1. Consulting/HR Outsourcing Retirement 2013 Hot Topics in
Retirement Focusing on Financial Wellness
2. Focusing on Financial Wellness Aon Hewitt is pleased to
provide you with this 2013 Hot Topics in Retirement survey report.
This is the seventh year we have examined current and future
retirement benet strategy, from the employers perspective. The past
year proved to be very busy for plan sponsors who were
incorporating fee disclosures in dened contribution plans and
reacting to new dened benet funding legislation and large-scale
de-risking opportunities for pension plans. We expect this pace to
continue. Aon Hewitts 2013 Hot Topics in Retirement Survey In
October 2012, Aon Hewitt surveyed human resource professionals
throughout the United States to explore their focus and expected
actions regarding the design, management and delivery of their
retirement programs including dened contribution (DC) and dened
benet (DB) plans. Responses from more than 400 employers are
included, representing 11 million employees, a signicant voice in
the retirement industry. A Business Case for Financial Wellness The
retirement landscape continues to evolve in a challenging economy
with increased scrutiny. Plan sponsors are promoting nancial
wellness by providing effective measures, tools and messages that
encourage employees to save for retirement. By focusing on nancial
well-being, mitigating risks in pension plans, seeking transparency
in total plan costs and communicating using innovative technology,
employers are making efforts to encourage employees to reduce the
retirement income gap. Thank you for your interest in our research.
Sincerely, Alison Borland Vice President Retirement Solutions and
Strategies Byron Beebe US Retirement Market Leader Retirement
Consulting
3. 2013 Hot Topics in Retirement Contents 2 Survey Highlights 5
Overview of Retirement Plans 9 Dened Benet Plans 16 Dened
Contribution Plans 25 Employer Priorities in 2013 27 Participating
Employer Information
4. Survey Highlights The age of retirement accountability has
arrived. As most individuals now use their employers dened
contribution plan as their primary retirement vehicle,1 there is
more personal responsibility to save for adequate retirement
income. While plan sponsors typically provide incentives such as
matching contributions to encourage employees to participate in
their plans, savings rates remain low at an average before-tax
saving rate of 7.2%.2 Equally troubling, employers condence in
their capability to effectively manage their employees ability to
retire with sufficient assets is at an all-time low. Consequently,
many plan sponsors are enhancing and rening their focus to better
meet the retirement goals of both employers and employees. In the
fall of 2012, Aon Hewitt surveyed 428 employers to examine current
and future retirement benet strategy. Four key trends emerge for
retirement programs in 2013: 1. Employers are concentrating focus
on nancial wellness with a renewed effort to measure retirement
income adequacy. 2. Dened benet plan sponsors are continuing to nd
ways to manage risk in their plans. 3. Employers are seeking
greater transparency regarding the total plan costs in their dened
contribution plans. 4. Employers are adopting newer communication
technologies (webinars, podcasts and text messages) to spread the
word on retirement plan responsibilities and key milestones. 1 Aon
Hewitt, 2011 Trends & Experience in Dened Contribution Plans 2
Aon Hewitt, 2012 Universe Benchmarks 2 Aon Hewitt
5. Focus on Financial Wellness Plan sponsors are embracing a
more holistic perspective on their retirement programs by focusing
on nancial wellness and measuring projected retirement income
adequacy, instead of merely concentrating on current participation
and savings levels. Through this expanded view, employers can
better assess the value of the plan design and communicate in a way
that will resonate with employees. I I I 80% of employers are
likely to focus on the nancial well-being of employees through
enhanced communication, resources, mobile apps and online tools.
61% of plan sponsors are likely to measure the expected retirement
adequacy of their employee population in 2013. 86% plan to
communicate concepts of retirement adequacy such as projected
needs, required milestones and action plans to their employees in
2013. Mitigate Dened Benet Plan Risks Last year was marked by
sweeping pension de-risking actions. Employers conrm that
minimizing the volatility of their dened benet plan will continue
to take center stage in 2013. Plan sponsors are not doing this by
changing their plans (84% of respondents will not modify their
pension formulas). Rather, respondents are focusing their
de-risking efforts on the asset side of the equation. I I I 50% of
employers are likely to perform asset-liability studies in 2013.
60% of plan sponsors intend to adjust the plans investments to
better match its liabilities. 39% are likely to add or liberalize a
lump-sum option to terminated, vested employees. In addition, the
percentage of employers who plan to adopt a glide path asset
allocation strategy to adjust the plans investment allocations in
response to the plans funded status is expected to nearly double
(from 18% to 31%). 2013 Hot Topics in Retirement 3
6. Seek Transparency Regarding In the wake of required fee
disclosure notices, dened contribution plan Total Plan Costs
sponsors overwhelmingly are interested in the total cost of the
plan. I I I 95% of all employers who have not calculated the total
plan cost are likely to do so this year. 52% of these companies are
planning to hire a third party to assist with benchmarking the plan
and calculating the fund, recordkeeping and trustee fees in 2013.
