es OF Los Angel eles CITY O & CALCULATING SUCCESS 1 Y OF Los - - PowerPoint PPT Presentation

CITY O OF Los Angel

eles es

&

CALCULATING SUCCESS

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CI CITY OF Y OF Los Angel

eles es at a Glance

$13.2 $4.7 $3.7 $0.9 $0.8 $- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 New York Los Angeles Chicago Philadelphia Houston

DC Plan Assets for Major U.S. Cities

(in billions) DB: Civilian, $13.9 DB: Police & Fire, $18.3 DB: Water and Power, $9.7

DC: 457 Plan, $4.7

City of L.A. Retirement Assets (in billions)

Plan Features:  Pre-Tax & Roth Contributions  Active & Retiree Loans  12 Core options + SDBO  Auto Enrollment (approved, to be implemented)

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CI CITY OF Y OF Los Angel

eles es at a Glance

$60,100 $115,117 National 457 Avg City of L.A.

Avg Account Balance 03-31-15

$5,701 $7,742 National Governmental DC Avg City of L.A.

Annual Contribution Amount

Avg Annual Contribution $7,742 Avg Account Balance $115,117

20,000 25,000 30,000 35,000 40,000 45,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3/31/15

DC Participants - 1999 to Present

Current: 41,053

Source for national averages: National Association of Government Defined Contribution Administrators 2014 survey of member agencies 0% 20% 40% 60% 80% City of L.A., 69% State/Local Gov Avg, 40%

Participation Rate

Participation Rate 69% Participation 41,053

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QUIZ: WHAT DO I NEED TO RETIRE?

Choose the Best Answer: ☐ 70-85% of pre-retirement income ☐ 100% of pre-retirement income ☐ 66% of pre-retirement income ☐ 8 x your ending salary ☐ $1 million ☐ It sorta depends ☐ Consult a financial planner ☐ Consult a tax advisor ☐ Try this calculator ☐ Try this lifecycle fund ☐ Try this guaranteed income product ☐ Whatever it is, you probably won’t have it ☐ Other

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CITY TY OF Los

• s Angel

eles es

• A. What is our Core Mission?

To help City employees achieve retirement income security B: What is Retirement Income Security? Replacement of 100% of “lifestyle income” upon retirement

• C. What is Lifestyle Income?

Nominal annual salary upon retirement less primary salary reductions for retirement saving (a.k.a. maintaining one’s standard of living)

30-year Career DB Plan Income DC Plan Income Retirement Income Security

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CITY O Y OF Los

s Angel eles s Lifestyle Income Example

Salary Upon Retirement 100% $100,000 DB Contribution 11% $(11,000) DC Contribution 10% $(10,000) Social Security/Medicare Contribution 1.45% $(1,450) Lifestyle Income $77,550 DB Benefit (30 Years/Age 55) 65% $65,000 Lifestyle Income Gap 16%

$12,550

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What percentage of your projected lifestyle income will be replaced upon retirement? Your Current Projected Retirement Income Replacement Percent is…

?%

CITY O Y OF Los

s Angel eles s Retirement Income Projection Calculator

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Primary Web Screen

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Calculator at-a-Glance

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Results

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ENGAGEMENT/AWARENESS: Calculator Sessions

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Based on October 2014 participant survey

SELF-REPORTED DATA

Below 100% 56% 100% or Higher 44%

City of L.A. Self-Reported Retirement Income Replacement Percentage

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The Retirement Security Formula & Auto Enrollment

Variables Values Salary/Service Years of Service 30 Starting Salary 50,000 $ Annual Salary Increase Factor 3% Projected Ending Salary 117,828 $ Participant Retirement Contributions Retirement Plan Contribution 11% Medicare Contribution 1.45% Social Security Contribution 0% Starting DC Contribution % 2% Avg Annual DC Increase 0.25% Ending DC Contribution % 9.25% Rate of Return Assumptions Accumulation Rate of Return 7% Distribution Rate of Return 3% Retirement Income Projections Projected DB Benefit 76,588 $ Projected DC Benefit 17,382 $ Projected Social Security Benefit

