Founded in 1992 • Administration of Over 17,000 Plans and 1.1 Million Plan Participants • Over $56 Billion in Assets Under Management • Plans in All 50 States

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MILLENNIAL DILEMMA: STUDENT DEBT REDUCTION VS. RETIREMENT SAVINGSMillennials are commonly defined as the generation born from 1981 to 1997, or the current 18 – to 34-year-old population. In 2015, Millennials are expected to eclipse the Baby Boomers (born between 1946 – 1964) as the largest living generation in the U.S. at 75.3 million people according to the Pew Research Center. Millennials have been broadly labeled in mostly negative terminology. While words such as entitled and lazy are often used, optimistic is also a common descriptor. In addition, Millennials have been recognized as the most educated generation. But with that comes a high price — they are burdened by high student loan debt.

A Heavy Burden Increases

According to credit reporting agency TransUnion, 51% of Millennials aged 20-29 in 2014 had student debt versus only 31% in 2005. The average debt burden for this segment was $25,525. And 2014 graduates with a bachelors degree fared worse – 70% had some level of student debt with the average totaling $33,000, according to college planning site Edvisors.com.

While debt repayment and retirement saving are equally important financial goals at any age, Millennials tend to emphasize debt reduction over retirement funding because of the immediate financial and psychological impact. There is a more immediate satisfaction in getting out of debt now as opposed to saving for later.

The All Too Distant Future

Interestingly, when it comes to long-term savings, people are typically disconnected from their “future self” and tend to view their future selves the same way they view a stranger. In a study by Professor Hal Hershfield, Assistant Professor of Marketing at the UCLA Anderson School of Management, subjects were presented with a retirement tool that incorporated a picture of themselves. Participants who were shown a digitally-aged picture of themselves elected to set aside 41% more money for retirement than those who were shown a current picture.

The amount of student debt facing Millennials combined with the motivation to pay debt off quickly and the tendency to separate our current and future selves has put retirement savings on the back burner. The 2014 Wells Fargo Millennial Study revealed that 45% of the 22- to 33-year-old participants were not saving

Inside This Issue

SUMMER 2015

PG TITLE

1Millennial Dilemma: Student Debt Reduction vs. Retirement Savings

2 The Department of Labor’s Game Changing Proposal

2 Did You Know?

3What Are Americans Really Thinking About Retirement Planning?

6 Tax Talk

6 ABG News

2 ALLIANCE BENEFIT GROUP

THE DEPARTMENT OF LABOR’S GAME CHANGING PROPOSALThe Department of Labor’s April 2015 Conflict of Interest Proposal caught many retirement planning industry experts by surprise. While the industry had been waiting for five years for an updated definition of fiduciary regulation, the scope of the proposal goes well beyond what was anticipated.

While the intent of the proposal is to mitigate the effects of potential conflicts of interest in retirement plans, including IRAs, the ramifications are far reaching, according to Pete Swisher, CFP®, CPC, Senior Vice President and National Sales Director at Pentegra Retirement Services.

The potential impact of the proposal includes:

• ERISA-style fiduciary rules for IRAs

• A higher percentage of advisors to be considered fiduciaries

• Advice is to be defined as recommendations given to individuals and plans (this widely accepted interpretation has now been made explicit)

• Fiduciary status will apply to IRAs and rollover transactions

• An updated package of prohibited transaction exemptions is introduced

Valuable Insight into this Groundbreaking Proposal

As one of the industry’s top retirement plan experts, Pete Swisher has recently drafted a series of whitepapers that explores the pros and cons of this new proposal and provides insight into the potential intended and unintended consequences.

The title of this whitepaper series, Game Changer, says it all. From Pete’s perspective, this new proposal potentially changes everything, including, in the short-term, the conversation between the retirement planning industry and the Department of Labor during the proposal’s comment period. He expects much engagement and heavy comment from industry groups as a result and will continue to be part of that conversation.

“The interest in giving feedback on the proposal is at an all-time high. What has been created with the Conflict of Interest Proposal

represents a monumental task for the industry as written. The burden is now on the industry to determine a response.”