31% of employers have recently changed their funds to reduce cost
and 52% of the remaining plans may do so in 2013. Adopt New
Technology to To communicate effectively to and with a digital
workforce, plan sponsors Communicate Retirement Messages plan to
use multiple levels of technology to communicate various aspects of
the retirement plan to participants. I 83% of employers intend to
host a webinar focusing on their plan. I 52% of employers are
likely to create a podcast about their retirement plan. I 42% are
likely to use text messages to convey important communications.
Social media, such as Facebook and Twitter, is also gaining
acceptance; the number of sponsors who are likely to use this
vehicle to communicate with and educate plan participants in 2013
has tripled since last year (18% versus 6%). 4 Aon Hewitt
7. Overview of Retirement Plans Retirement Plan Basics
Ninety-nine percent of respondents provide a dened contribution
plan. Twenty-four percent provide an open dened benet plan that
allows new employees to accrue pension benets. Larger employers
(with more than 10,000 employees) are more likely to offer a dened
benet plan than employers with fewer than 1,000 employees. The
continued shift from dened benet plans to dened contribution plans
places the responsibility for assuming greater accountability for
their nancial wellness on employees. Types of Retirement Plans
Offered to New Employees Dened Contribution Plans Yes 99% No 1%
(n=426) Dened Benet Plans Yes 24% No 76% (n=428) 2013 Hot Topics in
Retirement 5
8. Dened benet plans are gradually becoming less prevalent. At
the beginning of 2013, only 24% of employers offer dened benet
plans to new hires. Dened benet plans can be categorized into one
of three statuses: open, closed or frozen. Among open plans still
accruing benets, 55% provide benets based on hybrid plan formulas,
such as cash balance or pension equity formulas. The remainder
(45%) use traditional formulas such as a nal average pay plan or
career average pay plan. Dened Benet Plan Status Among Sponsors
Offering Hybrid DB Plans Traditional DB Plans Open Plan 55% 45%
Closed Plan 15% 85% Frozen Plan 36% 64% (n ranges from 29 to 104)
Retirement Plan Initiatives for 2013 6 Aon Hewitt When asked about
retirement initiatives for 2013, employers are most likely to
undertake the following tasks: packaging communication messages
that focus on the nancial well-being of employees, measuring the
competitive position of the plan, assessing current plan design and
implementing initiatives to address retirement savings gaps.
9. Eighty percent of employers are very or somewhat likely to
concentrate on the nancial well-being of employees, up from 74%
last year. Nearly three out of four respondents (74%) plan to
measure the competitive position of retirement programs and
two-thirds of employers (66%) plan to assess the current plan
design. These results indicate the continued focus and importance
of retirement programs in 2013. Likely Initiatives for Retirement
Plans in 2013 Initiative Very Likely Somewhat Likely Somewhat
Unlikely Very Unlikely Focus on nancial well-being of employees
(packaging, resources, communication, mobile apps, or online tools)
37% 43% 16% 4% Measure the competitive position of the retirement
program 37% 37% 20% 6% Assess your current retirement program
design 37% 29% 22% 12% Implement initiatives to address retirement
saving gaps within your employee population 22% 42% 28% 8%
Measure/project the expected retirement income adequacy of your
employee population 19% 42% 30% 9% Analyze the inuence of your
current and emerging demographics on retirement designs, behaviors,
policies, and practices 14% 34% 40% 12% Evaluate phased retirement
alternatives 8% 28% 40% 24% Look at differences in retirement
behaviors and outcomes based on race and ethnicity 8% 24% 44% 24%
Collect data on employee preferences regarding the retirement
program design and features 6% 23% 42% 29% (n ranges from 374 to
379) Employer Condence in Effectively Managing Retirement Program
Issues Most sponsors are condent that they are meeting compliance
requirements and protecting duciaries from unnecessary risk.
Sixty-one percent of respondents are very condent in managing
compliance requirements and 48% are very condent in their ability
to effectively protect duciaries from unnecessary risk. 2013 Hot
Topics in Retirement 7
10. Identical to last years results, 39% of employers continue
to feel very condent in their ability to effectively manage the
competitive position of their plans. Further, 25% feel very condent
in their ability to effectively manage the inuence of diversity and
inclusion in their retirement benet offerings. However, companies
feel less and less condent in being able to effectively manage how
well their employees understand the employer-sponsored resources
available to them. Even though 59% ranked this as a high priority,
only 7% feel very condent about employee understanding, down from
13% last year. Perhaps even more alarming, only 6% of employers
feel very condent in being able to effectively manage their
employees to take accountability for their own retirement success.