• $

Combined DC + DB + SS Income 93,970 $ DC Balance Projections Pre-Tax Balance Needed to Fund Income Stream 340,688 $ After-Tax (Roth) Balanced Needed to Fund Income Stream 272,544 $ Projecte Lifestyle Income Replacement Analysis Projected Lifestyle Income Need Upon Retirement 92,388 $ Projected Lifestyle Income Replacement % 102%

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CITY OF L.A. CONTRIBUTION DATA

Years of Service Range Average Age Avg Years of Service DCP Contribution % DCP Contribution $ Per Pay Period Average Annual Salary 0-5 32 3 5% $ 138 $ 71,879 5-10 39 7 6% $ 189 $ 83,946 10-15 45 13 6% $ 229 $ 89,084 15-20 47 18 6% $ 239 $ 98,979 20-25 52 23 7% $ 304 $ 103,337 25-30 54 27 8% $ 344 $ 104,599 30-35 56 32 9% $ 366 $ 108,485 35+ 62 38 10% $ 449 $ 113,644

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2014 Data

BEYOND CALCULATORS: METRICS & BENCHMARKING

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STANDARD AMERICAN RETIREMENT DIET:

TRIPLE FEAR BURGER W/CHEESE with ALL YOU CAN EAT COMPLEXITY

Inflation could wipe out your earning power – but cash makes great kindling Cat Food Fright Night You don’t need as much as you think You need so much more than you think Fees could ruin you Taxes Could Eat You Alive DB, DC, IRA, Annuity Rubik’s Cube Just so you know - Social Security might not be there Stocks will ruin you You might

• utlive your

retirement Healthcare or eldercare coud ruin you – just sayin’… Diversify or die Stocks will save you

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Retirement: Chronic Disease v. Wellness

Chronic Disease Indicators

• Incoherent Objectives
• Discordant Measures of Success
• Complex Regulatory Structure
• Complex Financial Products
• Complex Services
• Complex Financial Markets

Wellness Indicators

• Clear Mission
• Core Consensus Benchmarking
• Translation (Communications) Excellence
• Simple Investment Choices
• Personalized Engagement
• Focus on Risk Relationship

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Core Universal Benchmarking?

Potential Universal Measurements of DC Plan Success

• 1. Lifestyle Income Replacement Percentage
• 2. DC Plan Participation Rate
• 3. Contributions as % of Salary
• 4. Personalized Engagements
• 5. Participant Defined Relationship to Risk
• 6. Periodic Payment or Annuity Election %
• 7. Fees as % of Assets

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RETIREMENT INCOME SECURITY Projected Lifestyle Income Replacement %

Relationship to Core Mission – The projected lifestyle income replacement percentage is the most essential indicator of retirement readiness.

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78% 80% 81% 81% 83% 84% 85% 58% 59% 59% 59% 60% 60% 60%

50% 55% 60% 65% 70% 75% 80% 85% 90% 2015 2016 2017 2018 2019 2020 2021

Median Projected Retirement Income Replacement Percentage

Employer A Average

City of L.A.

We’re calculating this. Stay tuned…

Lifestyle Retirement Income Replacement % at age 55 Lifestyle Retirement Income Replacement % at age 60 Lifestyle Retirement Income Replacement % at age 65 ___% __% __%

PARTICIPATION RATE As % of Eligibles

Relationship to Core Mission – Participation in the DC Plan is a prerequisite to being able to achieve retirement income security. DB

• nly or SS only will not achieve the result.

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69% 70% 71% 72% 73% 74% 75% 40% 41% 41% 42% 42% 43% 43% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2015 2016 2017 2018 2019 2020 2021

Participation Rate Benchmark

Employer ABC Average 2012 2013 2014 67% 68% 69%

City of L.A. Participation Rate

CONTRIBUTIONS As % of Salary

Relationship to Core Mission – Participants must contribute a certain % of salary to achieve retirement income security, but required overall contribution level relative to DB and/or SS benefits.

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City of L.A.

