2012 Hot Topics in Retirement - Aon
2012 Hot Topics in Retirement - Aon
2012 Hot Topics in Retirement - Aon
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Consult<strong>in</strong>g/HR Outsourc<strong>in</strong>g<br />
<strong>Retirement</strong><br />
<strong>2012</strong> <strong>Hot</strong> <strong>Topics</strong> <strong>in</strong> <strong>Retirement</strong><br />
Wan<strong>in</strong>g Confidence and the Need for Cont<strong>in</strong>ued Innovation
About This Survey In October 2011, <strong>Aon</strong> Hewitt surveyed HR professionals throughout the U.S.<br />
to learn what is likely to occur with retirement programs <strong>in</strong> the com<strong>in</strong>g year.<br />
The survey explored their focus and expected actions regard<strong>in</strong>g the design,<br />
management, and delivery of their retirement programs—<strong>in</strong>clud<strong>in</strong>g def<strong>in</strong>ed<br />
contribution (DC), def<strong>in</strong>ed benefit (DB), and retiree medical plans as they<br />
relate to active, salaried U.S. employees.<br />
This year’s survey results show that employers are cont<strong>in</strong>u<strong>in</strong>g to assess the<br />
most e�ective way to deliver retirement benefits to their employees and keep<br />
up with the evolv<strong>in</strong>g retirement landscape. Responses from more than 500<br />
employers are <strong>in</strong>cluded, cover<strong>in</strong>g over 12 million employees (the median<br />
number of employees is 5,800, while the average is over 24,000).<br />
Note: Percentages <strong>in</strong> this report are rounded to the nearest whole number;<br />
therefore, totals may not equal exactly 100%. While the focus of the survey and<br />
samples have changed from year to year, there rema<strong>in</strong> many areas where<br />
useful comparisons and trends over time can be exam<strong>in</strong>ed.
4<br />
10<br />
14<br />
33<br />
42<br />
48<br />
<strong>2012</strong> <strong>Hot</strong> <strong>Topics</strong> <strong>in</strong> <strong>Retirement</strong><br />
Wan<strong>in</strong>g Confidence and the Need for Cont<strong>in</strong>ued Innovation<br />
Contents<br />
Survey Highlights<br />
Overview of <strong>Retirement</strong> Plans<br />
Def<strong>in</strong>ed Contribution Plans<br />
Def<strong>in</strong>ed Benefit Plans<br />
Retiree Medical Plans<br />
Participat<strong>in</strong>g Employer Information
Wan<strong>in</strong>g Confidence<br />
and the Need for<br />
Cont<strong>in</strong>ued Innovation<br />
4 <strong>Aon</strong> Hewitt<br />
Five Key Trends<br />
In recent years, with the move from def<strong>in</strong>ed benefit to def<strong>in</strong>ed contribution<br />
plans, employee responsibility for retirement adequacy has grown. However<br />
sav<strong>in</strong>gs behaviors rema<strong>in</strong> suboptimal. As a result of this and other challenges,<br />
employer confidence <strong>in</strong> their ability to <strong>in</strong>fluence employee decisions and/or<br />
actions has eroded. Consequently, many plan sponsors are enhanc<strong>in</strong>g and<br />
ref<strong>in</strong><strong>in</strong>g their plan structures to better meet employer and employee retirement<br />
goals. Build<strong>in</strong>g on the success of automatic features, employers cont<strong>in</strong>ue to<br />
learn, develop, and embrace a variety of <strong>in</strong>novative solutions.<br />
<strong>Aon</strong> Hewitt received survey responses from more than 500 employers to<br />
determ<strong>in</strong>e their current and future retirement benefits strategy.<br />
Five key trends emerged for retirement programs <strong>in</strong> <strong>2012</strong>:<br />
1. Employers’ confidence <strong>in</strong> employees’ ability to succeed has dropped.<br />
At the same time, employers are plac<strong>in</strong>g a greater emphasis on help<strong>in</strong>g<br />
participants understand the programs and resources available to help<br />
them meet their goals.<br />
2. Plan sponsors are try<strong>in</strong>g to improve their employees’ results, recogniz<strong>in</strong>g<br />
diversity <strong>in</strong> needs, particularly by o�er<strong>in</strong>g tools and services such as<br />
<strong>in</strong>vestment advisory and <strong>in</strong>come solutions.<br />
3. Organizations are carefully review<strong>in</strong>g funds and fees <strong>in</strong> def<strong>in</strong>ed contribution<br />
plans, and seek<strong>in</strong>g external support to assist them <strong>in</strong> these e�orts.<br />
4. Def<strong>in</strong>ed benefit plan sponsors are focused on manag<strong>in</strong>g f<strong>in</strong>ancial,<br />
compliance, and litigation risks.<br />
5. Employers are decreas<strong>in</strong>g retiree medical subsidies as well as expand<strong>in</strong>g<br />
cost management e�orts.
Enhanced Automation and<br />
Individualized Solutions Viewed as Key<br />
Employers Tak<strong>in</strong>g a More Holistic View<br />
Look<strong>in</strong>g Ahead<br />
As def<strong>in</strong>ed contribution plans now serve as the ma<strong>in</strong> retirement vehicle for<br />
many current and most future employees, automation is a proven solution to<br />
help employees get on the right path to retirement. However, if not implemented<br />
<strong>in</strong> the right way, the long-term costs to employees will be high. When consider<strong>in</strong>g<br />
plan design and automation tactics, plan sponsors’ focus needs to expand to<br />
<strong>in</strong>clude overall retirement read<strong>in</strong>ess. By address<strong>in</strong>g issues such as how to better<br />
<strong>in</strong>clude exist<strong>in</strong>g nonparticipants, how to <strong>in</strong>corporate stronger default elections,<br />
and how to provide better support of the decumulation phase, plan sponsors<br />
will greatly enhance the benefit derived from the plan—by both the employees<br />
and the employer.<br />
Further, we cannot forget about the majority of employees <strong>in</strong> the def<strong>in</strong>ed<br />
contribution system who have not been subject to defaults—non-savers, those<br />
who opted out, or participants who entered the plan prior to automation.<br />
The concept of design<strong>in</strong>g plans <strong>in</strong> a way that e�ectively balances simplicity<br />
with enough depth and diversity is critical to ensure broad employee success.<br />
Automatic enrollment and defaults address these challenges for the “average”<br />
employee. However, we know that <strong>in</strong>dividuals, especially as they near<br />
retirement, are <strong>in</strong>creas<strong>in</strong>gly heterogeneous and require more <strong>in</strong>dividualized<br />
solutions. While improvements have been made, enhancements and additional<br />
tools can help drive <strong>in</strong>dividual success.<br />
Plan sponsors have the opportunity to leverage an <strong>in</strong>creas<strong>in</strong>g array of services<br />
and support to assist them <strong>in</strong> design<strong>in</strong>g, manag<strong>in</strong>g, and communicat<strong>in</strong>g their<br />
retirement plans. A more holistic perspective is a necessity <strong>in</strong> review<strong>in</strong>g<br />
retirement programs by look<strong>in</strong>g at measures such as retirement <strong>in</strong>come<br />
adequacy <strong>in</strong>stead of just participation and sav<strong>in</strong>gs levels. Through this<br />
expanded view, employers can better assess the value of the plan design and<br />
also communicate <strong>in</strong> a way that will resonate with employees.<br />
The retirement system requires cont<strong>in</strong>uous exam<strong>in</strong>ation and <strong>in</strong>novation to<br />
ensure secure retirements for Americans. Many plan sponsors have recently<br />
adjusted their def<strong>in</strong>ed benefit and/or def<strong>in</strong>ed contribution programs, but<br />
this is an ongo<strong>in</strong>g process. <strong>Retirement</strong> program success necessitates the<br />
iterative process of identify<strong>in</strong>g needs, implement<strong>in</strong>g and embrac<strong>in</strong>g<br />
<strong>in</strong>novative solutions, and measur<strong>in</strong>g outcomes—and then mak<strong>in</strong>g logical<br />
adjustments as additional experience is accumulated.<br />
The rema<strong>in</strong>der of this summary reviews the key themes <strong>in</strong> each plan<br />
design area, followed by perspectives on the current state of the retirement<br />
marketplace.<br />
<strong>Aon</strong> Hewitt 5
Broad <strong>Retirement</strong> Picture:<br />
Increas<strong>in</strong>g Focus on<br />
Employee Usage and<br />
Outcomes<br />
6 <strong>Aon</strong> Hewitt<br />
Although employers have taken many steps to enhance and ref<strong>in</strong>e their<br />
retirement plans <strong>in</strong> recent years, there is a grow<strong>in</strong>g uneas<strong>in</strong>ess about their<br />
employees’ retirement read<strong>in</strong>ess. In reaction to this, many employers are<br />
reprioritiz<strong>in</strong>g and tak<strong>in</strong>g steps to reassess plans and features <strong>in</strong> <strong>2012</strong>.<br />
Employer confidence at an all-time low:<br />
4% of respondents are very confident their employees will retire with<br />
su�cient retirement assets, down from 30% <strong>in</strong> 2011<br />
10% of plan sponsors feel very confident that their employees will take<br />
accountability for their own retirement success<br />
18% of employers feel very confident that workers will be able to manage<br />
their <strong>in</strong>come dur<strong>in</strong>g retirement<br />
Employers focused on plan usage, understand<strong>in</strong>g, and outcomes:<br />
60% of sponsors say they are plac<strong>in</strong>g a greater emphasis on help<strong>in</strong>g<br />
employees understand the employer-sponsored resources available<br />
to them<br />
52% of employers are focused on encourag<strong>in</strong>g workers to take greater<br />
accountability for their own retirement success<br />
44% of plan sponsors rate help<strong>in</strong>g employees retire with su�cient assets<br />
as a top priority<br />
Likely design <strong>in</strong>itiatives:<br />
36% of employers are very likely to assess their current retirement plan design<br />
35% of plan sponsors are very likely to review the competitive position of<br />
the plan<br />
32% of plan sponsors are very likely to focus on the f<strong>in</strong>ancial well-be<strong>in</strong>g<br />
of employees
Def<strong>in</strong>ed Contribution<br />
Plans: Increas<strong>in</strong>g<br />
Importance, Focus,<br />
and Innovation<br />
For more than three-quarters of newly hired employees, the def<strong>in</strong>ed<br />
contribution plan is the vehicle available to help them save for retirement.<br />
Look<strong>in</strong>g ahead, employers cont<strong>in</strong>ue to enhance their plan features. In <strong>2012</strong>,<br />
plan sponsors will cont<strong>in</strong>ue to focus on automat<strong>in</strong>g the plan, expand<strong>in</strong>g<br />
sav<strong>in</strong>gs choices by add<strong>in</strong>g Roth, and o�er<strong>in</strong>g participants more resources<br />
like <strong>in</strong>vestment advisory services and retirement <strong>in</strong>come solutions. Plan<br />
sponsors also are focused on fees, driven <strong>in</strong> part by new Department of Labor<br />
fee regulations.<br />
Employers identified many priorities for manag<strong>in</strong>g their def<strong>in</strong>ed contribution<br />
plans, but also felt constra<strong>in</strong>ed about their ability to <strong>in</strong>fluence employee<br />
outcomes.<br />
High priorities among plan sponsors to <strong>in</strong>fluence participant<br />
behavior and outcomes:<br />
56% driv<strong>in</strong>g participation rates<br />
40% <strong>in</strong>creas<strong>in</strong>g sav<strong>in</strong>gs rates<br />
36% improv<strong>in</strong>g diversification of <strong>in</strong>vestments<br />
32% <strong>in</strong>creas<strong>in</strong>g retirement read<strong>in</strong>ess<br />
Employers cont<strong>in</strong>ue to enhance plan features:<br />
39% of plans currently o�er their employees a Roth sav<strong>in</strong>gs option;<br />
29% likely to add <strong>in</strong> <strong>2012</strong><br />
55% of employers automatically enroll employees; most of those<br />
(63%) do so at a sav<strong>in</strong>gs level below the full company match<br />
16% of organizations now o�er an <strong>in</strong>-plan retirement <strong>in</strong>come solution;<br />
22% likely to adopt <strong>in</strong> <strong>2012</strong><br />
Plan sponsors are focused on risk and fund management.<br />
Recent activities <strong>in</strong>clude:<br />
53% hired a third party to monitor or review fund options<br />
36% have lowered costs by chang<strong>in</strong>g some or all funds from mutual<br />
funds to <strong>in</strong>stitutional funds<br />
<strong>Aon</strong> Hewitt 7
Def<strong>in</strong>ed Benefit Plans:<br />
Manag<strong>in</strong>g Risk<br />
8 <strong>Aon</strong> Hewitt<br />
Employers’ slow migration from pension plans toward def<strong>in</strong>ed contribution<br />
plans has persisted, <strong>in</strong> part because of the added risk that comes with pension<br />
plans. Plan sponsors with def<strong>in</strong>ed benefit plans are focus<strong>in</strong>g on manag<strong>in</strong>g<br />
these f<strong>in</strong>ancial, compliance, and litigation risks.<br />
Pension plan sponsors cont<strong>in</strong>ue to assess the appropriateness of their plan<br />