To access Pete’s insights, click the links below to read the first two whitepapers in the Game Changer series.

Game Changer Part 1: A First Look at The DOL’s 2015 Conflict of Interest Proposal

Takes an introductory look at the proposal and explores its implications.

Game Changer, Part II: The Four Fiduciary Standards of Care

Examines a proposed fourth standard of care applicable to interactions between financial advisors and their clients.

Part III and Part IV of the Game Changer series will be available shortly and will focus on prohibited transaction exemptions and the merits of the proposal from the perspective of interested parties, including the Department of Labor, respectively.

ABG will keep you posted on future developments on this important proposal. ■

DID YOU KNOW?• 46% of nearly 5,500 adults surveyed in January 2015

have “more savings than debt” compared to 31% of the group that have “more debt than savings.” The remaining 23% of those surveyed have savings “roughly equal” to debt (Northwestern Mutual Planning and Progress Study 2015).

• There are 116 million households in the USA as of 3/31/15, split between 89 million households headed by working-age individuals and 27 million households headed by non-working individuals. 40 million of the 89 million households headed by working-age individuals do not own any pre-tax retirement accounts, e.g., a 401(k) or IRA (National Institute on Retirement Security).

• The personal savings rate in the USA was +5.3% as of 3/31/15. The savings rate of the average Chinese household is +30% (Department of Commerce).

“It is potentially a complete reshaping of an entire industry.”

— Pete Swisher, CFP®, CPCSenior Vice President and National Sales Director Pentegra Retirement Services

ALLIANCE BENEFIT GROUP 3

WHAT ARE AMERICANS REALLY THINKING ABOUT RETIREMENT PLANNING?The Employee Benefit Research Institute’s 2015 Retirement Confidence Survey* found that Americans’ confidence in their ability to afford a comfortable retirement has rebounded from the record lows experienced between 2009 and 2013. This is seemingly great news about retirement confidence and Americans’ overall retirement readiness.

However, as the survey reveals, this increased confidence level is not actually based on any improved retirement preparations by Americans. Instead it represents the halo effect stemming from the optimism of those surveyed who have a retirement plan. Their confidence has doubled from 14% in 2013 to 28% in 2015, while the confidence of those without a retirement plan remained relatively flat at 10% in 2013 versus 12% in 2015.

According to the Retirement Confidence Survey, plan participant optimism resulted from the mere fact of having a retirement savings plan rather than taking any additional actions. The survey reveals a number of other interesting behavioral attitudes that provide an opportunity for retirement plan providers and advisors. In this article, we will review these somewhat surprising but helpful insights.

How Much Money Do I Need?

Despite the increased confidence of those surveyed who have retirement plans, almost two-thirds of workers surveyed (64%), still say they feel they are behind schedule when it comes to planning and saving for retirement. Interestingly only 48% of those workers reported that they have actually tried to calculate how much money they will need to retire comfortably. Although these plan participants set aside money for retirement, they believe they are behind schedule even though they do not know how much money they actually need.

Holiday Planning Takes Priority Over Retirement Planning

As the chart to the right shows, workers and retirees said they actually spend relatively little time doing any sort of retirement planning. Instead they spend more time planning for the holidays and equal time planning for social events as they do for retirement planning. As the results show, retirement planning is more likely to be seen as an onerous and confusing chore, rather than a step in the right direction towards fulfilling an important long-term goal.

Decreasing Discretionary Spending Could Yield Long-Term Retirement Results

Approximately 50% of those surveyed cite the cost of living and day-to-day expenses as the primary reasons why they do not save (or save more) for retirement. Yet those surveyed said they could save at least $25 a week more than they are currently saving for retirement by reducing spending on the following items:

• Eating out or ordering take-out food

• Soft drinks or snacks from vending machines

• Movies, videos, DVDs or streaming

• Coffee from specialty shops

• Lottery tickets

Spending less on these discretionary items could potentially mean an additional $100 a month and $1200 a year towards retirement.

