The Principal Title PageConference Title and Date
Tim Hollinger, CFP®, CEBS
401(k) 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
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
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
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 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 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 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
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
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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.
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