Retirement Plan Industry Update and Perspectives

STRONGER
Strategies
for success
2015 Partner Conference
together
Retirement Plan
Industry Update
and Perspectives
Paul Neveu, President,
BPAS Plan Administration and
Recordkeeping Services

2015 Partner ConferenceStronger Together
Welcome
• Looking forward to a terrific three days together
• Collaboration, learning and dialogue
• Leave with inspiration and new ideas to build your
business
• Preface for this session:
— All of us are constantly having discussions with clients and
prospects. I’d like to provide data points that will bring added
perspective and insight to these discussions.
2

WelcomeThe new face of our company…
3

Total Retirement Assets in U.S.
www.ICI.org
Averages
around
$106k per
American
over age
20
4

DC Plans: 28% of Total Assets
www.ICI.org 5

How DC Assets Break Down
www.ICI.org 6

U.S. Retirement Assets & Unfunded Liabilities
www.ICI.org
$3.1T versus
$6.8T in all DC
plans will give
you a
perspective!
7

The Household Picture
www.ICI.org 8

Welcome
Total ER Contributions:
401k/403b only: 2.9%
401k and PS: 5.6%
All plans as a whole: 4.7%
www.ICI.org 9

Matching formulas
www.ICI.org
Stretching out the
match… Something
we should all be
encouraging with
clients
10

Participant Activity
www.ICI.org
For investors, fear is a greater
motivator than bliss
11

Update on Loans
www.ICI.org
• About 18% of eligible
participants have a loan
outstanding
• Roughly 1.8% - 2.0% of plan
assets are on loan
• Average payroll deducted loan:
$6,726
• Average MPL loan: $8,107
(aggregate)
• MPL is an attractive selling point
of our partnership to clients
12

Average Balances
• Average 401(k) balance at 12/31/2014:
— Fidelity: $91,300
— Vanguard: 101,650 (average), $31,396 median
— 2014 Plan Sponsor Magazine Survey: $61,373
• Average IRA balance at 12/31/2014:
— $92,200 (Fidelity)
13

Average Balances
• Issues with average balance figures:
—Many do not include eligible non-participants in
the count (as $0)
—The size and age of the plans providers service
($33,461 versus $101,650)
14

Average Balances Across Plan Types
15
401(k) Plans $59,068
403(b) Plans $36,504
1081 Plans (PR) $19,442
457(b) Plans $65,215
457(f) Plans $291,298
All DC plans $41,839
The average balance at BPAS increased 7.9% during 2014
At BPAS on Omni, 12/31/2014

A Realistic Way to Look at It
• Let’s use the Plan Sponsor Magazine Survey average 401(k)
balance of $61,373
• Let’s use the average IRA balance of $92,200
• The median US income for 2014 was $51,939, with a median
age of 42
• This all points to an approximate average Wealth
Accumulation Factor of 2.95 times earnings ($153,572 /
$51,939) for those with DC and IRA balances
• Rest of assumptions vary, but this puts many Americans on
track to reach 7 or 8 times pay by age 67
16

A Realistic Way to Look at It
• The issue, however, is with the millions of Americans
who are not participating in DC plans and IRAs
• 30.9% of Americans have no retirement savings per Fed
• Also, median balances are FAR lower
• Median balance at Vanguard was $31,396
• So, the picture has definitely improved. But we still
have a long way to go
17

Progress Toward Large DC Balances
Participant DC Balance % who have attained as of today
> $100,000 10.31%
> $250,000 3.41%
> $500,000 1.04%
> $1,000,000 .24%
> $1,500,000 .09%
> $2,000,000 .04%
We currently have
10 participants on
Omni with a single
plan DC balance >
$3M… ranging to as
high as $7.9M
18
Current values on BPAS’ Omni system

Misc. Data Points (Vanguard 2014)
• 12% of eligible participants are currently “maxing out”
• 14% of participants are currently making catch up
contributions
— Remember, catch up contributions are not counted in ADP
test. Some of these participants are cut short on the ADP test
but make additional catch up contributions to their account.
• 13% of participants are currently making Roth
contributions (within the 52% of plans who offer Roth)
19

• EE + ER contribution rates:
— 10.2% of pay (average), or 7.1% if eligible non-participants included
— 9.2% of pay (median), or 6.0% when eligible non-participants
included
• Average contributions in dollars:
—Employee: $5,031 / year.
—Employer: $3,296.
—Total = $8,327 / year per participant
• 62% taking full advantage of the employer match, 38% are
contributing 10% or more to plan (Wells Fargo)
20

• 86% of plans now offer target date funds (26% at end
of 2008)
• 55% of all participants are invested in TDFs (at some
level)
• 19% of recordkeeper’s assets invested in TDFs
• 34% of all new contributions directed to TDFs
• Only 10% of participants made investment changes
during 2014
21

• Median income: Eligible employees: $64,000.
Participants: $75,000. Non-participants: $48,000
• 69% of Vanguard plans had auto-enrollment with auto
increases
• Deferral rate: Average: 7.0%. Mean: 6.0%. Participants
contributing more than 10% of pay: 22%
• Average ADP: 5.3% for NHCEs, 6.6% for HCEs
(BPAS platform)
22

Average Participation and Contribution
Rates by Sector
Sector Avg. Part. Rate Median EE Def %
Agriculture, mining and construction 76% 6.0%
Media, entertainment and leisure 71% 6.8%
Education and health: 72% 6.7%
Business, professional and nonprofit 77% 6.0%
Transportation, utilities and communications 73% 6.0%
Manufacturing 75% 5.9%
Finance, insurance and real estate 86% 5.5%
Wholesale and retail trade 75% 4.9%
23
Vanguard, 2014 study

