retirement benefits at augustana

Campus Forums at Augustana College

Retirement Benefits at Augustana

January, 2013

Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013 2

Introductions

Laura Ford Director of Human Resources Augustana College

Rob Reiskytl Actuarial Consultant, Retirement Benefits Aon Hewitt


Agenda

Task Force and Process Current Retirement Plans Recommended New Plans Analysis and Discussion Next Steps


Retirement Benefits Task Force

Augustana College

Ford Laura Director of Human Resources

Curran Sheri General Counsel/Dir Risk Management

English David Chief Financial Officer

Estes Bill Athletic Fields Manager

Link Darlene Controller

Mull Mindi Assistant Professor of Psychology

Peterson April Dining Services Account Coordinator

Showers Tammy Assistant Director of Human Resources

Snowball David Professor Communication Studies

Walsh Matt Assistant Director of Financial Assistance

Aon Hewitt

Reiskytl Rob Project Leader, Actuarial Consultant

Schwallie Dan Legal Consultant

Steinberg Allen Legal and Design Consultant


Reasons for Change

Increase engagement Improve expected outcomes Simplify

– Administration

– Participant experience

Goal = Cost Neutral for the College, with

Improved Outcomes for Employees

Allow faculty, staff and administration:

To retire as planned,

On your own terms.


Collaborative Process

Outside Consultants

Retirement Task Force

President’s Staff Advisory Council

Faculty Welfare Committee

Director-Level Administrators

Faculty Senate


Current Plans

Supplemental Retirement Benefit

Voluntary salary deferrals

403(b) plan

Group Retirement Benefit10% Contribution Each Year

Provided by the College

10% = competitive benefits

Additional savings needed

Longer life expectancy

Increasing retiree health care cost

Uncertain future of Social Security


New Augustana Retirement Benefits

Strong Basic benefit, plus matched savings incentive Minimum match helps those least able to save for retirement Automation

– Automatically enroll employees at 6% of pay

– Automatically escalate employee savings rates 1% per year, stopping at 10% of pay

– Employees can opt out (or change savings rate) at any time

– Reset to defaults each year if opt down, or opt out Eligibility:

– One year of service for Basic

– Immediate for 403(b) deferrals and match Minimum match for non highly compensated employees only

– Minimum hours requirement, employed on last day of plan year, and must save at least $250

Basic Contribution Matched Savings

7% of pay Non Elective Contribution 50% match on up to 7% of pay, (Minimum Match $500)


Tracking Toward Adequate Retirement Income

401(a)/403(b) total contribution rate required based on age savings start Faculty/Staff plus College contributions Percent of each year’s pay

Add 1%-2% of pay to contribution targets if participant pay less than $30,000

Average percentage shown; approx 3% range around average allows for changing assumptions. Calculations assume consistent savings rate every year during working career until retirement at age 65 (or 67) with targeted retirement resources of 11 times pay at 65 or 9.4 times pay at 67, 7% annual return on 401(a) and 403(b) assets during accumulation, 4% annual pay increases, and unsubsidized future retiree medical coverage

Start at 25 Start at 30 Start at 35

24% (age 65)18% (age 67)15% (age 65)

12% (age 67)

19% (age 65)15% (age 67)


Participation and Savings Rates

Faculty/Staff/Admin savings plan behavior1

– 65% Percent participation in 403(b)

– 5.9% Average savings rate (among savers)

General Industry employee savings plan behavior2

– 76% Percent participation in company savings plan

– 7.2% Average savings rate (among savers)

Augustana

– 31% Percent participation in 403(b)

– 9.0% Average savings rate (among all savers)

– 6.4% Average savings rate (excluding high- rate outliers: 21 of 629 eligible

participants = 3% of eligible employees)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Higher Ed GeneralIndustry

Augustana

Participation Rate

1 PSCA 2012 403(b) Plan Survey2 Aon Hewitt 2012 Universe Benchmarks.


Savings Rates

All Eligible Participants

435

32 3316 10 10 10 11 3 6 6 6 4 6 6

35

0

50

100

150

200

250

300

350

400

450

500

Savings Rate

Average Savings RateAmong Savers = 8.96%

69%

Average Savings RateAmong Savers (Under 20% Contributers) = 6.38%

* Excludes high rate outliers at 20% of pay or more. Otherwise savings rate is 9.0% of pay among all savers

