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PlaNlINk : jUly 2012 - T. Rowe Price

JULY : 12

for retirement plan sponsors • published by t. rowe price

4

The heart

and science

of the participant experience

10

16

Making the case

for fiduciary training

Congress’s incremental

approach to retirement issues

18

28

What really makes

retirees happy?

Peeking into the

product pipeline


Dates to

watch

Conferences

Forum

2013

MAY

13

Hyatt Grand Champions Resort, Villas and Spa

Indian Wells, California

May 13-15, 2013

TO

MAY

15

Webinars

Capital Markets

Update 2012

Join T. Rowe Price investment specialists

as they present an in-depth discussion on the

most recent quarter’s performance and detailed

information about the current economic, political,

and financial climates.

July 25

October 24

2 p.m. ET

2 p.m. ET

JULY

25

OCT

24

Legislative

Update

Get the latest updates on the legislative and

regulatory actions impacting retirement plans today.

September 5

September 12

December 5

December 12

SEPT

5

11 a.m. ET

2 p.m. ET

11 a.m. ET

2 p.m. ET

SEPT

12

DEC

5

DEC

12


Departments

Dates to Watch

2 From the Editor’s Desk

33 Lighter Side

What’s Inside

3 By the Numbers

Generation Y

Volatile markets and economic woes have made Generation Y risk-averse—

to the detriment of their retirement prospects.

4 Cover Story

The heart and science of the participant experience

Creating better retirement outcomes means delivering a plan experience

that is personalized, holistic, and practical.

10 Industry Spotlight

A pure heart and an educated head

For fiduciaries, good intentions aren’t enough. Thoughtful training can help

sponsors and improve outcomes.

13 Plan Sponsor Profile

Consolidated effort

Fairfax County, a 2012 Plan Sponsor of the Year, discusses its efforts to modernize

its retirement programs.

16 Compliance Update

A quiet offensive

Derek Dorn of Davis & Harman LLP surveys the Washington, D.C., landscape

and the debates shaping retirement policy.

18 Participant Pulse

Planning for a happy retirement—maintaining a sense of identity

The science of happiness is generating insights into what makes for a truly

satisfying retirement.

20 Investment Perspective

What’s all the chatter about?

A roundtable with our team of defined contribution investment specialists

analyzes the investment lineup issues facing sponsors.

25 Inside Price

T. Rowe Price Client Forum 2012

A recap of select themes and presentations from our annual client conference.

28 Product News

Portable, actionable, & accessible

Get a glimpse of the technology and thinking currently in the T. Rowe Price product

development pipeline.

Please call 1-800-922-9945 or contact your T. Rowe Price representative to request a prospectus,

which includes investment objectives, risks, fees, expenses, and other information that you

should read and consider carefully before investing.

T. Rowe Price Retirement Plan Services, Inc.; its affiliates; and its associates do not provide legal or tax advice. Any

tax-related discussion contained in this publication is not intended or written to be used, and cannot be used, for

the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any

transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor

regarding any legal or tax issues raised in this publication. Copyright 2012, T. Rowe Price Retirement Plan Services, Inc.

All rights reserved. T. Rowe Price, Invest With Confidence, and the bighorn sheep design are registered trademarks of

T. Rowe Price Group, Inc. All other trademarks are the property of their respective owners. This publication has

been prepared by T. Rowe Price Retirement Plan Services, Inc., for informational purposes only.


from the editor’s desk

“Confidence” is our front line. What’s yours?

It’s more than a tagline at T. Rowe Price.

EDITOR

Matt Johnson

MANAGING EDITOR

Michael Gaucher

CONTRIBUTING EDITORS

Jerry Appelbaum

Nicole Davis

ART DIRECTORS

LeSales Dunworth

David Kepner

Julie Zerivitz

COPYWRITERS

Jerry Appelbaum

Carl Bowers

Stephen Brockelman

Dan Bunch

Michael Gaucher

David George

Megan Jicha

Rich Lackey

Ellen Persons

Julie Stromberg

Mary Toole

David Williams

DESIGNERS

Ali Colman

David Kepner

Kris Olson

Anne Sonntag

Jon Zerivitz

Julie Zerivitz

ILLUSTRATION

Eugene and Louise

Olaf Hajek

Graham Smith

Joe Wilson

PRODUCTION MANAGER

Sonja Harrell Sampson

At our recent client Forum in San Antonio I

had the privilege to hear one of our speakers,

Eric Greitens, a decorated Navy Seal and

humanitarian, talk about his nonprofit

organization, The Mission Continues. This

organization helps wounded soldiers find a way

to continue serving once they are unable to

serve in the military. Mr. Greitens stresses the

idea that while soldiers may not be on the front

lines anymore, they can still have a “front line.”

A new one that they get to define.

That got me thinking about our firm’s front

line—the North Star that guides what we do:

“Confidence.” On the surface, it’s part of our brand

motto—Invest With Confidence®. However, it

expresses something deeper. It is a standard we

live up to and hope to inspire in our partners,

clients, and communities worldwide every day.

It’s built on a principle of “three I’s” that Cynthia

Egan, president of T. Rowe Price Retirement Plan

Services, shared with Forum attendees:

• Integrity: Never compromise around doing

the right thing for our clients, partners, and

communities

• Insight: Bring ideas to you through thought

leadership and best practices, and work

together to take action

• Innovation: Focus on smart and relevant

innovation around products, processes,

services, technologies, and ideas

A reimagined participant experience

The ideas behind the three I’s drive the

participant experience outlined in this issue’s

cover story: “The Heart and Science of the

Participant Experience.” In this story you’ll see

how we’re introducing a new approach to the

experience that recognizes there is more to a

participant’s financial life than a retirement

plan. Each individual faces competing financial

priorities, an ocean of information, increasingly

volatile markets, and rapidly changing technology

that makes things easier while increasing in

complexity. It’s real life, and we’re taking a fresh

look at providing a more personalized, holistic,

and pragmatic participant experience. The story

starts on page 4.

Also in this issue we spotlight Fairfax County

457 plan, a plan that also took on the participant

experience as a “front line,” earning it Public

Defined Contribution “Sponsor of the Year”

from PLANSPONSOR magazine. Catch our interview

with Aimee D. Lowry of Fairfax County

on page 13.

Another important story in this issue asks

whether it is possible for “good news” and

“fiduciary” to live in the same sentence.

They can now because, in close collaboration

with Bradford Campbell (former U.S. assistant

secretary of labor for employee benefits),

we developed a suite of fiduciary training

materials to make it easier to meet the

responsibilities of a fiduciary under ERISA.

Access it through our Plan Sponsor Resource

Center at rps.troweprice.com/plansponsor.

See page 10 for the full article.

For 75 years we’ve known our front

line; what’s yours?

As I mentioned, “Confidence” is our front line.

Perhaps this issue might inspire you to identify

yours.

And finally, we are excited to have just celebrated

our 75th anniversary on July 1, and we could

not have gotten here without you. So, on behalf

of all our associates, thank you.

If you have ideas on how we can make

planLink an even more successful “must

read,” please let me know. You can e-mail

me at matt_johnson@troweprice.com.

rps.troweprice.com/sponsor


SPONSOR By The Numbers PROFILE

When it comes to RETIREMENT,

they are on a different wavelength

GENERATION

Y

BABY BOOMER

BORN IN

1946–1964

CURRENTLY AGES

48–66

GENERATION Y

BORN IN

1982–1995

CURRENTLY AGES

17–30

1951 1995

STEADY ECONOMIC GROWTH*

1996 2011

EXTREME VOLATILITY*

For 30 years, the attitudes and behavior of

baby boomers have shaped the services and

innovations in defined contribution plans.

ISSUE: High unemployment and increasing

debt among younger Americans have created

substantial barriers to saving for retirement.

INSIGHT:

INAPPROPRIATELY

RISK-AVERSE,

particularly given their

long-term investing time horizon.

RESULT: It’s not surprising

that Gen Y has substantially

different attitudes toward

saving and investing than

the baby boomer generation.

**FACT:

SOLUTION: Fine-tune the message for a younger audience.

In 2009, 21% of those

surveyed between the ages of 25 and

35 who are not invested in target-date

funds had more than

80%

of plan assets

invested in cash.

05

03

Explain the benefits of remaining

01 invested through periods of volatility.

Stress the potential advantages

of target-date investments,

when appropriate.

Establish appropriate default

savings and auto-increase rates.

02

Incorporate automated services, target-date

investments, professional guidance, advice,

or managed accounts into your plan.

04

Focus on increasing saving rates, the

most conservative approach to achieving

long-term retirement security.

*Represents the performance of the S&P 500.

**Source: T. Rowe Price Retirement Plan Services 401(k) accounts that are currently

active, have a positive balance, and do not include any assets invested in target-date

funds. Cash includes money market and stable value funds.

rps.troweprice.com/sponsor PlanLink : july 2012 3


COVER STORY

4 PlanLink : july 2012


COVER STORY

The heart

and science

of the participant experience

Propriety research into the way participants think

about saving and investing in the context of their

lives is leading to a re-engineered plan experience.

Spend time with the communications professionals in T. Rowe

Price’s retirement plan services division and you might notice

that they sometimes conspicuously avoid using the word

“participant.” There’s a reason for that.