design, but a vast majority of employers plan to make no changes <strong>in</strong> the year<br />
ahead. Risk management rema<strong>in</strong>s a strong theme, with many strategies<br />
planned for <strong>2012</strong>.<br />
Plan sponsors’ slow movement from def<strong>in</strong>ed benefit plans:<br />
23% of employers provide an ongo<strong>in</strong>g def<strong>in</strong>ed benefit plan with benefit<br />
accruals to new employees<br />
59% of employers carry a pension liability<br />
Plan design changes planned for <strong>2012</strong>:<br />
69% of pension plan sponsors are very likely to cont<strong>in</strong>ue their current plan<br />
with no changes <strong>in</strong> <strong>2012</strong><br />
14% of plan sponsors are likely to freeze accruals, and 18% are likely to<br />
close their plan to new entrants<br />
F<strong>in</strong>ancially, plan sponsors have felt the burden of their<br />
pension plans:<br />
86% of plans were underfunded as of January 1, 2011<br />
42% of plans anticipate contribut<strong>in</strong>g more than the IRS required m<strong>in</strong>imum<br />
contribution <strong>in</strong> <strong>2012</strong><br />
Actions and risk management strategies plan sponsors are<br />
very likely to undertake dur<strong>in</strong>g <strong>2012</strong>:<br />
67% to perform fund<strong>in</strong>g and account<strong>in</strong>g projections<br />
32% to assess pension plan risks based on current strategies<br />
31% to review fund<strong>in</strong>g strategy<br />
23% to conduct asset liability study
Retiree Medical Plans:<br />
Reduc<strong>in</strong>g Costs and<br />
Manag<strong>in</strong>g Benefits<br />
As we’ve seen <strong>in</strong> the past several years, retiree medical benefits cont<strong>in</strong>ue<br />
to decl<strong>in</strong>e. Sixty-one percent of respondents provide some type of<br />
postretirement medical coverage to their current or future retirees. Many<br />
of these plans are now focused on provid<strong>in</strong>g benefits only to current retirees<br />
or currently active employees and not to future hires. While 85% of plans<br />
o�er some subsidy to retirees and 98% provide access to retiree medical<br />
coverage, these numbers drop to 23% and 60%, respectively, for future hires.<br />
Retiree medical benefits cont<strong>in</strong>ue to decl<strong>in</strong>e and will cost<br />
retirees more:<br />
23% o�er subsidized uncapped or capped retiree medical coverage to<br />
new hires<br />
78% currently o�er retiree health care benefits are likely to <strong>in</strong>crease<br />
retiree premiums<br />
53% are likely to <strong>in</strong>crease retiree plan design cost-shar<strong>in</strong>g requirements<br />
25% o�er a Health Sav<strong>in</strong>gs Account (HSA)-compatible High Deductible<br />
Health Plan (HDHP) to pre-65 retirees<br />
<strong>Aon</strong> Hewitt 9
10 <strong>Aon</strong> Hewitt<br />
Overview of<br />
<strong>Retirement</strong> Plans<br />
Types of <strong>Retirement</strong> Plans<br />
O�ered to New Employees<br />
For the vast majority of new employees to an organization, the def<strong>in</strong>ed<br />
contribution plan will be o�ered (98%) and will be their primary employerprovided<br />
vehicle to build wealth for the future. Only a few (23%) will f<strong>in</strong>d<br />
an “open” def<strong>in</strong>ed benefit plan, mean<strong>in</strong>g that new employees will be eligible<br />
to accrue pension benefits, and only about one <strong>in</strong> five (23%) o�er subsidized<br />
retiree medical plans to new hires.<br />
Def<strong>in</strong>ed Contribution Plans<br />
Yes<br />
98%<br />
No<br />
2%<br />
(n=501)<br />
Def<strong>in</strong>ed Benefit Plans<br />
Yes<br />
23%<br />
No<br />
77%<br />
(n=501)<br />
Retiree Medical Plans<br />
Yes<br />
23%<br />
No<br />
77%<br />
(n=501)
Def<strong>in</strong>ed Benefit Status —Among Sponsors O�er<strong>in</strong>g<br />
Def<strong>in</strong>ed Benefit Plan Status<br />
(n ranges from 68 to 293)<br />
Def<strong>in</strong>ed benefit sponsorship has cont<strong>in</strong>ued to slowly decl<strong>in</strong>e. While only<br />
23% of employers o�er def<strong>in</strong>ed benefit plans to new hires, 59% of employers<br />
carry a pension liability on their books. Larger employers (with more than<br />
10,000 employees) are far more likely to o�er a def<strong>in</strong>ed benefit plan. Among<br />
def<strong>in</strong>ed benefit plan sponsors, the benefits can be categorized <strong>in</strong>to one of<br />
three statuses—open, closed, or frozen:<br />
39% are open plans provid<strong>in</strong>g benefit accruals to new employees, and larger<br />
plans are more likely to have open plans; this is slightly lower than <strong>in</strong> the<br />
2011 and 2010 surveys (41% and 45%, respectively). Larger employers<br />
were more likely to have open plans, with 47% of employers with 10,000<br />
to 24,999 employees, and 53% of employers with more than<br />
25,000 employees.<br />
36% have been closed to new entrants, allow<strong>in</strong>g some segments of their<br />
employee population to accrue additional benefits but not new hires;<br />
this is a slight <strong>in</strong>crease from last year at 32%.<br />
26% are frozen, where no participants are accru<strong>in</strong>g additional benefits;<br />
this is nearly unchanged from last year’s response of 27%, although<br />
higher than the 24% reported <strong>in</strong> 2010.<br />
Of all def<strong>in</strong>ed benefit plans—open, closed, or frozen—more than three-quarters<br />
of plans (77%) provide benefits based on traditional formulas such as a f<strong>in</strong>al<br />
average pay plan or career average pay plan. The rema<strong>in</strong>der (23%) use hybrid<br />
plan formulas, such as cash balance or pension equity formulas.<br />
(Among Sponsors O�er<strong>in</strong>g) All DB Plans Traditional DB Plans Hybrid DB Plans<br />
Open Plan<br />
Closed Plan<br />
Frozen Plan<br />
39%<br />
36%<br />
26%<br />
35%<br />
37%<br />
28%<br />
53%<br />
31%<br />
16%<br />
<strong>Aon</strong> Hewitt 11
Employer Confidence <strong>in</strong> Program<br />
Management and Prioritization<br />
Confidence Level of Employers <strong>in</strong> E�ectively Manag<strong>in</strong>g Their<br />
<strong>Retirement</strong> Program<br />
Issues and Priorities <strong>in</strong> <strong>2012</strong><br />
<strong>Retirement</strong> Program Issues<br />
Competitive position of the plan<br />
The <strong>in</strong>fluence of employee diversity and<br />
<strong>in</strong>clusion on retirement benefit e�ectiveness<br />
Employees’ understand<strong>in</strong>g and knowledge of<br />
the employer-sponsored resources they have<br />
available<br />
Employees tak<strong>in</strong>g accountability for their<br />
own retirement success<br />
The ag<strong>in</strong>g workforce and the impact<br />
retirements could have on your bus<strong>in</strong>ess <strong>in</strong><br />
the next 5 to 10 years<br />
Policies and procedures that appropriately<br />
<strong>in</strong>fluence the patterns of employee retirements*<br />
Employees retir<strong>in</strong>g with su�cient retirement<br />
assets<br />
Employees’ ability to manage their retirement<br />
<strong>in</strong>come to last for the rest of their lifetime<br />
(n ranges from 413 to 421)<br />
*For example, phased retirement, early retirement subsidies<br />
12 <strong>Aon</strong> Hewitt<br />
The confidence employers have <strong>in</strong> their employees’ ability to retire with<br />
su�cient assets fell o� sharply from 2011 to <strong>2012</strong>. Last year, 30% of employers<br />
felt “very confident” <strong>in</strong> their employees’ ability to retire with adequate <strong>in</strong>come;<br />
however, this year that percentage dropped to only 4%. In addition, <strong>in</strong> <strong>2012</strong><br />
only 18% of employers feel very confident that workers will be able to manage<br />
their <strong>in</strong>come while <strong>in</strong> retirement, and only 10% of employers feel very<br />
confident that their employees take accountability for their own retirement<br />
success, down from 38% last year. Yet, <strong>in</strong> terms of prioritization, more than<br />
half of respondents (52%) felt this was a high priority of the plan. Roughly<br />
four <strong>in</strong> 10 (39%) cont<strong>in</strong>ue to feel very confident <strong>in</strong> the competitive position<br />
of their plan, which is consistent with prior years.<br />
Smaller organizations (with fewer than 1,000 employees) are generally more<br />
confident across nearly all types of retirement program issues.<br />
Very<br />
Confident<br />
1<br />
39%<br />
18%<br />
13%<br />
10%<br />
7%<br />
Confidence Level<br />
Not<br />
Confident<br />
at All<br />
2 3 4 5 6<br />
36% 18%<br />
4%<br />
32% 32% 12%<br />
40% 33% 12%<br />
23% 42% 19%<br />
29% 37% 21%<br />
3%<br />
4%<br />
2%<br />
6%<br />
6%<br />
6% 25% 33% 22% 11%<br />
4% 22% 35% 23% 15%<br />
4% 14% 33% 28% 15%<br />
0%<br />
2%<br />
0%<br />
1%<br />
0%<br />
3%<br />
3%<br />
6%<br />
High<br />
Priority<br />
1<br />
48%<br />
18%<br />
60%<br />
52%<br />
36%<br />
14%<br />
44%<br />
33%<br />
Priority Level<br />
Medium<br />
Priority<br />
2<br />
41%<br />
42%<br />
36%<br />
42%<br />
41%<br />
47%<br />
46%<br />
49%<br />
Low<br />
Priority<br />
3<br />
12%<br />
41%<br />
4%<br />
7%<br />
23%<br />
39%<br />
10%<br />
18%
<strong>Retirement</strong> Plan Initiatives for <strong>2012</strong><br />
Likely Initiatives for <strong>Retirement</strong> Plans <strong>in</strong> <strong>2012</strong><br />
Initiative<br />
Assess your current retirement<br />
program design<br />
Measure the competitive position of the<br />
retirement program<br />
Create or focus on f<strong>in</strong>ancial well-be<strong>in</strong>g<br />
of employees (packag<strong>in</strong>g, resources,<br />
messag<strong>in</strong>g)<br />
Measure/project the expected retirement<br />
<strong>in</strong>come adequacy of your employee<br />
population<br />
Analyze the <strong>in</strong>fluence of your current and<br />
emerg<strong>in</strong>g demographics on retirement<br />
designs, policies, and practices<br />
Look at di�erences <strong>in</strong> retirement<br />
behaviors and outcomes based on race<br />
and ethnicity<br />
Collect data on employee preferences<br />
regard<strong>in</strong>g the retirement program<br />
Evaluate phased retirement alternatives<br />
(n ranges from 415 to 417)<br />
Employers are tak<strong>in</strong>g steps to review their retirement programs <strong>in</strong> <strong>2012</strong>.<br />
More than 60% of respondents state that they are very or somewhat likely to<br />
assess the current retirement program design, and 73% are likely to measure<br />
the competitive position of their retirement programs. One-half (50%) of plan<br />
sponsors are likely to analyze the <strong>in</strong>fluence of their current and emerg<strong>in</strong>g<br />
demographics on retirement designs, policies, and practices while 50%<br />
<strong>in</strong>tend to project employee retirement <strong>in</strong>come adequacy. These results<br />
<strong>in</strong>dicate the cont<strong>in</strong>ued focus and importance of retirement programs <strong>in</strong> <strong>2012</strong>.<br />
Very<br />
Likely<br />
36%<br />
35%<br />
32%<br />
16%<br />
15%<br />
13%<br />
9%<br />
7%<br />
Somewhat<br />
Likely<br />
25%<br />
38%<br />
42%<br />
34%<br />
35%<br />
31%<br />
28%<br />
23%<br />
Somewhat<br />
Unlikely<br />
22%<br />
14%<br />
20%<br />
35%<br />
36%<br />
37%<br />
39%<br />
39%<br />
Very<br />
Unlikely<br />
17%<br />
13%<br />
6%<br />
15%<br />
13%<br />
19%<br />
24%<br />
30%<br />
<strong>Aon</strong> Hewitt 13
14 <strong>Aon</strong> Hewitt<br />
Def<strong>in</strong>ed Contribution<br />
Plans<br />
(n ranges from 366 to 388)<br />
Management and Priority of<br />
Participant Behavior<br />
Def<strong>in</strong>ed contribution plans have experienced dramatic changes <strong>in</strong> recent<br />
years. This stems from the fact that they have taken on greater importance as<br />
a source for retirement <strong>in</strong>come. Employers are look<strong>in</strong>g to improve participant<br />
behavior and f<strong>in</strong>d new ways to deliver value to participants <strong>in</strong> their def<strong>in</strong>ed<br />
contribution plans.<br />
Employers <strong>in</strong>dicated their confidence <strong>in</strong> employees manag<strong>in</strong>g retirement<br />
program issues, as well as the priority level of each behavior from a<br />
management po<strong>in</strong>t of view. Participation rates <strong>in</strong> the def<strong>in</strong>ed contribution<br />
plan are, by far, noted as the most confident area from employees, reported<br />
by 71% of plans (as very or somewhat confident). Sav<strong>in</strong>gs rates, diversification,<br />
and retirement read<strong>in</strong>ess were all noted as a high or medium priority among<br />
employers; and at the same time, plan sponsors were less apt to feel confident<br />
<strong>in</strong> these behaviors, especially on retirement read<strong>in</strong>ess. Leakage out of the plan<br />
was noted as a priority; however, fewer than one-<strong>in</strong>-four employers report that<br />
they are very or somewhat confident <strong>in</strong> their e�ectiveness at manag<strong>in</strong>g their<br />
participants’ behavior on this topic. Smaller employers (with fewer than<br />
1,000 employees) were more confident <strong>in</strong> their management of the bulk of<br />
these behaviors, except for retirement read<strong>in</strong>ess.<br />