Only 3% of employers are condent in their ability to effectively
manage their employees income adequacy and achievement of lifetime
income in retirement. Condence and Priority Level of Employers
Effectively Managing Retirement Program Issues in 2013 Priority
Level Condence Level Retirement Program Issues Very Condent 1 Not
Condent at All 6 5 High Priority 1 Medium Priority 2 Low Priority 3
2 3 4 Meeting compliance requirements for the retirement plans your
organization offers 61% 31% 5% 2% 1% 0% 72% 20% 8% Protecting
duciaries from unnecessary risk 48% 41% 7% 3% 1% 0% 62% 30% 8%
Competitive position of the plan 39% 39% 15% 5% 1% 1% 45% 42% 13%
The inuence of employee diversity and inclusion on retirement benet
effectiveness 25% 27% 30% 12% 5% 1% 25% 46% 29% The aging workforce
and the impact retirements could have on your business in the next
5 to 10 years 9% 27% 36% 21% 6% 1% 30% 44% 26% Employees
understanding and knowledge of the employer-sponsored resources
they have available 7% 26% 40% 19% 7% 1% 59% 35% 6% Employees
taking accountability for their own retirement success 6% 22% 42%
20% 9% 1% 51% 42% 7% Employees retiring with sufficient retirement
assets 3% 16% 39% 27% 12% 3% 44% 46% 10% Employees ability to
manage their retirement income to last for the rest of their
lifetime 3% 8% 38% 29% 17% 5% 33% 52% 15% (n ranges from 370 to
382) 8 Aon Hewitt
11. Dened Benet Plans Likely Changes in 2013 After years of
watching their pension decits swell due to falling interest rates
and lagging equity returns, many plan sponsors unleashed a wide
variety of bold measures to gain control over volatility in their
plans in 2012. Large, high-prole organizations such as Ford,
General Motors, and Verizon Communications announced actions that
would signicantly eliminate risk in their plans. Others took
advantage of ultra-low borrowing costs to nance large pension
contributions. Likely Changes to Dened Benet Plans in 2013 Changes
Very Likely Somewhat Likely Somewhat Unlikely Very Unlikely
Nothing; continue with current open plan as is 67% 17% 5% 11%
Reduce benets but continue to offer a dened benet plan to current
and future employees 8% 8% 17% 67% If your plan is open to new
entrants: close participation and no longer allow new employees to
enter your dened benet plan 7% 10% 12% 71% If your plan has ongoing
accruals: freeze benet accruals for all or a portion of
participants 3% 7% 17% 73% If you offer a traditional plan: change
to a hybrid plan (cash balance or pension equity) 2% 2% 14% 82%
Terminate the plan (remove all employer liability through lump-sum
payout to participants or third-party annuity purchase) 0% 0% 8%
92% (n ranges from 88 to 106) 2013 Hot Topics in Retirement 9
12. Based on the responses to this survey, it appears these
trends will continue throughout 2013. More than one-third of
employers (34%) indicate they are planning to offer a lump-sum
window for terminated vested participants and/or retirees. Only a
minimal number of the pension plan sponsors who responded to this
survey will close, freeze or otherwise alter the plan formula for
benets in 2013. Rather, respondents are focusing their de-risking
efforts on the asset side of the equation. Sixty percent of
sponsors are likely to adjust their plan investments to better
match the plans liabilities. Half of all dened benet plan sponsors
are planning to perform an asset-liability study in 2013. Likely
Actions Dened Benet Plan Sponsors Will Take in 2013 Likely Actions
in 2013 (Among Those Plans That Have Not Recently Completed)
Completed Recently Actions Very Likely Somewhat Likely Somewhat
Unlikely Very Unlikely 12% Adjust plan investments to better match
the characteristics of the plans liabilities (e.g., liabilitydriven
investing, or LDI) 21% 39% 21% 19% 12% Conduct an asset-liability
study 14% 36% 23% 27% 11% Adjust equity exposure and/or overall
asset allocation 21% 43% 22% 14% 10% Offer lump sums to terminated
vested participants or retirees on an ongoing basis by permanently
adding feature to the plan 10% 24% 30% 36% 7% Add or liberalize a
lump-sum option focusing on terminated vested participants or
retirees by adding a window approach 14% 25% 26% 35% 6% Monitor the
funded status on a daily basis either by partnering with an outside
organization or enhancing internal tools 5% 13% 24% 58% 3% Change
to mark-to-market accounting 1% 8% 33% 58% 1% Purchase annuities
