Marcia S. Wagner, Esq. A Plan Sponsor’s Fiduciary Calling: Improving the Retirement Readiness of Plan Participants Sponsored by: Mutual of Omaha

2 Helping Participants Get Ready for Retirement Problem of Saving and Investing Enough ◦ Many younger employees have not started. ◦ Many older workers lack financial security. Reliance on 401(k) Account for Retirement ◦ Median account balance is merely $22,800. ◦ Median for older workers (age ) is $60,600.

3 Retirement Readiness Concerns for Plan Sponsors Aging Workforce Without Financial Security ◦ Can hurt morale. ◦ Can hurt workforce productivity. ◦ Can lead to complaints filed against Plan. Helping Participants Achieve Retirement Readiness ◦ Relevant Rules Under ERISA ◦ Best Practices

4 Implied Duty to Educate Participants on Retirement Readiness Reasons for Plan Sponsor to Help Participants ◦ ERISA imposes basic fiduciary duties. ◦ Participants must receive sufficient investment information. 404a-5 Regulations ◦ Annual disclosures for Plan’s investment options. ◦ Quarterly disclosures for Plan’s fees and expenses.

5 Implied Duty to Educate Participants on Retirement Readiness (cont’d) 404a-5 Regulations ◦ No direct requirement to educate participants. ◦ But disclosures must be written so “average” participant can understand. ◦ Implied duty to help participants understand 404a-5 disclosures and how to save and invest.

6 Safe Harbor for Participant Guidance Protection Under DOL’s Safe Harbor ◦ Protects plan sponsors when offering participant investment education. ◦ Potential liability for fiduciary investment advice. ◦ DOL Interpretive Bulletin 96-1 provides guidance on how to provide non-fiduciary investment education.

7 Safe Harbor Categories of Non-Fiduciary Education 4 Categories Under Interpretive Bulletin 96-1 ◦ Plan Information ◦ General Financial and Investment Information ◦ Asset Allocation Models ◦ Interactive Investment Materials Wide Range of Safe Harbor Categories ◦ Should enable Plan Sponsor to provide non-fiduciary education to participants.

8 Avoiding Unnecessary Fiduciary Risk Improving Retirement Readiness ◦ Plan sponsors can avoid unnecessary risk and potential liability. ◦ Economic benefits from enhanced productivity. ◦ Satisfied employees have less motivation to file legal claims. ◦ Potential liability limited to size of participant’s loss. ◦ Educated participants typically less concerned by short-term volatility.

9 Participant Education Focused on Retirement Readiness Benefits of Participant Education ◦ Serves as risk mitigation tool. ◦ Fosters good will. Issues Arising from Lack of Retirement Readiness ◦ Feeling that employer has failed employees. ◦ Drag on workplace productivity.

10 Best Practices for Plan Sponsors Making a Difference ◦ Ability to help improve retirement readiness of participants. ◦ Plan sponsors should utilize “best practices.”

11 Best Practice #1 Evaluate Retirement Readiness at Plan-Level ◦ Evaluate retirement readiness by evaluating Plan data. (1) Overall rate of participation in Plan. (2) Median contribution rate for participants. (3) Size of median account balance. (4) Identify popular investment alternatives. ◦ Consider consulting qualified advisor.

12 Best Practice #2 Implement “Retirement Readiness” Programs ◦ Communication Program (1) Address behavioral inertia of participants. (2) Big advantage for participants who start early. (3) Make case to take action immediately. ◦ Education Program (1) Engage participant education provider. (2) Reinforce importance of staying on track.

13 Best Practice #3 Integrate Assessment into Education Program ◦ Provide “readiness” assessment for each participant. ◦ Many advisors and administrative providers offer tools to help participants. (1) Calculate retirement needs and required savings. (2) Gap analysis can provide effective “call to action” for participants.

14 Best Practice #3 (cont’d) Integrate Assessment into Education Program ◦ Providers can also provide one-on-one counseling. ◦ Guidance should qualify as non-fiduciary education under DOL’s safe harbor. ◦ Safe harbor liability protection for plan sponsor.

15 Best Practice #4 Adopt Plan Design Changes ◦ Plan design can influence participation, contribution and investment behavior. ◦ Use plan design to promote retirement readiness. ◦ Automatic Enrollment and Automatic Escalation (1) Automatically enroll new employees or re-enroll existing employees. (2) Importance of default contribution rate. (3) Use auto-escalation to achieve meaningful contribution rate. (4) Participants can always opt out.

16 Best Practice #4 (cont’d) Adopt Plan Design Changes ◦ Default Investment Alternative (1) Consider Plan’s balanced or target-date option. (2) Default can be used for auto-enrollment or simple enrollment. ◦ Lower Percentage Match (1) Lower percentage match while keeping same maximum match amount. EXAMPLE: Max of 50% match on 6% of pay becomes 33.3% match on 9% of pay. (2) Consult counsel before making changes.

17 Conclusions Important Considerations ◦ Plans may harbor unnecessary liability risk. ◦ Concerns arise when participants lack understanding of Plan, and retirement savings are inadequate. ◦ Consider using best practices to help participants. ◦ Consider engaging advisor or education provider.

18 Summary of Best Practices Evaluate Retirement Readiness at Plan-Level Implement “Retirement Readiness” Programs Integrate Assessment into Education Program Adopt Plan Design Changes

19 Important Information This presentation is intended for sponsors of 401(k) plans and other types of defined contribution retirement plans with participant-directed investments that are subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA). This information is intended for general informational purposes only, and it does not constitute legal, tax or investment advice on the part of The Wagner Law Group, Chepenik Financial or their respective affiliates.

Marcia S. Wagner, Esq. q. 99 Summer Street, 13th Floor Boston, MA Tel: (617) Fax: (617) Website: A A Plan Sponsor’s Fiduciary Calling: Improving the Retirement Readiness of Plan Participants