A Look at SDBA Participants at BPAS (2014)
• Approximately 5% of BPAS plans now offer the SDBA feature (Schwab)
• Not a surprise, it is heavily utilized by professional practice firms
(medical, dental, legal, professional services, financial services)
• The average SDBA participant had 53% in SDBA and 47% in core funds
• Average balances for SDBA participants:
• $266,907 in SDBA (53% of total)
• $236,691 in core funds (47% of total)
• $503,598 in total balance
24

A Look at SDBA Participants at BPAS (2014)
• For SDBA participants:
• Average 2014 return for assets within the brokerage account was 3.12%
• Average 2014 return for assets held on the core funds side of their
account was 5.18%
• Average 2014 return for their entire account (both sides) was 4.12%
• By perspective, the average return for all DC plan participants
on our platform during 2014 was an estimated 5.58% (7.9%
was total balance increase including contributions)
25

Updates from our Call Center
• Major enhancements made over last year through
new management team, additional reporting and
monitoring, added staff
• 8 AM to 8 PM ET coverage starting July 1st
• 2015 YTD, we have received approximately 11,851
calls per month, which averages to 546 calls per day
26

Updates from our Call Center
• Average call time is 6:08
• 18% of calls require a call back or second call
• Average wait time has been approximately 3:30 so far this year;
this is constantly monitored/policed
• Voice system tells them how many calls on hold and their
position in queue; have option to press a button for a callback
when next CSR becomes available
27

Why Do Participants Call?
31.92%
14.74% 13.71%
12.02%
9.01%
7.51% 6.57%
0.94% 0.87% 0.83% 0.56% 0.38% 0.36% 0.29% 0.28%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
28

Seizing the Moment: Things We can Do
Together to Shape Outcomes
• Still only 69% of eligible participants have a balance on BPAS Omni
platform… we can work together to make a huge dent on this group
of eligible non-participants (auto enrollment is key)
• We can do so much more with auto enrollment (wimpy versus non-
wimpy version)… Only 7% of clients so far using non-wimpy version,
another 6% using wimpy version. Increasing the use of NWAA is
one of the best things we can do for participants.
• Auto enrollment: Now used in 50.2% of all plans (PSCA study,
which admittedly includes mostly plans with > 100 participants),
and 67% of plans with > 5,000 employees
29

• Largest plans have adopted online enrollment, but we have a
long way to go (still only 18% of actual plans)
• Online beneficiary designations: A great value added; we need to
push this together with clients (only about 8% of plans have
added since we rolled it out a year ago). This really is a no-brainer
for clients.
• Still only about 41% of DC participants platform have provided
email addresses. We can do so much more to “go green” and get
participants to engage.
30
Seizing the Moment: Things We can Do
Together to Shape Outcomes

Some Key Reports We Will Discuss
• It’s all about moving the needle… And measuring how we’re doing
in the process
• Retirement Gap Report
• Year to Date Return Report
• Participant Investment Grid
• Annual Plan Review Report
• Demographic Reports section of Resource Center
• We look forward to your feedback so we can optimize our report
library -- putting key issues under a microscope and helping you
demonstrate value to clients
31

Dynamics of the Post-408(b)(2) Marketplace
• Fees have gone from one consideration to the dominant consideration in
far too many searches; this impacts Advisors, Trustees and Recordkeepers
• Huge push to institutional funds and share classes
• Many advisors are now positioning themselves now as a “consultant”
• It brings up a question from a recordkeeper’s perspective: Should the goal
be to have 200 strong, robust partnerships, or to work with 1,000
“dabblers” ?
• I would suggest to you that clients are better serviced when there is a
strong partnership between the Advisor / Trustee and Recordkeeper,
instead of “speed dating” across a book of business like an episode of the
Bachelor.
32

Dynamics of the Post-408(b)(2) Marketplace
• New strategies: SPARK 2 RFP response, enhanced proposal
format, greater use of multimedia, drawing the line on fees
and accepting the outcome, and helping our partners
articulate our combined value proposition
• 408(b)(2) has had MANY beneficial effects, but we need to
fight the trend where we essentially put plan sponsors in
the aisles of Wal-Mart
33

Candid Observation: Three Types of Plan
Sponsors in Terms of Fees
They want quality and
responsiveness. They are
willing to pay fees
commensurate with a
high touch relationship.
They will bid the plan out
every 3 or 4 years… then
give you a few years to
prove yourself. However,
they will still entertain
periodic proposals.
They will make fees the
main issue and
continuously exert
downward pressure on
fees. They don’t really
value service until
something blows up.
34

When our Partnership is at its Best
• We are combatting inertia, boosting participation and
contribution rates for each plan
• We’re moving employees:
Educated  Engaged  Motivated
• We help clients put the right plan design in place to
balance corporate and plan-related goals
35

When our Partnership is at its Best
• We’re offering the strongest possible investment menus
(active and passive management, individual funds versus
TDF or lifecycle funds) with competitive overall fees and a
sound fiduciary process
• We’re effectively managing the administrative,
operational and fiduciary risks of offering qualified plans
• We’re providing high client service and creating loyal
client relationships at reasonable and competitive fees
36

The Next Three Days
• Re-orienting around this mission; that’s what this
conference is about
• Collaborate with peers… sharing best practices, success
stories and strategies
• We want your feedback and suggestions on how BPAS can
be the best possible partner. We want to earn more of your
business.
37

The Next Three Days
• Having recently become the President of our DC Services
division, I am humbled by the challenge and honored to be
working with you. I want you to know how committed we
are to you and how much we value each of our partner
relationships.
• Please enjoy the conference; let’s make it fun and
engaging.
38

Questions
Paul Neveu,
President, Plan Administration and
Recordkeeping Services
Thank you

Retirement Plan Industry Update and Perspectives

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