for terminated vested participants or retirees 1% 6% 28% 65% 1% Use
a buy-in offering (e.g., entering an agreement to transfer risk to
a third party like an insurance provider) 0% 2% 22% 76% 1% Transfer
the plan (both assets and liabilities) to an outside party to
reduce risk exposure 0% 2% 11% 87% (n ranges from 134 to 185) 10
Aon Hewitt
13. Dened benet plan sponsors are cognizant of the need for
robust communication if plan participants will be impacted by
de-risking strategies. Eighty percent state they plan to provide
written communication to participants in advance of the action date
and half of all companies are planning to hire outside companies to
assist them in some fashion with lump-sum windows (communication,
calculation assistance, or a call center). Action Plan to Deal with
Preparing for Lump Sums and/or Annuity Purchases Likely Actions in
2013 (Among Those Plans That Have Not Recently Completed) Completed
Recently Actions Very Likely Somewhat Likely Somewhat Unlikely Very
Unlikely 1% Provide written communication to retirees and/or
terminated vested participants in advance of action date 56% 24%
12% 8% 2% Carefully review individual data inputs for pension
calculations 50% 27% 15% 8% 2% Hire outside vendor to create
communications, perform benet calculations, and/or handle calls
from impacted participants 24% 26% 14% 36% 1% Gather annuity
purchase bids from insurance companies 8% 15% 23% 54% 1% Increase
HR staff to prepare for additional calculations and questions from
impacted individuals 1% 1% 16% 82% (n ranges from 72 to 79) 2013
Hot Topics in Retirement 11
14. Dened Benet Plan Risk Condence As in prior years, dened
benet plan sponsors place a high priority on compliance risk and
more than half of respondents (52%) feel very condent in their
ability to handle these risks. Conversely, relatively few
respondents (34%) feel very condent in their ability to handle
interest rate risk, even though it is a higher priority than
compliance risk. Similarly, 74% indicate that investment risk is
the highest priority; however, only 37% are very condent in their
ability to manage it. Condence and Priority Level of Risks in Dened
Benet Plans Priority Level Condence Level Risk Management Topic
Very Condent 1 2 3 4 Not Condent at All 5 6 High Priority 1 Medium
Priority 2 Low Priority 3 Compliance risk 52% 32% 12% 3% 1% 0% 55%
32% 13% Fiduciary risk 46% 37% 13% 3% 1% 0% 54% 33% 13% Plan design
risk (aspects of the plan design, such as lump sums or nal average
pay provisions) 41% 37% 16% 4% 2% 0% 31% 47% 22% Litigation risk
41% 36% 18% 3% 2% 0% 30% 42% 28% Diversication risk 38% 40% 17% 4%
1% 0% 45% 37% 18% Investment risk 37% 39% 18% 6% 0% 0% 74% 22% 4%
Interest rate risk 34% 34% 22% 7% 3% 0% 65% 31% 4% Demographic risk
(changes in participant demographics, such as retirement patterns)
29% 36% 25% 7% 3% 0% 20% 53% 27% Longevity risk 29% 33% 28% 7% 2%
1% 22% 46% 32% (n ranges from 186 to 188) 12 Aon Hewitt
15. From an investment perspective, dened benet plan sponsors
are overwhelmingly planning to adopt a so-called glide path
strategy. This approach adjusts the plans investment allocations in
relation to the funded status. While only 18% of sponsors currently
have a glide path strategy in place, the percentage by the end of
the year is expected to nearly double to more than 30%. This growth
comes primarily at the expense of sponsors abandoning the
traditional approach of investing 60% or more of plan assets in
equities. Organizations Current Investment Policy Primarily bonds
12% Duration matching 8% Preapproved glide path 18% Fully immunized
2% Alternative intensive 8% Primarily equity 52% (n=159)
Organizations Investment Policy at End of 2013 Duration matching
13% Primarily bonds 13% Primarily equity 31% Alternative intensive
8% Fully immunized 4% Preapproved glide path 31% (n=109) 2013 Hot
Topics in Retirement 13
16. Managing an Increase in Retirement-Eligibles As the baby
boomer generation continues to age, plan sponsors are taking steps
to prepare for the anticipated increase in workforce retirements.
The most common approach is to increase the level of automation and
self-service available to plan participants; 52% of respondents are
likely to offer these features in 2013. Sixty-ve percent are also
planning to increase their communication to near-retirees in 2013.