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Vacations

Retirement

Social Events

Holidays40%

33%

34%

23%

34%

21%

31%

20%

Source: Employee Bene�t Research Institute and Greenwald & Associates, 2015 Retirement Con�dence Survey

Workers Retirees

How much time would you say you have spent in the past year planning for the following events?

Percentage Saying Eight Hours or More

4 ALLIANCE BENEFIT GROUP

(continued from page 3)

Automatic Enrollment Meets Little Resistance

Employees participating in a defined contribution plan were asked what they would do if they changed jobs and their new employer automatically enrolled them into a workplace retirement plan and deferred either 3% or 6% of their salary into the plan. Their responses are found below:

• At a 3% deferral rate half of participants reported they would actually raise their contribution and just 4% would reduce or stop the contribution.

• At a 6% deferral rate 30% of participants would raise the contribution rate while 20% would reduce the contribution and 3% would stop it altogether.

Participants Are Open to Automatic Escalation

If their employer were to implement auto-escalation, increasing the percentage of salary contributed to the plan by 1% each year, 46% of plan participants surveyed indicated they would let their contribution continue to escalate to 10% or more. Other responses include:

Survey Takeaways

The results of this annual retirement survey indicate that there is an opportunity to help participants in a number of ways. Assistance may include directing participants to tools they can use to calculate how much they will need in retirement, as well as educating them on how trimming discretionary spending may help them to better fund retirement. In addition, the benefits of implementing robust automatic enrollment and escalation features in a retirement plan are clear.

ABG can provide the information and resources you need to help employees understand and focus on their retirement goals. Speak with your local ABG representative today. ■

* Ruth Helman, Craig Copeland, and Jack VanDerhei, “The 2015 Retirement Confidence Survey: Having a Retirement Savings Plan a Key Factor in Americans’ Retirement Confidence,” EBRI Issue Brief, no. 413 (Employee Benefit Research Institute, April 2015).

WHAT ARE AMERICANS REALLY THINKING ABOUT RETIREMENT PLANNING?

Participant Reaction to Automatic Escalation % of Participants SurveyedWould allow their contribution to total 20% or more 11%

Would allow their contribution to fall between 15% and 19% 11%Would allow their contribution to reach between 10% and 14% 24%Would allow their contribution to reach between 5% and 9% 24%Would stop the auto-escalation before it reached 5% 4%Said their response would depend on their circumstances or their finances 6%Said they did not know how high they would let their contribution go 12%

Don't Know/Refused

Stop the contributions altogether

Reduce the contribution

Continue the contribution at auto-enrolled levels

Raise the contribution50%

30%

39%44%

4%20%

4%3%

2%

2%

Source: Employee Bene�t Research Institute and Greenwald & Associates, 2015 Retirement Con�dence Survey

Enrolled at 3% Enrolled at 6%

Suppose you changed jobs and your new employer automatically enrolled you into their work-place retirement plan, deferring 3%/6% of your salary into the plan. Which one of the following do you think you would be mostly likely to do?

ALLIANCE BENEFIT GROUP 5

(continued from page 1)

for retirement and 47% used an average of 57% of their monthly income to pay off debt. Student loan repayments represented an average of 12% of income.

The Importance of Starting Early

Herein lies the dilemma – how do Millennials start to save for retirement when they are burdened with debt? The participants in the Wells Fargo study who said they weren’t currently saving for retirement indicated that they expected to start at age 35, presumably once student loans were repaid.

This scenario creates the opportunity for retirement plan sponsors to educate Millennials about retirement savings, especially the younger end of the Millennial generation that is just entering the workforce. Saving for retirement may still be possible even with a large amount of student loan debt. Paying student loans off quickly can have a much bigger negative impact on future retirement savings than the current benefit of reducing debt. Consider the following:

1. Compounding is powerful. Delaying retirement funding just 10 years could mean hundreds of thousands of dollars in lost retirement savings.

