is Head US DC & Financial Wellness Research, Mercer.

Anna Rappaport is Chair of the Society of Actuaries Committee on Post-Retirement Needs and Risks, is a phased retiree, and President of Anna Rappaport Consulting.

1 Time Inconsistent Preferences and the Annuitization Decision”, Philipp Schreiber and Martin Weber, University of Mannheim

2 “Spending in Retirement: Determining the Consumption Gap,” Chris Browning; Tao Guo; Yuanshan Cheng; and Michael S. Finke

3 “Beyond Markowitz: A Comprehensive Wealth Allocation Framework for Individual Investors,” Journal of Wealth Management, 7(4), pp 8-34, Chhabra, A.B., (2005)

4 “The Retirement Income Program Over-view,” The Capital Group, July 2015

5 2015 Risks and Process of Retirement Sur-vey, Society of Actuaries, 2016

6 Post-Retirement Experiences of People Retired for 15 Years of More, Society of Actuaries, 2016

7 Interview results also included in report with focus group results: Post-Retirement Experiences of People Retired for 15 Years of More, Society of Actuaries, 2016

8 Results based on Risks and Process of Retirement Surveys, Society of Actuaries, 2001 to 2016, there are eight surveys in total.

9 Rappaport, Anna, Financial shocks, unex-pected expenses and financial experiences of older Americans, 2017 Living to 100 monograph, Society of Actuaries (forth-coming)

10 2015 Risks and Process of Retirement Survey: Key Findings and Issues, Shocks and Unexpected Expenses in Retirement, Society of Actuaries, 2016

References1) 2015 Risks and Process of Retirement

Survey: Key Findings and Issues, Shocks and Unexpected Expenses in Retirement, Society of Actuaries, 2016

2) Post-Retirement Experiences of People Retired for 15 Years of More, Society of Actuaries, 2016

3) Rappaport, Anna, Financial shocks, unex-pected expenses and financial experiences of older Americans, 2017 Living to 100 mono-graph, Society of Actuaries (forthcoming)




Will Tax Reform Impact Your Plan?A summary of what is happening in Washington that will affect your plan.By David Levine and Brigen Winters

ax reform has the potential to impact your defined contribu-tion plans. PSCA’s Washington lobbyists, Groom Law Chartered,

provides an update below as well as an overview of the Affordable Care Act repeal and replace efforts.

Tax ReformTax reform discussions continue to be held behind closed doors as leaders from the House, Senate, and White House work together to produce a unified proposal. On June 13, House Ways & Means Chairman Kevin Brady (R-TX) suggested a five-year phase-in of the proposed border adjustment tax (“BAT”). The proposed phase-in did not appear to appease opponents or Republican members who have expressed concerns with the BAT proposal. As the BAT and hopes for comprehensive tax reform falter, members of the House Freedom Caucus and Senator Orrin Hatch have

stated publicly that they are open to the idea of unpaid-for tax cuts. House Speaker Paul Ryan (R-WI), however, remains confident that Congress can pass comprehensive tax reform in 2017, according to his June 20th remarks at a conference held by the National Asso-ciation of Manufacturers. Tax reform discussions should accelerate in the fall after Congress addresses healthcare, the debt ceiling, and the budget.

Affordable Care Act (“ACA”) Repeal and ReplaceOn May 4, the House of Representa-tives passed the American Health Care Act (“AHCA”) by a close vote of 217-213. Twenty Republicans and all Democrats voted against the bill. Some of the bill’s key provisions are:

• eliminating the individual shared responsibility and employer shared responsibility penalties (though the mandates themselves remain);

• a package of insurance “market stabilizers,” including funding for state-based high-risk pools, a contin-uous coverage requirement, and a 5:1 community rating provision with state flexibility;

• creating state waivers for age rating, essential health benefits and, where an individual’s coverage has lapsed, community rating;

• replacing the ACA premium subsidies with age-based tax credits

of $2,000–$4,000 to help individuals pay for coverage;

• delaying the implementation of the Cadillac tax;

• eliminating various taxes and fees associated with the ACA; and

• reforming Medicaid.

The House initially passed the bill without a budget score from the Congressional Budget Office (“CBO”). On May 24, the CBO released its score showing that 23 million more Americans will be without coverage in a decade than under the ACA. The bill overall saves $119 billion over a decade — this number comes from $1.1 trillion in cuts to Medicaid and premium subsidies offset by repealing $874 billion in ACA taxes and fees and spending $117 billion on premium- reduction payments.

One month later on June 22, Senate Republicans introduced their health-care bill, the Better Care Reconciliation Act of 2017. The bill immediately faced opposition from conservatives and liberals alike. In order to satisfy budget reconciliation rules, the Senate bill must save the federal government as much or more money than the AHCA’s $119 billion over a decade. A CBO score for the Senate bill is expected the week of June 26.

David Levine and Brigen Winters are Partners with Groom Law Group Chartered, PSCA’s Washington Lobbyist firm.

Washington Watch

T

PSCA Member BenefitsThe Plan Sponsor Council of America offers many benefits to its members to assist in the administration of their defined contribution plans. Here is a list of just a few of the benefits PSCA membership offers:

Conference and TrainingNational and regional conferences designed for defined contribution plan administrators and sponsors.Providing education from industry leaders and peer networking.

Professional GrowthFor plan sponsors, administrators and service providers.Opportunities to serve on PSCA committees, speak at regional and national conferences, and have your trade articles published in Defined Contribution Insights.

401(k)/403(b) DayAn annual event promoting plan partici-pation, communication, and education.Tools and ideas designed and provided by PSCA for increasing plan participation and promoting effective participant communication and education.