Action Plan to Manage an Increase in Number of Participants
Eligible for Retirement Likely to Offer in 2013 (Among Those Plans
That Do Not Currently Offer) Completed Recently Actions Very Likely
Somewhat Likely Somewhat Unlikely Very Unlikely 12% Increasing the
level of automation, self-service, and/or web access to pension
plan participants 25% 27% 20% 28% 11% Outsourcing additional
services to an outside party 11% 9% 23% 57% 6% Nothing; we are well
equipped to deal with the demographic changes 29% 32% 18% 21% 6%
Nothing; we do not anticipate any demographic changes impacting our
plan 25% 23% 22% 30% 5% Increasing communication about the
retirement process 26% 39% 18% 17% (n ranges from 118 to 154) 14
Aon Hewitt
17. Pension Calculation Administration Only one out of ve plan
sponsors will perform the administration of the dened benet plan by
themselves in 2013. The majority of respondents (55%) use an
outside party for all plan administration. The remaining plan
sponsors (25%) use a combined in-house or co-sourced approach. By
2015, we expect few companies (15%) to continue in-house
administration. Approach to Dened Benet Administration Current
Approach In-sourced 20% Co-sourced 25% Out-sourced 55% (n=183)
Likely Approach in Two Years In-sourced 15% Co-sourced 27%
Out-sourced 58% (n=137) 2013 Hot Topics in Retirement 15
18. Dened Contribution Plans Management and Priority of
Participant Behavior As dened contribution plans become the primary
retirement vehicle, plan sponsors will place greater emphasis on
providing employees with tools and information to use the plan
efficiently and effectively. This year, employers are focused on
effectively managing participant behaviors when it comes to
participation, diversication and leakage in dened contribution
plans. Throughout this survey, employers consistently indicate low
condence in their ability to effectively manage employees
retirement savings behaviors. As in the past, when it comes to
participant behavior, 70% of plan sponsors are condent in their
abilities to effectively manage participation rates in dened
contribution plans. Additionally, 91% of employers place a high or
medium priority on diversication, savings rates (93%) and
retirement readiness (91%). However, condence levels in the ability
to manage these behaviors are low. One out of four employers is
very or somewhat condent they are effectively managing leakage from
the plan. However, only 14% of employers consider leakage due to
employees taking loans or withdrawals from the employersponsored
plan a high priority in 2013. Condence and Priority Level of
Employers in Effectively Managing Retirement Program Participant
Behaviors in 2013 Priority Level Condence Level Retirement Program
Behaviors Very Condent 1 2 3 4 Not Condent at All 5 6 High Priority
1 Medium Priority 2 Low Priority 3 Participation rates: Eligible
employees saving in the plan 37% 33% 22% 4% 3% 1% 61% 29% 10%
Diversication: Participants adequately diversifying and taking
appropriate risk 12% 32% 38% 14% 3% 1% 41% 50% 9% Leakage:
Employees avoiding taking loans and withdrawals from the plan 9%
16% 30% 24% 16% 5% 14% 46% 40% Savings rates: Participants
contributing enough to meet their future retirement needs 8% 22%
43% 16% 10% 1% 54% 39% 7% Retirement readiness: Participants are
focused on saving milestones or have a plan to reach their
retirement savings goals 7% 20% 39% 23% 10% 1% 40% 51% 9%
Distributions: Terminated employees making smart choices about what
to do with their dened contribution balances 5% 16% 37% 24% 13% 5%
10% 32% 58% (n ranges from 374 to 377) 16 Aon Hewitt
19. Investment Advisory Solutions and Features Employers
continue to offer several features to help employees with their
investment selections. More than three-quarters of respondents
(76%) currently offer target-date funds to provide employees with a
turn-key investment approach. By the end of 2013, this number is
expected to grow to more than 85% of plans. Additionally, nearly
60% of companies currently offer online investment guidance. Among
those who do not currently offer it, nearly 50% are likely to add
it this year. Managed accounts (39%) and online third-party
investment advisory services (39%) remain common and are expected
to become more prevalent in the coming year. Features to Help With
Investment Selection Offerings Usage and Plans for 2013 How Likely
to Offer in 2013 (Among Those Plans That Do Not Currently Offer)
Already Offer Investment Selection Offerings Very Likely Somewhat
Likely Somewhat Unlikely Very Unlikely 76% Target-date/lifecycle
funds (e.g., 2015, 2020) 22% 13% 24% 41% 57% Online investment
guidance (investment suggestions based on asset classes only) 13%
34% 29% 24% 39% Online third-party investment advisory services
(personalized advice on specic plan investments) 10% 24% 36% 30%
39% Managed accounts 9% 18% 37% 36% 33% Phone access to third-party
investment advisory services (individual sessions with advisor) 7%
20% 38% 35% 32% Target-risk/lifestyle funds (e.g., conservative) 1%
8% 32% 59% 25% In-person third-party investment advisory services
(individual sessions to provide personalized advice on specic plan
investments) 3% 17% 36% 44% (n ranges from 46 to 260) 2013 Hot
Topics in Retirement 17
20. Due to the popularity of target-date funds, employers are
planning to scrutinize the fund manager and the glide path. In
2013, more than half of all plan sponsors with target-date funds
are very or somewhat likely to perform a comprehensive review of
the fund manager and a nearly equal number of respondents plan on a
comprehensive review of the fund glide path. Nearly 20% of
employers have completed a move from a primarily active to a
primarily passive target-date fund approach, but very few plan to
do so in 2013. Plan sponsors also have a small appetite for
changing the fund manager (7% very likely) or moving to a
customized target-date fund (2% very likely). Likely Current and
Future Actions to Be Taken on Target-Date Portfolios Likelihood of
Action in 2013 (Among Plans That Have Not Completed Recently)