Confidence Level of Employers <strong>in</strong> E�ectively Manag<strong>in</strong>g <strong>Retirement</strong> Program Participant Behaviors<br />
and Priority of Each Behavior <strong>in</strong> <strong>2012</strong><br />
<strong>Retirement</strong> Program Participant Behaviors<br />
Participation rates: Eligible employees sav<strong>in</strong>g<br />
<strong>in</strong> the plan<br />
Sav<strong>in</strong>gs rates: Participants contribut<strong>in</strong>g enough<br />
to meet their future retirement needs<br />
Diversification: Participants adequately<br />
diversify<strong>in</strong>g and tak<strong>in</strong>g “appropriate” risk<br />
Leakage: Employees avoid<strong>in</strong>g tak<strong>in</strong>g loans<br />
and withdrawals from the plan<br />
<strong>Retirement</strong> read<strong>in</strong>ess: Participants are focused<br />
on sav<strong>in</strong>g milestones or have a plan to reach their<br />
retirement sav<strong>in</strong>gs goals<br />
Distributions: Term<strong>in</strong>ated employees mak<strong>in</strong>g<br />
smart choices about what to do with their def<strong>in</strong>ed<br />
contribution balances<br />
Very<br />
Confident<br />
1<br />
38%<br />
12%<br />
12%<br />
Confidence Level<br />
2 3 4 5<br />
33% 20%<br />
6%<br />
25% 38% 17%<br />
32% 36% 15%<br />
2%<br />
5%<br />
5%<br />
7% 18% 30% 26% 15%<br />
6% 19% 33% 28% 12%<br />
2% 16% 34% 26% 15%<br />
Not<br />
Confident<br />
at All<br />
6<br />
1%<br />
3%<br />
1%<br />
3%<br />
3%<br />
8%<br />
High<br />
Priority<br />
1<br />
56%<br />
40%<br />
36%<br />
14%<br />
32%<br />
8%<br />
Priority Level<br />
Medium<br />
Priority<br />
2<br />
36%<br />
48%<br />
52%<br />
42%<br />
50%<br />
38%<br />
Low<br />
Priority<br />
3<br />
9%<br />
12%<br />
12%<br />
44%<br />
19%<br />
54%
Employers understand the importance of def<strong>in</strong>ed contribution plans to their<br />
employees’ futures. Seventy percent of organizations recommend that the<br />
average U.S. worker should contribute at least 9% of his or her <strong>in</strong>come <strong>in</strong>to an<br />
available def<strong>in</strong>ed contribution plan. While this strong sentiment acknowledges<br />
the <strong>in</strong>creas<strong>in</strong>gly large importance of def<strong>in</strong>ed contribution plans, it is not<br />
consistent with the current sav<strong>in</strong>gs rate by most active employees. Additionally,<br />
there’s a notable gap between where employers suggest a participant should<br />
save versus the rate at which plan sponsors default many new hires <strong>in</strong>to the<br />
def<strong>in</strong>ed contribution plan under automatic enrollment.<br />
Recommended Sav<strong>in</strong>gs Rate<br />
40%<br />
35%<br />
30%<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
(n=394)<br />
2%<br />
12%<br />
16%<br />
38%<br />
11%<br />
3%<br />
12%<br />
3%-4% 5%-6% 7%-8% 9%-10% 11%-12% 13%-14% 15% >15%<br />
Sav<strong>in</strong>gs Rate<br />
6%<br />
<strong>Aon</strong> Hewitt 15
16 <strong>Aon</strong> Hewitt<br />
Automatic Enrollment<br />
Automatic enrollment has been one of the hottest retirement trends <strong>in</strong> the<br />
past few years with the percentage of plans us<strong>in</strong>g the feature grow<strong>in</strong>g<br />
from 24% <strong>in</strong> 2006 to 55% <strong>in</strong> 2011. While the rate of <strong>in</strong>crease <strong>in</strong> automatic<br />
enrollment is slow<strong>in</strong>g, there cont<strong>in</strong>ues to be <strong>in</strong>terest <strong>in</strong> add<strong>in</strong>g the feature<br />
among employers that do not currently employ it; 33% said they are<br />
somewhat or very likely to add automatic enrollment to new hires <strong>in</strong> <strong>2012</strong>.<br />
Automatic Enrollment for New Hires—Usage and Plans for <strong>2012</strong><br />
Current State<br />
Already have<br />
55%<br />
Don’t have<br />
45%<br />
(n=430)<br />
Future Direction<br />
Very likely 14%<br />
Somewhat likely 19%<br />
Somewhat unlikely 23%<br />
Very unlikely 43%<br />
Respondents with either a closed or frozen def<strong>in</strong>ed benefit plan cont<strong>in</strong>ue to<br />
be significantly more likely to leverage automatic enrollment. Fifty-seven percent<br />
of employers that o�er both a def<strong>in</strong>ed contribution and def<strong>in</strong>ed benefit<br />
plan use automatic enrollment versus 40% of employers that only provide a<br />
def<strong>in</strong>ed contribution plan. Automation appears to be a tool used to help<br />
o�set the impact of a decrease <strong>in</strong> def<strong>in</strong>ed benefit plan value.<br />
The concept of also default<strong>in</strong>g exist<strong>in</strong>g nonparticipants has become <strong>in</strong>creas<strong>in</strong>gly<br />
scrut<strong>in</strong>ized with strong success seen among new hires. However, the<br />
popularity of “backsweep<strong>in</strong>g” rema<strong>in</strong>s low with only 18% of plans (that used<br />
this approach) enroll<strong>in</strong>g nonparticipants <strong>in</strong> addition to new hires, by default<strong>in</strong>g<br />
either one time or periodically. Further, only 19% claimed to be somewhat or<br />
very likely to do so <strong>in</strong> <strong>2012</strong>.<br />
Similar to previous surveys, respondents with either a closed or frozen def<strong>in</strong>ed<br />
benefit plan cont<strong>in</strong>ue to be significantly more likely to have def<strong>in</strong>ed contribution<br />
plans with automatic enrollment (65%) than respondents with an open<br />
pension plan or no pension plan (44%). Automation appears to be a tool used<br />
to help o�set the impact of a decrease <strong>in</strong> def<strong>in</strong>ed benefit plan value.
Initial Contribution Rate Default Under Automatic Enrollment<br />
Nearly two-thirds of plan sponsors (63%) acknowledge that the <strong>in</strong>itial default<br />
contribution rate under automatic enrollment is below the employer match<strong>in</strong>g<br />
threshold. The most common match level is 3%. As participant behavior and<br />
default bias have shown, this results <strong>in</strong> many defaulted employees miss<strong>in</strong>g out<br />
on some of these match<strong>in</strong>g dollars.<br />
Initial Contribution Rate Default Under Automatic Enrollment<br />
Above full match<br />
4%<br />
Equal to full match<br />
33%<br />
Below full match<br />
63%<br />
(n=215)<br />
60%<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
0%<br />
(n=233)<br />
6%<br />
10%<br />
50%<br />
10%<br />
1% 2% 3% 4%<br />
Default Sav<strong>in</strong>gs Rate<br />
10% 10%<br />
5% 6%<br />
Nearly one-quarter of employers (24%) with automatic enrollment<br />
acknowledge that they willl make modifications to the automatic enrollment<br />
feature’s implementation dur<strong>in</strong>g <strong>2012</strong>. Among companies that plan on<br />
chang<strong>in</strong>g their automatic enrollment design, the most common modifications<br />
are apply<strong>in</strong>g automatic enrollment to exist<strong>in</strong>g nonparticipants (33%),<br />
embedd<strong>in</strong>g contribution escalation <strong>in</strong> the default (33%), and <strong>in</strong>creas<strong>in</strong>g the<br />
<strong>in</strong>itial default contribution (32%).<br />
3%<br />
>7%<br />
<strong>Aon</strong> Hewitt 17
18 <strong>Aon</strong> Hewitt<br />
Changes Planned With Respect to Automatic Enrollment <strong>in</strong> <strong>2012</strong><br />
Changes Planned<br />
Apply automatic enrollment to exist<strong>in</strong>g<br />
nonparticipants (i.e., backsweep either<br />
one time or periodically)<br />
Add contribution escalation as default<br />
Increase <strong>in</strong>itial default contribution rate<br />
If already utiliz<strong>in</strong>g contribution escalation,<br />
escalate participants to a higher target<br />
sav<strong>in</strong>gs rate<br />
Apply automatic enrollment to<br />
additional classifications of employees<br />
(e.g., union employees or additional<br />
bus<strong>in</strong>ess units)<br />
(n=54; multiple responses)<br />
Percentage of Plans<br />
33%<br />
33%<br />
32%<br />
24%<br />
22%<br />
Across employers that are not currently leverag<strong>in</strong>g the automatic enrollment<br />
feature, the largest barrier reported <strong>in</strong>cluded concern about employees’<br />
reaction to have deductions automatically taken from their paycheck (51%).<br />
Other commonly cited di�culties were the cost of the employer match (37%)<br />
and concern over the appropriateness of implement<strong>in</strong>g automatic enrollment<br />
<strong>in</strong> the current economic environment (35%).<br />
Barriers to Implement<strong>in</strong>g Automatic Enrollment <strong>in</strong> <strong>2012</strong><br />
Barriers<br />
Concern about employee reaction to pay<br />
deductions<br />
Cost of employer match<br />
Concern over appropriateness <strong>in</strong> current<br />
economic environment<br />
Preference for active enrollment with<strong>in</strong><br />
the plan<br />
Cost/burden of adm<strong>in</strong>ister<strong>in</strong>g an <strong>in</strong>creased<br />
number of small balances<br />
Concern over fiduciary exposure<br />
(n=258; multiple responses)<br />
Percentage of Plans<br />
51%<br />
37%<br />
35%<br />
23%<br />
15%<br />
15%
Contribution Escalation Gett<strong>in</strong>g <strong>in</strong>dividuals to save more can have a significant impact on employees’<br />
ability to accumulate su�cient retirement assets. Contribution escalation has<br />
proven a robust tool that positively impacts sav<strong>in</strong>gs rates gradually<br />
over time.<br />
A significant number of employers (40%) also now utilize contribution<br />
escalation overall, although this trend is much stronger among larger plans,<br />
as 54% of plans with more than 25,000 employees leverage automatic<br />
escalation. Approximately one-third (31%) of all employers that currently<br />
do not o�er this to employees are very or somewhat likely to add the<br />
feature <strong>in</strong> <strong>2012</strong>.<br />
Contribution Escalation—Usage and Plans for <strong>2012</strong><br />
Current State<br />
Already have<br />
40%<br />
Don’t have<br />
60%<br />
(n=430)<br />
Future Direction<br />
Very likely 8%<br />
Somewhat likely 23%<br />
Somewhat unlikely 26%<br />
Very unlikely 44%<br />
Forty-six percent of plans employ<strong>in</strong>g automatic enrollment also default<br />
employees <strong>in</strong>to contribution escalation. When embedded with<strong>in</strong> automatic<br />
enrollment, plan sponsors must select not only the <strong>in</strong>itial default sav<strong>in</strong>gs rate,<br />
but also the rate of escalation and the threshold or stopp<strong>in</strong>g po<strong>in</strong>t for the<br />
escalation. Nearly all plans (97%) with contribution escalation <strong>in</strong>crease<br />
employee deferrals by 1% annually. In terms of the escalation threshold, 45%<br />
of respondents <strong>in</strong>dicated they escalate up to 6% of pay, while 42% escalate<br />
to 10% or beyond.<br />
<strong>Aon</strong> Hewitt 19
20 <strong>Aon</strong> Hewitt<br />
Contribution Escalation Threshold Under Automatic Enrollment<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
0%<br />
(n=96)<br />
Across plans that currently use automatic enrollment but have not yet also<br />
embedded contribution escalation, the barriers reported are similar to those<br />
that have implemented automatic enrollment. Sixty-three percent of plan<br />
sponsors cite their concern over employee reactions and dissatisfaction as an<br />
impediment, while 50% <strong>in</strong>dicate concern over its appropriateness <strong>in</strong> the<br />
current economic environment.<br />
Barriers<br />
Concern over employee reaction/dissatisfaction<br />
Concern over appropriateness <strong>in</strong> current<br />
economic environment<br />
Preference for active contribution rate change<br />
with<strong>in</strong> the plan<br />
Concern over fiduciary exposure<br />
Default rate under automatic enrollment is<br />
already substantial<br />
Cost of employer match/expense<br />
Other<br />
4%<br />
4% or less 5% 6% 7%-9%<br />
Barriers to Embedd<strong>in</strong>g Contribution Escalation Into Automatic Enrollment<br />
(n=64; multiple responses)<br />
6%<br />
45%<br />
3%<br />
Escalation Threshold<br />
24%<br />
10% >11%<br />
Percentage of Plans<br />
63%<br />
50%<br />
22%<br />
20%<br />
16%<br />
14%<br />
11%<br />
18%
Roth<br />
Most f<strong>in</strong>ancial experts agree that a Roth sav<strong>in</strong>gs feature can provide a<br />
significant benefit to a variety of savers—from highly paid employees to<br />
lower-<strong>in</strong>come workers. Roth contributions were <strong>in</strong>troduced beg<strong>in</strong>n<strong>in</strong>g<br />
January 1, 2006. At that time, plan sponsors were reluctant to implement<br />
the feature given the <strong>in</strong>fancy of the option as well as its possible expiration<br />
<strong>in</strong> 2011. However, the Pension Protection Act of 2006 (PPA) established<br />
the Roth feature as a viable long-term sav<strong>in</strong>gs option <strong>in</strong> qualified plans<br />
(<strong>in</strong>clud<strong>in</strong>g 401(k) and 403(b) plans) by remov<strong>in</strong>g the sunset provision.<br />
Further, 457(b) plans were added to the list of plan types eligible to implement<br />
Roth as part of the Small Bus<strong>in</strong>ess Jobs Act, e�ective January 1, 2011. While<br />