“Sometimes, thinking of those in defined contribution plans

solely as ‘participants’ can limit your thinking,” says Mary

Ellen Whiteman, manager of Employee Strategy and Program

Development at T. Rowe Price.

“After all, they don’t think of themselves as ‘participants.’ They

don’t even think of themselves as ‘employees.’ They are people

with everyday concerns. We need to talk to them that way.”

This strategic shift in thinking is emblematic of a broader

evolution that’s underway in plan design and communications—an

evolution that takes into account the full scope

of participants’ lives, where personal life, household finance,

and plan participation overlap in multiple ways.

In fact, decisions about saving and investing for retirement can

be challenging enough on their own. But these decisions are

complicated by a host of competing financial priorities—from

paying down debt to coping with ballooning expenses like health

care or college tuition.

Compounding the challenge is the macro environment. It’s been

a difficult decade for investors and for the economy as a whole.

The volatility and uncertainty—amplified by the 24-hour news

cycle and media hype—only served to exacerbate the financial

anxieties of plan participants.

Add it all up and you have a combination of factors that

can lead to inertia or reactionary decisions. These behaviors

can get in the way of achieving long-term financial goals like

saving for retirement.

With this reality in mind, T. Rowe Price is enhancing its communications

program. The program will be more personalized,

holistic, and practical in the way it educates and interacts with

employees. It’s an approach that allows the participant to be

the driver of the communication process, creating alignment

between personal life and plan life.

Our cover story examines the research that drives this effort.

It also provides a preview of personalized solutions that take

into account the big picture—while helping participants take

meaningful action in the present.

Milestones in life trigger changes in saving

and investing behavior

To get a deeper understanding of when, why, and how participants

engage with their plans, T. Rowe Price conducted

proprietary studies. The first of these, dubbed “Milestones,”

surveyed nearly 3,000 participants, as well as plan sponsors

and intermediaries.

rps.troweprice.com/sponsor PlanLink : july 2012 5


COVER STORY

The things that

motivate someone

to take action on

retirement aren’t

necessarily rooted

in the administrative

decisions or

communications

schedule of a

company’s plan.

– Mary Ellen Whiteman, T. Rowe Price

Quantitative analysis of the research (which was conducted

in November and December of 2010) revealed a number of

insights. To begin with, many respondents are not confident

about their retirement readiness.

While saving for retirement was most frequently cited by

respondents as their top financial priority, only 22% felt “on

track” with their retirement savings. Even at the highest salary,

household income, and asset levels, less than 50% cited being

on track to have what they need during retirement.

Yet actions that might improve their confidence—such as saving

more or choosing a long-term asset allocation strategy—are often

thwarted by perceived complexity and the resulting paralysis.

The marketing and communications team at T. Rowe Price

hypothesized that there are times in participants’ lives when they

are more likely to take action on retirement. Indeed, participants’

life events are stronger triggers for action than plan-level events.

These life events have the ability to remove roadblocks to saving.

“Consider the big picture,” says Whiteman. “The things that

motivate someone to take action on retirement aren’t necessarily

rooted in the administrative decisions or communications

schedule of a company’s plan. More often, motivation has

something to do with a change in the participant’s life.”

To help test the hypothesis, T. Rowe Price asked plan participants

and sponsors a series of unaided and aided questions to

identify potential milestones. The results point to a range of

events that can affect saving and investing.

TRIGGERS FOR ACTION

Top triggers, life milestones, and sudden events impacting retirement

savings and the 401(k) plan overall (aided and unaided):

• Change in employment status

(raise/promotion, job loss, job change)

• Health issues

• Market volatility/the economy

• Birth of a child

• Reaching a certain age

• Taking on and paying off debt

6 PlanLink : july 2012

rps.troweprice.com/sponsor


COVER STORY

Plan-level events or plan design changes were seen as less influential.

For instance, when prompted to think about the impact of

plan or employer contribution changes (such as a change in the

company match formula), no one (0%) in the 20-29 age group

and virtually no one (1.2%) in the 50-59 age group said these

changes would cause them to increase their retirement savings.

T. Rowe Price professionals are quick to point out that this

doesn’t mean that matching rates and plan design enhancements

don’t matter or that mass communications don’t have their place.

They can and do have a tremendous impact on participants’

ultimate retirement income. But participants tend to be more

influenced to act by what’s going on in their own lives.

Naomi Proshan manages the Research Data and Analytics group

for Retirement Plan Services. “Our lives have triggers,” she says.

“As we age, there are moments in our lives that mark new or different

chapters for us. Marriage. The birth of a child. A new job

or career change. Once we hit one of these milestones, things are

different. The events shape the way we think and act.”

In addition to these positive milestones, there are also less desirable

triggers for action, such as divorce, health problems, and

debt. Proshan points to the ongoing, regular research T. Rowe

Price conducts with participants such as the Participant Pulse

Survey on the participant website. According to a recent survey,

which generated nearly 8,000 responses from participants, debt

is clearly top of mind.

When asked, “If you had extra money after paying your monthly

expenses, what would you do with it?,” the number one choice

was, “Use it to reduce my debt” (45.9%). This is true for all age

ranges with the exception of the 65 and over set. For each age

group, the option of adding the extra money to their retirement

plan ranked third.

Research on positioning points to

personalization

To build on our quantitative findings, T. Rowe Price looked

again to clients, plan participants, and intermediaries—people

who could provide firsthand, directional insight to further

inform our marketing and communication decisions.

Between November 2011 and January 2012, T. Rowe Price

researchers conducted a series of in-person interviews and focus

groups with more than 130 plan sponsors, intermediaries, and

participants, as well as nonparticipants from both T. Rowe Price

plans and competitor plans. The conversations yielded candid

thoughts on saving, the obstacles they face, and their experiences

with their current retirement plans.

From 70 sessions with respondents representing a range

of ages and backgrounds, we confirmed our understanding

of common attitudes in today’s environment:

• Most employees are aware that they need to save for

retirement but few are engaged

• Goals for retirement are simple: Most participants just

want to save enough to maintain their current lifestyle

• Stress over economic conditions plays a big factor in

employees’ confidence and ability to save; economic

conditions are something they can’t control and feeling

that lack of control damages their confidence

• Employees need guidance to break through the anxiety

and inertia

A key part of these conversations was soliciting direct input on

three communication approaches developed by T. Rowe Price.

debt is top of mind

Participant Pulse survey results

If you had extra money after paying your monthly

expenses, what would you do with it?

A. Use it to reduce my debt 45.9%

B. Add it to my retirement plan 17.1%

C. Treat myself to something special 5.5%

D. Add it to a “rainy day” fund 28.5%

E. Put it toward college savings 3.0%

Wave 1: September 26–October 24, 2011

I don’t have time

to worry about ‘then’

because I’m too worried

about ‘now’.

—Focus group participant

chicago, Illinois

rps.troweprice.com/sponsor PlanLink : july 2012 7


COVER STORY

We tested positioning themes and a variety of communications to

see which strategies would resonate best with respondents. From

the samples shown, the collective feedback indicated that participants

are looking for guidance that is personalized and practical.

WHAT PARTICIPANTS WANT

• Information geared to them, delivered when they need

it and are ready to act on it

• Small manageable steps today that are easier to

accomplish than large long-term goals

• Additional support, especially in a one-on-one setting,

to get more personalized and specific guidance

• Interactive touch points (e-mail, live chat, etc.) that offer

quick, instant access and make immediate action easy

I’m on

information

overload.

I would like a

narrow focus.

Give me something

based on my

age, something

specific.

“Overall, the research confirmed what we thought all along,”

noted Christy Lausch, lead manager, Employee Strategy and

Program Development. “Participants are dealing with a lot—

all the things we expect them to be challenged with. They really

just want to know what they can do today.”

—Focus group participant

SEATTLE, washington

Initial Launch of new programs in 2012

In the second half of 2012, T. Rowe Price will begin to introduce

two new program initiatives: the One-on-One Retirement

Consultation and the Personalized Check-In program.

These programs are a reflection of T. Rowe Price’s research. For

instance, sponsors and participants alike ranked two things—

one-on-one consultation and online tools that provide personalized

recommendations—as methods most likely to trigger action.

In addition, the programs leverage the strong participant communications

and guidance tools currently available.

“We believe combining these new communications programs

with existing automated plan solutions can produce powerful

results,” said Whiteman.

A main goal of the programs is addressing the big picture. The

programs first examine financial issues as they relate to participants’

ability to optimize their plans’ features and services. The

programs then expand to address other retirement-related issues

(such as savings vehicles outside of the plan) that support

participants’ savings goals. Additionally, the programs provide

guidance on financial issues that could potentially impact a

participant’s ability to meet his or her goals (e.g., debt, insurance

costs, and health care).

8 PlanLink : july 2012

rps.troweprice.com/sponsor


COVER STORY

An overview of each program to date:

One-on-One Retirement Consultation

Currently available. Contact your T. Rowe Price

representative for more information.

Program objective: Provide personalized, holistic, and

practical guidance so participants better understand how

to achieve their retirement goals and address their broader

range of financial issues.