Completed Recently Actions Very Likely Somewhat Likely Somewhat
Unlikely Very Unlikely 25% Perform a comprehensive review of the
fund manager 20% 38% 22% 20% 23% Perform a comprehensive review of
the fund glide path 22% 34% 27% 17% 18% Move from a primarily
active to a primarily passive target-date fund approach 3% 6% 34%
57% 15% Change fund managers or seek replacement options 7% 16% 29%
48% 12% Move to a customized solution for target-date funds (glide
path and/or underlying investments) 2% 5% 29% 64% (n ranges from
203 to 255) Retirement Income Solutions/Annuities Retirement income
solutions continue to gain ground as employers shift from dened
benet plans to dened contribution plans. As these solutions mature,
the number of products that are available to employers in the
market continues to grow. Employers are more willing and more
likely to consider retirement income solutions in their plans,
though barriers still remain. More than 60% of sponsors already
offer online modeling tools or mobile apps to help participants
determine how much they can save each year for retirement. In
addition, 58% of the remainder are very or somewhat likely to offer
these types of tools in 2013. 18 Aon Hewitt
21. The number of employers who offer professional management
(managed accounts) with a drawdown feature has doubled since last
year. In addition, 26% of plans that do not currently offer this
type of solution are likely to add professional management
solutions in 2013. Very few plan sponsors are keen on adding
annuity products as part of their fund lineup. Currently, 10% of
sponsors have an in-plan annuity product and only 2% of those
without an annuity product are very likely to add one in the coming
year. Retirement Income Solutions/ AnnuitiesUsage and Plans for
2013 Likelihood to Offer in 2013 (Among Those Plans That Do Not
Currently Offer) Already Offer Retirement Income Solution Very
Likely Somewhat Likely Somewhat Unlikely Very Unlikely 61% Online
modeling tools or mobile apps to help participants determine how
much they can spend each year in retirement 14% 44% 31% 11% 37%
Distributions from plan/automatic payment (participant elects an
automatic payment from the plan over an extended period of time) 6%
18% 41% 35% 19% Within the plan: professional management (managed
accounts) with drawdown feature (managed account provider allocates
participant assets for income and manages the annual amount paid
from the plan) 6% 20% 45% 29% 13% Facilitation of annuities outside
the plan as options for plan distributions 1% 14% 40% 45% 12%
Within the plan: managed payout funds (those with a specic annual
target payout percentage with no guarantees) 3% 16% 49% 32% 10%
Within the plan: annuity or insurance products as part of fund
lineup (e.g., minimum annuity payout, xed annuities, other) 2% 12%
41% 45% 3% Ability to transfer assets to a dened benet plan in
order to receive an annuity 1% 5% 29% 65% (n ranges from 110 to
313) 2013 Hot Topics in Retirement 19
22. As these types of retirement income solutions become more
common features in dened contribution plans, employers not
interested in offering income solutions at all has dropped from 57%
to 27% over the past year. Among employers who do not currently
offer retirement income solutions, the barriers cited most often
were operational or administrative concerns (54%) as the primary
reason, followed by duciary concerns (51%), and waiting to see the
market further evolve (50%). Barriers to Adding Retirement Income
Solutions/Annuities Barriers Percentage of Employers Operational or
administrative concerns 54% Fiduciary concerns 51% Waiting to see
the market evolve more 50% Participant utilization concerns 44%
Difficulty with participant communication 34% Not interested in
offering income solutions within the plan at this time 27%
Portability concerns 23% Cost barriers 23% Preference for
participants to leave the plan at termination 11% (n=306; multiple
responses) 20 Aon Hewitt
23. Investment Fund Offerings As a result of the U.S.
Department of Labor fee disclosure regulations, 35% of sponsors
have recently completed a review of dened contribution fund
operations, including fund expenses and revenue sharing. Among
plans that did not perform a dened contribution fund operation
review, 87% of sponsors are very or somewhat likely to do so in
2013. Cost-cutting is top of mind for many sponsors. Nearly
one-third of employers have recently changed their funds to reduce
cost and 52% of the remaining plans may do so in 2013. Likely
Actions to be Taken on Investment Fund Offerings in 2013 Likely to