Years of Service Range Average Age Avg Years

• f Service

DC Contribution % DC + DB Contribution % 0-5 32 3 5% 16% 6-10 39 7 6% 17% 11-15 45 13 6% 17% 15-20 47 18 6% 17% 20-25 52 23 7% 18% 25-30 54 27 8% 19% 30-35 56 32 9% 20% 35+ 62 38 10% 21% 18-25 26-35 36-45 46-55 56-65 65+ 30-35 35+ Employer ABC 16% 17% 17% 17% 18% 19% 20% 21% Average 11% 11% 12% 13% 14% 15% 16% 17% 16% 17% 17% 17% 18% 19% 20% 21% 11% 11% 12% 13% 14% 15% 16% 17%

Total Retirement Plan Contributions by Age

Employer ABC Average

ENGAGEMENTS Personal Contacts

Relationship to Core Mission – Personal engagements represent the most powerful tool for raising their awareness of information vital to success (particularly defining a unique relationship to risk), and navigating the complexity of the retirement planning structure.

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4,300 5,400 5,700 5,500 6,500 7,400 7,600 9,200 9,350 9,625 19,400 19,500 20,300 20,900 23,100 25,100 27,000 30,700 33,550 35,775

12/1/2012 1/1/2013 2/1/2013 3/1/2013 4/1/2013 5/1/2013 6/1/2013 7/1/2013 8/1/2013 9/1/2013 10/1/2013 11/1/2013 12/1/2013 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 6/1/2014 7/1/2014 8/1/2014 9/1/2014 10/1/2014 11/1/2014 12/1/2014 1/1/2015 2/1/2015 3/1/2015

Rolling 4- Quarter 75% 76% 76% 73% 77% 76% 75% 54% 53% 51% 54% 55% 56% 56% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2015 2016 2017 2018 2019 2020 2021

Personal Contacts as % of Total Participants? Or Eligible Employees?

Employer ABC Average

City of L.A.

RISK RELATIONSHIP

Indicators of Relationship to Investment Risk

Relationship to Core Mission – Participant asset allocation is an indicator of Plan participants’ relationship to risk. Diversification of investments can be an indicator of risk-management (e.g. as indicated by holdings in the Plan’s risk-based funds); however, principal- guaranteed fund holdings are also an indicator of participant risk management strategies.

FDIC Insured Savings 6% Stable Value Fund 19% DCP Bond 3% DCP Large Cap 33% DCP Mid-Cap 5% DCP Small-Cap 5% DCP International 5% Brokerage Window 7% Risk-Based Funds 17% 2.2% 3.0% 3.9% 4.9% 6.0% 9.5% 11.0% 11.5% 13.4% 15.2% 16.4% 16.8% 28.0% 27.3% 26.1% 26.9% 42.0% 35.9% 33.8% 36.4% 34.0% 28.0% 25.9% 25.3% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3/31/ 2015 Risk-Based Funds Interest-Bearing

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City of L.A.

DISTRIBUTION ELECTIONS: Periodic Payment Elections

Relationship to Core Mission – The frequency with which participants convert their account balances upon retirement into income streams is an indicator of whether the asset is being used to provide retirement income security vs. other purposes. Related metric: account leakage.

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City of L.A.

38% 38% 40% 42% 44% 44% 45% 56% 57% 58% 58% 59% 57% 59% 0% 10% 20% 30% 40% 50% 60% 70% 2015 2016 2017 2018 2019 2020 2021

Conversion of DC to Income Stream as % of Distribution Elections

Employer ABC Average

Full Distributions 6% Partial Distributions 56%

Periodic Payments 38%

FEES: “All-In” Participant Fees as % of Assets

Relationship to Core Mission – Fees directly reduce participant earnings and therefore asset accumulation. Monitoring the combined impact of participant fees as a percentage of

• verall Plan assets is an indicator of the Plan’s success in minimizing the impact of fees on

individual accounts.

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Source: Deloitte Investment Co. Institute, “Inside the Structure of Defined Contribution/401(k) Plan Fees, 2013: A study assessing the mechanics of the ‘all-in’ fee.” 0.26% 0.41% City of L.A. 401(k) Average $500m or more

All-in Fees as % of Assets

A Well-Retirement Future

• Mission Clarity
• Consensus Benchmarking
• Effective Communications

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