How it works:

• Through quarterly statements or on-demand communications

(e.g., website messages, Participant Service

Center interactions), the participant will be offered an

opportunity to speak directly with a T. Rowe Price retirement

specialist over the phone.

• A retirement specialist will guide the participant through

steps to address the complete retirement picture.

Step 1: Validate what a participant is doing well (such as proper

asset allocation) and suggest small, actionable steps that could

be taken to potentially improve outcomes.

Step 2: Listen and ask questions about a participant’s broader

retirement savings needs, such as help with a previous 401(k) plan.

A retirement specialist can offer guidance based on a participant’s

age and specific situation along with simple, actionable steps.

Step 3: Listen and ask questions about a participant’s broader

financial planning needs. A retirement specialist can discuss

topics, such as paying down debt, and offer other considerations

based on a participant’s lifestage.

Step 4: Follow up with relevant communications that reiterate

recommended steps and provide additional tools and resources.

The programS will be

more personalized,

holistic, and practical

in the way THEY

engage and educate

employees.

Personalized Check-In

Available in 2013.

Program objective: Through the use of participant information,

deliver personalized guidance to the participant based on where

he or she is in the retirement planning process.

How it works: Integrate information from several sources,

including retirement plan data on file (account balance, deferral

rate, date of birth, etc.) as well as information a participant

provides through an online profile tool about his or her financial

priorities and interests.

Based on this information, the Personalized Check-In will:

• Assess a participant’s current retirement income status

• Offer a customized list of actions within the plan to

take now

• Provide resources related to other competing financial

goals (e.g., debt management, college funding)

• Identify specific T. Rowe Price tools and resources

(e.g., Retirement Income Manager SM ).

At each life stage, the Personalized Check-In addresses

particular topics relevant to the participant.

Ongoing, participants will receive quarterly messaging and

reminders that reinforce their annual check-in. For example,

a participant’s statement will include personalized messaging

related to the customized action items as well as other relevant

topics given the participant’s life stage.

While these new programs are still in the initial launch and

refinement phase, Whiteman is confident they will benefit both

plan sponsors and participants.

“The addition of holistic and personalized guidance should

help to put participants in a better position to overcome inertia

and take the incremental steps needed to generate sufficient

income in retirement,” said Whiteman.

“For sponsors, the programs could increase participant satisfaction

with their plan and drive them to take greater advantage

of their plan’s services and features.”

“Overall, these new efforts could make participant communications

programs more efficient and effective—for everyone.”

rps.troweprice.com/sponsor PlanLink : july 2012 9


Industry Spotlight

Most fiduciaries want to do the right thing

for their plans and participants. Plan sponsors

can help by adopting sound practices for

fiduciary training.

A Pure Heart

and an Educated Head

In 2002, a Department of Labor Working Group Report stated

that “a pure heart and an educated head are the prerequisites

for a high level of fiduciary performance.” 1 A decade later, the

need for fiduciary education has not diminished. For plan

fiduciaries to keep up with changing regulatory requirements

and provide effective plan governance, they must be well

trained. When companies follow sound practices for fiduciary

training, they reduce the risk of litigation and may provide plan

participants with a better plan. If your organization does not

yet participate in regular fiduciary training, it may be time to

explore the resources available, including the new T. Rowe Price

fiduciary training program.

Fiduciary responsibility

under ERISA

Almost all retirement plans are subject to the rules, requirements,

and penalties established under the Employee Retirement

Income Security Act of 1974 (ERISA). The legislation was passed

to protect the retirement assets of millions of Americans who

save through their companies’ retirement plans. Under ERISA,

plan fiduciaries are accountable for prudent and diligent plan

governance. They must:

• Identify risks and challenges facing their retirement plans

• Assess the effectiveness of plan decision-making

processes, oversight, and operations

• Fix any issues in a timely way

New ERISA disclosure regulations

Complying with ERISA can be challenging as the scope of

fiduciary responsibilities continues to evolve. “For example, in

2012, two new sets of disclosure will be required to make plans

more transparent and both will directly affect fiduciaries,” says

Bradford Campbell, former assistant secretary of labor for the

Employee Benefits Security Administration (EBSA) and now an

ERISA attorney in private practice. The new requirements include:

Service provider disclosure

The United States Department of Labor (DOL) recently finalized

ERISA 408(b)(2), which focuses on service provider disclosure.

As of July 1, 2012, service providers will be required to furnish

plan sponsors with descriptions of the services they provide,

including the cost of those services and any additional fees.

In turn, plan fiduciaries must evaluate the compensation paid to

service providers and determine whether it is fair and reasonable

in light of the services being offered. If service providers do not

deliver the required information, plan fiduciaries must inform

the DOL. Fiduciaries also will be required to identify any

conflicts of interest.

Disclosure to participants

On August 30, 2012, the second change takes effect. ERISA

404(a)(5) requires all plan administrators of employersponsored

retirement plans that permit participant-directed

investments to disclose investment performance, fee, and

expense information for each plan investment option. In

addition, plan participants must be notified of administrative

expenses that may be charged against their accounts and actual

charges must be reported quarterly.

10 PlanLink : july 2012

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Industry Spotlight

This new regulation is intended to ensure that plan participants

understand all of the costs associated with participating in

their retirement plans so they can make informed decisions

about whether to participate and how to invest if they do.

In addition to these new requirements, the DOL is working on

updating the fiduciary definition under ERISA. Currently, EBSA

is assessing the impact of its proposed changes to the fiduciary

rule. Plan fiduciaries should be aware of the pending changes

and understand how these changes may affect the plan.

Fiduciary training is essential

Staying abreast of the many areas where the ERISA standards

need to be applied is just one of the reasons why fiduciary

training is essential. It also should provide information that

can help fiduciaries better understand their responsibilities and

liabilities. For training to be successful, plan sponsors should:

Identify all fiduciaries

It may be surprising, but the first item on PLANSPONSOR’s

2011 list of “10 Things You’re (Probably Still) Doing Wrong as

an ERISA Fiduciary” was “Not knowing who your fiduciaries

are.” 2 Many people within an organization have fiduciary

responsibility, and some don’t know that they have it. Often,

plan fiduciaries’ primary work responsibilities have little to

do with their companies’ plans.

Fiduciary status is determined by conduct. Even if it has been

disclaimed in writing, a person, board, or company is

a fiduciary if they:

• Exercise any discretionary authority or control over

the management of a plan or over the management

or disposition of plan assets

• Possess discretionary authority or discretionary

responsibility in plan administration

• Select investment options for the plan

By offering fiduciary education, plan sponsors can maintain

effective plan governance and also ensure that employees

remain willing to serve as fiduciaries.

Campbell advises sponsors to distinguish between business

decisions, ministerial actions, and fiduciary responsibilities.

“Some plan design decisions are not fiduciary decisions—they

are settlor decisions,” he says. “For instance, deciding which

benefits to offer is a business decision, not a plan decision.

Fiduciary responsibility kicks in when the plan is implemented.

It must be implemented properly.” In addition, if attorneys,

accountants, and actuaries act only in a ministerial capacity and

do not exercise discretion or control over a plan, they may not

be fiduciaries.

Employ sound training practices

For fiduciaries to effectively manage retirement plans, they

need to be well informed. Some experts suggest that plan sponsors

offer fiduciary training at least once a year and provide

legal updates as needed. When these standards are adopted,

plan sponsors may realize a number of benefits. Training can:

• Significantly improve a fiduciary’s ability to provide

effective governance

• Provide limited protection to the company and the plan

• Reduce the risk of litigation

• Improve labor relations

While many plan sponsors offer some training, relatively few have

a thorough and ongoing fiduciary training program. A recent

survey found that slightly more than one-half of organizations

with retirement plans train all employees who have fiduciary

responsibility, 9% offer no training, and 17% don’t know whether

training is offered. Among those with training programs:

22% offer training annually

49% offer training periodically

30% offer training when an employee joins the

fiduciary committee

7% do not use the approaches listed above

6% do not know when training is offered

Source: Towers Watson U.S. Retirement Plan Governance Survey

Most plan sponsors would like to have proactive fiduciaries

who understand their legal duties and know the benchmarks

against which their decisions will be measured. One way to

accomplish that is by adopting sound practices for fiduciary

education. “Training is a cost-effective way to ensure proper

plan outcomes,” said Campbell.

1 Department of Labor, Report of the Working Group on Fiduciary Education and Training, 2 PlanSponsor.com, “10 Things You’re (Probably Still) Doing Wrong as an ERISA Fiduciary,”

November 8, 2002 (http://www.dol.gov/ebsa/publications/AC_1108b02_report.html) October 2011 (http://www.plansponsor.com/MagazineArticle.aspx?id=6442482905&

magazine=6442483023)

rps.troweprice.com/sponsor PlanLink : july 2012 11


Industry Spotlight

Provide Available Cost-Effective Training

A variety of fiduciary materials are available to plan sponsors.

Some college and university programs offer full training, but

require a significant commitment of time and resources. Government

agencies also offer training options. EBSA’s Fiduciary

Education Campaign offers in-person seminars and educational

materials, while the DOL website offers materials that can be

incorporated into a training program. T. Rowe Price offers free

online training in formats designed to make learning easier.