Offer in 2013 (Among Those Plans That Do Not Currently Offer)
Completed Recently Actions Related to Funds Very Likely Somewhat
Likely 35% Review dened contribution fund operations, including
fund expenses and revenue sharing 62% 25% 8% 5% 35% Perform a
comprehensive review of fund offerings 58% 22% 12% 8% 35% Update
investment policy statement 28% 36% 22% 14% 31% Change/alter fund
options to reduce costs of funds 22% 30% 26% 22% 27% Implement a
self-directed brokerage window 2% 7% 14% 77% 21% Add funds designed
for ination protection 4% 14% 41% 41% 20% Change some or all funds
from actively managed to index funds 7% 20% 31% 42% 17% Add a tier
of index options 3% 14% 34% 49% Somewhat Unlikely Very Unlikely (n
ranges from 205 to 277) 2013 Hot Topics in Retirement 21
24. Communication Initiatives Many employers are planning to
communicate to their employees to describe the plan and inuence
participant behaviors. Sponsors are primarily interested in
campaigns that highlight the availability of resources to help with
retirement planning, improve diversication or evaluate retirement
income adequacy. Likely Dened Contribution Communication
Initiatives in 2013 Very Unlikely Initiatives Very Likely Somewhat
Likely Somewhat Unlikely Availability of online advice/resources to
help with retirement savings/planning 54% 34% 8% 4% Improving
diversication (including through the use of target-date
investments) 51% 35% 10% 4% Evaluating retirement income adequacy,
including understanding projected needs, required milestones, and
deliberate plans 50% 36% 12% 2% Rolling over of balances instead of
cashing out of the retirement plan 18% 37% 34% 11% Ways to minimize
fund fees at retirement in order to maximize income stream 12% 33%
40% 15% (n ranges from 364 to 368) Communication channels continue
to evolve as technology advances. In 2013, one-quarter of all
sponsors are planning to use webinars extensively to interact with
their participantsa percentage that has doubled since 2012.
Further, employers are planning to use podcasts (52%) and text
messages (42%) in 2013, up from 12% and 3% in 2012, respectively.
Social media applications such as Facebook and Twitter are gaining
acceptance. The percentage of plan sponsors who are planning to use
these applications has tripled since last year from 6% in 2012 to
18% in 2013. Communication and Education Channels Webinar 25%
Online forums 16% Podcasts Mobile apps Twitter Facebook 37% 9% Text
messages 58% 56% 38% 2% 15% 83% 17% 81% 20% Use Extensively Aon
Hewitt 48% 35% 6% 0% 22 47% 43% 7% 2% 17% 58% (n ranges from 57 to
318) 40% Use Selectively 60% Rarely Use 80% 100%
25. Managing Risk and Plan Expenses Plan sponsors are focusing
on total plan costs in 2013. Ninety-ve percent of plan sponsors who
have not recently reviewed the total plan cost (fund,
recordkeeping, and trustee fees) are likely to do so. Additionally,
one-third of employers have recently hired a third party to assist
them in benchmarking and evaluating costs; another 52% plan to do
so this year. The number of employers who have been supplementing
the required fee disclosures with additional communication has
doubled since last year. Only 3% of employers are very likely to
increase participants share of plan expenses. Likely Action With
Respect to Plan Expenses in 2013 Likely to Do in 2013 (Among Those
Plans That Have Not Recently Completed) Completed Recently Actions
Related to Expenses 37% Review the plans total plan cost (including
fund fees, recordkeeping fees, trustee fees, etc.) Very Likely
Somewhat Likely Somewhat Unlikely Very Unlikely 70% 25% 3% 2% 33%
Lower costs by changing some or all funds from mutual funds to
institutional funds 10% 20% 26% 44% 32% Hire a third party to
benchmark or evaluate costs 28% 24% 21% 27% 22% Restructure to
allow administrative fees to be assessed to participants in a more
equitable manner (e.g., consistent asset-based/revenue sharing, a
per-head charge to participants) 7% 19% 25% 49% 15% Supplement
required fee disclosure with additional communication details 15%
32% 24% 29% 11% Have participants share more plan expenses 3% 8%
25% 64% (n ranges from 198 to 307) 2013 Hot Topics in Retirement
23
26. Retaining Employees Balances in the Plan Sixty-two percent
of plan sponsors have no preference if terminated employees leave
money in their plan(s). Among the remaining group, 20% of
respondents want the participants to leave the money in the plan
and an additional 17% would like the participants to roll it to an
IRA outside the plan. Twenty-one percent of sponsors are concerned
about retail IRAs capturing the terminated participants balances.