Roth is a relatively new feature for most plans, to date, participant usage<br />
has been significant, especially among newly enrolled employees.<br />
Roth adoption has grown significantly <strong>in</strong> recent years, with today nearly<br />
40% of plans o�er<strong>in</strong>g Roth, up five percentage po<strong>in</strong>ts from 2011. Additionally,<br />
of those employers that do not yet o�er Roth, <strong>in</strong>terest is also up, with 29%<br />
stat<strong>in</strong>g that they are somewhat or very likely to add the feature dur<strong>in</strong>g <strong>2012</strong>.<br />
Roth Usage and Plans for <strong>2012</strong><br />
Current State<br />
Already have<br />
39%<br />
Don’t have<br />
61%<br />
(n=429)<br />
Future Direction<br />
Very likely 8%<br />
Somewhat likely 21%<br />
Somewhat unlikely 27%<br />
Very unlikely 45%<br />
While the barriers to add<strong>in</strong>g a Roth have decreased, among employers that<br />
have not yet adopted, 40% of sponsors said that it must be clear that general<br />
Roth participant usage will be significant enough to justify add<strong>in</strong>g it to the<br />
plan, and 30% of employers cited adm<strong>in</strong>istrative complexity and/or the cost<br />
of o�er<strong>in</strong>g a Roth as barriers.<br />
<strong>Aon</strong> Hewitt 21
22 <strong>Aon</strong> Hewitt<br />
Requirements Needed to O�er Roth<br />
Requirements<br />
It must be clear that general Roth participant<br />
usage will be significant enough to justify<br />
add<strong>in</strong>g it to the plan<br />
Noth<strong>in</strong>g—not <strong>in</strong>terested <strong>in</strong> o�er<strong>in</strong>g a Roth at<br />
this time<br />
The adm<strong>in</strong>istrative complexity and/or cost of<br />
o�er<strong>in</strong>g a Roth must be reduced<br />
Employees must ask for it<br />
There must be access to better tools and<br />
resources to e�ectively manage the complexity<br />
of Roth communication<br />
Interested <strong>in</strong> o�er<strong>in</strong>g a Roth <strong>in</strong> the future,<br />
but it is not a priority <strong>in</strong> <strong>2012</strong><br />
Other<br />
(n=159; multiple responses)<br />
Percentage of Plans<br />
40%<br />
40%<br />
30%<br />
25%<br />
23%<br />
18%<br />
New rules now allow the conversion from a qualified plan or a traditional IRA<br />
to a Roth IRA without any <strong>in</strong>come limits. Nearly half of employers (48%) with<br />
the Roth feature allow for <strong>in</strong>-plan rollovers or conversions of before-tax and<br />
after-tax balances <strong>in</strong>to the Roth account.<br />
In-Plan Rollovers/Conversions of Roth Contributions<br />
Plans to adopt <strong>in</strong> the next year<br />
10%<br />
No plans to adopt<br />
42%<br />
Adopted<br />
48%<br />
(n=156)<br />
4%
Employer Match<strong>in</strong>g Contributions<br />
Investment Advisory Solutions<br />
and Features<br />
Employer match<strong>in</strong>g contributions have been top of m<strong>in</strong>d amid the economic<br />
downturn, as some employers reported temporary suspensions or reductions<br />
<strong>in</strong> their match<strong>in</strong>g contributions. Twenty-six percent of plans surveyed either<br />
suspended or reduced company match<strong>in</strong>g contributions <strong>in</strong> the past few<br />
years. The good news for many employees is that these changes appear to<br />
have been temporary. Of those employers that reduced or suspended the<br />
match, only 15% reported that they have no plans to re<strong>in</strong>state the match.<br />
The rema<strong>in</strong>der have either already re<strong>in</strong>stated the match (74%) or will do so<br />
<strong>in</strong> <strong>2012</strong> (8%).<br />
Company Match<strong>in</strong>g Contribution Changes <strong>in</strong> the Past Few Years<br />
Changes Made<br />
Company match<strong>in</strong>g contribution has not<br />
changed and is not likely to<br />
Company match<strong>in</strong>g contribution was<br />
suspended previously<br />
Company match<strong>in</strong>g contribution was<br />
reduced previously<br />
Company match<strong>in</strong>g contribution is not<br />
suspended, but we are likely to <strong>in</strong> <strong>2012</strong><br />
Other<br />
(n=364; multiple responses)<br />
Percentage of Plans<br />
74%<br />
17%<br />
11%<br />
Most employers now have features <strong>in</strong> their def<strong>in</strong>ed contribution plans to<br />
help participants select appropriate <strong>in</strong>vestments. The vast majority (79%)<br />
now o�er target-date portfolios to simplify participants’ <strong>in</strong>vestment decision<br />
mak<strong>in</strong>g. Additionally, 59% of plans now o�er onl<strong>in</strong>e <strong>in</strong>vestment guidance,<br />
and nearly 40% o�er onl<strong>in</strong>e <strong>in</strong>vestment advice and/or managed accounts.<br />
In <strong>2012</strong>, the prevalence of <strong>in</strong>vestment advisory solutions is expected to<br />
expand, with more plan sponsors acknowledg<strong>in</strong>g the value of multiple<br />
solutions to meet the varied needs of employees. Among plans that do not<br />
currently provide onl<strong>in</strong>e <strong>in</strong>vestment guidance, 37% of respondents are very<br />
or somewhat likely to o�er it, while 26% are likely to adopt onl<strong>in</strong>e advice <strong>in</strong><br />
<strong>2012</strong>. Additionally, 24% (of those not o�er<strong>in</strong>g) noted that they were very<br />
or somewhat likely to add managed accounts dur<strong>in</strong>g <strong>2012</strong>.<br />
1%<br />
1%<br />
<strong>Aon</strong> Hewitt 23
Features to Help With Investment Selection O�er<strong>in</strong>gs—Usage and Plans for <strong>2012</strong><br />
Already<br />
O�er<br />
79%<br />
59%<br />
39%<br />
39%<br />
39%<br />
38%<br />
24%<br />
(n ranges from 267 to 412)<br />
24 <strong>Aon</strong> Hewitt<br />
Investment Selection O�er<strong>in</strong>gs<br />
Target-date/lifecycle funds<br />
(e.g., 2015, 2020)<br />
Onl<strong>in</strong>e <strong>in</strong>vestment guidance<br />
(<strong>in</strong>vestment suggestions based<br />
on asset classes only)<br />
Target-risk/lifestyle funds<br />
(e.g., conservative)<br />
Onl<strong>in</strong>e third-party <strong>in</strong>vestment<br />
advisory services<br />
Phone access to third-party<br />
<strong>in</strong>vestment advisory services<br />
(<strong>in</strong>dividual sessions with advisor)<br />
Managed accounts<br />
In-person, third-party <strong>in</strong>vestment<br />
advisory services<br />
How Likely to O�er <strong>in</strong> <strong>2012</strong><br />
(Among Those Plans That Do Not Currently O�er)<br />
Very<br />
Likely<br />
12%<br />
14%<br />
3%<br />
8%<br />
8%<br />
10%<br />
5%<br />
Somewhat<br />
Likely<br />
17%<br />
23%<br />
13%<br />
18%<br />
18%<br />
14%<br />
18%<br />
Somewhat<br />
Unlikely<br />
13%<br />
27%<br />
23%<br />
27%<br />
27%<br />
28%<br />
27%<br />
Very<br />
Unlikely<br />
58%<br />
37%<br />
61%<br />
47%<br />
47%<br />
48%<br />
50%<br />
Among employers o�er<strong>in</strong>g target-date portfolio solutions, many sponsors<br />
are plann<strong>in</strong>g to take action dur<strong>in</strong>g <strong>2012</strong>, likely <strong>in</strong> response to the <strong>in</strong>creas<strong>in</strong>g<br />
importance of these products <strong>in</strong> def<strong>in</strong>ed contribution plans today. Sixty<br />
percent of employers report that they are very or somewhat likely to perform<br />
a comprehensive review of their fund manager, and 53% will perform a<br />
comprehensive review of the fund glide path.<br />
Currently, 15% of employers use a customized solution for their target-date<br />
funds, and 7% are very or somewhat likely to take this step <strong>in</strong> <strong>2012</strong>. These<br />
results are not surpris<strong>in</strong>g, given an <strong>in</strong>creas<strong>in</strong>g focus on fees and the<br />
consequence of creat<strong>in</strong>g robust solutions for employees.
Current and Future Actions on Target-Date Portfolios<br />
Completed<br />
Recently/<br />
Not Needed Actions<br />
37%<br />
33%<br />
18%<br />
22%<br />
15%<br />
(n ranges from 185 to 295)<br />
Perform a comprehensive review of<br />
the fund manager<br />
Perform a comprehensive review of<br />
the fund glide path<br />
Change fund managers<br />
Move from a primarily active to a<br />
primarily passive target-date fund<br />
approach<br />
Move to a customized solution for<br />
target-date funds (glide path and/<br />
or underly<strong>in</strong>g <strong>in</strong>vestments)<br />
<strong>Retirement</strong> Income<br />
Solutions/Annuities<br />
Likelihood of Action <strong>in</strong> <strong>2012</strong><br />
(Among Plans That Have Not Completed Recently)<br />
Very<br />
Likely<br />
24%<br />
17%<br />
4%<br />
1%<br />
1%<br />
Somewhat<br />
Likely<br />
36%<br />
36%<br />
9%<br />
6%<br />
6%<br />
Somewhat<br />
Unlikely<br />
20%<br />
25%<br />
28%<br />
33%<br />
25%<br />
Very<br />
Unlikely<br />
21%<br />
23%<br />
60%<br />
60%<br />
68%<br />
As employees <strong>in</strong>creas<strong>in</strong>gly depend on the def<strong>in</strong>ed contribution plan to fund<br />
their future retirement <strong>in</strong>come, the annuity gap left by def<strong>in</strong>ed benefit plans<br />
has become a larger focus. To meet this need, over the past few years <strong>in</strong>surance<br />
companies have <strong>in</strong>troduced <strong>in</strong>novative and varied retirement <strong>in</strong>come solutions<br />
for the def<strong>in</strong>ed contribution <strong>in</strong>dustry that reside outside the plan, with<strong>in</strong> the<br />
plan, or alongside the plan. Most plan sponsors cont<strong>in</strong>ue to monitor these<br />
activities, while some are adopt<strong>in</strong>g <strong>in</strong> <strong>2012</strong>.<br />
Currently, 16% of plans o�er an “<strong>in</strong>-plan” solution, <strong>in</strong>clud<strong>in</strong>g either an <strong>in</strong>surance<br />
product, a managed account with a drawdown feature, or a managed payout<br />
fund. Additionally, among those plans not o�er<strong>in</strong>g, 22% plan to adopt one of<br />
these solutions dur<strong>in</strong>g <strong>2012</strong>. The most popular solution reported is managed<br />
accounts with a drawdown feature.<br />
Whether or not organizations o�er an <strong>in</strong>-plan retirement <strong>in</strong>come solution<br />
option, most are try<strong>in</strong>g to help employees understand what they can spend<br />
each year <strong>in</strong> retirement. Seventy-one percent of plans provide onl<strong>in</strong>e<br />
model<strong>in</strong>g tools for that purpose, and of those that do not provide model<strong>in</strong>g<br />
tools today, 64% are very or somewhat likely to add these tools <strong>in</strong> the com<strong>in</strong>g<br />
year. Further, 42% of plans allow participants to elect an automatic payment<br />
option from the plan over an extended period of time.<br />
<strong>Aon</strong> Hewitt 25
<strong>Retirement</strong> Income Solutions/Annuities—Usage and Plans for <strong>2012</strong><br />
Already<br />
O�er <strong>Retirement</strong> Income Solutions<br />
71%<br />
42%<br />
11%<br />
10%<br />
10%<br />
9%<br />
6%<br />
(n ranges from 271 to 419)<br />
26 <strong>Aon</strong> Hewitt<br />
Onl<strong>in</strong>e model<strong>in</strong>g tools to help<br />
participants determ<strong>in</strong>e how much they<br />
can spend each year <strong>in</strong> retirement<br />
Distributions from plan/automatic<br />
payment (participant elects an automatic<br />
payment from the plan over an extended<br />
period of time)<br />
With<strong>in</strong> the plan; annuity or <strong>in</strong>surance<br />
products (e.g., variable annuity features,<br />
guaranteed m<strong>in</strong>imum withdrawal<br />
benefits, preservation of pr<strong>in</strong>cipal,<br />
m<strong>in</strong>imum annuity payout, other)<br />
With<strong>in</strong> the plan; managed accounts with<br />
drawdown feature (managed account<br />
provider allocates participant assets as well<br />
as manages the amount paid each year from<br />
the plan)<br />
With<strong>in</strong> the plan; managed payout funds<br />
(funds with an allocation targeted at a<br />
specific payout percentage each year with<br />
no guarantees)<br />
Facilitation of annuities outside the plan<br />
as options for plan distributions<br />
Ability to transfer assets to a def<strong>in</strong>ed<br />
benefit plan <strong>in</strong> order to receive an<br />
annuity<br />
Likely to O�er <strong>in</strong> <strong>2012</strong><br />
(Among Those Plans That Do Not Currently O�er)<br />
Very<br />
Likely<br />
32%<br />
6%<br />
3%<br />
5%<br />
3%<br />
5%<br />
0%<br />
Somewhat<br />
Likely<br />
32%<br />
18%<br />
13%<br />
14%<br />
14%<br />
10%<br />
4%<br />
Somewhat<br />
Unlikely<br />
14%<br />
36%<br />
33%<br />
35%<br />
36%<br />
32%<br />
14%<br />
Very<br />
Unlikely<br />
23%<br />
40%<br />
51%<br />
46%<br />
46%<br />
54%<br />
83%<br />
Among employers that are unlikely to o�er participants an <strong>in</strong>-plan retirement<br />
<strong>in</strong>come solution <strong>in</strong> <strong>2012</strong>, the barriers reported most often were fiduciary,<br />
operational/adm<strong>in</strong>istrative, or participant utilization and communication<br />
concerns. Many plans sponsors (40%) <strong>in</strong>dicated they are wait<strong>in</strong>g to see how<br />
the market evolves, while 57% acknowledge no <strong>in</strong>terest<br />
at this time.