6.4% Average Savings Rate *


Prevalence of Matched Savings (Higher Education Only)

Plan Design

21% 59%

20%

Matched Savings Only

Non-Matching Organization Contributions Only

Both Matching and Non-Matching

26% do not provide a contribution from the organization

Source: PSCA 2012 403(b) Plan Survey

Prevalence of matched savings among higher education 403(b) plans

with contributions provided by the organization

79%


Retirement Income Adequacy

Average Total Private Resources Needed In addition to Social Security Expressed as Multiple of Pay

11 x Pay

9.5 x Pay

65

67

Amount Needed Retirement Age


Benefit Projection—With 1% Savings Plus Escalation to 10%

Employee initially saves 1% of pay, slowly increasing savings rate by 1% per year Results at age 67, including personal savings, under different economic scenarios:

– 9.37 times pay if 4.0% pay increases and 7.0% return on assets




35 year old new employee, earning $25,000

9.37

5.15 times pay


Review and Open Discussion

Basic Contribution Matched Savings

7% of pay Non Elective Contribution 50% match on up to 7% of pay, with $500 minimum

Advantages Modernizes and aligns with prevalent and growing

plan design trend (matched savings) Recognizes that some employees may not be able to

save much toward retirement Basic contribution provides strong minimum benefit,

and match (with minimum) sends direct message on importance of voluntary employee savings

Upside potential benefit increase for strong savers Engagement increases directly through personal

involvement and a sense of ownership and urgency Sends message of shared responsibility, working

together toward retirement income adequacy Automation should increase participation and savings

rates Plan restart will maintain future efficiency of

participation Flexibility for employees to opt out or change

automatic defaults on participation, savings rate, and investment elections

Disadvantages Complexity of minimum match Requires voluntary participation in order to receive

full benefit Some employees unable or unwilling to save in

403(b) plan Future retirement savings outside the 403(b) may

need to be redirected into the plan Employees tend to stay at automated default fund

and savings rate long after initial enrollment Automation may be perceived as overly paternalistic Restart may be viewed as aggressive among those

who already opted out or who actively chose to decrease their savings rate


Your Questions

Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013 17Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013 17

Next Steps

Fine-tune the details (waiting periods, vesting schedule, loans & withdrawals, etc.)

Review investment alternatives with ideal of streamlining vendors and choices Determine best-fit recordkeeping relationships Create a transition plan to move from old to new Adopt new plans Benefit change anticipated 1st Quarter of 2014 at the earliest

Appendix


Guiding Principles—Primary

The Retirement Benefits Task Force determined the following set of Guiding Principles for Retirement Benefits at Augustana College

Reward participation and increase engagement in the retirement benefits package in order to improve outcomes for the College and its employees.

Provide a core retirement benefit to all employees, with additional amounts from the College based on annual employee contributions.

Provide a retirement benefits system where faculty and staff can accumulate adequate retirement income from all sources (College-provided, social security, and personal savings).

Structure the design and communication of the benefits to actively promote personal responsibility, through plans that are easy to understand and flexible with a reasonable range of choices.

Strive to maintain the current cost of the retirement benefits, while acknowledging that a new plan design may result in both improved results and modest cost variance.

Preserve institutional unity through a uniform retirement benefit structure for all faculty, administration and staff.

Deliver retirement income through annuities and lump sum payments, with modest emphasis on flexible features such as loans and withdrawals.

Be sensitive to the impact on current employees if changing the plans. Transition, if any, should be short-term to avoid complexity of having multiple classes of employees.


Guiding Principles—Secondary

Consider leading-edge designs, features, and resources to improve employee understanding and long-term success.

Reduce legal complexity and administrative/compliance burden when reasonable and practical.

Provide competitive retirement benefits, especially among peer institutions, with awareness of emerging trends.

Recognize that retirement benefits, if at a basic competitive level, provide an important positive influence but not a primary driving factor for attracting and retaining key talent.

Provide increased retirement benefit value with increased service to the College, but not with increased age.

retirement benefits at augustana

Documents

matchminimum match

year of service

b deferrals

employee savings rates

day of plan year

cost neutral

longer life expectancy

agendatask force