Fiduciaries can choose to study written materials, review online

videos, or employ both formats to develop a better understanding

of their responsibilities. Once training is complete, participants

can receive certificates of completion verifying their efforts

to understand and fulfill fiduciary obligations.

Regardless of the training option selected, fiduciary education

requires an investment of time and/or money. In return, plan

sponsors may improve plan outcomes and reap a variety of other

benefits, including positive labor relations and reduced risk of

litigation. If you’re interested in learning more about fiduciary

training, log in to our sponsor website at rps.troweprice.com/sponsor

or talk with your T. Rowe Price Retirement Plan Services

representative.

Do your company’s fiduciaries

receive training?

A recent survey found that slightly less than one-half

of organizations train all members of their fiduciary

committees.

All receive

training

Don’t know who

receives training

None receive

training

Some receive

training

17%

9%

43%

31%

Towers Watson, U.S. Retirement Plan Governance Survey, December 2011

(http://www.towerswatson.com/assets/pdf/6080/Towers-Watson-US-

Pension-Governance-Survey-2011-Implications.pdf)

T. Rowe Price Fiduciary Training

T. Rowe Price offers fiduciary training materials online through the

Plan Sponsor Resource Center. Our new suite of training materials

was developed in close collaboration with Bradford Campbell.

T. Rowe Price fiduciary training makes powerful content available in

a variety of easily digestible formats, including a fiduciary guide and

online videos. The training covers topics such as:

Specific fiduciary duties and the Prudent Man standard

The importance of process in fiduciary decision-making

Fiduciary breach and prohibited transactions

Delegating and sharing fiduciary authority

Selecting and monitoring service providers

Investment committees and investment policy statements

Plan audits, auditors, and Form 5500

Improving plan outcomes through participant communications

If you would like to learn more about the training available through

T. Rowe Price, contact your T. Rowe Price Retirement Plan Services representative

or log in to our sponsor website at rps.troweprice.com/sponsor

12 PlanLink : july 2012

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Plan Sponsor Profile

Consolidated Effort

How one sponsor led a team to bring it all together and provide more for LEss.

Despite having a defined benefit plan in

place, Fairfax County (Va.) Government

realized that its savings plan was critical

to the retirement security of its employees

and, in 2009, embarked on a progressive

initiative to modernize its deferred

compensation plan.

Only months after assuming the role of

Benefits Division chief, Aimee Lowry was

tasked to lead a team of subject matter

experts and county employee representatives

through the complex effort.

Before the dust settled, the County

revamped the investment menu,

improved the participant experience, and

streamlined plan administration—all while

reducing overall cost to the plan and

participants. The initiative consolidated

the $600 million Fairfax County Government

Deferred Compensation Plan from

four providers to a single provider.

In recognition of the team’s work, Fairfax

County was named a 2012 Plan Sponsor

of the Year by PLANSPONSOR Magazine.

Sponsor: Aimee Lowry, Benefits Division chief

Organization: Fairfax County (VA) Government

Participants: 8,900

Years in role: 3

We spoke with Aimee recently to get her

take on the transition.

rps.troweprice.com/sponsor PlanLink : july 2012 13


Plan Sponsor Profile

planLink: What prompted the effort to consolidate the service

providers for your DC plan from four providers to one?

AIMEE: It was a “perfect storm” of a number of factors. We’d

seen a big change in the provider market, and we saw a growing

dominance of open-architecture offerings. There had been some

big shifts in technology. And, at the same time, we saw the huge

downturn in the financial markets. And that affected our participants

in terms of the hardship in getting ready for retirement.

planLink: What reactions did you encounter?

AIMEE: Our participants equated multiple vendors with

choice. We had to help them understand the concept of an

open-architecture platform and that they didn’t have to sacrifice

investment choices by going with one vendor. That was the

hardest hurdle.

Once people had the information, it was a lot easier to

build consensus.

In the public sector it’s important

to build consensus among very

different stakeholders.

It became clear that it was more important than ever to

provide top-notch tools and competitive investments at

the most competitive pricing available and be able to reach

employees in a way that they were most comfortable.

planLink: Change can be a daunting undertaking in a large

organization. How did you begin?

AIMEE: In the public sector it’s important to build consensus

among very different stakeholders. We have key leaders in the

management team. We have our board of supervisors. We have

a wide variety of employee groups, such as unions, and the

employees themselves. The first part was to build consensus

among as many of those stakeholders as possible. I’d love to say

there was a secret ingredient, but it was really just hard work.

We developed a communication program that educated people

about what was available in the market, and the impact a

consolidation could have on the participant experience and

the participants’ ability to build a sound retirement.

So we struck a balance between delivering a very complex

message, but also not dumbing that message down to employees.

You have to be able to communicate with them in the way that

they’re the most comfortable. They want the information, they

want the education. Striking that balance was critical for us.

planLink: When you were out there making your case, what

resonated most with participants?

AIMEE: One of the slides that got the most gasps from the audience

was where we showed, in 25 basis points, the difference

that an expense ratio could make. We used real-life examples

using data from our own population, and showed what difference

that could make over a period of five, 10, and 20 years. It

helped people understand what they were paying a vendor that

was offering less competitive pricing. I think that was a big aha

moment.

We were able to convey what more we could do with a consolidated

vendor, services that we’d never been able to offer

before. Things like online enrollment and online deferral

changes. Getting rid of piles of paper for the county and making

it easy for employees to access their account information.

That was key.

planLink: What happened next?

AIMEE: Once we gained consensus that consolidation was the

right thing for us, we went through a very complex solicitation.

I would have to say that part of the success of the consolidation

was in the solicitation itself.

14 PlanLink : july 2012

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Plan Sponsor Profile

We took a very different approach to the RFP in terms of trying

to convey our strategy, setting minimum qualifications, and

outlining our expectations of a vendor. So when the proposals

came in, we were able to get a good feeling for their capability

and for their pricing, of course, but more important, for the

kind of partners they would be.

We were looking for a partner, and I truly feel that we found one.

planLink: You mentioned the importance of articulating

your plan’s strategy. Can you describe the vision and strategy

for your plan?

AIMEE: First and foremost, to provide usable tools for our

employees to build financial security. There are several key

components to that. First is offering the best portfolio of

investment alternatives that we can, at the most competitive

prices. Next, providing tools that empower participants to

manage their accounts and to gain the information they need

to work with those accounts. And finally, communication

is a cornerstone. Being able to deliver communication in a

multichannel environment, or what we call channel of choice,

so that folks can access information the way they learn best.

That could be on site, it could be via the Web, it could be via

print campaigns. Being able to leverage all of those different

communication channels to provide information. That’s

the underlying part of our design strategy. We’ve certainly

enhanced our program and added a number of features that

weren’t possible prior to the consolidation, but I think we have

to go back to basics when talking about strategy.

planLink: Describe the plan experience as it is today.

How has it evolved?

AIMEE: Prior to the consolidation, everything was done on

paper. I think we killed whole forests. To change a deferral

percentage, you had to fill out a form and get the form to us.

Then we had to enter it into one of four vendor systems.

Everything was harder for an employee.

Now they can leverage integrated tools to get information

on their account and access education. We have a very active

employee education campaign. We provide regular workshops

on site, which give employees the opportunity to meet with

T. Rowe Price representatives. Our employees really enjoy that.

We’ve also provided a number of new features. We added an

after-tax feature, a loan feature, and put in a brokerage window.

We’ve enhanced our portfolio. Prior to consolidation, I think

we had 78 funds. You’d think we had everything covered, but

actually, we just had a lot of redundancy.

planLink: What is the most urgent challenge you face in

managing your plan today?

AIMEE: There are a couple of challenges. Obviously, market

volatility and teaching people how to ride through that market

volatility—that’s very difficult.

Teaching people how to assess their risk tolerance and balance

that against their retirement horizons, teaching people that

they need to be in the program in the first place, and how to

figure out how much they need to be saving—big challenges.

Overall, I think the biggest challenge is not allowing ourselves

to become complacent. We must capture the energy

that we put into this massive consolidation of hundreds of

millions of dollars, and all these participants.

I don’t consider the implementation of a consolidated vendor

as the end of our journey. It’s just the beginning.

planLink: What’s your favorite part of the job as a plan

sponsor?

AIMEE: When I’m out at a meeting and somebody comes up

to me and says, “I got it. I got the message. I understand what

you were saying and I understand how to use the tools you’ve

provided.”

planLink: What advice would you give to a peer just starting

out in the role of plan sponsor?

AIMEE: Get close to your participants and your vendor. Listen

to your participants and understand their needs. There’s a

tendency for plan sponsors to design back at the office and not

listen to what participants want and need. There’s also a tendency

to underestimate the information participants want and

the complexity of information they can understand.

It’s absolutely critical that you engage in what I call respectful

communication. Treat your participants as partners. And treat

your vendors as partners because you’re all trying to achieve

one goal.

rps.troweprice.com/sponsor PlanLink : july 2012 15


compliance update

A Quiet Offensive

Congress takes a low-key, incremental

approach to retirement plan issues

Written by Derek B. Dorn, Davis & Harman LLP

When it comes to retirement plan policy, some lawmakers

are working to prove that Congress can, in fact, walk and

chew gum at the same time.

