2013 Retirement Webinar Series - Aon · Retirement Webinar Series | June 26, 2013 3 Agenda Tracker...

2013 Retirement Webinar Series

Retirement Webinar Series | June 26, 2013

The Empowered Fiduciary of Defined

Contribution Plans

Alison Borland, Winfield Evens, Bridget Steinhart

1

Retirement Webinar Series | June 26, 2013 2

Agenda

Section 1 The DC Plan Fiduciary Today

Section 2 Emerging Trends within DC

Section 3 Two Potential Paths to Success

Section 4 Empower Me

Consulting

Governance

DC Nexus

Section 5 Conclusion


Agenda Tracker







Current Environment

DC plans are overwhelmingly the

primary retirement vehicle for

participants

Current DC plan savings might

not be enough

– Over 40% of plan sponsors lack

confidence in participants’ readiness

– On average, participants are

projected to have a 20% shortfall in

needed retirement savings

Both participants and plan

sponsors have increasing

responsibility within DC plans

55%

64% 65% 67%75%

0%

20%

40%

60%

80%

2003 2005 2007 2009 2011

Is DC the Primary Retirement Plan?

3%

12%

28%

33%

19%

6%0%

10%

20%

30%

40%

6Not

Confidentat All

5 4 3 2 1Very

Confident

Sponsors’ Level of Confidence in Participants’ Retirement Readiness

Source: Aon Hewitt

4


Current Expectations

5

Fulfill Fiduciary Responsibilities

Limit Litigation Risk

Reduce Costs

Optimize Plan


Increasing Pressures

Plan Sponsor

Significant Media

Attention

Governmental Oversight and

Increase in Audits

Litigation

Continues

Intensifying

Employee Focus Increasing

Employer Attention


Agenda Tracker







Institutionalization of DC Plans

20%

48%

33%

Utilization by Vehicle Type Entire 401(k) Market Aon Hewitt’s Clients

Value of Institutionalization

Reducing investment fees

by 25 basis points has

the same value as…

…increasing the company

contribution 0.5% of pay for

over an employee’s career

Retail Funds

Collective Trusts

Separate Accounts

Source: Cerulli Associates, Aon Hewitt

71%

17%

12%


Help Solutions

On average, annual benefit of participants

receiving Help is 2.92%, net of fees1

– Difference can have significant impact:

70% more wealth over 20 years

Those who used Help performed better 88%

of the time vs. those who didn’t1

Non-Help participants have substantially wider

range of risk levels2

Biggest mistake is too high risk near retirement

* The “Help” group includes participants who, at the time of the study, had 95% or more of their portfolio in a target date fund, were enrolled in managed accounts, or used

online advice in the prior 12 months and received a recommendation. All other participants were placed in the “Non-Help” group.

1 Aon Hewitt does not guarantee future results. See full disclosures of Aon Hewitt and Financial Engines joint research at the end of the presentation for more information.

2 Comparison of risk ranges of Help Participants to those of Non-Help Participants within each age group, showing middle 50% of risk ranges for each category. Stock Index and

Bond Index shown for reference, reflecting risk levels of S&P 500 Index and Barclays Capital U.S. Aggregate Bond Index, respectively.

9


Retirement Income Solutions

Solution One Year Ago Today

Institutional Rollover Annuity Platform 62 62

Managed account drawdown plus longevity

insurance

None A dozen live

or in process

In-plan guaranteed minimum withdrawal

benefit None 2 live,

1 in process

Freezing Pension

Plans

Aging of the Baby

Boomers Economic Volatility

10


Agenda Tracker






11


Two Potential Paths to Success

Investment Scrutiny Creating Two Paths

Delegate

Select and monitor

the Expert

Rely on Expert for

investment

decisions and

execution of

strategy

Reduce time,

resources

Improve participant

outcomes

» Empower Me

Is personally responsible

for investment decisions

Get trained and partner

with expert resources

Ensure active and

engaged Committee

Maintain complex choice

investment menu and

facilitate education

strategy

Improve participant

outcomes

»

Best-in-Class

Providers

Leverage

Institutional Scale

Manage and

Reduce Risk

12


Polling Question

Which path do you think best describes your perspective as a

plan sponsor?

13


Agenda Tracker






14


Managing the Changing DC Marketplace

15

Former Paradigm

Homogeneous

Accumulation

Generic

More is better

As starting point

Information

“It’s free”

Bi-polar

Emerging Paradigm

Diverse

Retirement income for life

Personalized, directive

Fewer, focused, institutional

As complete path, with guidance

Advice, managed solutions

Per head, baseline

Understood and managed

Characteristic

Population

Success Metrics

Communications

DC Investment Options

Automation

Investment Decisions

Administrative Fees

Risk


Fiduciaries have personal liability

Not an “honorary role”

– Process is key

– Considerations, and commitments

No place for the “settlor” hat

Committee, Corporate and Advisor Roles

16

Plan Design

Plan Investments

Document

Plan Admin Committee

“Prudent Expert” Expectation

Members are typically finance or HR professionals

Solutions

Always have a thoughtful response to “why”

Governance—”Highest Standard Under the Law”


Fiduciary Training - know your responsibilities

17

Obligation to monitor investments

Examples not explicitly stated in ERISA:

– Appointment documents

– Gift policy

– Periodic review of the Investment Policy Statement

– Service provider monitoring

– Operational oversight

Potential advantages

Indemnification

Fiduciary liability insurance premiums

DOL audit success

Quality of sleep

Governance—The Best Offense is a Good Defense


DC Nexus—Increasing Control and Transparency

for Fiduciaries

Empowers plan

sponsors

Creates a proprietary,

industry-first investment

exchange

Drives down fees for

participants

18


Agenda Tracker






19


Conclusion

Benefits of Our Solutions, Regardless of the Path

Benefits to

Sponsor

Participant

Risk Client fiduciary risk is reduced

Convenience Comprehensive solution

enables clients to focus on

strategic business issues

Cost World-class portfolios at

wholesale prices increase

investment returns

Financial

Security

Simple sophistication and

best-in-class help improve

performance

Experience Market leading participant

experience provides easy

access and independent help

20


Questions & Answers

21


Contact Us

Alison Borland

VP, Retirement Solutions and Strategies

Aon Hewitt

(847) 771.1115

[email protected]

Winfield Evens, CFA

Director of HRO Investment Strategy | Partner

Aon Hewitt | Hewitt EnnisKnupp

(847) 771.6605

[email protected]

Bridget Steinhart

Associate Partner

Hewitt EnnisKnupp

(314) 719.3801

[email protected]


About Aon Hewitt

Aon Hewitt empowers organizations and individuals to secure a better future through

innovative talent, retirement and health solutions. We advise, design and execute a wide

range of solutions that enable clients to cultivate talent to drive organizational and personal

performance and growth, navigate retirement risk while providing new levels of financial

security, and redefine health solutions for greater choice, affordability and wellness. Aon

Hewitt is the global leader in human resource solutions, with over 30,000 professionals in

90 countries serving more than 20,000 clients worldwide. For more information on Aon

Hewitt, please visit www.aonhewitt.com.

© 2013 Aon plc

This document is intended for general information purposes only and should not be construed as advice or opinions on

any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt's preliminary analysis of

publicly available information. The content of this document is made available on an “as is” basis, without warranty of any

kind. Aon Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from

any reliance placed on that content. Aon Hewitt reserves all rights to the content of this document.

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2013 Retirement Webinar Series - Aon · Retirement Webinar Series | June 26, 2013 3 Agenda Tracker...

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