Session 101 PD - Methods to Evaluate Retirement Plan Designs

Moderator:

Dylan Porter, FSA, EA, FCA, MAAA

Presenters: Rowland Davis, FSA

Marc Des Rosiers, FSA, FCIA

SOA Antitrust Compliance Guidelines SOA Presentation Disclaimer

SOA Annual Meeting: October 17, 2017

Session 101: Methods to Evaluate Retirement Plan Designs

SOA project: “Quantitative Evaluation Framework”

Presenter: Rowland Davis, FSA

Overview

Project started early 2016; completion by year-end 2017- Rowland Davis is lead researcher- Strongly engaged Project Oversight Group

Goal: create a platform for consistent evaluation and comparison of different retirement programs, using quantitative measures – with special emphasis on risk-sharing features

Key features- Stochastic economic scenarios- Standardized assumptions- Broad set of risk and reward metrics- Standardized presentation of metric outcomes- Separate analysis for the accumulation phase and the payout phase

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Standardized Assumptions: Demographic

Career length / retirement age- Accumulations / benefit accruals start at age 30- Retirement is at age 67

Career characteristics / dynamics- Results are a blend of “full” and “fragmented” careers, based on SOA 2003 turnover study

• Baseline uses medium turnover (approx. 10% aggregate); high and low t/o options available for sensitivity• Full career = all years within a single plan (40% weight, using medium turnover rates)• Fragmented = for medium turnover rates, three separate periods of plan participation (60% weight, using

medium turnover rates)• Only has impact where accruals are not uniform at each age (e.g. standard final pay DB plan)

- Pay progression designed to represent typical median earner• Age 30 pay = $40K; age 67 pay = $54K (current dollars)• Projections based on stochastic wage inflation plus merit / promo factor• Age 67 Social Security replacement ratio (in 2053) is assumed to be 40% of final pay

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Standardized Assumptions: Economic

Economic simulation model- Price inflation, wage inflation, bond yields

• Linked dynamics in all projections• Starting values based on an economy in a long-term “equilibrium state”

- Returns for bond portfolio, TIPS portfolio and risk asset portfolio (two versions) Assumptions and results

- Mean / median values anchored by long-term expectations from economist surveys and publicly available assumption sets from Mercer and AonHewitt investment consulting practices

- Provision for sensitivity testing through parameter set

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Methodology

Separate, but linked, models for accumulation phase and payout phase based on theoretical fungibility for design options

Accumulation phase- To support comparison of various design choices, all results are anchored by assuming the same dollars are

flowing into each plan design• For DC plans, a constant 10% of pay each year• For DB plans, and any other plan with variable costs/contributions, the mean value of the cost is set at 10%

of pay (based on assumed level funding over career); the full range of the cost distribution is also developed

- At retirement, the lump sum value of the accumulation is converted to lifetime income through purchase of a life annuity (at market interest rate, 2% fixed COLA, unisex mortality rates projected to/through 2053, assumed 5% load for group annuity pricing)

- Most of the benefit metrics are based on the distribution of total replacement ratios = income per above / final pay at age 67 + 40% assumed for Social Security

Payout phase- Start with age 67 accumulations from 10% of pay contributions into a typical TDF investment- Create a baseline set of yearly payouts (convert using a fixed rate, no load annuity)- Compare yearly payouts from design under analysis to the baseline

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Payout Phase – “Sneak Peek”

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Standard “4% Rule” payouts (as % of baseline)

Range of income benefits as percent of baseline*:*"Baseline" benefits are based on conversion of age 67 balance to lifetime income using a fixed-price lifetime annuity, interest rate = 6.1%, no load, full CPI COLA, no death benefits. Age sub-group values are weighted averages, using deaths at each age as the weighting factor.

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67 72 77 82 87 92 97 102 107 112 117

Income Benefits as % of Baseline(Mean value, and inter-quartile range)

Payout Phase – “Sneak Peek”, contd.

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Standard “4% Rule” accessible wealth

Level of accessible wealth as percent of final pay (inflation adjusted)(Note that the age 67 value is before the purchase of any annuities.)

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Accessible Wealth as % of Final Pay (infl. adjusted)(Mean value, and inter-quartile range)

Payout Phase – “Sneak Peek”, contd.

