RETIRE GAP MENT THE. Bridging the gap of retirement savings by introducing thoughtful & creative automation

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THE

RETIRE

GAP

MENT

Bridging the gap of retirement savings by introducing thoughtful & creative automation

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Custom Solutions for Life and Wealth

dent about affording

mfortable retirement?

What % of respondents are not too confident?

A. 10% of respondents B. 14% of respondents

C. 21 % of respondents

D. 27% of respondents

Source: EBRI’s 23rd_{annual Retirement Confidence Survey}

What % of respondents are not at all confident?

A. 5% of respondents B. 11% of respondents C. 20 % of respondents

D. 28% of respondents

HIGHEST LEVEL IN THE

SURVEY’S HISTORY

What % of retirees are confident about remaining financially secure?

A. 25% of respondents B. 27% of respondents C. 33 % of respondents

D. 18% of respondents

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Where auto-enrollment began…

• Over 25 years ago (1984), McDonalds

Corporation broke new ground by

automatically enrolling its participants in the 401(k) plan

• After, other plans began implementing

automated solutions

• The industry as a whole balked at

automated features without regulatory guidance

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Automatic Enrollment Arrangements

• Defined Contribution plan feature allowing Plan Sponsors to enroll all

participants at a predetermined contribution rate

• Pension Protection Act of 2006 (PPA) created regulations around three

new arrangements with varying features and requirements

1. Eligible Automatic Contribution Arrangement (EACA)

– Requires: Annual notice, QDIA, 12-month plan year

– Benefits: Permissive withdrawals (90 day opt out), 6-month ADP testing window, fiduciary protection, ERISA pre-emption

2. Qualified Automatic Contribution Arrangement (QACA)

– Requires: Annual notice, employer contributions, accelerating percentage – Benefits: No ADP testing, no top heavy requirements, ERISA pre-emption

3. Automatic Contribution Arrangement (ACA)

– Requires: Annual notice, QDIA

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Automatic Enrollment…How’s it different?

Traditional Enrollment Automatic Enrollment

IN PLAN

NOT

IN

PLAN

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Custom Solutions for Life and Wealth 82%

55%

All Workers

With Auto Enrollment Without Auto Enrollment

76%

20%

Workers Age 20-24

With Auto Enrollment Without Auto Enrollment

Source: Fidelity Investments, Workplace defined contribution data based on more than 20,600 plans and nearly 11.7 million recordkept participants as of 9/30/2011 and do not include tax-exempt accounts or non-qualified plans.

Participation Impact

Did you know?

Only 9% of employees opt-out of automatic enrollment plans*

Source: Savings Coalition of America, Fidelity Investments Presentation, July 2012

27%

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Benefits of Automatic Enrollment

• Happier employees, increased retention

• Increased plan engagement & education

opportunity

• Tax savings

• Better results on annual

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Don’t set it & forget it…Auto-escalate it!

Did you know?

Plans with auto-escalation experience average deferral rates of 8% or higher compared to 4% or

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Impact of Auto Escalation: Brian

• Age: 30

• Salary: $50,000

• Contribution Rate: 3%

• Annual Cost of Living Increase: 3% • Retirement Age: 65

• Salary at Retirement: $150,000 • Rate of Return: 8%

• Goal: Replace 69% of Income*

*Replacement Ratio Study: A Measurement Tool for Retirement Planning, Aon Consulting, May 2004

Without Escalation: Brian’s retirement savings will run out by age 70.

With Escalation (increasing Brian’s contribution by 1% each year, up to 10%): Brian’s retirement savings will last until age 78.

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“For many people, being asked to solve their

own retirement savings problems is like being

asked to build their own cars.”

– Richard H. Thaler

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SMART Messaging

• Communication strategy designed to

improve retirement outcomes

• Custom messages triggered by

personal census and investment data

• Messages include:

– Reminder to participant when eligible – Diversification if in single investment

– Catch-up contribution reminder at age 49 ½ – Instructions regarding rollovers

– Custom income GAP analysis (coming soon!)

– Congratulation messages at savings thresholds (coming soon!)

• Benefits:

– Increased enrollment, higher deferral rates, improved asset allocation

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How it works…

• Meet with your Plan Consultant and our Consulting team to determine

the best auto-enrollment arrangement for your plan

• Amend the Plan Document to allow auto-enrollment • Provide employees notice and education

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Leading to Eligibility 90 Days into Enrollment Year 1 Year 2 Year 3

How it works…

Welcome communication to Participant, includes

opt-out option

Participants can opt-out within 90 days of the first automatic

contribution Increase _{by 1%}

Enrolled

Plan Sponsor report of any opt-outs to unenroll Report to Plan Sponsor

of all auto-enrolled participants

Plan Sponsor report of any opt-outs to unenroll Increase by 1% Increase by 1% Auto-Escalation

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Myths & Concerns

• Participants won’t like this solution.

– MYTH: Transamerica retirement survey found 66% of employers found participants responded positively, only 3% responded negatively.

• This sounds like too much work for my Human Resources Team.

– We can help! Similar to the way you currently receive notifications about deferral changes, Sentinel will notify you of opt-outs, escalation periods, etc.

• This will increase the cost of our plan.

– Industry data reflects that auto-enrollment increases participation in lower income groups the most, causing very minimal increases. Secondly, the returns in the form of keeping valued employees is high!

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