JULY : 12
for retirement plan sponsors • published by t. rowe price
of the participant experience
Making the case
for fiduciary training
approach to retirement issues
What really makes
Peeking into the
Hyatt Grand Champions Resort, Villas and Spa
Indian Wells, California
May 13-15, 2013
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.
2 p.m. ET
2 p.m. ET
Get the latest updates on the legislative and
regulatory actions impacting retirement plans today.
11 a.m. ET
2 p.m. ET
11 a.m. ET
2 p.m. ET
Dates to Watch
2 From the Editor’s Desk
33 Lighter Side
3 By the Numbers
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
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
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
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.
Eugene and Louise
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
• 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
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 email@example.com.
SPONSOR By The Numbers PROFILE
When it comes to RETIREMENT,
they are on a different wavelength
STEADY ECONOMIC GROWTH*
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.
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.
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
of plan assets
invested in cash.
Explain the benefits of remaining
01 invested through periods of volatility.
Stress the potential advantages
of target-date investments,
Establish appropriate default
savings and auto-increase rates.
Incorporate automated services, target-date
investments, professional guidance, advice,
or managed accounts into your plan.
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
4 PlanLink : july 2012
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
rps.troweprice.com/sponsor PlanLink : july 2012 5
The things that
to take action on
in the administrative
schedule of a
– 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
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
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
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
—Focus group participant
rps.troweprice.com/sponsor PlanLink : july 2012 7
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 would like a
Give me something
based on my
“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
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
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
holistic, and practical
in the way THEY
engage and educate
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
• 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
Most fiduciaries want to do the right thing
for their plans and participants. Plan sponsors
can help by adopting sound practices for
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.
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
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
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
• 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
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&
rps.troweprice.com/sponsor PlanLink : july 2012 11
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
Do your company’s fiduciaries
A recent survey found that slightly less than one-half
of organizations train all members of their fiduciary
Don’t know who
Towers Watson, U.S. Retirement Plan Governance Survey, December 2011
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
Plan Sponsor Profile
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
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
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
Once people had the information, it was a lot easier to
In the public sector it’s important
to build consensus among very
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
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
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
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
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
rps.troweprice.com/sponsor PlanLink : july 2012 15
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
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.
16 PlanLink : july 2012
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
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
Planning for a
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.
18 PlanLink : july 2012
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
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.
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,
To view Mr. Gilbert’s Forum 2012 presentation, visit
Are Clients Ready to Retire? by Dan Moisand, from The Retirement Advisor
rps.troweprice.com/sponsor PlanLink : july 2012 19
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
Mark Andrusis Adam Brown Joe Martel Toby Thompson
20 PlanLink : july 2012
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.”
rps.troweprice.com/sponsor PlanLink : july 2012 21
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
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.
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
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
feeling more comfortable in their
own domestic markets.”
22 PlanLink : july 2012
How are plan lineups responding to this?
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
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
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
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%.”
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
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
rps.troweprice.com/sponsor PlanLink : july 2012 23
planLink: Are any sponsors wanting to reduce fiduciary
risks by going all passive?
planLink: What advice would you offer for sponsors
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
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
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
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.”
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
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
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
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
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
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
• 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
Inside Price: Forum
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
• Explained why today’s retirement may or may not be
• Noted that T. Rowe Price offers a number of accumulation
and distribution solutions to help employees evaluate,
implement, and monitor plan sponsors’ retirement
Trends and Best Practices Around Target-
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
• 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
• 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
Hyatt Grand Champions Resort, Villas and Spa
Indian Wells, California
Look for more information later this year.
rps.troweprice.com/sponsor PlanLink : july 2012 27
A look at our technology development pipeline
and what it means for you and your employees.
28 PlanLink : july 2012
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
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
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
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
30 PlanLink : july 2012
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,
Benefits to plan sponsors include:
• Access to engaged investors focused on achieving
positive financial outcomes
• The ability to monitor investor interest in various
• 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
• 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
rps.troweprice.com/sponsor PlanLink : july 2012 33
T. Rowe Price Retirement Plan Services, Inc.
P.O. Box 17349
Baltimore, MD 21297-1349
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor.
T. Rowe Price @TRowePrice
T. Rowe Price Group
Featuring proactive financial education, real-time investor conversations, and engaging content
about retirement planning and investments.
See you online.