Barriers to Add<strong>in</strong>g <strong>Retirement</strong> Income Solutions/Annuities<br />
Barriers<br />
Not <strong>in</strong>terested <strong>in</strong> o�er<strong>in</strong>g <strong>in</strong>surance products<br />
at this time<br />
Fiduciary concerns<br />
Wait<strong>in</strong>g to see the market evolve more<br />
Participant utilization or communication<br />
concerns<br />
Operational or adm<strong>in</strong>istrative concerns<br />
Portability concerns<br />
Cost barriers<br />
Preference for participants to leave the plan<br />
at term<strong>in</strong>ation<br />
Other<br />
(n=308; multiple responses)<br />
Percentage of Plans<br />
Investment Fund O�er<strong>in</strong>gs Plan sponsor scrut<strong>in</strong>y of def<strong>in</strong>ed contribution fund operations and <strong>in</strong>vestments<br />
is a cont<strong>in</strong>ued priority <strong>in</strong> <strong>2012</strong>. It is likely that regulatory disclosure<br />
requirements and broad <strong>in</strong>dustry focus are contribut<strong>in</strong>g to this <strong>in</strong>terest.<br />
One-third of respondents state that they have completed an <strong>in</strong>-depth review<br />
of operations recently. Out of the rema<strong>in</strong><strong>in</strong>g two-thirds who have not, nearly<br />
n<strong>in</strong>e out of ten (89%) state that they are very or somewhat likely to do so<br />
<strong>in</strong> <strong>2012</strong>.<br />
57%<br />
43%<br />
40%<br />
39%<br />
33%<br />
18%<br />
18%<br />
Employers are also likely to perform a comprehensive review of the fund<br />
o�er<strong>in</strong>gs. Forty percent of employers have completed this exercise recently,<br />
and 85% of the rema<strong>in</strong><strong>in</strong>g respondents <strong>in</strong>dicated that they will do so<br />
this year.Cost-cutt<strong>in</strong>g is also <strong>in</strong>creas<strong>in</strong>gly top of m<strong>in</strong>d with employers.<br />
Recently, one-third of all employers have changed or altered their fund<br />
options to reduce the cost, while nearly half of the rema<strong>in</strong><strong>in</strong>g plan sponsors<br />
<strong>in</strong>tend to do so <strong>in</strong> the next 12 months.<br />
F<strong>in</strong>ally, o�er<strong>in</strong>g participants even more choice is planned for the com<strong>in</strong>g year.<br />
More employers have added funds for <strong>in</strong>flation protection, and many have<br />
added (or plan to add) a tier of <strong>in</strong>dex funds to the design (typically mean<strong>in</strong>g<br />
the addition of at least a bond, large-cap equity, small-/mid-cap equity, and<br />
<strong>in</strong>ternational equity <strong>in</strong>dex options).<br />
9%<br />
3%<br />
<strong>Aon</strong> Hewitt 27
Likely Actions on Investment Fund O�er<strong>in</strong>gs <strong>in</strong> <strong>2012</strong><br />
Completed<br />
Recently/<br />
Not Needed Actions Related to Funds<br />
40%<br />
38%<br />
33%<br />
33%<br />
31%<br />
30%<br />
27%<br />
25%<br />
24%<br />
9%<br />
(n ranges from 328 to 366)<br />
28 <strong>Aon</strong> Hewitt<br />
Perform a comprehensive review<br />
of fund o�er<strong>in</strong>gs<br />
Update <strong>in</strong>vestment policy statement<br />
Review def<strong>in</strong>ed contribution fund<br />
operations, <strong>in</strong>clud<strong>in</strong>g fund expenses<br />
and revenue shar<strong>in</strong>g<br />
Change/alter fund options to<br />
reduce costs of funds<br />
Implement a self-directed<br />
brokerage w<strong>in</strong>dow<br />
Add a money market fund<br />
Change some or all funds from<br />
actively managed to <strong>in</strong>dex funds<br />
Add a tier of <strong>in</strong>dex options<br />
Add funds designed for <strong>in</strong>flation<br />
protection<br />
Remove stable value fund<br />
Likely to O�er <strong>in</strong> <strong>2012</strong><br />
(Among Those Plans That Do Not Currently O�er)<br />
Very<br />
Likely<br />
59%<br />
31%<br />
61%<br />
18%<br />
3%<br />
2%<br />
5%<br />
4%<br />
3%<br />
1%<br />
Somewhat<br />
Likely<br />
26%<br />
33%<br />
28%<br />
32%<br />
5%<br />
5%<br />
16%<br />
14%<br />
18%<br />
4%<br />
Somewhat<br />
Unlikely<br />
9%<br />
20%<br />
7%<br />
34%<br />
20%<br />
24%<br />
35%<br />
38%<br />
37%<br />
21%<br />
Very<br />
Unlikely<br />
7%<br />
16%<br />
5%<br />
17%<br />
73%<br />
69%<br />
44%<br />
44%<br />
42%<br />
73%
Communication Initiatives Many employers use communication <strong>in</strong>itiatives to educate and <strong>in</strong>fluence<br />
behavior <strong>in</strong> the def<strong>in</strong>ed contribution plans. Among the more popular undertak<strong>in</strong>gs<br />
that employers are focus<strong>in</strong>g on <strong>in</strong> <strong>2012</strong> are a general understand<strong>in</strong>g<br />
and appreciation of the plan, plan participation, and contribution levels, as<br />
well as retirement <strong>in</strong>come adequacy.<br />
Likely Def<strong>in</strong>ed Contribution Communication Initiatives <strong>in</strong> <strong>2012</strong><br />
Initiatives<br />
General understand<strong>in</strong>g and appreciation<br />
of plan<br />
Plan and/or fund expenses<br />
Plan participation<br />
Participant contribution levels<br />
Diversification/fund usage<br />
<strong>Retirement</strong> <strong>in</strong>come adequacy<br />
Availability of resources to help with<br />
retirement plann<strong>in</strong>g<br />
<strong>Retirement</strong> <strong>in</strong>come estimates and<br />
retirement process<br />
Def<strong>in</strong>ed contribution decision mak<strong>in</strong>g<br />
with<strong>in</strong> a broader f<strong>in</strong>ancial or total<br />
benefits context<br />
Broader f<strong>in</strong>ancial education<br />
Encourage new hires to roll 401(k) from<br />
previous employer <strong>in</strong>to your plan<br />
Roll<strong>in</strong>g over versus cash<strong>in</strong>g out of plan<br />
Loan-tak<strong>in</strong>g or <strong>in</strong>-service withdrawals<br />
(n ranges from 362 to 369)<br />
Of course, fees (plan and/or fund expenses) are also a focus for the<br />
com<strong>in</strong>g year with nearly half of sponsors list<strong>in</strong>g this as a likely communication<br />
<strong>in</strong>itiative, compared with only 39% of sponsors <strong>in</strong> 2011. This is at least<br />
partly attributable to regulatory requirements. Availability of resources that<br />
participants can access is also a large focus for <strong>2012</strong> (78%), as many sponsors<br />
have enhanced their plans <strong>in</strong> recent years.<br />
Very<br />
Likely<br />
56%<br />
49%<br />
44%<br />
41%<br />
40%<br />
40%<br />
40%<br />
28%<br />
27%<br />
20%<br />
14%<br />
13%<br />
10%<br />
Somewhat<br />
Likely<br />
33%<br />
31%<br />
36%<br />
37%<br />
40%<br />
40%<br />
38%<br />
39%<br />
42%<br />
33%<br />
25%<br />
35%<br />
25%<br />
Somewhat<br />
Unlikely<br />
9%<br />
15%<br />
15%<br />
17%<br />
17%<br />
16%<br />
16%<br />
26%<br />
23%<br />
33%<br />
41%<br />
38%<br />
42%<br />
Very<br />
Unlikely<br />
3%<br />
5%<br />
6%<br />
5%<br />
2%<br />
4%<br />
6%<br />
7%<br />
8%<br />
14%<br />
20%<br />
14%<br />
23%<br />
<strong>Aon</strong> Hewitt 29
Communication and Education Vehicles<br />
Initiatives<br />
Onl<strong>in</strong>e model<strong>in</strong>g tools<br />
Articles posted to an <strong>in</strong>tranet<br />
or benefits site<br />
Email correspondence<br />
Targeted mail<strong>in</strong>gs<br />
(based on employee behaviors)<br />
In-person f<strong>in</strong>ancial sem<strong>in</strong>ars<br />
Features articles <strong>in</strong> <strong>in</strong>ternal newsletters<br />
Web<strong>in</strong>ars<br />
F<strong>in</strong>ancial plann<strong>in</strong>g sessions with<br />
<strong>in</strong>dependent third-party advisors<br />
Micro-sites<br />
Podcasts<br />
Social media (e.g., Facebook, Twitter)<br />
Text messages<br />
(n ranges from 362 to 463)<br />
30 <strong>Aon</strong> Hewitt<br />
As technology evolves, so too does the method by which employers share<br />
<strong>in</strong>formation and how they engage their employees. Electronic media cont<strong>in</strong>ues<br />
to be a popular and e�ective way to reach employees. Nearly 80%<br />
of respondents use their <strong>in</strong>tranet site, 67% use onl<strong>in</strong>e model<strong>in</strong>g tools, and<br />
64% use email blasts. In addition to onl<strong>in</strong>e vehicles, popular communication<br />
approaches <strong>in</strong>clude targeted mail<strong>in</strong>gs (73%), <strong>in</strong>ternal newsletters (47%), and<br />
<strong>in</strong>-person f<strong>in</strong>ancial sem<strong>in</strong>ars (46%). In terms of emerg<strong>in</strong>g methods, 6% are<br />
extensively or selectively lever<strong>in</strong>g social media to reach employees.<br />
Use<br />
Extensively<br />
42%<br />
34%<br />
33%<br />
29%<br />
24%<br />
19%<br />
13%<br />
10%<br />
7%<br />
2%<br />
1%<br />
0%<br />
Use<br />
Selectively Rarely Use<br />
42%<br />
46%<br />
49%<br />
47%<br />
40%<br />
39%<br />
35%<br />
21%<br />
17%<br />
10%<br />
5%<br />
3%<br />
10%<br />
12%<br />
12%<br />
15%<br />
23%<br />
23%<br />
30%<br />
20%<br />
20%<br />
23%<br />
18%<br />
11%<br />
Not at All<br />
Used<br />
6%<br />
7%<br />
6%<br />
10%<br />
14%<br />
19%<br />
21%<br />
49%<br />
56%<br />
65%<br />
76%<br />
86%
Manag<strong>in</strong>g Risk and Plan Expenses Over the past few years, companies have been tak<strong>in</strong>g actions to manage risk<br />
and plan expenses <strong>in</strong> their def<strong>in</strong>ed contribution plans, and <strong>2012</strong> appears<br />
to be no exception. Six out of 10 respondents are likely to benchmark plan<br />
adm<strong>in</strong>istration and procedures to best practices. An almost equal number<br />
(55%) are plann<strong>in</strong>g to review their plan governance structure, and more than<br />
half of all respondents (53%) <strong>in</strong>dicated that they have already hired a third<br />
party to monitor or review their fund options.<br />
Manag<strong>in</strong>g Risk <strong>in</strong> Def<strong>in</strong>ed Contribution Plans<br />
Completed<br />
Recently/<br />
Not Needed Actions Related to Funds<br />
53%<br />
34%<br />
28%<br />
25%<br />
22%<br />
21%<br />
20%<br />
13%<br />
(n ranges from 349 to 352)<br />
Hire a third party to monitor or<br />
review funds<br />
Review plan governance structure<br />
Benchmark plan adm<strong>in</strong>istration and<br />
procedures to best practices<br />
O�er professional <strong>in</strong>vestment help<br />
or management<br />
Perform a compliance review<br />
Increase the frequency or <strong>in</strong>tensity<br />
of fund monitor<strong>in</strong>g<br />
Increase the frequency and/or<br />
<strong>in</strong>tensity of the review of total plan<br />
cost<br />
Outsource fiduciary responsibility to<br />
a third party<br />
In <strong>2012</strong>, DC-only plan sponsors are far more likely to be focused on plan<br />
adm<strong>in</strong>istration benchmarks (70% vs. 59% of sponsors o�er<strong>in</strong>g both DC and<br />
DB plans), compliance review (68% vs. 46% of sponsors o�er<strong>in</strong>g both DC<br />
and DB plans), and plan governance (63% vs. 52% of sponsors o�er<strong>in</strong>g both<br />
DC and DB plans).<br />
Likely Actions <strong>in</strong> <strong>2012</strong> to Manage Risk <strong>in</strong> Def<strong>in</strong>ed Contribution<br />
Plan Among Those Plans That Did Not Recently Complete<br />
Very<br />
Likely<br />
12%<br />
24%<br />
24%<br />
5%<br />
23%<br />
6%<br />
17%<br />
2%<br />
Somewhat<br />
Likely<br />
14%<br />
31%<br />
36%<br />
12%<br />
28%<br />
18%<br />
29%<br />
3%<br />
Somewhat<br />
Unlikely<br />
22%<br />
20%<br />
22%<br />
27%<br />
26%<br />
27%<br />
25%<br />
22%<br />
Very<br />
Unlikely<br />
52%<br />
25%<br />
17%<br />
56%<br />
24%<br />
49%<br />
30%<br />
73%<br />
<strong>Aon</strong> Hewitt 31
Likely Action With Respect to Plan Expenses <strong>in</strong> <strong>2012</strong><br />
Completed<br />
Recently/<br />
Not Needed Actions Related to Expenses<br />
39%<br />
36%<br />
32%<br />
22%<br />
8%<br />
7%<br />
(n ranges from 355 to 361)<br />
32 <strong>Aon</strong> Hewitt<br />
Hire a third party to benchmark or<br />
