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2014-09-09 Retirement Readiness

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Thrive. Grow. Achieve. Retirement Readiness: Evaluating plan health to define success Ed Gimenez, CFP®, AIF® September 9, 2014
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  • 1. Thrive. Grow. Achieve.Retirement Readiness:Evaluating plan health todefine successEd Gimenez, CFP, AIFSeptember 9, 2014

2. POP QUIZSecurities offered through LPL Financial, Member FINRA/SIPC. 3. AGENDA Industry trends The need for benchmarking Review of the traditional plan health metrics The new (and improved) way to report on plan health A call to actionSecurities offered through LPL Financial, Member FINRA/SIPC. 4. INDUSTRY TRENDSParticipant Readiness: Current StateAccording to the Employee Benefits Research Institutes (EBRI) retirement readinessratings in 2010, the percentage of participants at risk of having insufficient income:*Generation Xages 36-4544.5%*For basic retirement expenses and uninsured health costs.Securities offered through LPL Financial, Member FINRA/SIPC.Late Boomersages 46-5543.7%Early Boomersages 56-6247.2% 5. THE NEED FOR BENCHMARKINGPlan Participation Benchmarking A critical measure of a successful retirement plan is a healthyparticipation rate. It is important to understand what drivesparticipant behavior, helping you increase both participation ratesand increased contribution to the plan. Key metrics include: The participation rate in your plan among eligible employees The percentage of active participants deferring enough of their salaryto take full advantage of the employer match offered The average number of investment options held by plan participantsSecurities offered through LPL Financial, Member FINRA/SIPC. 6. THE NEED FOR BENCHMARKINGPlan Design Benchmarking It is important to keep up with new features to ensure your planstays competitive, and addresses the needs of your participants.Comparing your plans features with the industry benchmarkaverages provides a basis for comparison. Key metrics include: Do you provide a match? If yes, how does the match your company provides compare to industrybenchmarks? Are you using automatic-enrollment? Have you established a Qualified Default Investment Alternative (QDIA)? How many investment options are available to your participants in the plan?Securities offered through LPL Financial, Member FINRA/SIPC. 7. THE NEED FOR BENCHMARKINGPlan Review Benchmarking It is imperative for plan sponsors to implement a well-documentedprocess for reviewing plan features. Plan sponsors are ultimatelyresponsible for the oversight of the plan. Partnering with a financial advisor who understands theretirement plan space can help you stay on course. Key metrics include: How often you review the investment options available in the plan How often you review the plans total costs and fees How often you evaluate your plans current service providers Implementation/review of an investment committee for your plan Design/implement/review an Investment Policy Statement (IPS) Utilizing the services of a financial advisorSecurities offered through LPL Financial, Member FINRA/SIPC. 8. BY THE NUMBERS30%Participation Rate24%Not Maximizing EmployerMatch25%Do Not Offer Employer Match70%Do Not Use Auto Enrollment21Investment OptionsThe average rate of eligible employees NOT participating in adefined contribution plan being offered by their employerOver half the plans surveyed reported that nearly 24% ofactive participants DO NOT defer enough salary to take fulladvantage of the employer match offered25% of plans DO NOT offer either an employer match or non-electiveSource: PLANSPONSOR Defined Contribution Survey, 2010.Securities offered through LPL Financial, Member FINRA/SIPC.contributionNearly 70% of plans DO NOT automatically enroll eligibleemployees into the planAcross all industries, plans offer an average of 21investment options 9. ON AN ANNUAL BASISAcross all industriesSource: PLANSPONSOR Defined Contribution Survey, 2010.Securities offered through LPL Financial, Member FINRA/SIPC. 10. TRADITIONAL METRICSSecurities offered through LPL Financial, Member FINRA/SIPC. 11. WHATS IMPORTANT? The #1 goal is a dignified retirement for every participant One key to retirement dignity is having enough money Replacement ratio is the benchmark we use to determinelikelihood of a dignified retirement Participation rate, account balance and investment performancedata points give us insight into desirable plan design attributes Plan fees help determine if investment performance is likely todeliver sufficient results to arrive at a dignified retirementSecurities offered through LPL Financial, Member FINRA/SIPC. 12. NEW EVALUATION TECHNIQUESFunding Metrics Investment Metrics Participant MetricsFrom:Focusing on averagedeferral rates andaccount balancesTo:Securities offered through LPL Financial, Member FINRA/SIPC.From:Focusing on the numberof employeesparticipating in the planFrom:Focusing on the numberof participants that areinvested in a particularinvestment optionFocusing on the averageincome replacementratioTo:Focusing on the numberof participants that areon track to meet theirretirement goals basedon income replacementbenchmarksTo:Focusing on whetherparticipants are properlydiversified to pursueincome replacementtargets and tolerancefor risk 13. A CALL TO ACTIONThe Retirement Plan Health Check Report It is essential that an accurate measurement of a plansvalue exists This comprehensive and sophisticated program will providequalitative plan statistics in a simple, straightforward format The Retirement Plan Health Check report allows advisors toreport on the "Health" of a plan by presenting key plan attributescompared to a valid peer groupSecurities offered through LPL Financial, Member FINRA/SIPC. 14. THE RETIREMENT PLAN HEALTH CHECKSecurities offered through LPL Financial, Member FINRA/SIPC. Historic and age group based plan participation,deferral rates and average account balances Highly and non-highly compensated employee statistics Age group segmented and total participantcontribution levels Current and historic portfolio diversification datashown in total and divided by age groups Aggregate plan performance Plan fees Ability to save historical results regardless ofplan provider 15. Securities offered through LPL Financial, Member FINRA/SIPC.THANK YOU!Ed Gimenez, CFP, AIF, RPADirect: 240-403-2563E-mail: [email protected]


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