Certainly, the nation’s tenuous fiscal situation, combined with

imminent tax cut expirations and pending budget sequesters,

ensures that deficit reduction and tax reform will continue to

dominate Congressional agendas. As my previous planLink

article explored, that focus puts retirement plan incentives

very much on the defensive. But there’s also a quiet offensive

underway: With less fanfare, some members of Congress are

working on legislation to simplify plan administration and

expand plans’ reach. Let’s examine the leading proposals and

assess their prospects.

ELECTRONIC DISCLOSURE AND NOTICE CONSOLIDATION

While Americans are increasingly relying on electronic

methods to access their financial information, the regulatory

framework for retirement plans has not kept pace. Today, four

separate standards govern electronic delivery of required plan

notices, disclosures, and statements. The most favorable among

these is found in a Department of Labor Field Assistance

Bulletin (FAB), which authorizes a plan sponsor to post a

quarterly benefit statement on a continuous access secure

website, as long as the participant is notified of how to access

the website and of the right to receive free paper statements.

But other required disclosures are governed by three additional

standards, ranging from “effective ability to access” electronic

media to such access being an “integral part” of the employee’s

duties. This dizzying array leaves many confused as to which

standard applies and how to satisfy it. And the continued

reliance on paper drives up costs considerably. In fact, the

majority of plan sponsors surveyed by the American Benefits

Council reported that “cost savings from using the FAB

approach versus mailed paper notices is between 50% and 75%

of the cost.”

Despite recent overtures (including a Request for

Information), it appears unlikely that the Department of

Labor (DOL) will significantly amend its regulations to

expand e-disclosure. The DOL’s recalcitrance has shifted

the issue to Congress, and some members are looking at

modifying the underlying statutes to harmonize standards.

Most notably, Congressman Neal’s (D-MA) Retirement Plan

Simplification and Enhancement Act would generally extend

the FAB approach to all plan-related notices, disclosures, and

statements by codifying that approach in the Tax Code and

ERISA (and thus limiting regulators’ discretion). Alongside

this proposal, Neal is reportedly working with House and

Senate colleagues in both parties on standalone legislation

that would substantially mimic this provision of his

comprehensive bill. We anticipate the coming introduction

of such a bill around which the plan community can rally.

As part of the same initiative, the members are considering

a mandatory review of all reporting and disclosure

requirements, with an eye toward consolidating them, to

promote simplicity and understanding.

Several bills consider Multiple Employer Plan

challenges

On the heels of several hearings on barriers to small

businesses offering plans, several members have directed

their attention to the regulatory infrastructure for multiple

employer plans (MEPs). Under an MEP, employers pool

contributions at the plan level, and all participating employers

agree to be bound by a single plan document. For some, MEPs

may be attractive because of potential economies of scale

and administrative efficiencies. But while MEPs have long

been around, they suffer from some uncertainty, primarily

regarding the extent to which a disqualifying failure by one

plan adopter will “taint” the entire plan’s entire qualification.

More recently, DOL officials have issued sweeping guidance

concluding essentially that unrelated employers cannot adopt

an “open” MEP.

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compliance update

Several bills would address these issues. The most

comprehensive approach is taken in the SAVE Act of 2011,

introduced by Congressmen Reichert (R-WA) and Kind

(D-WI). Their bill would confirm the ability of unrelated

employers to adopt an open MEP, without concern that the

arrangement would be treated as separate plans under ERISA,

while clarifying that there is no “bad apple” rule. Senate Aging

Committee Chairman Kohl (D-WI) has announced his intention

soon to introduce a similar bill with Senator Enzi (R-WI).

QACA Safe Harbor could see adjustment

To encourage 401(k) plans to adopt automatic enrollment, the

Pension Protection Act of 2006 created a new nondiscrimination

safe harbor, known as a qualified automatic contribution

arrangement (QACA). To qualify as a QACA, an elective

contribution must satisfy a schedule, beginning at 3% for the

initial year and ultimately reaching 6%. Under current law, an

employer can voluntarily raise the schedule to as high as 10%.

That ceiling stands in the way of levels that are now believed

to be more appropriate. Many plan sponsors would like to go

higher—but are chilled by the prospect of losing the safe harbor.

Congressman Neal’s bill would remove the 10% safe harbor

and authorize the Treasury Department to prescribe

regulations increasing the minimum percentages by as

much as eight percentage points.

Defined Benefit plan funding measure stalls

The Pension Protection Act imposed strict funding

requirements on defined benefit plan sponsors. But historically

low interest rates are creating crushing liabilities for many

plan sponsors. To help blunt the impact of low interest rates,

some members have proposed stabilization measures. The

Senate-passed highway bill would provide short-term relief by

basing pension plan interest rates not on the two-year average

(as current law requires) but rather on an adjustment to ensure

rates are within 10% of the 25-year average of interest rates.

That 10% corridor would increase by 5% each year until it

reaches 30% for 2016 and thereafter. Unfortunately, that bill

remains stalled due to broader politics surrounding highway

policy. The same approach is reflected in a bill introduced

by Senator Harkin (D-IA), who chairs the Senate Health,

Education, Labor & Pensions Committee. Because funding

stabilization would allow plan sponsors to delay making

contributions, moneys that would otherwise have been

contributed can be spent in taxable manners. Thus, the measure

would raise revenue for the Treasury—which in this austerity

atmosphere may prove the ultimate driver for its enactment.

Lifetime income is on the radar

After years of focus on asset accumulation, Congress is

increasingly attuned to drawdown challenges. The leading bill

in this area is the Lifetime Income Disclosure Act, introduced

in both chambers on a bipartisan basis. With a goal of making

employees aware of the risk of outliving their assets, the bill

would require plan sponsors to include, once a year on an

ERISA benefits statement, the annuity equivalent of a plan

balance. The bill would direct the DOL to issue assumptions

on which employers may rely in computing the annuity

equivalent, along with a model disclosure. While the Senate

has held a hearing on the bill, the House has not. But even if it

does not pass Congress, the existence of such a bill can provide

an important nudge to the regulators, who can exercise their

authority to achieve the same result.

Enhancements will likely depend on incremental

approach

To paraphrase Bismarck, legislating is a lot like sausagemaking.

It can be rather unappealing to watch lawmakers pack

as much as they can into “must pass” legislation, and a lot of

raw material inevitably ends up on the floor. But the reality

is that comprehensive retirement legislation is rarely enacted

on a standalone basis. Most consider the Pension Protection

Act a once-in-a-generation modernization of the nation’s laws

governing private retirement plans, and it will likely be years

before Congress considers another bill of such broad scope.

Until then, if any plan enhancement measure becomes law,

it will likely result from supporters’ success in appending the

measure to a bill certain to proceed (such as legislation to fund

government operations or extend tax rates). The prospects

for such a strategy increase dramatically when a proposal

enjoys bipartisan support, when plan sponsors and participant

advocates both support it, and—especially in today’s fiscal

climate—when the proposal has no cost to the Treasury.

Derek B. Dorn, a partner of Davis & Harman LLP,

leverages Washington know-how and technical

proficiency to help clients advance priorities

through the policymaking process.

His practice concentrates on legislative and

regulatory matters related to taxation

and benefits. Derek represents a range of

corporations and organizations and is a leading

expert on retirement policy issues.

rps.troweprice.com/sponsor PlanLink : july 2012 17


Participant Pulse

Planning for a

happy retirement

maintaining a sense of identity

Employees may lose more than a

paycheck when they leave work.

That’s why researchers in the field of

happiness say it’s important for them

to maintain friendships and discover

a new sense of purpose.

While saving and planning for an income

stream are important, employees can’t

prepare for a successful retirement strictly

by the numbers. Account balances are an

important consideration, but there’s also an

emotional component that is often neglected.

Overlooking that component means even

those who have their financial house in

order may not be nearly as ready to retire

as they think.

“When we imagine the future, we leave out

a lot of pertinent details. As a result, we can

get so focused on the financial aspects of

retirement that we neglect other really important

details…who we will be and what we will

do,” says Stuart Ritter, CFP®, a senior financial

planner with T. Rowe Price.

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Participant Pulse

Preparing to be happy

Jobs provide us with much more than a salary. They can be

a key part of our personal identity and give us a major sense

of purpose in our lives. In addition, some of our strongest

personal relationships may be tied to the workplace.

A sense of control may have the most impact

Research shows that it’s important for people to leave work on

their own terms. Bender notes that “the biggest impact on how

satisfied people were with their retirements…was whether they

wanted to retire at the time they did.” 1

Before retiring, participants should consider the non-financial

benefits of work and plan for how they will compensate for their

loss. Experts such as Keith Bender, co-author of What Makes a

Retiree Happy, have suggestions for retirees that can also help

current employees prepare for a more satisfying retirement:

Stay active. Leaving work can create a huge void that

needs to be filled. While many participants start out viewing

retirement as a time when they can simply relax, they

may soon be looking for ways to stay busy.

Work part time. Taking a part-time job can be a good way

to stay involved and earn extra money. Participants may be

able to find something related to a hobby or interest—for

example, working at a golf course or an art gallery.

Volunteer. People who give money to charities often find

it’s even more rewarding to donate their time. Due to the

recent economic downturn, many charities need volunteers

to help maintain their services.