evaluate<br />
Lower costs by chang<strong>in</strong>g some or<br />
all funds from mutual funds to<br />
<strong>in</strong>stitutional funds<br />
Review the plan’s total cost<br />
Restructure to allow adm<strong>in</strong>istrative<br />
fees to be assessed to participants <strong>in</strong> a<br />
more equitable manner<br />
Have participants share more<br />
plan expenses<br />
Supplement required fee disclosure<br />
with additional communication details<br />
Plan expenses are expected to be a cont<strong>in</strong>ued and more significant focus of<br />
attention <strong>in</strong> <strong>2012</strong>. Nearly all employers (85%) <strong>in</strong>dicated that they are very or<br />
somewhat likely to review the plan’s total cost (<strong>in</strong>clud<strong>in</strong>g fund fees, recordkeep<strong>in</strong>g<br />
fees, trustee fees, etc.). In addition, sponsors are progressively mov<strong>in</strong>g<br />
toward lower-cost fund alternatives with around one <strong>in</strong> four (24%) <strong>in</strong>dicat<strong>in</strong>g<br />
that they are likely to lower costs by chang<strong>in</strong>g some or all funds<br />
from mutual funds to <strong>in</strong>stitutional funds.<br />
Plan sponsors are also seek<strong>in</strong>g outside help <strong>in</strong> evaluat<strong>in</strong>g their fee structures.<br />
Nearly 40% of employers state that they have already hired a third party to<br />
evaluate and benchmark costs. Thirty-five percent of the rema<strong>in</strong><strong>in</strong>g employers<br />
are likely to hire an outside company <strong>in</strong> <strong>2012</strong>.<br />
Likely to Do <strong>in</strong> <strong>2012</strong><br />
(Among Those Plans That Have Not Recently Completed)<br />
Very<br />
Likely<br />
19%<br />
7%<br />
64%<br />
6%<br />
4%<br />
23%<br />
Somewhat<br />
Likely<br />
16%<br />
17%<br />
21%<br />
12%<br />
6%<br />
36%<br />
Somewhat<br />
Unlikely<br />
14%<br />
29%<br />
9%<br />
26%<br />
22%<br />
21%<br />
Very<br />
Unlikely<br />
41%<br />
47%<br />
7%<br />
56%<br />
69%<br />
20%
Def<strong>in</strong>ed Benefit Plans<br />
Likely Changes <strong>in</strong> <strong>2012</strong><br />
Likely Changes to Def<strong>in</strong>ed Benefit Plans <strong>in</strong> <strong>2012</strong><br />
Changes<br />
Noth<strong>in</strong>g, cont<strong>in</strong>ue with current open plan as is<br />
If your plan is open to new entrants: close<br />
participation and no longer allow new<br />
employees to enter your def<strong>in</strong>ed benefit plan<br />
If your plan has ongo<strong>in</strong>g accruals: freeze<br />
accruals and cease benefit accruals for<br />
all/portion of participants<br />
Reduce benefits but cont<strong>in</strong>ue to o�er a def<strong>in</strong>ed<br />
benefit plan to current and future employees<br />
If you o�er a traditional plan: change to a<br />
hybrid plan (cash balance or pension equity)<br />
Extend participation to new hires (if plan<br />
is closed) and/or restart benefit accruals<br />
(if plan is frozen)<br />
Term<strong>in</strong>ate the plan and fully fund and<br />
remove all company liability through<br />
lump-sum payout to participants or<br />
third-party annuity purchase<br />
Change to other plan design (“fair value,”<br />
“stable value,” “retirement shares,” or other<br />
pension design)<br />
(n ranges from 85 to 227)<br />
This section of the report shows f<strong>in</strong>d<strong>in</strong>gs from employers that provide any<br />
form of def<strong>in</strong>ed benefit plan, whether open, closed, or frozen. Depend<strong>in</strong>g<br />
on the questions, results may be shown for a subset of these respondents,<br />
as <strong>in</strong>dicated.<br />
Most def<strong>in</strong>ed benefit plan sponsors (80%) are very or somewhat likely to<br />
cont<strong>in</strong>ue with their current def<strong>in</strong>ed benefit plan and do not plan to change<br />
the program design. This result is consistent with survey results from the past<br />
several years. Employers that plan to make changes are likely to either freeze<br />
future accruals for their current employees or close the plan to new entrants.<br />
Very few sponsors are plann<strong>in</strong>g to change their def<strong>in</strong>ed benefit formula from<br />
one form to another.<br />
Very<br />
Likely<br />
69%<br />
10%<br />
5%<br />
6%<br />
2%<br />
2%<br />
1%<br />
0%<br />
Somewhat<br />
Likely<br />
11%<br />
8%<br />
12%<br />
5%<br />
2%<br />
1%<br />
3%<br />
2%<br />
Somewhat<br />
Unlikely<br />
5%<br />
10%<br />
10%<br />
14%<br />
7%<br />
2%<br />
7%<br />
4%<br />
Very<br />
Unlikely<br />
15%<br />
72%<br />
73%<br />
75%<br />
89%<br />
95%<br />
89%<br />
94%<br />
<strong>Aon</strong> Hewitt 33
34 <strong>Aon</strong> Hewitt<br />
Plan sponsors cont<strong>in</strong>ue to cite the expense of the pension plan (54%), cost<br />
volatility (33%), and operational risk (33%) as the primary reasons for cutt<strong>in</strong>g<br />
back on def<strong>in</strong>ed benefit plans.<br />
Among respondents that are unlikely to make changes to their ongo<strong>in</strong>g<br />
def<strong>in</strong>ed benefit plans <strong>in</strong> <strong>2012</strong>, the primary reason, reported by 14%, is the<br />
belief that their plans fit the needs and/or preferences of their workforces. Fifteen<br />
percent of respondents may evaluate the plan at a later date but have other<br />
priorities for <strong>2012</strong>, and 18% of employers reported that the plan already limits<br />
future accruals to only a relatively small group of grandfathered employees.<br />
Primary Reason Def<strong>in</strong>ed Benefit Employers Are Not<br />
Mak<strong>in</strong>g Changes <strong>in</strong> <strong>2012</strong><br />
Reason<br />
Plan is already frozen; no need to change<br />
Plan already limits future accruals to small<br />
group of grandfathered employees<br />
Plan is an e�cient vehicle for deliver<strong>in</strong>g<br />
retirement benefits<br />
May evaluate plan at a later date but have<br />
other priorities for <strong>2012</strong><br />
Fits workforce needs and/or preferences<br />
Plan is necessary to rema<strong>in</strong> competitive<br />
Plan is overfunded and costs little to noth<strong>in</strong>g;<br />
no reason to change<br />
PPA and recent court rul<strong>in</strong>g validate hybrid<br />
plan design<br />
Other<br />
(n=180)<br />
Percentage of Plans<br />
22%<br />
18%<br />
16%<br />
15%<br />
14%<br />
7%<br />
2%<br />
0%<br />
7%
Likely Actions Planned <strong>in</strong> <strong>2012</strong><br />
Risk Management<br />
The most likely actions anticipated for def<strong>in</strong>ed benefit plan sponsors dur<strong>in</strong>g<br />
<strong>2012</strong> <strong>in</strong>clude manag<strong>in</strong>g risk, reanalyz<strong>in</strong>g their <strong>in</strong>vestment policy, chang<strong>in</strong>g<br />
adm<strong>in</strong>istration processes, and deal<strong>in</strong>g with an expected <strong>in</strong>crease <strong>in</strong><br />
retirement-eligible employees.<br />
Similar to the def<strong>in</strong>ed contribution responses, pension plan sponsors are<br />
focus<strong>in</strong>g on risk-management strategies. Respondents are likely to perform<br />
fund<strong>in</strong>g and account<strong>in</strong>g projections, review fund<strong>in</strong>g strategy, and assess<br />
pension risks based on current strategies <strong>in</strong> <strong>2012</strong>. These results are consistent<br />
with last year’s survey. In addition, 29% of respondents are very likely to<br />
conduct an asset-liability study, and nearly one-quarter (24%) will adjust<br />
equity exposure and/or overall asset allocation.<br />
Plan sponsors are less likely to allow <strong>in</strong>-service distributions as early as age 62,<br />
as permitted by the PPA, or change to a mark-to-market account<strong>in</strong>g (i.e., by<br />
elim<strong>in</strong>at<strong>in</strong>g ga<strong>in</strong>/loss amortizations).<br />
<strong>Aon</strong> Hewitt 35
Likely Actions Def<strong>in</strong>ed Benefit Plan Sponsors Will Take <strong>in</strong> <strong>2012</strong><br />
Completed<br />
Recently/<br />
Not Needed Actions<br />
29%<br />
24%<br />
22%<br />
19%<br />
17%<br />
15%<br />
14%<br />
10%<br />
9%<br />
7%<br />
7%<br />
5%<br />
4%<br />
3%<br />
3%<br />
(n ranges from 229 to 237)<br />
36 <strong>Aon</strong> Hewitt<br />
Conduct an asset-liability study<br />
Adjust equity exposure and/or<br />
overall asset allocation<br />
Adjust plan <strong>in</strong>vestments to better<br />
match the characteristics of the plan’s<br />
liabilities (e.g., liability-driven <strong>in</strong>vest<strong>in</strong>g,<br />
or LDI)<br />
Review fund<strong>in</strong>g strategy<br />
Perform fund<strong>in</strong>g and account<strong>in</strong>g<br />
projections<br />
Assess the risks (f<strong>in</strong>ancial and<br />
nonf<strong>in</strong>ancial) that the pension plan is<br />
runn<strong>in</strong>g based on current strategies<br />
Add or liberalize a lump-sum option<br />
O�er lump sums to term<strong>in</strong>ated vested<br />
participants to decrease liabilities<br />
and risk<br />
Allow <strong>in</strong>-service distributions as early<br />
as age 62 as permitted by the PPA<br />
Change to mark-to-market account<strong>in</strong>g<br />
Contribute more than the IRS<br />
m<strong>in</strong>imum required contribution<br />
Purchase annuities for retirees<br />
Transfer the plan (both assets and<br />
liabilities) to another party to reduce<br />
risk exposure<br />
Transfer excess pension assets <strong>in</strong>to a<br />
health benefits account under Code<br />
section 420<br />
Use a buy-o�er<strong>in</strong>g (e.g., enter<strong>in</strong>g an<br />
agreement to transfer risk to a third party)<br />
Likely to Do <strong>in</strong> <strong>2012</strong><br />
(Among Those Plans That Have Not Recently Completed)<br />
Very<br />
Likely<br />
23%<br />
27%<br />
17%<br />
31%<br />
67%<br />
32%<br />
6%<br />
14%<br />
1%<br />
2%<br />
19%<br />
2%<br />
2%<br />
0%<br />
1%<br />
Somewhat<br />
Likely<br />
31%<br />
31%<br />
32%<br />
45%<br />
22%<br />
31%<br />
13%<br />
21%<br />
6%<br />
9%<br />
23%<br />
4%<br />
4%<br />
0%<br />
2%<br />
Somewhat<br />
Unlikely<br />
20%<br />
25%<br />
24%<br />
12%<br />
3%<br />
12%<br />
16%<br />
19%<br />
18%<br />
24%<br />
18%<br />
17%<br />
9%<br />
4%<br />
11%<br />
Very<br />
Unlikely<br />
26%<br />
18%<br />
27%<br />
12%<br />
8%<br />
26%<br />
65%<br />
47%<br />
74%<br />
65%<br />
40%<br />
76%<br />
85%<br />
96%<br />
86%
Confidence and Priority Level of Risks <strong>in</strong> Def<strong>in</strong>ed Benefit Plans and Priorities<br />
Risk Management Topic<br />
Compliance risk<br />
Fiduciary risk<br />
Diversification risk<br />
Litigation risk<br />
Investment risk<br />
Plan design risk (aspects of the plan<br />
design, such as lump sums or f<strong>in</strong>al average<br />
pay provisions)<br />
Interest rate risk<br />
Demographic risk (changes <strong>in</strong> participant<br />
demographics, such as retirement patterns)<br />
Longevity risk<br />
(n ranges from 233 to 235)<br />
Plan sponsors felt the most confident <strong>in</strong> their ability to handle compliance and<br />
fiduciary risk, but felt the least confident that they could e�ectively manage<br />
demographic and longevity risk. Three-quarters of all respondents <strong>in</strong>dicated<br />
that <strong>in</strong>vestment risk is a high priority of risk management, followed by <strong>in</strong>terest<br />
rate risk, which was cited by 63% of employers.<br />
Very<br />
Confident<br />
1<br />
43%<br />
42%<br />
38%<br />
38%<br />
37%<br />
36%<br />
31%<br />
30%<br />
Confidence Level<br />
43%<br />
2 3 4 5<br />
9%<br />
43% 10%<br />
44% 13%<br />
42% 13%<br />
46% 13%<br />
42% 14%<br />
40% 22%<br />
40% 19%<br />
2%<br />
3%<br />
3%<br />
4%<br />
5%<br />
5%<br />
6%<br />
9%<br />
26% 34%<br />
25% 12%<br />
1%<br />
1%<br />
2%<br />
3%<br />
0%<br />
2%<br />
1%<br />
2%<br />
2%<br />
Not<br />
Confident<br />
at All<br />
6<br />
1%<br />
0%<br />
0%<br />
0%<br />
0%<br />
0%<br />
0%<br />
0%<br />
1%<br />
High<br />
Priority<br />
1<br />
49%<br />
45%<br />
40%<br />
27%<br />
75%<br />
22%<br />
63%<br />
20%<br />
