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Session 53 PD, Retirement Advice and the Employer's Role. Moderator: Anna M. Rappaport, FSA, MAAA


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Session 53 PD, Retirement Advice and the Employer's Role Moderator:

Anna M. Rappaport, FSA, MAAA Presenters:

Michael S. Finke


Retirement Advice and

the Employer’s Role

Session 53: 2015 Annual Meeting Presenters:

Michael Finke Greg Ward

Moderator: Anna Rappaport October 12, 2015



• The opinions expressed and conclusions reached by the authors are their own and do not represent any official position or opinion of the Society of Actuaries or its

members. The Society of Actuaries make no representation or warranty to the accuracy of the information.

• This presentation does not constitute legal or tax advice, and individuals are encouraged to consult their financial



Stage Setting

Research perspective

Options in the workplace today

Interactive discussion


Setting the Stage: Drivers for the SOA

• Poor financial and retirement literacy

• Shift to DC with reliance on employee decisions

• Majority of Americans: Do not receive unbiased advice • Advice market mixed: Some great, some ok and some bad • Employers seeking ways to get value from DC dollars and

improve retirement security within DC context

• Employees more likely to save in employer plans and more trusting of employer sponsored information

Bottom line: Employer help for better employee decisions is important


Two SOA Projects

Committee on Post-Retirement Needs and Risk added employer sponsored retirement advice to agenda two years ago

• Research paper: Models of Financial Advice for Retirement Plans: Considerations for Plan Sponsors, by Michael Finke and Benjamin Cummings:

https://www.soa.org/research/research-projects/pension/research-models-finance-advice-retire.aspx • Employer Guide to retirement advice – coming soon (practical

information for employers) • All PRNR work is available on


Models of Financial Advice for

Retirement Plans


Financial Advice in Retirement:

Evidence of Need

< $1,000 36% $1k to $10k 16% $10k to $25k 8% $25k to $50k 9% $50K to $100k 9% $100k to $250k 11% > $250,000 11% Retirement Savings Source: EBRI


What Did Near-Retirees Wish They

Had Done to Prepare for Retirement?

0% 10% 20% 30% 40% 50% 60%

Started Saving Sooner Saved More Invested More Aggressively


Financial Literacy Particularly Low

Among Less Educated Americans

0 10 20 30 40 50 60 70

Basics Borrowing Investing Protection

<HS HS Some Coll College Grad Source: Texas Tech Financial Literacy Assessment Project


Who Pays for Financial Advice?

(By Income & Type of Advice)

(Source: Finke, Huston, and Winchester, 2011) 0 10 20 30 40 50 60 70

Middle Income Upper Income


Why Don’t Middle Income Use Financial


(Source: Finke, Huston, and Winchester, 2011) 0 5 10 15 20 25 30 35

Not Enough Assets Not Enough Income


Who Pays for Financial Advice?

(By Age & Type of Advice)

(Source: Finke, Huston, and Winchester, 2011) 0 5 10 15 20 25 30 35 40 <35 35-44 45-54 55-64 65+ Transaction-based Comprehensive


Have You Ever Talked

With a Financial Advisor?






Have You Ever

Calculated Retirement Needs?






Participants Want Quality Advice

2014 Retirement Confidence Survey (EBRI) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fully implemented advice Mostly implemented advice Employees Retirees

Why Not Follow Advice?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Not trusting the

advice Other plans orgoals Employees


Quality Heterogeneity

Inconsistencies in Training and

Incentives of Advisors


The Financial Advisor Industry


RIAs AUM Fiduciary Quality?


The Financial Advisor Industry


Registered Reps Commission Suitability GSRE Exam












As ymme tri c In for m ation Agent Provides Services

Principal hires Agent

Self Interest

Self Interest


Financial Guidance Continuum

Financial Education

Financial Advice

Financial Guidance

75% of employers offer some sort of guidance to help their participants with their investments (Aon Hewitt, 2013)


Tale of Two Advices

Investment Advice

• Focuses on investments within the plan

• Concepts: Risk, return, risk tolerance, asset allocation, portfolio optimization,

rebalancing decisions

Retirement Advice

• Focuses on preparing for a secure retirement

• Concepts: Accumulation

strategies, savings rates, risk capacity, needs analysis,

mortality risks, distribution strategies, withdrawal rates


Technology & Advisor:

The Future of Retirement Advice?

$0 $50,000 $100,000 $150,000 $200,000 $250,000 Haven't

Calculated Calculated ComputerUsed a Program

Advice and Computer


How Advice is



1x1 Managed Accounts Automated Services Guidance Calculators Target Date Funds Default Investment Options Plan Design and Automation Financial Wellness and Education

Regulated by:

DOL, SEC, FINRA, etc. ERISA, PPA, 404(c), etc.


The Foundation of Advice

1x1 Managed Accounts Automated Services Guidance Calculators Target Date Funds Default Investment Options Plan Design and Automation Financial Wellness and Education


Financial Wellness and Education

*Employees could select up to 2 answers

Source: PwC Employee Financial Wellness Survey 2015. The survey incorporates the views of over 1,700 full-time employed adults representative of the U.S. population by age and gender.