Stay connected. Maintaining friendships is a key part

of happiness in retirement. In addition to connecting

with existing friends and family, membership in clubs

and organizations can be a good way to meet people

with similar interests.

Preretirees might consider “Practicing

Retirement”

While most people envision a blissful retirement spent indulging

in all their favorite activities, the reality may not match that

dream. Those who plan to spend most of their time pursuing

hobbies such as traveling by RV or photography may want to take

several weeks vacation and immerse themselves in that activity.

Christine Fahlund, CFP®, a senior financial planner at T. Rowe

Price, explains, “you’ll discover whether you love the experience—

and, if you do, you can start making financial preparations. Most

big retirement goals—traveling or buying sophisticated photographic

equipment—require expensive upfront purchases.”

Participants can also benefit from learning about the experiences

of other retirees. People tend to idealize the future and

assume that the things that appeal to them now will still make

them happy in 10 or 20 years. A better solution is to simply

talk to retired people who are actually involved in the activities

participants want to pursue. This is an easy way to find out

whether they are painting a realistic future for themselves.

To help ensure that they’ll be financially ready to retire when

they want, employees should maintain their savings strategy

and even increase their contributions, if possible. Of course,

workers can’t always control their employment destiny. Macroeconomic

factors and the fiscal health of their employers may

also play a role.

Synthesizing happiness

In his book Stumbling on Happiness, Harvard psychologist and

T. Rowe Price Forum 2012 guest speaker Daniel Gilbert notes

that humans have the ability to recover from negative events in

their lives and look back on them later as a positive. He refers

to this as “synthesizing happiness.”

This lemonade-from-lemons concept can be useful for recent

retirees, who are embarking on a completely new experience

and are likely to suffer at least a few setbacks. By placing these

events in perspective and realizing they are unlikely to have

a long-term effect on their happiness, retirees can maintain a

sense of perspective when things don’t go exactly as planned.

“Natural happiness is what

we get when we get what

we wanted, and synthetic

happiness is what we

make when we don’t get

what we wanted.”

— Daniel Gilbert

Since most people can expect a longer retirement than their

parents, it is important that they be fully prepared to enjoy

this time. Plan sponsors can help by stressing both the

financial and emotional aspects that go into creating a happy,

secure retirement.

To view Mr. Gilbert’s Forum 2012 presentation, visit

troweprice.com/forum2012.

1

Are Clients Ready to Retire? by Dan Moisand, from The Retirement Advisor

rps.troweprice.com/sponsor PlanLink : july 2012 19


Investment Perspective

What’s all

the chatter about?

Volatile markets, fiduciary risks, and concerns about retirement

readiness are stirring up a lot of discussion around investment

lineups. Here’s what’s rising to the top.

T. Rowe Price investment specialists

Craig Keim

(team leader)

Mark Andrusis Adam Brown Joe Martel Toby Thompson

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Investment Perspective

Every plan sponsor wants an effective investment

lineup. The right solutions, however, don’t always

come easy. But that doesn’t discourage our team

of investment specialists.

Their mission: Listen to concerns expressed by plan

sponsors and then explore ways to refine investment

lineups in ways that encourage appropriate investment

behavior. At the same time, they keep a sharp

focus on helping sponsors manage fiduciary risks

associated with investment offerings.

planLink recently conducted a roundtable discussion with several

T. Rowe Price investment specialists to talk about the most

pressing investment concerns expressed by plan sponsors.

DEVIATING FROM POLICY SPELLS TROUBLE

planLink: Market volatility seems to have changed the playing

field. How is it driving decisions today?

ADAM: Plan sponsors are coming under more pressure to

deviate from the investment lineup they want to establish. They

are pressured by participants—and sometimes by industry

players—to add, say, a pure emerging markets or a standalone

real assets option that has recently shown strong performance.

And this can set the stage for allocation problems.

JOE: Having these standalone specialized options in the core

lineup isn’t such a problem if the company has a DB plan. The

401(k) plan may be nothing more than a supplemental plan

in these cases. But where the 401(k) is the main vehicle for

retirement savings, the risks of offering standalone, potentially

volatile specialized options often outweigh the benefits.

planLink: What are the red flags that indicate a plan may be

heading for difficulties?

planLink: We’re now into the third year of a somewhat tepid

recovery from the market upheaval of 2008 and 2009. Markets

and regulations have triggered investment option concerns

among participants as well as plan sponsors. What issues seem

to be rising to the top?

CRAIG: Market volatility over the last two to three years,

coupled with the regulatory environment—which itself is largely

a response to the volatility—has refocused a lot of plan sponsors

on their fiduciary responsibilities pertaining to the lineup.

ADAM: Sponsors are now far more aware of their fiduciary

risks, and that brings out a lot of lineup questions: “What are

we missing? What’s going on in international? What’s going on

with alternative asset classes, like real assets (e.g., gold, oil, and

real estate)? What can we do to fill out our lineup?”

MARK: We’re also seeing sponsors relating performance with

expenses and taking a closer look at lower cost structures, such

as common trusts.

CRAIG: You see a large number of options and a fast turnover

of funds. Also, the lack of an investment policy and a formalized

fiduciary review process.

MARK: Putting a policy in writing helps remove emotion

from the decision-making process. When a plan has a structured

investment policy statement, the plan sponsor is not

likely to make rash decisions without examining the consequences

of such actions.

“Putting a policy in writing

helps remove emotion from

the decision-making process.”

—Mark Andrusis

rps.troweprice.com/sponsor PlanLink : july 2012 21


Investment Perspective

NEW ASSET CLASSES HAVE THEIR PLACE

planLink: We’re hearing more about new asset classes.

How are they being used in DC plans?

TOBY: Asset classes such as emerging market stocks and

bonds, high yield bonds, TIPS, and other inflation hedges

such as real assets (real estate, infrastructure, and commodities)

are certainly getting greater attention these days.

However, I’m not hearing sponsors talk about adding them as

standalone options so much as they are asking about how they

are being used in more broadly diversified strategies, such as

target-date funds.

Note: The principal value of target-date funds is not guaranteed

at any time, including at or after the target date, which

is the approximate date when investors plan to retire. These

funds typically invest in a broad range of underlying mutual

funds that include stocks, bonds, and short-term investments

and are subject to the risks of different areas of the market. In

addition, the objectives of target-date funds typically change

over time to become more conservative.

planLink:

Are these new asset classes just a fad?

TOBY: Not really. All of these asset classes have been

around a long time as part of broadly diversified portfolios.

It’s just that many of them are getting more attention now

in defined contribution plans as defined benefit plans continue

to become scarcer.

Many of these asset classes are more narrowly concentrated.

They require a lot of oversight and rebalancing, which makes

them difficult to have in the core lineup. So they are coming

along in the right way—in target-date products. This gives investors

all the benefits of diversification and enhanced return

potential while leaving the oversight and rebalancing to the

investment professionals.

ADAM: Some clients are concerned with a potential liquidity

issue regarding these new asset classes. There is, however, a way

to work around this. Instead of a fund buying the assets—the

commodity contracts, the gold bullion, the real estate—it can

buy the stocks of companies with significant exposure to these

assets. These “pure play” companies track well over a longer

period of time and still have liquidity.

We’re also getting questions about whether these assets are

detracting from the rest of the portfolio. This is a popular debate

in the industry. When you look at it from a long-term historic

perspective, you see that the potential return enhancement of

alternative assets tends to provide greater downside protection for

portfolios during inflationary environments. So, a lot will depend

on what kind of inflation conditions we’ll see in the future.

INTERNATIONAL EQUITIES: EXPANDING OPPORTUNITY SET

planLink: International equities have been attracting

attention from plans lately. Why is this?

ADAM: There’s an enormous amount of market cap outside the

U.S. Globally we’re looking at about 70% outside the U.S., and

that’s up from about 53% in 2000. But what we’re seeing is a persistent

“home bias”—participants feeling more comfortable in their

own domestic markets. Depending on the survey, 401(k) participants

allocate on average only 7% to 15% to foreign equities.

We do, however, see that participants are becoming more aware

of what’s going on globally. So there’s recognition of a need to

expand into this wider opportunity set. It’s not necessarily a matter

of diversifying—after all, correlations of non-U.S. and U.S.

equities have been trending higher over the last 10 years. Instead,

it’s a matter of gaining exposure to a larger opportunity set, especially

in regions and countries with higher expected growth.

“...what we’re seeing is a persistent

“home bias”—participants

feeling more comfortable in their

own domestic markets.”

—Adam Brown

22 PlanLink : july 2012

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Investment Perspective

planLink:

How are plan lineups responding to this?

planLink:

Are there downsides to inflation hedges?

TOBY: International options certainly aren’t new to DC plans.

But over the last decade we’ve seen more and more use of emerging

markets in a more dedicated way inside broad international

strategies or in target-date structures. Portfolio managers are

using it more opportunistically. In fact, many international

strategies have now moved to international benchmarks that

have dedicated allocations to emerging markets.

We’ve also seen a few plans add global funds. Global strategies

generally have a large portion of holdings in the U.S. and

participants may not fully understand this. I think many of us

would agree that the quickest way to get participants up to a

more appropriate international allocation is not by adding funds

like emerging markets and global, but to encourage the use of

target-date funds.