17%<br />
Priority Level<br />
Medium<br />
Priority<br />
2<br />
34%<br />
39%<br />
43%<br />
37%<br />
21%<br />
46%<br />
28%<br />
42%<br />
43%<br />
Low<br />
Priority<br />
3<br />
17%<br />
16%<br />
17%<br />
36%<br />
4%<br />
33%<br />
9%<br />
38%<br />
40%<br />
<strong>Aon</strong> Hewitt 37
27%<br />
27%<br />
14%<br />
14%<br />
12%<br />
(n ranges from 163 to 195)<br />
Investment Policy Twenty-seven percent of employers <strong>in</strong>tend to change their pension plan<br />
<strong>in</strong>vestment policy <strong>in</strong> <strong>2012</strong> to reduce potential volatility <strong>in</strong> the future; this is<br />
similar to 2011 results.<br />
Deal<strong>in</strong>g With Increase <strong>in</strong><br />
<strong>Retirement</strong>-Eligibles<br />
Plans to Change Pension Plan Investment Policy <strong>in</strong> <strong>2012</strong><br />
Yes<br />
27%<br />
No<br />
73%<br />
(n=234)<br />
Increas<strong>in</strong>g the level of automation,<br />
self-service, and/or Web access to<br />
pension plan participants<br />
Outsourc<strong>in</strong>g additional services to an<br />
outside party<br />
Noth<strong>in</strong>g; we do not anticipate any<br />
demographic changes impact<strong>in</strong>g<br />
our plan<br />
Increas<strong>in</strong>g communication about the<br />
retirement process<br />
Noth<strong>in</strong>g; we are well equipped to deal<br />
with the demographic changes<br />
While many def<strong>in</strong>ed benefit plan sponsors <strong>in</strong>dicate that they are<br />
well equipped to deal with expected demographic changes or that they do<br />
not anticipate any demographic changes to impact their plan, one <strong>in</strong> four<br />
plan sponsors are very likely to <strong>in</strong>crease communication with plan participants<br />
as they approach retirement. Nearly one <strong>in</strong> five also <strong>in</strong>tend to outsource<br />
additional services to an outside party.<br />
Action Plan to Deal With Increase <strong>in</strong> Number of <strong>Retirement</strong>-Eligible Participants<br />
Completed<br />
Recently/<br />
Not Needed Actions<br />
38 <strong>Aon</strong> Hewitt<br />
Likely to O�er <strong>in</strong> <strong>2012</strong><br />
(Among Those Plans That Do Not Currently O�er)<br />
Very<br />
Likely<br />
16%<br />
8%<br />
29%<br />
25%<br />
33%<br />
Somewhat<br />
Likely<br />
27%<br />
10%<br />
21%<br />
39%<br />
28%<br />
Somewhat<br />
Unlikely<br />
22%<br />
16%<br />
16%<br />
19%<br />
14%<br />
Very<br />
Unlikely<br />
35%<br />
66%<br />
34%<br />
18%<br />
25%
Pension Plan Funded Status With historically low <strong>in</strong>terest rates, pension liabilities have escalated. As a<br />
result, fewer than 15% of companies reported their pension plans to be<br />
generally fully funded as of January 1, 2011.<br />
Funded Status as of January 1, 2011<br />
40%<br />
35%<br />
30%<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
(n=235)<br />
7%<br />
70% or less<br />
16%<br />
71%-80%<br />
36%<br />
81%-90%<br />
27%<br />
Funded Status of Pension Plan<br />
14%<br />
91%-100% >100%<br />
Def<strong>in</strong>ed benefit plan sponsors are most concerned about cash contribution<br />
requirements of the pension plan and the impact of large pension expenses.<br />
Despite the participant benefit restrictions that may be triggered by a low<br />
pension funded status, only 10% of employers are very concerned about the<br />
participant impact of their plan’s funded status.<br />
<strong>Aon</strong> Hewitt 39
Concern Reported About Pension Plan Funded Status<br />
Concern<br />
Increased contribution requirements<br />
Increased pension expense as reported on<br />
company’s <strong>in</strong>come statement<br />
F<strong>in</strong>ancial position as reported on company’s<br />
balance sheet<br />
Impact on participant benefits<br />
(n ranges from 235 to 236)<br />
Pension Calculation Adm<strong>in</strong>istration<br />
40 <strong>Aon</strong> Hewitt<br />
Very<br />
Concerned<br />
37%<br />
37%<br />
23%<br />
10%<br />
Somewhat<br />
Concerned<br />
41%<br />
37%<br />
40%<br />
30%<br />
Somewhat<br />
Unconcerned<br />
13%<br />
15%<br />
23%<br />
35%<br />
Completely<br />
Unconcerned<br />
10%<br />
10%<br />
14%<br />
25%<br />
Currently, nearly 60% of plans have their calculations fully outsourced,<br />
another 25% use a co-sourced solution, and 18% are performed <strong>in</strong>-house.<br />
In the next two years, however, plan sponsors are expected to outsource<br />
more of the calculations.<br />
Current Calculations<br />
In-House<br />
18%<br />
Co-Sourced<br />
25%<br />
Outsourced<br />
57%<br />
(n=240)<br />
Likely Calculations <strong>in</strong> Two Years<br />
In-House<br />
15%<br />
Co-Sourced<br />
20%<br />
Outsourced<br />
65%<br />
(n=162)
Fund<strong>in</strong>g Policy One-half of respondents state that they are plann<strong>in</strong>g to contribute to their<br />
def<strong>in</strong>ed benefit plan only the necessary amount as def<strong>in</strong>ed by the regulations.<br />
Nonetheless, a sizable number (26%) are plann<strong>in</strong>g to conduct an asset<br />
liability study or assess the contribution volatility under di�erent determ<strong>in</strong>istic<br />
scenarios (25%). While only a handful of plans (4%) are consider<strong>in</strong>g immediately<br />
de-risk<strong>in</strong>g their plans this year, more than one-third of plan sponsors<br />
(36%) are go<strong>in</strong>g to consider a longer-term option for de-risk<strong>in</strong>g.<br />
Fund<strong>in</strong>g Policy Considerations <strong>in</strong> <strong>2012</strong><br />
Policy Consideration<br />
Contribute the amount necessary as def<strong>in</strong>ed<br />
by the regulations<br />
No change because we already employ an<br />
asset/liability-driven <strong>in</strong>vestment strategy<br />
Consider<strong>in</strong>g options for de-risk<strong>in</strong>g strategies<br />
over a period of time<br />
Conduct an asset/liability model<strong>in</strong>g study<br />
Assess contribution volatility under various<br />
determ<strong>in</strong>istic scenarios<br />
Establish a formal fund<strong>in</strong>g strategy based on<br />
company’s f<strong>in</strong>ancial goals<br />
Settl<strong>in</strong>g liabilities through annuity purchase<br />
or lump-sum payments<br />
Immediately de-risk<strong>in</strong>g to elim<strong>in</strong>ate risk<br />
No change because we are expect<strong>in</strong>g the<br />
market to turn around<br />
Increased exposure to higher-risk <strong>in</strong>vestments<br />
Other<br />
(n=213; multiple responses)<br />
Percentage of Plans<br />
50%<br />
36%<br />
36%<br />
26%<br />
25%<br />
15%<br />
12%<br />
4%<br />
3%<br />
3%<br />
1%<br />
<strong>Aon</strong> Hewitt 41
Retiree Medical Plans<br />
Types of Plans<br />
This section exam<strong>in</strong>es employers’ likely changes to retiree medical plans <strong>in</strong><br />
<strong>2012</strong>. Sixty-one percent of employers o�er postretirement medical coverage<br />
to some or all current or future retirees. Some provide access to medical<br />
coverage, and some o�er a subsidy for retiree medical benefits. The coverage<br />
levels can vary depend<strong>in</strong>g on retirement date or hire date, with current retirees<br />
be<strong>in</strong>g more likely to have subsidized coverage (or any coverage at all) than<br />
new hires.<br />
Among those employers that o�er any retiree medical coverage, we f<strong>in</strong>d that<br />
access to coverage is far more common than a subsidy for retiree medical.<br />
For current retirees, 98% o�er access to retiree medical while only 85% of<br />
employers provide a subsidy for retiree medical. These numbers decrease<br />
substantially when you look at new hires, with only 60% of employers<br />
provid<strong>in</strong>g access to coverage and only 23% o�er<strong>in</strong>g a retiree medical subsidy.<br />
About half of all employers that provide retirement medical subsidies have a<br />
specified cap on their provided subsidy from the plan. Of the sponsors who<br />
have a pre-65 cap, nearly 60% reported that they have already reached the<br />
subsidy ceil<strong>in</strong>g, and another 16% are expect<strong>in</strong>g to reach the maximum <strong>in</strong> the<br />
next one to three years. For post-65 subsidies, only about half of plans (53%)<br />
have already reached the subsidy cap, but another 21% expect to reach it <strong>in</strong><br />
the next one to three years.<br />
Type of Retiree Medical Coverage O�ered <strong>in</strong> <strong>2012</strong> Among Those Provid<strong>in</strong>g Postretirement Coverage<br />
Type of Coverage<br />
Subsidized and uncapped through a company-sponsored<br />
group program<br />
Subsidized and capped through a company-sponsored<br />
group program<br />
Subsidized to some extent but without access to<br />
company-sponsored program<br />
Access-only through a company-sponsored group program<br />
No retiree medical subsidy or access<br />
O�er subsidy for retiree medical coverage<br />
O�er access to retiree medical coverage<br />
42 <strong>Aon</strong> Hewitt<br />
Current<br />
Retirees<br />
34%<br />
48%<br />
3%<br />
13%<br />
2%<br />
85%<br />
98%<br />
Current<br />
Actives<br />
26%<br />
40%<br />
3%<br />
20%<br />
11%<br />
69%<br />
89%<br />
New<br />
Hires<br />
13%<br />
9%<br />
1%<br />
37%<br />
40%<br />
23%<br />
60%<br />
(n=211) (n=153) (n=141)
Percentage of Employers With a Pre-65 Premium Subsidy Cap<br />
Yes<br />
47%<br />
No<br />
53%<br />
(n=201)<br />
Percentage of Employers With a Post-65 Premium Subsidy Cap<br />
Yes<br />
48%<br />
No<br />
52%<br />
(n=305)<br />
Status Relative to Subsidy Cap<br />
Response<br />
Already reached the cap<br />
Anticipate reach<strong>in</strong>g the cap <strong>in</strong> the next<br />
1–3 years<br />
Anticipate reach<strong>in</strong>g the cap <strong>in</strong> the next<br />
3–5 years<br />
Do not anticipate reach<strong>in</strong>g the cap <strong>in</strong><br />
the near future<br />
(n=82)<br />
Percentage<br />
of Plans<br />
Pre-65<br />
58%<br />
16%<br />
8%<br />
19%<br />
Percentage<br />
of Plans<br />
Post-65<br />
53%<br />
21%<br />
7%<br />
19%<br />
<strong>Aon</strong> Hewitt 43
44 <strong>Aon</strong> Hewitt<br />
Prescription Drug Coverage Fil<strong>in</strong>g for the Medicare Part D Retiree Drug Subsidy (RDS) is still the most<br />
popular prescription drug coverage strategy, but employers are cont<strong>in</strong>u<strong>in</strong>g to<br />
move away from it. For <strong>2012</strong>, 57% of respondents reported that they will use<br />
this approach—down from 65% a year ago. In addition, only 40% stated that<br />
they anticipate us<strong>in</strong>g this approach <strong>in</strong> 2013.<br />
<strong>2012</strong> and Projected 2013 Medicare Rx Strategy<br />
for the Largest Age 65+ Plan<br />
Strategy<br />
O�er Rx coverage and file for the 28% RDS<br />
Contract with a Medicare Rx plan (PD/EGWP)<br />
to provide at least Part D Rx coverage<br />
Supplement or wrap-around <strong>in</strong>dividual<br />
Medicare Rx Part D coverage through the<br />
group program<br />
Discont<strong>in</strong>ue group-based Rx coverage with<br />
no employer subsidy<br />
Discont<strong>in</strong>ue group-based Rx coverage but<br />
provide an employer subsidy and source<br />
coverage through the <strong>in</strong>dividual market<br />
File with CMS to become a Medicare Rx<br />
Part D plan<br />
Actual<br />
<strong>2012</strong><br />
57%<br />
16%<br />
15%<br />
4%<br />
6%<br />
3%<br />
Projected<br />
2013<br />
40%<br />
28%<br />
13%<br />
8%<br />
9%<br />
2%<br />
(n=196) (n=187)<br />
HSA-Compatible One health care reform provision is an excise tax on high-value health plans.<br />
This may have employers look<strong>in</strong>g to new strategies for provid<strong>in</strong>g pre-65 retiree<br />
medical coverage. One possible strategy is to o�er early retirees a program that<br />
comb<strong>in</strong>es a high-deductible health plan (HDHP) with a health sav<strong>in</strong>gs account<br />
(HSA). About one-quarter of employers o�er<strong>in</strong>g health care to pre-65 retirees<br />
currently o�er an HSA-compatible HDHP. Note: The excise tax does<br />
not go <strong>in</strong>to e�ect until 2018.