2. Student debt interest is tax deductible. Paying less to pay off student debt in order to contribute more to a qualified retirement plan can offer tax benefits on both sides of this Millennial debt/saving equation. Millennials can make pre-tax contributions to a qualified retirement plan, which reduces their adjustable gross income while taking advantage of the tax deductibility of student debt.

3. Free money and growth unhampered by taxes. Retirement savings are not taxed and could have an employer match. Failing to contribute to a company’s retirement plan and forfeiting a match is a lost opportunity. Many matches are 100% or 50% of a participant’s contribution up to 6% of salary. A new employee making $40,000 who doesn’t contribute at least 6% could be abandoning $1,200 to $2,400 of a company match in the first year.

A Balanced Approach

For Millennials, striking the right balance between paying off student debt and investing for retirement is key. A March 2014 FINRA study found that Millennials have a low level of financial literacy with only 18% able to answer at least four questions correctly on a five-question test. Although they may not be financially savvy, they are

technologically savvy and there are many online tools available to help create a budget that includes retirement savings. Dave Ramsey’s SmartDollar program is one of the financial wellness tools among others that may be available to Alliance Benefit Group plan participants through the plan’s participant website.

In addition, participant communication that stresses both the importance of starting early when it comes to retirement and the concept of balancing both student debt and retirement plan contributions may offer Millennials a realistic plan of action. Your local ABG representative can help with ideas and support as you reach out to this growing workforce population. ■

MILLENNIAL DILEMMA: STUDENT DEBT REDUCTION VS. RETIREMENT SAVINGS

6 ALLIANCE BENEFIT GROUP

TAX TALKIn this issue of Tax Talk, we update you on the important upcoming deadlines for defined contribution plans. As always, your local ABG representative is available to answer any questions you may have.

Upcoming Administrative Deadlines for Calendar-Year Defined Contribution Retirement Plans

July 2015July 29 • Summary of

Material ModificationsJuly 31 • Form 5500 or Form 5558

• Form 8955-SSA or Form 5558

• Notice to Terminated Vested Employees

• Plan Audit• Annual Benefit Statements• Form 5330

August 2015August 14 • Quarterly Benefit StatementsAugust 15 • Annual Benefit StatementsAugust 17 • Form 5500 and Plan Audit

September 2015September 15 • Money Purchase Plan

Contributions• Form 5500 and Plan Audit• Annual Benefit Statements• Deductible Contributions

September 30 • Summary Annual ReportOctober 2015

October 2 • Safe Harbor Notices• Automatic Enrollment Notices

October 15 • Corrective Plan Amendment• Form 5500 and Plan Audit• Annual Benefit Statements• Summary Annual Report• Form 8955-SSA• Notice to Terminated Vested

Employees

ABG NEWSREDW Creates ABG Southwest

REDW LLC, one of the largest and most respected certified public accounting and business consulting firms in the Southwest U.S., has formed Alliance Benefit Group Southwest (ABG Southwest), a separate company for retirement plan recordkeeping and third-party administration services.

“Creating a separate, sister company provides our current clients with the support and focus of a firm dedicated exclusively to meeting the needs of both plan sponsors and plan participants,” said Carol Cochran, REDW Principal and Head of ABG Southwest.

As an independent, standalone firm, ABG Southwest is committed to providing the best available retirement plan administration services with special emphasis on sound advice and innovative solutions. For additional information visit abgsw.com or redw.com.

ABG Professionals Join Schwab Retirement Technology Board

Teresa Wood, QKA, ARPS, Executive Vice President and Chief Information Officer of Alliance Benefit Group of Illinois and Peter Sprague, Vice President and Chief Technology Officer of Pentegra Retirement Services have joined the Schwab Retirement Technology Board.

With extensive retirement plan and technology experience between them, these ABG professionals are well-positioned to represent ABG and its many plan sponsor clients and participants as retirement planning issues are examined and innovative solutions explored. The new ABG board members attended their first meeting in May. ■

Teresa Wood, QKA, ARPS Executive Vice President and

Chief Information Officer Alliance Benefit Group of Illinois

Peter SpragueVice President and

Chief Technology Officer Pentegra Retirement Services