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Combo of Longevity Annuity (12%) and Structured Withdrawal Plan (88%) payouts (as % of baseline)

Range of income benefits as percent of baseline*:*"Baseline" benefits are based on conversion of age 67 balance to lifetime income using a fixed-price lifetime annuity, interest rate = 6.1%, no load, full CPI COLA, no death benefits. Age sub-group values are weighted averages, using deaths at each age as the weighting factor.

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Income Benefits as % of Baseline(Mean value, and inter-quartile range)

Payout Phase – “Sneak Peek”, contd.

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Combo of Longevity Annuity (12%) and Structured Withdrawal Plan (88%) accessible wealth

Level of accessible wealth as percent of final pay (inflation adjusted)(Note that the age 67 value is before the purchase of any annuities.)

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Accessible Wealth as % of Final Pay (infl. adjusted)(Mean value, and inter-quartile range)

Accumulation Phase

Full set of benchmark results for both standard DB and DC plan- Allocations to risk assets from 0% to 100% in 10% increments- DB plan does not have backloading

Key metrics for total replacement ratios (incl. SS)- Full percentile distribution range- Mean value = “reward”- Conditional tail expectation (bottom and top quintiles) = “risk” / upside opportunity- Shortfall risk relative to target replacement ratio (both 70% RR and 60% RR)

Key metrics for cost- Full percentile distribution range- Mean value = “reward”- Conditional tail expectation (bottom and top quintiles) = savings opportunity / “risk”- Adjusted cost metrics (both reward and risk) required to achieve a 70% total replacement ratio

• With 50% confidence• With 70% confidence• With 90% confidence

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Metric Display: DB Plan with 70% Risk Asset Allocation

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(Includes Social Security at 39%)

Replacement Ratio (Benefit / Final Pay) Cost (Percent of Pay)

Risk71.4%

Avg.77.6%

Reward84.8%

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Percentile values:

99th 92.6%90th 82.8%75th 80.5%50th 77.0%25th 74.8%10th 72.6%

1st 69.4%

Reward5.7%

Avg.10.0%

Risk15.7%

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Risk / Reward Metrics

Avg. = mean value for full distribution of results

Risk = mean value for worst quintile of results (i.e. for benefits, the lowest 20% of outcomes; for cost, the highest 20% of outcomes)

Reward = mean value for best quintile of results (i.e. for benefits, the highest 20% of outcomes; for cost, the lowest 20% of outcomes)

Percentile values:

99th 21.4%90th 14.7%75th 11.8%50th 9.5%25th 7.4%10th 5.9%

1st 3.9%

Other Metrics

Benefit Shortfall Risk Benefits by Career Pattern

Replacement Ratio Shortfall Turnover assumption = Baseline / mediumTarget: Probability Plan: Traditional career pay

70%+ 2.4% Average replacement ratio: # Employers Weight Soc. Sec. Plan Ben. Total

Full career with single employer 1 40% 39.0% 38.6% 77.6%60%+ 0.0% Multiple employers over career 3 60% 39.0% 38.6% 77.6%

Blended average 39.0% 38.6% 77.6%

Stress Index for Accumulation Path Adjusted Cost for a 70% Repl. Ratio Target:

Measures reflect all years during career where Cost to achieve a 70%+ replacement ratio,account, or accrued benefit, experiences an with a specified level of confidence.investment-related loss, averaged over all scenarios.

Loss Frequency

Average Loss (% pay)

Cummulative Career Losses

(% pay) IndexConfidence

target:Average Cost

(% pay)

Cost Risk Metric (% pay)

Best / smoothest possible path 0.0% 0.0% 0.0% 0.0 (i.e. no losses, such as DC w/ cash or SV investments) 50% confidence 8.4% 13.1%Result for DC w/100% fixed income (core style) 18.7% -5.6% -38.4% 0.9Result for this plan 0.0% 0.0% 0.0% 0.0 70% confidence 8.9% 14.0%Result for DC w/ typical TDF (90/50) 26.3% -24.4% -228.5% 5.1Worst / most volatile possible path 30.0% -41.7% -444.0% 10.0 90% confidence 9.5% 14.8% (i.e. DC plan w/ 100% risk asset allocation)

Metric Display: DC Plan with 70% Risk Asset Allocation(Includes Social Security at 39%)

Replacement Ratio (Benefit / Final Pay) Cost (Percent of Pay)

Risk64.0%

Avg.82.6%

Reward108.7%

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Percentile values:

99th 136.2%90th 105.1%75th 90.0%50th 79.8%25th 71.2%10th 65.1%

1st 57.3%

Reward10.0%

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Risk / Reward Metrics

Avg. = mean value for full distribution of results

Risk = mean value for worst quintile of results (i.e. for benefits, the lowest 20% of outcomes; for cost, the highest 20% of outcomes)