MARK: That’s right, because some asset classes like these tend

to be “buy high and sell low” traps. Participants may only look

at short-term performance numbers without considering what

drove the investment performance.

INFLATION HEDGES: BEST LEFT TO PROFESSIONALS

planLink:

What about inflation hedges?

TOBY: I haven’t gotten a lot of questions about inflationfocused

strategies, such as TIPS funds, but I certainly get

questions around interest rates and inflation that might be on

the horizon.

Everyone’s asking, “Are interest rates going to go up or not?” If

you have been betting on rates rising, you have been wrong for

more than 30 years now. We don’t try to predict rates, but we do

feel it is important for us and sponsors to caution participants

against riding the low interest rate trend too far—against backing

away from equities when you’ve got a long-term goal.

The questions we hear around inflation hedges seem to center

on their use in target-date products and not so much on adding

standalone TIPS, commodities, or real asset funds.

TOBY: There could be if over a long period of time we have

little or no inflation. That’s why it’s best to provide exposure

to inflation hedges inside target-date funds.

JOE: Professional managers can manage allocation with that

in mind. But participants might not be able to. This is always a

risk with any one-off asset option in a core lineup—there’s no

way to prevent a participant from allocating 40% or 50%. You

could limit allocations, but what about the fiduciary responsibility

of doing that?

“This is always a risk with any

one-off asset option in a core

lineup—there’s no way to prevent

a participant from allocating

40% or 50%.”

—Joe Martel

It’s important to remember that inflation hedges—particularly

real assets—serve a dual mandate: inflation protection and

diversification. They generally have low correlations with equities,

so they can dampen some volatility. While there could

be some drag on a portfolio at times, there is some value in

having them help control volatility even if we are entering into

a period of zero-to-low inflation.

INDEX OPTIONS CAN COMPLEMENT ACTIVE LINEUP

planLink:

What’s driving the trend to add index funds?

CRAIG: We’re seeing plans that have always had just an

S&P 500 in the lineup begin to add index options in the fixed

income space, in the international space, and in the domestic

mid- and small-cap space. Some plans are aiming to provide a

full range of index options for those wanting to build a diversified

portfolio using just index options. They’re adding them

more as a complement, rather than a replacement to actively

managed options.

rps.troweprice.com/sponsor PlanLink : july 2012 23


Investment Perspective

planLink: Are any sponsors wanting to reduce fiduciary

risks by going all passive?

planLink: What advice would you offer for sponsors

considering trusts?

CRAIG: While there seems to be a common perception

among some sponsors that going all passive can reduce risk,

we’d suggest that sponsors might be better served by giving

participants that choice rather than making it for them. There

is always the potential of participants saying, “I was locked

into these index options and didn’t have the opportunity to

take advantage of active management.” This could happen if

we go through a long-term outperform period when we see

active managers outperform.

TOBY: Pure passive options, especially in the case of target

dates, typically have strategic allocations to very broad areas.

This means they don’t delve into areas such as emerging markets

and high yield bonds, where there are limited ways to access

them passively. Active managers, on the other hand, often

use these areas opportunistically. They use them to help diversify

portfolios, reduce risks, and enhance potential returns.

Note: Diversification cannot assure a profit or protect against

loss in a declining market.

MARK: It’s important to understand your participants. Ask

yourself: “Will this investment discourage employees from participating

in the plan?” “Will they understand this type of vehicle

versus a mutual fund?” If you have a moderately sophisticated

employee base that can go online and look at their investment

options, they can easily see the benefit of a low-fee investment

vehicle versus that of a mutual fund.

LINEUP CHANGES CONTINUE STRONG PACE

planLink:

How would you characterize this year’s activity?

CRAIG: Lineup change from plan sponsors is still trending up.

Sponsors, carrying over from last year, are continuing to make

lineup changes; some on the margins and some going through

wholesale changes.

planLink:

Is that a good thing?

COMMON TRUSTS OFFER HELP WITH EXPENSES

planLink: One last trend—more plans are looking at switching

to common trust vehicles. What’s driving this?

MARK: Expenses continue to be a hot topic, partly because

of new disclosure requirements, but also because of the performance

returns over the last three and five years. More sponsors

and participants are starting to understand the benefit of lowercost

investment vehicles.

Plan sponsors are examining all types of institutional products.

Demand has picked up considerably for trust products, and

third-party vendors like Morningstar are starting or expanding

their databases on the products.

CRAIG: While there may be pitfalls to some changes, being

actively engaged in monitoring lineups is always a good thing.

And when the actions are based on sound concerns about

market volatility, market uncertainty, or regulatory uncertainty,

I would say the changes are generally a good thing.

“While there may be pitfalls

to some changes, being actively

engaged in monitoring lineups

is always a good thing.”

—Craig Keim

To access papers on topics discussed here, go to rps.troweprice.com/sponsor and select Ideas and Insights/Investment Management.

Call 1-800-922-9945 to request a prospectus, which includes investment objectives, risks, fees, expenses, and other

information that you should read and consider carefully before investing.

T. Rowe Price Investment Services, Inc., distributor, T. Rowe Price mutual funds.

24 PlanLink : july 2012

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Inside Price: Forum

Trust and teamwork: working

together for employee success

T. Rowe Price’s annual client conference gives plan

sponsors a unique opportunity to network with their

peers and spend dedicated time learning about

retirement issues with industry experts.

This year’s program was designed to bring the sharpest

minds in the industry together to discuss key

concepts such as fiduciary obligation, the participant

experience, and retirement income.

We have provided a brief summary of select presentations.

For a detailed review of each presentation, as

well as conference videos and photos, visit

troweprice.com/forum2012.

Cynthia Egan: Forging a strong partnership

with plan sponsors

“We truly believe that our past success and the success we

will achieve in the future is only accomplished through

teamwork and trust,” Cynthia Egan, president of T. Rowe

Price Retirement Plan Services, said in her opening

remarks. “Integrity, insight, and innovation are the foundation

of our commitment to you, as well as the basis for

your confidence in T. Rowe Price.”

Egan highlighted T. Rowe Price’s approach to partnering

with sponsors by expanding on the three key themes

mentioned above:

Integrity: Sticking to core principles, including

investing for value and avoiding fads, providing superior

services to employees, and helping to ensure corporate

stability through a debt-free balance sheet.

Insight: Working closely with sponsors to provide the

essential information they need to succeed in their fiduciary

role and help employees meet their retirement goals.

Innovation: Driving smart and relevant solutions

that speak to the needs of sponsors and participants,

from new mobile apps and the Retirement Income

Manager to a growing presence in media such as

Facebook, Twitter, and LinkedIn.

rps.troweprice.com/sponsor PlanLink : july 2012 25


Inside Price: Forum

Dynamic sessions directed to key sponsor goals.

The Participant Experience

Fiduciary Considerations

Managing Your Fiduciary Responsibilities

Bradford P. Campbell, partner at Drinker Biddle & Reath

LLP and former assistant secretary of labor for employee

benefits, shared the latest ERISA regulations and how they

impact the role of the fiduciary.

• Advised that fiduciaries have a better chance of being

successful if they act in accordance with the law, follow

processes specified in their plan documents, review their

plans, and document decision-making.

• Encouraged sponsors to think of each plan as its own

little world since one plan can’t be disadvantaged to

benefit another one.

Understanding and Evaluating Plan Fees

Joni Noel and Christina Wilcox of T. Rowe Price joined

Bradford P. Campbell of Drinker Biddle & Reath LLP and

Elizabeth Handel of Kindred Healthcare to provide useful

guidelines for dealing with plan fees.

• Reiterated that under 408(b)(2) the DOL requires existing

and potential service providers to disclose all fees

to plan sponsors starting July 1, 2012.

• Informed attendees that T. Rowe Price has partnered

with a third-party provider, Fiduciary Benchmarks, Inc.,

to offer fiduciary benchmark reports to plan sponsors

in order to drive best practice considerations.

The Science Behind What Makes Us Happy

Daniel Gilbert, professor of psychology at Harvard University,

spoke about how people make choices and decisions.

• Described the errors we all make in predicting our own

happiness due to “imaginability errors,” the “optimism

bias,” and “disappearing comparisons.”

• Demonstrated how our unique ability to imagine the

future doesn’t necessarily correlate with our ability to

predict our own happiness once we get there.

Key Concepts for Driving Smarter Participant

Decisions

Stuart Ritter, CFP®, a senior financial planner for T. Rowe

Price, shared his thoughts on how we influence participants’

decisions whether we know it or not.

• Observed that participant nonaction does not mean

non-intent. Often people do not have the time to do

the things they intend to do.

• Urged awareness of how participants are influenced by

anchors like company match percentages: There is no

such thing as neutral plan design.

Focusing Employees on the Best Steps They

Can Take Today

Mary Ellen Whiteman, Kristen Acuto, and David Daniel

of T. Rowe Price explained how to help employees make wise

financial decisions.

• Highlighted T. Rowe Price’s focus on making participant

interactions more personalized, holistic, and practical.