1Bank of America Merrill Lynch, 2015 Workplace Benefits Report 2Aon Hewitt, 2015 Hot Topics in Retirement

… of companies feel a sense of

responsibility for the financial wellness of their employees1

… of large employers plan to

implement or expand existing financial wellness programs in 20152




New Financial Wellness Model

Financial Planning is unbiased,

available to all income levels

The focus is holistic–integrating

ALL aspects of financial planning, including employee benefits

Heavy focus on helping

employees develop positive

savings habits Estate

Planning Retirement & Investing Budgeting & Saving College

Funding PlanningBenefits

Taxes Home



 Cash Flow and Debt Management  Workplace benefits

Establishing good money habits and


Delivery methods include

workshops, webcasts, online, and print.


Plan Design and Automation

Plan Design Feature Prevalence Benefits

Automatic Enrollment 50.2% of all plans1 Increase plan participation

Automatic Rate Escalation 44% of all plans1 Allows employees to gradually

increase plan contributions Automatic Rebalancing 72% of record keepers2 Controls portfolio risk during

market volatility

 Designed to overcome participant inertia

1Plan Sponsor Council of America, 57th Annual Survey of Profit Sharing and 401(k) Plans 2Deloitte, Annual Defined Contribution Benchmarking Survey


Plan Design and Automation

Plan Design Feature Challenges Solutions

Automatic Enrollment than voluntary enrollment plansAverage contribution rate lower Increase default enrollment rate

Automatic Rate Escalation May disengage employees from retirement planning process Offer incentives for participating in retirement education

Automatic Rebalancing Relies on participant to chooseasset allocation Offer incentives for participating in investment education


Default Investment Options

 77% of plans offer a Qualified Default Investment

Alternative (QDIA)

85% of plan sponsors use a Lifecycle/Target

Retirement Date Fund as the default investment election


The Transition to Personalization

1x1 Managed Accounts Automated Services Guidance Calculators Target Date Funds Default Investment Options Plan Design and Automation Financial Wellness and Education


Target Date Funds

 83% of plan sponsors offer Lifecycle/Target

Retirement Date Fund as a core investment option

Source: Deloitte, Annual Defined Contribution Benchmarking Survey

Pros Cons

Automatic Diversification Not personalized Automatic Rebalancing May have higher fees Automatically becomes more conservative

as the target date approaches Does not take other assets into account Simple to use May be too aggressive or too conservative for some investors


Prepared for retirement 19% Not prepared for retirement 81%

Employee Self Assessment of Retirement Preparedness

Of those that are not prepared …

24% Have run a retirement projection


Have not run a retirement projection


 61% of employees have not used a retirement calculator



 8 in 10 plan sponsors believe providing access to one-on-one

guidance from a financial professional can have a positive impact on the amount of money employees save for retirement

Source: Bank of America Merrill Lynch, 2015 Workplace Benefits Report

Education Guidance

Generic, not personalized Custom, personalized to the individualsunique circumstances Delivered by employer or plan provider Delivered by financial professionals

Minimal effect on behavioral change High impact on behavioral change Delivered through workshops, webcasts,


Guidance & Advice

“It's a very simple principle: You want to give financial advice,

you've got to put your client's interests first.” – President Barack Obama, February 23, 2015

Guidance Advice

Does NOT make any specific recommendations

regarding a product or investment Recommends specific products andinvestment decisions Delivered by financial professionals that

do NOT require a securities license Delivered by financial professionals with securities and insurance licenses NOT subject to fiduciary standard under


1x1 Managed Accounts Automated Services Guidance Calculators Target Date Funds Default Investment Options Plan Design and Automation Financial Wellness and Education


Automated Services

 Investment advice customized to the user’s inputs

Online Advice Robo-Advice

Non-discretionary Discretionary

37% of plans covering 70% of participants

offer online advice1 offer some kind of robo-advice8% of large advisory firms 2

Example: Financial Engines Example: Betterment, Wealthfront

1Vanguard, How America Saves 2015 2Investment News survey


Managed Accounts

 22% of plans offer managed account advice

Providers include GuidedChoice, Morningstar, and ING

Source: Vanguard, How America Saves 2015


Look at outside assets Discretionary Human interface


Personalized One-on-One Advice

 One-on-one meetings with a

financial professional are the best way employers can provide

employees information about

managing their 401(k)-type plans1

 Among employees who tapped

in-person retirement advice, 68% chose to either save more, change their

future allocations or rebalance their portfolios2

1Wells Fargo/Gallup Investor and Retirement Optimism Index 2015-first quarter survey 22012 TIAA-CREF proprietary research


How to Deliver Advice

Delivery Method Best For Target Audience On-site workshops Financial wellness andeducation Manufacturing facilities and Baby Boomers

Webcasts Financial wellness andeducation Gen X and Millennials Over the phone Guidance/Managed Accounts Remote or field workforce

Online Automated Services/Managed Accounts Sophisticated investors In-person counseling sessions Guidance/One-on-one advice Pre-retirees and Women


Retirement Advice and

the Employer’s Role

Session 58: 2015 Annual Meeting Presenters:

Michael Finke Greg Ward

Moderator: Anna Rappaport October 12, 2015


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