Reward = mean value for best quintile of results (i.e. for benefits, the highest 20% of outcomes; for cost, the lowest 20% of outcomes)

Percentile values:

99th 10.0%90th 10.0%75th 10.0%50th 10.0%25th 10.0%10th 10.0%

1st 10.0%

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Other Metrics

Benefit Shortfall Risk Benefits by Career Pattern

Replacement Ratio Shortfall Turnover assumption = Baseline / mediumTarget: Probability Plan: Defined Contribution

70%+ 22.3% Average replacement ratio: # Employers Weight Soc. Sec. Plan Ben. Total

Full career with single employer 1 40% 39.0% 43.6% 82.6%60%+ 3.7% Multiple employers over career 3 60% 39.0% 43.6% 82.6%

Blended average 39.0% 43.6% 82.6%

Stress Index for Accumulation Path Adjusted Cost for a 70% Repl. Ratio Target:

Measures reflect all years during career where Cost to achieve a 70%+ replacement ratio,account, or accrued benefit, experiences an with a specified level of confidence.investment-related loss, averaged over all scenarios.

Loss Frequency

Average Loss (% pay)

Cummulative Career Losses

(% pay) IndexConfidence

target:Average Cost

(% pay)

Cost Risk Metric (% pay)

Best / smoothest possible path 0.0% 0.0% 0.0% 0.0 (i.e. no losses, such as DC w/ cash or SV investments) 50% confidence 7.6% 7.6%Result for DC w/100% fixed income (core style) 18.7% -5.6% -38.4% 0.9Result for this plan 26.3% -24.4% -228.5% 5.1 70% confidence 9.2% 9.2%Result for DC w/ typical TDF (90/50) 27.0% -22.6% -219.1% 4.9Worst / most volatile possible path 30.0% -41.7% -444.0% 10.0 90% confidence 11.9% 11.9% (i.e. DC plan w/ 100% risk asset allocation)

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Risk

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Reward = Avg. RR

Chart 5: Risk = RR risk metric

DCMORE

RISK

DB

Creating a Risk-Reward “Space”: Benefit Risk

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Higher risk asset allocation

Creating a Risk-Reward “Space”: Cost Risk

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Chart 7: Risk = Cost risk metric

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RISK

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Creating a Risk-Reward “Space”: Shortfall w/ 70% Target RR

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Using the Adjusted Cost Metric

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Completed Analyses (“Studies”)

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Name Description

Study A001 Risk vs Reward Explores basic risk and reward relationships for standard DC plans, and standard DB plans. Introduces various graphics that may be used to define "efficient frontiers" using the QE Framework metrics.

Study A002 Risk Sharing Plans General discussion of how the QE Framework may be used to evaluate and compare alternative plan structures that incorporate risk sharing features.

Study A003 TDF Analysis Compares the DC Plan results using Target Date Funds (TDF's) with benchmark results using fixed allocations to risky assets. Also explores the impact of additional fees that may be charged for TDF's.

Study A004 Portability & Backloading Describes the metric used for portability, and illustrates level of backloading in selected DB designs.

Study A005 Mean Reversion Analysis Explores impact of removing the mean reversion factor that is used in the baseline simulation model. Includes a complete set of DC and DB benchmark results using the alternative (lognormal) model.

Study A006 Assumption Sensitivity Illustrates how model can be run with alternative assumptions, using assumption sets with lower levels of inflation, yields and returns. Shows impact on selected metrics. Includes a complete set of DC and DB benchmarks for one set of alternative assumptions.

Study A007 Cash Balance: Fixed Credit Rate Shows results for various Cash Balance plans using fixed "Investment" crediting rates. These results indicate that this type of plan is virtually identical to standard DB plans in terms of all economic results.

Study A008 Cash Balance: Variable Credit Rate

Shows results for various Cash Balance plans using variable "Investment" crediting rates. These results indicate that this type of plan is virtually identical to both fixed rate Cash Balance plans, and to standard DB plans in terms of all economic results.

Study A009 Cash Balance Plan: Participating Credit Rate

Shows results for various Cash Balance plans using participating "Investment" crediting rates, based on actual fund investment results. Efficient frontier graphs used to show risk-sharing nature. Portability issues reviewed.

