The 20 Rising Stars of Retirement Plan Advisory 2008

said Michael Doshier, vice president of marketing for Fidelity’s Retirement Services Division. “Larger markets for plan sponsors mean more opportunity for scale. We in the industry have made a lot of progress in recent years, but by many measures we have not moved the needle much. We have now woken up to behavioral finance.” Doshier explained that, up until recently, the response to lack of knowledge by participants was to give them more information, which only made things more complex and gave them more reasons for procrastination. “We spent our time and our money making things worse,” he said flatly. “Now, the four principle ideas are: simplicity, personalization, actionable and measurable.” The fifth principle, he added, would be ‘repeatable.’ Historically, most programs started with where people wanted to be at retirement, Doshier said. This was logical but wrong behaviorally because it scared people. “Our approach now is: what is the next best step from where people are now? Are they participating or not? If the answer is not, you are only going to muddy the water by talking about the 32 great options you offer.” him to 47%. That plus Social Security gets close to 80% of preretirement income.” Fidelity is a big booster of automatic enrollment and automatic increases, primarily because of the benefits to plan sponsors and participants. The growth is strong, but from a very small base. Doshier said that, of the roughly 15,000 plan sponsors that Fidelity works with, only 93 employers had automatic elements in 2004. That jumped to 195 in 2005, 380 in 2006 and 1,935 last year. And he expects the momentum to continue. To help sponsors build participation, Fidelity is developing a dedicated online station that will include a retirement income planning tool. The company is putting time and resources into the grassroots because “the second, third and forth tiers of financial planning are very sequential,” Doshier said. “Once you get people clear of the early hurdles, their next questions are about IRAs and an advisor relationship. That relationship continues to evolve.” The Power of One Not to be outdone, JPMorgan Chase bases its asset-gathering initiative around the investor education concept of ‘an audi- wonderful thing, but we can’t there. The irony “Auto enrollment is a3% is that participation can go stopbut contribution of auto enrollment at up, rates can actually go down. ” — Diane Gallagher While data is still preliminary, Doshier said that, at the end of last year, employees were taking some positive action—getting in, changing allocations or raising withholding levels—at four times the rate normal for direct mail solicitations. Once people are participating in some way, Fidelity’s focus turns to income adequacy. Conventionally, that is taken to be 85% of pre-retirement income. Among financial advisors, there is a lively debate over the fluctuation of income needs over time in retirement above and below the pre-retirement level. “Of course, you can’t look at a static number in retirement," Doshier said, “but 85% is the norm.” The bad news is that America is trending at 58% of pre-retirement income on average. The good news is that, with targetdate schemes, there is hope. The current range for assets in 401(k) plans is between 17% and 23% of pre-retirement income. “That is not as bad as it sounds, considering the plans were designed to be supplemental and voluntary,” Doshier said. “Now, however, they are becoming the central leg of retirement. If we can get everyone up to contributing 10% of their salaries, we can increase that 17-23% significantly. For a 20- to 29-year-old in a 40-year target-date fund, we can get 8 RETIREMENT PLAN ADVISORY RISING STARS ence of one,’ according to Diane Gallagher, vice president of participant communication and education at JPMogan Retirement Plan Services. “Auto enrollment is a wonderful thing, but we can’t stop there,” she said. “The irony of auto enrollment at 3% is that participation can go up, but contribution rates can actually go down.” Gallagher explained that people are often inclined to start higher - 5% is a common number. But if the automatic is 3%, that becomes the lowest common denominator. “Having participation rise but assets decline has an impact on the cost side for the provider,” she said. “That is not helping anyone sponsors, providers or participants. Auto acceleration helps, but we really want to get to 10%.” The JPMorgan program is built around a three-tiered structure based on the time, talent and interest a participant has to dedicate to the program. “Based on those determinations, we have a simple core menu of nine to 12 funds—not having too many is important,” Gallagher said. “For example, we had one sponsor that was offering 33 investment choices, and we brought that down to nine, with positive results.” For the majority of delegators, JPMorgan offers target-date SEPTEMBER 2008

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The 20 Rising Stars of Retirement Plan Advisory 2008 Contents Doing Well By Doing Good The Post-PPA Bounce Automatic Enrollment vs. Managed Account Unfair Advantage? You Bet The New World Order 20 Rising Stars of Retirement Plan Advisory Mentors’ Page

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