Changes to Benefits From<br />
2011 to <strong>2012</strong><br />
Percentage of Employers O�er<strong>in</strong>g HSA-Compatible HDHP<br />
Yes<br />
24%<br />
No<br />
76%<br />
(n=219)<br />
Exam<strong>in</strong><strong>in</strong>g actual changes <strong>in</strong> retiree medical benefits that were made from<br />
2011 to <strong>2012</strong>, around three-fourths of all employers asked their retirees to<br />
<strong>in</strong>crease their premiums for pre-65 coverage.<br />
Changes to Pre-65 Retiree Health Benefits From 2011 to <strong>2012</strong><br />
Pre-65 Changes<br />
Increased retiree contributions to premiums<br />
Increased retiree plan design cost-shar<strong>in</strong>g<br />
requirements<br />
Tightened restrictions on new retiree eligibility<br />
Introduced an HSA-compatible HDHP<br />
(high-deductible health plan)<br />
Term<strong>in</strong>ated subsidized benefits for some or<br />
all future retirees<br />
Introduced a new premium subsidy cap for a<br />
group that was previously uncapped<br />
Term<strong>in</strong>ated subsidized benefits for some or<br />
all current retirees<br />
Moved to a pure def<strong>in</strong>ed contribution subsidy<br />
approach through a health reimbursement<br />
arrangement (HRA)<br />
Facilitated retiree purchase of <strong>in</strong>dividual<br />
medical <strong>in</strong>surance<br />
Other<br />
(n=131; multiple responses)<br />
Percentage of Plans<br />
73%<br />
34%<br />
12%<br />
12%<br />
11%<br />
6%<br />
5%<br />
2%<br />
3%<br />
5%<br />
<strong>Aon</strong> Hewitt 45
46 <strong>Aon</strong> Hewitt<br />
Likely Changes Projected<br />
<strong>in</strong> 2013<br />
Actual changes to post-65 retiree health benefits from 2011 to <strong>2012</strong> are very<br />
similar to the above changes for pre-65 retirees and <strong>in</strong>clude <strong>in</strong>creased retiree<br />
contributions to premiums, retiree plan design cost-shar<strong>in</strong>g requirements, and<br />
term<strong>in</strong>ation of subsidized benefits for some or all future retirees.<br />
Changes to Pre-65 Retiree Health Benefits From 2011 to <strong>2012</strong><br />
Post-65 Changes<br />
Increased retiree contributions to premiums<br />
Increased retiree plan design cost-shar<strong>in</strong>g<br />
requirements<br />
Term<strong>in</strong>ated subsidized benefits for some or<br />
all future retirees<br />
Tightened restrictions on new retiree eligibility<br />
Facilitated retiree purchase of <strong>in</strong>dividual<br />
medical <strong>in</strong>surance<br />
Introduced Medicare Advantage plans<br />
Term<strong>in</strong>ated subsidized benefits for some or<br />
all current retirees<br />
Introduced a new premium subsidy cap for<br />
a group that was previously uncapped<br />
Moved to a pure def<strong>in</strong>ed contribution subsidy<br />
approach through a health reimbursement<br />
arrangement (HRA)<br />
Term<strong>in</strong>ated Medicare Advantage plans<br />
Other<br />
(n=110; multiple responses)<br />
Percentage of Plans<br />
75%<br />
31%<br />
14%<br />
11%<br />
When asked about projected changes to retiree health benefits <strong>in</strong> 2013, more<br />
than three-quarters of survey respondents said that they were very or somewhat<br />
likely to <strong>in</strong>crease retiree contributions to premiums. Also, over half said<br />
that they were likely to <strong>in</strong>crease retiree plan design cost-shar<strong>in</strong>g requirements.<br />
Four out of 10 said that they would change their Medicare Part D strategy.<br />
9%<br />
6%<br />
6%<br />
5%<br />
4%<br />
2%<br />
3%
Likely Changes to Retiree Health Benefits Projected <strong>in</strong> 2013<br />
Likely Changes <strong>in</strong> 2013<br />
Increase retiree contributions to premiums<br />
Change Medicare Rx/Part D strategy<br />
Increase retiree plan design cost-shar<strong>in</strong>g<br />
requirements<br />
Facilitate retiree purchase of <strong>in</strong>dividual<br />
medical <strong>in</strong>surance<br />
Tighten restrictions on new retiree<br />
eligibility<br />
Introduce Medicare Advantage plans<br />
Term<strong>in</strong>ate subsidized benefits for some/all<br />
future retirees<br />
Introduce HSA-compatible HDHP<br />
(high-deductible health plan)<br />
Move to a pure def<strong>in</strong>ed contribution<br />
subsidy approach through a health<br />
reimbursement arrangement (HRA)<br />
Introduce a new premium subsidy cap for<br />
a group that was previously uncapped<br />
Term<strong>in</strong>ate Medicare Advantage plans<br />
Term<strong>in</strong>ate subsidized benefits for some or<br />
all current retirees<br />
(n ranges from 77 to 177)<br />
Very<br />
Likely<br />
43%<br />
26%<br />
21%<br />
9%<br />
9%<br />
7%<br />
6%<br />
6%<br />
5%<br />
3%<br />
3%<br />
3%<br />
Somewhat<br />
Likely<br />
35%<br />
16%<br />
32%<br />
21%<br />
11%<br />
15%<br />
10%<br />
16%<br />
10%<br />
9%<br />
3%<br />
6%<br />
Somewhat<br />
Unlikely<br />
7%<br />
22%<br />
20%<br />
22%<br />
18%<br />
19%<br />
15%<br />
16%<br />
21%<br />
21%<br />
21%<br />
12%<br />
Very<br />
Unlikely<br />
15%<br />
47%<br />
28%<br />
48%<br />
62%<br />
59%<br />
69%<br />
62%<br />
65%<br />
67%<br />
74%<br />
79%<br />
<strong>Aon</strong> Hewitt 47
Respondents by Size of Employee Base<br />
Under 1,000<br />
1,000–4,999<br />
5,000–9,999<br />
10,000–24,999<br />
25,000 or more<br />
(n=501)<br />
Participat<strong>in</strong>g Employer<br />
Information<br />
Range of Employees<br />
Respondents by Industry<br />
Industry<br />
Aerospace and Defense<br />
Associations, Foundations, and<br />
Charitable Organizations<br />
Automobiles and Components<br />
Banks<br />
Build<strong>in</strong>g Products, Construction,<br />
and Mach<strong>in</strong>ery<br />
Chemicals<br />
Consumer & Professional Services<br />
Consumer Durables and Apparel<br />
Consumer Services<br />
Diversified F<strong>in</strong>ancials and Real Estate<br />
Education<br />
Energy<br />
Food, Beverage, and Tobaccos<br />
(n=501)<br />
48 <strong>Aon</strong> Hewitt<br />
Nearly 40% of respondents have 10,000 or more employees. The median<br />
number of U.S. employees is 5,800, and the average is 24,323. Forty-eight<br />
percent of respondents have publicly traded stock.<br />
Percentage of Plans<br />
19%<br />
26%<br />
16%<br />
18%<br />
21%<br />
Percentage of Plans<br />
2%<br />
6%<br />
2%<br />
5%<br />
4%<br />
3%<br />
4%<br />
2%<br />
2%<br />
7%<br />
6%<br />
4%<br />
7%<br />
Industry<br />
Government: Federal<br />
Healthcare Equipment & Services<br />
Information Technology<br />
Insurance<br />
Media<br />
Metals, M<strong>in</strong><strong>in</strong>g, Paper Products<br />
Other/Conglomerates<br />
Pharmaceuticals<br />
Retail<br />
Telecommunications Services<br />
Transportation<br />
Utilities<br />
Percentage of Plans<br />
3%<br />
11%<br />
5%<br />
6%<br />
2%<br />
4%<br />
1%<br />
2%<br />
4%<br />
2%<br />
3%<br />
3%
About <strong>Aon</strong> Hewitt<br />
<strong>Aon</strong> Hewitt is the global leader <strong>in</strong> human capital consult<strong>in</strong>g and outsourc<strong>in</strong>g solutions.<br />
The company partners with organizations to solve their most complex benefits, talent<br />
and related f<strong>in</strong>ancial challenges, and improve bus<strong>in</strong>ess performance. <strong>Aon</strong> Hewitt designs,<br />
implements, communicates and adm<strong>in</strong>isters a wide range of human capital, retirement,<br />
<strong>in</strong>vestment management, health care, compensation and talent management strategies.<br />
With more than 29,000 professionals <strong>in</strong> 90 countries, <strong>Aon</strong> Hewitt makes the world a<br />
better place to work for clients and their employees. For more <strong>in</strong>formation on <strong>Aon</strong> Hewitt,<br />
please visit www.aonhewitt.com.<br />
Contact Information<br />
Pamela Hess, CFA<br />
Director of <strong>Retirement</strong> Research<br />
<strong>Aon</strong> Hewitt<br />
+1.847.295.5000<br />
pam.hess@aonhewitt.com<br />
Barbara Hogg, FSA<br />
<strong>Retirement</strong> Communication Leader<br />
<strong>Aon</strong> Hewitt<br />
+1.847.295.5000<br />
barb.hogg@aonhewitt.com<br />
Rob Reiskytl<br />
Practice Leader of <strong>Retirement</strong> Strategy and Design<br />
<strong>Aon</strong> Hewitt<br />
+1.612.339.7501<br />
rob.reiskytl@aonhewitt.com<br />
Copyright <strong>Aon</strong> Corporation <strong>2012</strong>