Study A010 Return Guarantees Shows results for a traditional DC system with various return guarantees purchased at market price, applied to the full career accumulation. Includes some sensitivity analysis relative to the risky asset model used, the equity risk premium assumption, and the risk free rate used for pricing the guarantees. Discusses other ways that return guarantees may be included in a plan.

Study A011 DC Plan with Tracker Support Shows results for DC plans that also incorporate a variable contribution which varies with the tracking error of the accumulation vs a target accumulation path. Efficient frontier graphs used to show risk-sharing nature. Evaluation is made by comparison with equivalent combo DC+DB benchmark plans., and implementation ideas are discussed.

Evaluation of Hybrid Risk-Sharing Designs

Using the risk-sharing space concept- The hybrid plan results would be developed at 30%, 50% and 70% risk asset allocation- The results can be plotted as three points on one of the graphs (e.g. the one using the benefit risk metric)- At each of these points there also exists a combo DB+DC arrangement with the same results- Can then compare other metrics (e.g. the cost risk metric) between the hybrid design and the equivalent combo

DB+DC arrangement as a benchmark- If for example, the cost risk metric for the hybrid design is lower than that for the equivalent combo DB+DC,

then there is some efficiency in managing the cost risk Using the adjusted cost metric

- Develop the hybrid plan adjusted cost metrics required for the plan to meet a 70% target replacement ratio (including SS) with, for example, 90% confidence

- Compare results directly• Against any other hybrid plan• Against benchmark combo DB+DC arrangements

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Two Sample Hybrid Risk-Sharing Plans

Kentucky Plan- Implemented in 2014 for new public employees- Typical of plan structure promoted by Laura and John Arnold Foundation- Participating cash balance plan structure

• Defined benefit plan – with full employer exposure to liabilities• Floor credit rate = 4%• 75% participation in returns over 4% (5-yr. moving average) – for retiring participants only

Tracker Plan- Proposal from Retirement 20/20 paper by Rowland Davis- DC plan with variable contributions

• Establish target path for accumulation• Monitor tracking error for each cohort using standardized sample employee• If negative tracking error exceeds certain limits, employer makes supplemental contributions

- Will move accumulation back towards the target path- Fixed cap on the amount of supplemental contributions – so no employer exposure to liabilities

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Kentucky Plan – With 70% Risk Asset Allocation

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CHART A: Results with a 70% allocation to risk assets

Results: Based on expected average cost, the KY Plan matches the outcomes from a combo DB/DC arrangement with about a 50/50 blend -- so the KY Plan shows significant risk sharing,packaged within a single hybrid DB structure.

However, the cost risk metric for the KY Plan exceeds the level for a 50/50 combo arrangement -- so there is some loss of efficiency in terms of risk management for the sponsor.

100/0 75/25 50/50 25/75 0/100DB/DCBlend <-------------- Risk Sharing Spectrum ---------------->

KYPlan

Blue = avg. adjusted cost

Orange = adjusted cost risk

Tracker Plan

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CHART A: Results with a 70% allocation to risk assets

Results: Based on expected average cost, the Tracker Plan matches the outcomes from a combo DB/DC arrangement with about a 25/75 blend -- so the Tracker Plan shows noticeable risk sharing, packaged within a single hybrid DC structure.

The cost risk metric for the Tracker Plan slightly exceeds the level for a 25/75 combo arrangement -- so there is some minor loss of efficiency in terms of risk management for the sponsor. However, the Tracker Plan has no DB-type liabilities, while the 25/75 combo arrangement would have some.

100/0 75/25 50/50 25/75 0/100DB/DCBlend <-------------- Risk Sharing Spectrum ---------------->

TrackerPlan

Tracker Plan – With 70% Risk Asset Allocation

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Blue = avg. adjusted cost

Orange = adjusted cost risk

Next Steps

Finish technical review (payout phase) Documentation SharePoint website

- Documentation- Excel workbooks- Completed “Studies”

Further studies, with Pension Section oversight- Accumulation schemes with inter-generational risk sharing

• Target benefit DB plans• Notional account DC plans (e.g. SAFE Plan from Center for American Progress)

- Payout schemes• Variable annuities

- Insured products- Collectives with inter-generational risk sharing

• Combo arrangements with partial annuitization (e.g. longevity insurance products) Outreach

- Actuarial community: articles, podcast, webinar?- Policy makers, think tanks: webinar? other?