Members-Only Web PageAn interactive, online community of plan sponsors, administrators, and service providers.Sharing administrative best prac-tices, important legislative updates, and technical assistance for 401(k) and profit sharing plans.

BenchmarkingPSCA surveys: Including the industries most comprehensive annual survey.Annual survey of profit sharing, 401(k), and 403(b) plans created by and for members. Current trends and other surveys available through-out the year. Free to members that participate.

Web CastsComprehensive, unbiased training exclusively for PSCA members.State-of-the art training available 24-7, covering plan basics, design, administration, fiduciary respon-sibilities, investments, and partici-pant communication.

Media InvolvementArticles and reports on profit sharing and 401(k) plans.PSCA continually works to provide and promote accurate, concise, and balanced coverage for profit sharing and 401(k) plans.

Signature AwardsPeer and industry recognition for em-ployee communication and education.Recognizing outstanding defined contribution programs implemented by plan sponsors, administrators, and service providers.

Bimonthly Magazine, Defined Contribution InsightsAn award-winning and essential 401(k) and profit sharing plan resource.Featuring nationally-respected columnists, case studies, the latest research, and more. Providing prac-tical and constructive solutions.

Members-Only Toll-free Help LineSolutions and ideas for plan sponsors and administrators.Available for technical assistance and best-practice information.

Washington RepresentationYour direct connection to Washington DC events and developments affecting profit sharing and 401(k) plans.PSCA works in Washington to advocate in the best interests of our members and bring you the latest developments that will impact your plan.

PSCA’s Executive ReportA monthly legislative newsletter.Providing concise, current informa-tion on Washington’s most recent events and developments.

For PSCA member benefits questions, please call us at 312-419-1863.

This Issue’s Member Benefit Highlight:

Connecting with Other MembersPSCA often is asked by plan sponsors to provide names of the best service providers. Although we cannot recommend any specific service provider company, we do understand that belonging to a community of plan sponsors should give you the opportunity to learn who is really good in a particu-lar area.

To help our plan sponsor members, we provide a direc-tory of service provider members. Once logged into the PSCA website, the directory can be found in the Resources drop-down menu. From there you can see all the service providers in the directory or choose only those providers with a particular specialty. We hope this will help our plan sponsor and service provider members by giving them the opportunity to connect.

Our members can also see the membership roster, which is only available to members. The roster lists all members — both plan sponsor companies and service providers. Infor-mation includes the company’s address and the primary contact name and phone number. When available, the type of retirement plan offered is also listed. Check out the roster and contact us if you need to update your listing. The mem-ber roster can be useful for a plan sponsor who is looking for other plan sponsors to speak with on a particular issue they are facing. You can search the roster by state. Therefore, you might be able to find other plan sponsors in your area for networking.

http://www.psca.org/events

http://www.psca.org/executive-reports

http://www.psca.org/signature-awards

http://www.psca.org/401kDay

http://www.psca.org/insights-magazines

http://www.psca.org/psca-members-helpline

http://www.psca.org/government-affairs

http://www.psca.org/psca-press-room

http://www.psca.org/psca-committees

http://www.psca.org/401-k-plan-research

https://www.psca.org/login

200 S. Wacker Drive, Suite 3100Chicago, IL 60606

PSCA on the Webwww.psca.org — Everything you need to know about employer- sponsored defined contribution plans.

Toll-free technical assistance helpline for members only. Please call 1-800-255-2710.

Join a PSCA committee!PSCA relies on our member volunteers to participate on our various committees. Visit our website at http://www.psca.org/psca-committees to see if there is a committee that fits your interests and abilities, then call us at 312-419-1863 to sign up!

Also Available• 401(k) Day materials, including Spanish versions.

• Take Control of your 401(k), by David Wray (available at a discounted rate for members.)

• Artwork to reprint PSCA’s Take Control! brochure, which discusses the importance of saving for retirement through profit sharing and 401(k) plans. Customize the brochure with your company’s name and logo! Preprinted brochures are available for purchase at a nominal fee.

• 59th Annual Survey of Profit Sharing and 401(k) Plans, reflecting the 2015 plan year.

• 2016 403(b) Plan Survey, reflecting the 2015 plan year.

• 2016 Non-Qualified Plan Survey, a follow-up to the 2011 NQDC Survey.

Additional PSCA Information

Save the Date!

PSCA’s 71st Annual National ConferenceMay 1–2, 2018

The Scottsdale Resort at McCormick Ranch Scottsdale, AZ

Upcoming Dates & EventsSeattle City EventSept. 20, 2017 • Microsoft Campus, 1 Microsoft Way, Redmond, WA

Omaha City EventSept. 27, 2017 • Gallup, 1001 Gallup Drive, Omaha, NE

Phoenix City EventOct. 11, 2017 • Karsten Manufacturing (Ping), 2200 W. Peoria Ave., Phoenix, AZ

LA City EventOct. 19, 2017 • Dimensional Fund Advisors, 1299 Ocean Ave., Santa Monica, CA

71st Annual National ConferenceMay 1 – 2, 2018 • The Scottsdale Resort at McCormick Ranch, Scottsdale, AZ


https://www.psca.org/events

https://www.psca.org/NQDC_2016

https://www.psca.org/2016_403b_report

https://psca.memberclicks.net/index.php?option=com_mc&view=formlogin&form=229382&return=L2luZGV4LnBocD9vcHRpb249Y29tX21jJnZpZXc9bWMmbWNpZD1mb3JtXzIyOTM4Mj9zZXJ2SWQ9NjIzMiZvcHRpb249Y29tX21jJnZpZXc9bWMmbWNpZD1mb3JtXzIyOTM4Mg==





DEFINED COTRIBUTIO - PSCA The Solution Source for Plan Sponsors ... HSAs are seen by many as an...

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