• Announced that we will be rolling out participant oneon-one

consultations with retirement specialists in July

2012 to help guide individuals based on their holistic

financial situations. (Learn more about the participant

experience in our Cover Story beginning on page 4.)

26 PlanLink : july 2012

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Inside Price: Forum

Retirement Income

Landscape, Strategies, and Solutions for

Navigating Today’s Retirement Income Realities

Rachel Weker and Jill Wharton of T. Rowe Price reviewed the

environment retirees will face and discussed how we can help

them.

• Explained why today’s retirement may or may not be

about work.

• Noted that T. Rowe Price offers a number of accumulation

and distribution solutions to help employees evaluate,

implement, and monitor plan sponsors’ retirement

income strategies.

Trends and Best Practices Around Target-

Date Funds

Jerome Clark, Michael Skinner, and Bob Ihle of T. Rowe

Price joined Josh Charlson of Morningstar, Inc., to explain

why the tremendous growth target-date funds have seen over

the past 10 years is predicted to continue.

• Noted that to maintain the robustness of target-date

funds, T. Rowe Price focuses on four primary areas to

manage shortfall risk: participant longevity, market

fluctuations, inflation, and participant implementation

(withdrawals, spending, etc.).

• Set out the philosophical differences around glide-path

design within the industry: T. Rowe Price believes in a

glide path that goes through retirement and corresponds

with longevity data.

PLAN Sponsors share their feedback

on the event

The 2012 client conference brought together plan sponsors

and industry experts in an enjoyable atmosphere at the

JW Marriott San Antonio Hill Country Resort & Spa.

“ Great event. I’m leaving with a ton of ideas and am

energized from the event.”

“ It’s the T. Rowe employees—their willingness to engage

with the client—that make the conference special. They

show a genuine interest in their clients.”

“I think each year, this Forum is going to be a tough one to

follow. But each year you manage to improve it and make

it better than the year before.”

Total Employee Benefits Panel

Marina Edwards, from Towers Watson, led a panel of leaders

in the field of human resources and benefits management who

shared case studies around improvements to their employee

benefit offerings.

• Kristen Brown of JetBlue discussed how her organization

built stronger vendor relationships through workshops

focused on JetBlue values and customer service.

• Susan Gagne of Thermo Fisher Scientific discussed how

a blueprint approach to benefit programs helped integrate

new organizations during mergers and acquisitions.

• Aimee Lowry demonstrated how she has helped Fairfax

County modernize its retirement benefit plan based on

the changing needs of the participant population, focusing

on open and honest communication with all key

stakeholders.

• Gretchen Park from T. Rowe Price’s benefits department

shared a current company initiative focused on preventative

health care that is designed to improve employee health and

drive down costs.

Join us for Forum 2013

May 13-15

Hyatt Grand Champions Resort, Villas and Spa

Indian Wells, California

grandchampions.hyatt.com

Look for more information later this year.

rps.troweprice.com/sponsor PlanLink : july 2012 27


Product News

Portable,

Actionable,

& Accessible

A look at our technology development pipeline

and what it means for you and your employees.

28 PlanLink : july 2012

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Product News

New app for iPhone keeps account information close at hand

In addition, the app for iPhone provides increased functionality

and includes account growth graphs and pie charts,

retirement income estimates, and account and performance

information.

The T. Rowe Price Personal App for iPhone is available

for download through the App Store. Just search for

T. Rowe Price.

Benefits to plan sponsors include:

• The ability to meet employee requests and expectations

for development of mobile apps with account access

functionality

In a world of 24/7 connectivity, people are engaging with their

finances in more ways than ever before. The recently launched

T. Rowe Price Personal App for iPhone® gives your employees

a new way to stay connected with their investments—anytime,

anywhere. This free application complements the T. Rowe Price

mobile website by continuing to provide fast and secure on-thego

access to retirement plan and individual investor accounts,

including the ability to check and review account balances,

transaction history, and investment information.

• Being able to point employees to a resource that can help

them to take a more active role in their retirement planning

on a regular basis

Benefits to plan participants include:

• Provides users another tool to access their accounts quickly

so that they can monitor how they are doing, a stated need

identified through user research

• Intuitive charts and graphs provide easily digestible and

scannable information and statistics about accounts

What our experts are saying

“By providing participants with a user-friendly resource

that they can conveniently access anytime, anywhere, this

app makes accounts visible 24/7. Plus, it’s a way for them

to become more engaged with their retirement savings.”

—Matt McOsker, Product Development, T. Rowe Price Retirement Plan Services, Inc.

iPhone is a trademark of Apple Inc., registered in the U.S. and other

countries. App Store is a service mark of Apple Inc. T. Rowe Price and

Apple are not affiliated companies.

rps.troweprice.com/sponsor PlanLink : july 2012 29


Product News

Free online Social Security tool provides personalized guidance

and actionable insights

Benefits to plan sponsors include:

• The ability to direct participants who are contemplating

retirement—or perhaps assisting their parents who are—

to a pragmatic tool that can help to simplify an extremely

complex topic, suggest and illustrate appropriate strategies

given their goals, and inform users of the potential longterm

consequences of each

• The ability to provide employees with a more holistic look

at their overall retirement readiness—which in many cases

will be more optimistic than they had assumed

Social Security retirement and survivor benefits are—and, for

the foreseeable future, will remain—a critical source of income

throughout retirement. To help employees navigate these complex

and often confusing benefits, T. Rowe Price will soon launch a

free online Social Security tool that will help users to explore

strategies regarding how and when to claim Social Security.

Unlike the tools in the marketplace today, which tend to illustrate

only how to maximize one’s Social Security benefits, the

Social Security Benefits Evaluator will focus on each user’s

unique goals and life situation—a crucial starting point for any

employee planning for retirement. The tool will provide clear,

personalized guidance on next steps to help users put their

strategy into action. Employees are encouraged to discuss

their results and findings with a financial professional. This

interactive tool will be conveniently located under the Tools

tab on the participant website.

• The possible increase in retention of plan assets if participants

decide to increase their level of guaranteed, inflation

protected income through Social Security

Benefits to plan participants include:

• Realization that they may have several goals (and corresponding

strategies) to choose from for taking Social Security

benefits—not only in terms of “when,” but also “how”

• The chance to explore potential opportunities that may

benefit their spouse

• Simple step-by-step instructions for implementing the

Social Security strategy of their choice

What our experts are saying

“Our Social Security online tool is unique because it focuses on helping individuals

and married couples achieve their own personal retirement income

goals. It’s also easy to use and understand—three simple steps and you have a

suggested strategy for taking benefits, as well as specific information about the

financial impact the strategy may have on your long-term retirement income.”

—Christine Fahlund, CERTIFIED FINANCIAL PLANNER TM

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Product News

Social media platforms improve access to engaging, thoughtful content

Social media platforms improve access to engaging, thoughtful content

To enhance the accessibility and utility of investor education and to create greater opportunities for the public to engage with

the firm, T. Rowe Price launched a robust social media initiative this past February. Through Facebook, Twitter, YouTube, and

LinkedIn, the firm connects users with convenient, engaging content on retirement planning and investments.

T. Rowe Price joined Facebook to give our

followers the information and resources they

need to pursue their goals. The firm welcomes

comments and lively discussion.

@TRowePrice on Twitter serves as the official

T. Rowe Price hub for expert insights, investing

information, and company updates in 140

characters or less.

The T. Rowe Price YouTube channel hosts

and displays company visual content online,

including educational videos, associate interviews,

and commercials.

Benefits to plan sponsors include:

• Access to engaged investors focused on achieving

positive financial outcomes

• The ability to monitor investor interest in various

financial topics

• Potential future opportunities to connect and collaborate

directly with colleagues and T. Rowe Price professionals

Benefits to plan participants include:

• Quick and active responses to general financial questions

and comments

• Access to polls, investing tips, market updates, and

T. Rowe Price insights

• Increased confidence in their understanding of what to

do and how to take action to achieve their financial goals

T. Rowe Price uses LinkedIn to make

announcements regarding company services

and careers available worldwide.

What our experts are saying

“Social media is changing the way we publish content and converse with

investors of all kinds. T. Rowe Price is thrilled to be part of the conversation,

and we welcome feedback from readers.”

—Meara Ranadive, digital marketing consultant, Corporate Marketing and Communications, T. Rowe Price

To learn more about any of these products or services, please contact your T. Rowe Price representative.

rps.troweprice.com/sponsor PlanLink : july 2012 31


We thank you.

As we celebrate our 75th anniversary, we commemorate the

forward vision and quiet leadership that continue to make

T. Rowe Price a strong and stable partner.

More importantly, we thank our clients. Since 1937, we have

focused relentlessly on putting your needs first. For the next

75 years—and beyond—we will continually work to earn and

maintain your confidence.

Images from top to bottom:

Thomas Rowe Price, Jr.

Our offices in downtown Baltimore, Maryland

32 PlanLink : july 2012

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Lighter Side

rps.troweprice.com/sponsor PlanLink : july 2012 33


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U.S. POSTAGE

T. Rowe Price Retirement Plan Services, Inc.

P.O. Box 17349

Baltimore, MD 21297-1349

PAID

T. Rowe Price

T. Rowe Price Investment Services, Inc., Distributor.

July 2012

05163-213

119388

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