This document discusses the effectiveness of defined contribution plan investment structures and how plan design impacts participant outcomes. It provides examples of how automatically enrolling participants at higher rates and automatically escalating contributions over time can help participants reach their retirement savings goals with adequate replacement income. The summary also discusses how simplifying investment options and offering managed accounts can improve participant decision making by reducing choice overload and naïve diversification. The key message is that a plan's investment structure and participant behaviors strongly influence retirement readiness, so plan sponsors should tailor the structure based on their specific participants.

1. #mgif
EFFECTIVENESS OF DC PLAN INVESTMENT
STRUCTURE
Sabrina Bailey
Seattle

2. What Does Effectiveness Mean?
68% of participants believe $1
million at retirement will be
enough or more than enough to
live comfortably
DID YOU KNOW?
Source: Investment Company Institute & 2014 Retirement Confidence Survey, EBRI Issue Brief, no. 397, March 2014 RP-2000 mortality table

3. What Does Effectiveness Mean?
DID YOU KNOW?
Source: Investment Company Institute & 2014 Retirement Confidence Survey, EBRI Issue Brief, no. 397, March 2014 RP-2000 mortality table
A married couple with a 65-year-
old husband and a 62-year-old
wife have a 50% chance that one
will live another 26 years

4. What Does Effectiveness Mean?
DID YOU KNOW?
• 45 years old, married
• Successful career
• Concerned about DC retirement
savings ($70K saved to date)
• Decides to take action
• Goal at retirement $1 million
MEET SARAH
Source: Investment Company Institute & 2014 Retirement Confidence Survey, EBRI Issue Brief, no. 397, March 2014 RP-2000 mortality table

5. -
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Is Doing Better Than Average Effective?
SAVINGS PHASE RETIREMENT
AGE
45 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91
WEALTH($)
For illustration purposes only
EMPLOYER INTERVENTIONS
Immediate eligibility
Automatic enrollment
Automatic escalation
Encourage consolidation
Investment structure
Re-enrollment
Stretch match
EMPLOYER INTERVENTIONS
Installment payments
Minimum required distributions
Annuity bidding services
SARAH REACHES
HER GOAL BUT…
She can only
spend $34K a year
(26% replacement
ratio) if she wants
to have a 50% that
her or her spouse
will not outlive their
assets

6. Understanding Participant Behavior
Image source: “Revenge of the Right Brain” — Daniel H. Pink, Wired.com.
“The essential difference between emotion and reason is that
emotion leads to action while reason leads to conclusions”
Donald Caine, Neurologist
Logic/
Reason
Emotion/
Behavior

7. Understanding Participant Behavior Impacts On Design
PLAN SPONSOR CONTROLED Corp. A Corp. B
INITIAL AUTO-ENROLLMENT 2% 4%
AUTO-ESCALATE ANNUAL
INCREASE
1% 2%
AUTO-ESCALATE MAXIMUM 4% 10%
AUTO FEATURE OPT OUT RATE 2% 2%
COMPANY MATCH 3% 6%
AVERAGE PARTICIPANT
DEFERRAL
4% 10%
ANCHORING
EFFECT

8. Impact of Plan Design on Effectiveness
45 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91
For illustration purposes only
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
AGE
WEALTH($)
25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91
• Starts saving at
22 years old
• Auto-enrolled at
4%
• Auto-escalated
at 2% to 10%
SARAH SARAH REACHES
HER GOAL AND…
She can spend
$66K a year
(60%
replacement
ratio) if she
wants to have a
50% that her or
her spouse will
not outlive their
assets

9. DC Investment Options
Capital Preservation High Yield Fund
Diversified Fixed Income Diversified Inflation
Diversified Inflation TIPS
Large Cap Value Commodities
Large Cap Growth
May Lead to
Naïve
Diversification
&
Choice Overload
Small/Mid Cap Value
Small/Mid Cap Growth
World ex-US Equity
Target Date Funds
Large Cap Index
Small Cap Index
International Cap Index
Technology Fund
Understanding Participant Behavior Impacts On Structure
How Sarah sees
her retirement
plan investment
options

10. How Participants Make Investment Decisions
Tier I
Target Date
Options
Tier IV
Specialty Options
Tier II & III
Core Options/
Managed Accounts
How do you like to
make investment
decisions?
Do it for me
Leave me to it
Help me do it

11. Managed Accounts
Impact of Investment Structure on Effectiveness
Simplifying participant options, customizing to employee profile and allowing for greater diversification
within the custom portfolios
Tier II
Passive Core Options
Diversified Fixed Income
Large Cap Equity
Small / Mid Cap Equity
World ex-US Equity
Tier III
Active Core Options
Capital Preservation
Diversified Fixed Income
Diversified Inflation
Large Cap Value
Large Cap Growth
Small / Mid Cap Value
Small / Mid Cap Growth
World ex-US Equity
Tier IV
Specialty Options
Consider offering
single Global
Equity option
Consider how
streamlining will
impact your
participants
diversification as
well as benefits
offered
Target Date Funds
Determine if custom
approach is
appropriate based on
2013 DOL Target Date
Tips for Plan
Fiduciaries
Tier I
Target Date Options

12. Participant Investment Profile Corp. A Corp. B
Single Fund (ex target date funds) 34% 2%
3+ Target Date Funds 25% 0.5%
Naïve Diversification (same % each fund) 17% 0.2%
5+ Funds (ex target date funds) 3% 90%
Managed Account Offered Yes Yes
Managed Account Default No Yes
% Exposure Managed Account Services 7% 35%
# Options (includes TDF, passive/active core
and specialty, e.g. high yield, emerging market
equity)
17 17
But Wait…What about Your Plan Participants?
YOUR
participants
behaviors
should help
determine the
most effective
structure for
your Plan

13. Impact Of Plan Participants On Investment Structure
Investment Structure
Considerations
Corp. A
Potential Results
Corp. B
Potential Results
Target date fund education
Reduces % of participant
holding three or more
options
None - current utilization
of target date funds
appears appropriate
Remove specialty options (high
yield, emerging market equity)
Reduces potential for
inappropriate use of
volatile asset classes (buy
high / sell low)
Limits managed account
provider ability to access
these asset classes
Utilize multi-manager vehicles
Simplifies choice,
increases diversification,
lowers fees
Limits active
management use,
increase fees
Streamline to global structure
Increases likelihood of
better outcomes for naïve
diversification participants
Decreases likelihood for
diversification and better
retirement outcomes

14. In Summary
• DC plan effectiveness can be increased, improving retirement
outcomes
• Plans sponsors decisions have a direct impact on participant
behaviors
• When participants are overwhelmed with choice, suboptimal
decisions can lead to decreased retirement readiness
• Emotion, not logic, drives participant behaviors
The behavior of your participants is one of the most
critical components of effectively managing your DC plan

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