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2 2 Today’s Agenda Overview of Retirement Plans How Plans are Used – Private vs Public Hot Topics and Trends Employment Opportunities

3 3 Defined Contribution vs. Defined Benefit

4 4 Defined Contribution Plans General Overview 457, 403(b) and 401(k)

5 5 Governmental 457 Plans State and local government employers Universities and school districts Supplement to primary retirement benefits Eligible and non-eligible plans Generally available to all employees Employer may also offer 403(b) and, in some cases, 401(k) plans

6 6 Section 403(b) Plans Universities and school district employers Churches and nonprofit 501(c)(3) organizations Primary retirement plan or supplemental 401(k) or 457 plan may also be offered Contributions may include employee non- elective and/or employer contributions

7 7 Section 401(k) Plans Predominately used in private sector –Government plans established before May 1986 Primary retirement benefit, replacing DB plans Participation continues to grow –7.5 million in 1984 compared to 47 million in 2005 What has influenced this growth? –Cost of defined benefit plans –Increased attractiveness of 401(k) plans

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9 9 Private Sector 401(k) Plans Generally considered primary benefit May have small defined benefit (DB) annuity Many companies freezing or eliminating DB Matching contributions generally substantial Portability of benefits is important –Workers generally change jobs more frequently than in the public sector

10 Public Sector DC Plans Generally considered supplemental DB plan benefits may be 45% or more of FAE Retiree health care often provided Employer matches are less common Public sector employers may offer multiple supplemental plans –457, 403(b), grandfathered 401(k) plan

11 Plan Governance Private and public sector plans must meet federal tax laws and regulations Private sector plans governed by ERISA and Department of Labor (DOL) regulations –Public sector generally follow as best practice guide Public sector plans subject to state laws and regulations

12 404(c) Requirements Applies to ERISA plans only –Public sector often uses as guide Provides fiduciary safe harbors Certain requirements must be met: –diversified investment choices –ability to move or exchange assets –mandatory disclosures

13 Investment Policy Statements Used by private and public sector plans Generally, written document Basis for decisions on investment line-up Policy and process for –Selecting and monitoring plan’s investments –Adding and removing fund choices

14 Public Sector Employees Tend to be more conservative investors than private sector employees On average, are older than those in the private sector Certain employee groups retire earlier, e.g., police and fire

15 Hot Topics and Trends

16 Automatic Enrollment More Prominent in Private Sector Encouraged by 2006 Pension Protection Act Effective in improving employee participation Helps meet discrimination testing Gaining popularity in public sector Economy has impact on affordability in private sector

17 Target Date Funds Popularity increasing – both public and private sector Increased attention from policy makers and regulators Disclosures and cost an issue No uniform definition of “target date” –“to” or “through” retirement

18 Plan Fees and Charges Fee disclosures regulated by DOL –Plan sponsors/fiduciaries –Participants –Reports to the DOL (form 5500) Increased legislative, regulatory and legal (class actions) scrutiny

19 Lifetime Income Options Legislators exploring ways to encourage Companies developing new products to provide lifetime income distributions Increased issue for employers as workforce ages –Lack of guaranteed lifetime income may result in employees delaying retirement date

20 Employment Opportunities

21 Opportunities with Employers Responsibility for DC plan varies greatly –Separate Retirement Division –Human Resources –Benefits and Payroll –Finance / Accounting –Treasurer / Controller’s Office Information technology / Web developers

22 Service Providers Plans may use bundled or unbundled services –Record-keeping and administrative services –Investment product providers –Communication and education providers –Investment managers –Consultants

23 Employment Opportunities Account representatives and call centers –Requires securities licensing Public relations and sales Product development / project management Finance, actuarial and accounting Marketing: designers and writers Information technology / Web developers

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