The discussion around dened contribution plans continues to evolve
from purely asset accumulation to including the payout phase in
retirement. Employers have begun to focus on controlling plan
expenses in order to help increase participants ability to
eventually retire. Currently, some employers are beginning to show
interest in retaining assets in the plan, as it increases the
companys purchasing power and provides a more cost-effective
vehicle for current and retired employees than those available in
the IRA marketplace. Employer Preference: Terminated Employees
Leaving Money in Plan Leave plan 17% Remain in plan 20% Other 1% No
preference 62% (n=362) Level of Concern in Capturing Retail IRAs
When Participants Terminate Employment Somewhat unconcerned 40%
Somewhat concerned 17% Very concerned 4% Very unconcerned 39%
(n=357) 24 Aon Hewitt
27. Employer Priorities in 2013 In 2013, plan sponsors are
promoting nancial wellness by providing effective measures, tools
and messages that encourage employees to save for retirement. This
study shows employers four key priorities for the year ahead. Focus
on Financial Wellness I I I Promoting nancial wellness and the use
of investment advisory tools Employers are focusing on the nancial
well-being of employees through enhanced communication, resources,
mobile apps, and online tools. Employers are offering investment
advisory tools through an array of alternatives to meet employee
needs. Measuring retirement income adequacyEmployers are projecting
retirement needs and required milestones for employees to reach
their savings goals. Assessing plan designEmployers are assessing
the impact their plan designs may have on participant behavior.
Mitigate Risk in Pension Plans I I I Minimizing volatilityEmployers
are performing asset-liability studies and adjusting their plans
investments to better match the liabilities. Adopting glide path
asset allocationEmployers are adopting a glide path asset
allocation strategy that will adjust their plans investment
allocations. Transferring longevity riskPlan sponsors are adding
lump sum features to their pension plan for terminated vested
participants or current active employees who leave the workforce in
the future. Seek Transparency Regarding Total Plan Costs I I
Reviewing fund offeringsIn light of fee disclosure regulations,
employers are reviewing fees associated with fund offerings in
their dened contribution plans. Benchmarking total plan
costsEmployers are evaluating and benchmarking the total plan costs
(fund, recordkeeping, and trustee fees). 2013 Hot Topics in
Retirement 25
28. Adopt New Technology I I Increasing the use of
communication technologyEmployers are using innovative technology
channels to reach employees, such as text messaging and social
media vehicles to communicate various aspects of their retirement
plans to participants. Hosting webinars and podcastsEmployers are
hosting webinars and podcasts to reach their employees about the
importance of retirement savings and features of their plans. The
retirement landscape continues to evolve in a challenging economy
with increased scrutiny, while employee inertia regarding saving
for retirement still exists. Employers are focusing their attention
on promoting nancial wellness by effectively managing their
retirement programs and trying to reach as many employees as
possible. The results of this study show the four key priorities
that employers will address in 2013. By focusing on nancial
well-being, mitigating risks in pension plans, seeking transparency
in total plan costs, and communicating with innovative technology,
employers are making efforts to encourage employees to reduce the
retirement income gap. 26 Aon Hewitt
29. Participating Employer Information Four hundred
twenty-eight employers representing 11 million employees
participated in this survey. Forty-ve percent of the survey
respondents have 10,000 or more employees. The average number of
U.S. employees is 25,761, and the median is 8,350. Over half of
respondents (55%) have publicly traded stock. Respondents by Size
of Employee Base Range of Employees Percentage of Employers Under
1,000 7% 1,0004,999 28% 5,0009,999 20% 10,00024,999 24% 25,000 or
more 21% (n=428) Respondents by Industry Industry Percentage of
Employers Industry Percentage of Employers Aerospace and Defense 2%
Associations, Foundations and Charitable Organizations 2%
Automobiles and Components 2% Health Care Equipment, Services and
Pharmaceuticals Banks and Diversied Financials 7% Information
Technology Building Products, Construction and Machinery 6%
Chemicals 3% Commercial and Professional Services 6% Consumer
Durables and Apparel 2% Consumer Services and Products 4% Education
5% Energy 5% Food, Beverage and Tobacco 6% Government 3% Insurance
11% 6% 10% Media 2% Metals, Mining and Paper Products 4% Retail 7%
Telecommunications Services 2% Transportation 2% Utilities 3%
(n=428) 2013 Hot Topics in Retirement 27
30. www.aonhewitt.com 28 Aon Hewitt
31. About Aon Hewitt As the global leader in human resource
solutions, Aon Hewitt partners with organizations to solve their
most complex challenges in health, retirement and talent. Aon
Hewitt designs, implements, communicates and administers a wide
range of leading solutions. With more than 29,000 professionals in
90 countries, Aon Hewitt guides clients to achieve better business
outcomes while improving the well-being and security of their
people. Contact Information Patti Balthazor Bjrk Director of
Retirement Research Aon Hewitt +1.847.295.5000
[email protected] Amy Atchison Research
Consultant Aon Hewitt +1.847.295.5000 [email protected]
Rob Austin, FSA, EA Senior Retirement Consultant Aon Hewitt
+1.704.343.4100 [email protected] For questions or comments,
please contact Patti Balthazor Bjrk or Amy Atchison, by telephone
at +1.847.295.5000 or via email at:
[email protected] or [email protected].
2013 Aon plc