The Principal Title PageConference Title and Date

Tim Hollinger, CFP®, CEBS

401(k) Hot Topics & Trends

What got us here?Hot Topics & Trends

401(k) “Enhancements” Through the Years

1990’s 2000’s

?

First 401(k) Plan

Daily Valuation

Plan Loans

IVRS

Fund of the Day

Self Directed Brokerage

Web

Expertise/ Education

Share Class

Expense Disclosure

Hot Topics & Trends

Investment TrendsHot Topics & Trends

Target Date Strategy

What differentiates one target date fund from another?

– Strategy of the fund

• Maximizing the upside

• Minimizing the downside

– End point of the glide path

• Staying in the fund beyond retirement

• Taking money out at or before retirement

Hot Topics & Trends

Investment Options

• Plans offer on average 19.5 investment options1

• Participants held an average of 5.3 investment options1

• Most common investment options

– Actively managed domestic equity – 81.3%

– Actively managed international equity – 78.5%

– Indexed domestic equity – 70.2%

– Actively managed domestic bond – 70%

PSCA 52nd Annual Survey, 2009.

Hot Topics & Trends

Fiduciary TrendsHot Topics & Trends

Top 10 Fiduciary Mistakes

Failure to:

1. Establish written policies and procedures

2. Follow policies and procedures

3. Do investment due diligence

4. Measuring and evaluating fees

5. Administer correctly, monitor periodically

6. Identify conflicts of interest

7. Differentiate between your corporate and your plan fiduciary roles

8. Appropriately manage company stock

9. Give employees the help they need

10. Take action

“Top Ten Ways to Fail as a Fiduciary,” (Web) 2009 North American Professional Liability Insurance Agency, LLC.

Hot Topics & Trends

Investment Monitoring

Total

5 years or longer

2 to less than 5 years

1 to less than 2 years

Never

100%

5%

20%

23%

13%

39%Within the last year

When was the last time you replaced an investment option due to poor performance?

Source: Deloitte Consulting, 2009

Phase out investment option over period of time

Other

Hasn’t happened

Freeze investment option

Add an additional investment option with the same investment style

Continue to monitor

16%

5%

6%

17%

19%

55%

72%Replace investment option

How do you handle an underperforming investment option?

Note: Respondents could choose more than one answer.

Hot Topics & Trends

Plan Design TrendsHot Topics & Trends

Auto Features• Automation becoming standard practice

• Increased effort to lead employees to better long-term outcomes

2007 2009

Auto Enrollment 34% 58%

Auto Increase 35% 44%

Auto Rebalancing 42% 47%

Escalation and Auto Enrollment 28% 40%

2009 Hewitt Associates, “Trends and Experience in 401(k) plans.”

Hot Topics & Trends

Plan Measurement

• Employers measure success by:

– Investment performance

• 90% of plans offer investment education

• 84.8% of plans have a written investment policy statement1

– If the plan is valued and appreciated by employees

• Increasing importance placed on retirement outcomes

– 81% of eligible employees participate

– 2/3 of employers report the 401(k) is the primary savings vehicle for employees

– Replacement ratio studies

2009 Hewitt Associates, “Trends and Experience in 401(k) plans.”1PSCA 52nd Annual Survey, 2009

Hot Topics & Trends

Participant TrendsHot Topics & Trends

Participant Behavior

Worker Confidence in Having Enough Money to Live Comfortably Throughout Their Retirement Years

Source: 2010 Retirement Confidence Survey, EBRI

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Very Confident 25% 22% 23% 21% 24% 25% 24% 27% 18% 13% 16%

Somewhat Confident 47% 41% 47% 45% 44% 40% 44% 43% 43% 41% 38%

Not too Confident 18% 18% 19% 17% 18% 17% 17% 19% 21% 22% 24%

Not at all Confident 10% 17% 10% 16% 13% 17% 14% 10% 16% 22% 22%

Hot Topics & Trends

Retirement Outcomes

• 39% of employees are not confident they will have enough money1

• 44% that have done a calculation used “the guessing method”2

• Calculations are effective at changing behavior:

– 44% changed their retirement planning1

– 59% started saving or investing more1

1 EBRI Retirement Confidence Survey, 2010.2 EBRI Retirement Confidence Survey, 2009.

Hot Topics & Trends

Roth Conversions

PSCA 52nd Annual Survey, 2009

Plan Size by Number of Participants

1-49 50-199 200-999 1,000-4,999 5,000+ All Plans

% of contributing participants 28.2 12.6 9.8 11.5 10.1 15.6

Percentage of contributing participants who made Roth 401(k) contributions (when Roth is offered)

Type of Plan Plan Size by Number of Participants

1-49 50-199 200-999 1,000-4,999 5,000+ All Plans

401(k) 50.0 39.0 34.8 27.0 25.0 34.6

Combination 55.2 41.2 26.3 41.7 42.9 41.4

All Plans 51.8 39.7 32.0 31.9 29.0 36.7

Percentage of plans permitting Roth 401(k) deferrals

Hot Topics & Trends

Reaction to Market TurbulenceHot Topics & Trends

2007 2008

# increased 139,883 158,822

% of participants 19.9% 19.2%

# decreased 40,752 73,154

% of participants 5.8% 8.8%

# stopped 33,139 63,893

% of participants 4.7% 7.7%

Changes in participant behavior

Data is specific to Salary Deferral Service clients.

2007 number of participants — 702,255;

2008 number of participants — 829,156

# and % of participants that increased/decreased deferrals

Retirement Plan Trends Report, The Total View Report, 2009.

Participant Benchmarking

52nd Annual Survey of Profit Sharing and 401(k) Plans, Profit Sharing Council of America (2009)

Defined Contribution

2001 2002 2003 2004 2005 2006 2007 2008

Participation Rate 78% 80% 76% 77% 84% 84% 85% 83%

Average Deferral Rate 5.3% 5.2% 5.2% 5.4% 5.4% 5.4% 5.6% 5.5%

Hot Topics & Trends

Plan Sponsor TrendsHot Topics & Trends

Plan Sponsor Behavior

• Defined contribution-based world

• Voluntary benefits

• Consumer-directed healthcare

• Benefit providers asked to step up “guidance”

• Opening up the worksite for education and advice

• “Automate” features to simplify product choices

• Loosen requirements

• Nonqualified/deferred compensation

• Qualified/401(k)

• Health Savings Accounts

but...

Help them make good decisions

and at the same time...

Attract and keep quality workforce

Shift responsibilityand risk to employees

Hot Topics & Trends

Top Five Concerns

• 1. Understanding legislation: 61%

• 2. Cost or Fees: 59%

• 3. Encouraging employees to participate: 54%

• 4. Degree to which participants will be ready for retirement: 41%

• 5.  Ability of participants to make changes to their plan: 40%

Retirement Income Hot Topics & Trends

Retirement Income Planning

83% 1 72% 1 40% 1 15% 2

1 Retiree Income Solutions Survey from the Principal Financial Group, March 2009.

2 401(k) Participant Survey, The Principal Financial Group, 2010.

Hot Topics & Trends

In-Plan GuaranteesHot Topics & Trends

Potential SolutionsHot Topics & Trends

Thank you!Hot Topics & Trends

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without prior written permission from the Principal Financial Group®.  

While this presentation may be used to promote or market a transaction or an idea, it is intended to provide general information about the subject matter covered and is provided with the understanding

that The Principal is not rendering legal, accounting or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with

appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements.

 Asset allocation does not guarantee a profit or protect against a loss. Investing in real estate, small-

cap, international, and high-yield investment options involves additional risks. For use with financial professionals only.

Insurance products and plan administrative services are provided by Principal Life Insurance Company, a member of the Principal Financial Group®

(The Principal®), Des Moines, IA 50392.PQ 8606-3

07/2010 – t100708005b© 2010 Principal Financial Services, Inc., Des Moines, IA 50392.