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2017 SOA Annual Meeting & ExhibitMARC DES ROSIERS, FSA, FCIASession 101, Methods to Evaluate Retirement Plan DesignsOctober 17, 2017

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Presentation Disclaimer

Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice.

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Background

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Background• A framework to evaluate the value and effectiveness

of a DC plan• Used to compare DC programs and highlight

strengths and weaknesses • Considers quantitative and qualitative features

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https://www.soa.org/research-reports/2016/system-evaluate-contributions/

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Principles governing framework• Evaluation of plans, not an individual• Each feature compared against range of existing possibilities• Range of features applicable to particular plan size/industry• Measure of ongoing plan success• Shared responsibility between member and

sponsor/employer• Importance of auto features (auto-enrollment and auto-

escalation)

Objective Function

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Objective Function• Assigns a value between 0% and 100% to a DC plan• Weights for each criterion (or subcriterion) add up

to 100%• Plan value is sum of the product of each criterion’s

weight times its value

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Objective Function Has Two Versions• Based on plan terms only, without regard to existing participant experience

Plan value = (Provisions) × w1 + (Adequacy) × w2 + (Other criteria) × w3

• Based on both plan terms and existing participant experience

Plan value = (Provisions) × w1 + (Adequacy) × w2 + (Other criteria) × w3 + (Plan success) × w4

where wi are weights assigned to each of the main criteria

Overview of Model

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Other Models• BrightScope

• Quantitative and qualitative details• Highlights plan strengths and weaknesses• Nonmonetary features makes it comprehensive• Benefit adequacy

• Watson Wyatt study• Measures benefit adequacy, plan success and investment

efficiency• BrightScope and PLANSPONSOR

• Data sources to determine range of plan features in the market

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Plan Provisions Subcriteria

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Plan designCriteria Value

Employer contributions min(Employer contribution rate, 9%)/9%

Matching formula min(Employer matching percentage, 100%)

Availability of Roth contribution option Available: 100%; Not available: 0%

Employee contributions Available: 100%; Low: 50%; None: 0%

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Investment optionsCriteria Value

Fees Qualitative assessment of 0%, 25%, 50%, 75% or 100%

Efficiency of investment options Qualitative assessment of 0%, 25%, 50%, 75% or 100%

Diversification of options menu Qualitative assessment of 0%, 25%, 50%, 75% or 100%

Retirement income solutions Qualitative assessment of 0%, 25%, 50%, 75% or 100%

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Enrollment designCriteria Value

Vesting Qualitative assessment of 0%, 25%, 50%, 75% or 100%

Eligibility Qualitative assessment of 0%, 25%, 50%, 75% or 100%

Auto-enrollment Qualitative assessment of 0%, 25%, 50%, 75% or 100%

Auto-escalation Qualitative assessment of 0%, 25%, 50%, 75% or 100%

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CommunicationsCriteria Value

Plan information Qualitative assessment of 0%, 25%, 50%, 75% or 100%

Education and tools (investor profile, online planning)

Qualitative assessment of 0%, 25%, 50%, 75% or 100%

Plan adviser services and support Qualitative assessment of 0%, 25%, 50%, 75% or 100%

Effectiveness of education and communication approach

Qualitative assessment of 0%, 25%, 50%, 75% or 100%

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Plan Adequacy

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Plan Adequacy• Value for plan adequacy = Expected total replacement ratio

Target replacement ratio over full career• Expected total RR = (Social security RR) + (Other employer-provided RR) + (Plan RR)• Social security RR = Average social security RR based on income level• Other employer-provided pension RR = Replacement ratio provided by another employer-

sponsored pension plan over full career• Plan RR = Accumulated assets at retirement as a multiple of real pay

Annuity certain to end of life expectancy• Target RR = Target replacement ratio required to provide adequate retirement income • Based on employee and employer contribution accumulations, includes auto-escalation

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Governance & Other

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Governance criteria• Investment monitoring and review process• Employee committee representation• Risk management framework and compliance• Transparency

Qualitative assessment of 0%, 25%, 50%, 75% or 100%Value is average of all criteria

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“Other” Criteria• Loan provisions• Other retirement programs with employer• Hardship withdrawal provisions• Fee equalization policy

Qualitative assessment of 0%, 25%, 50%, 75% or 100%Value is average of all criteria

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Plan Success

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Participation Rate• Participation = Actual participation rate

Expected participation rate

• Actual participation rate = (Number of plan members)/(Number of eligible employees)

• Expected participation rate = Estimated participation rate for plan size or industry

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Investment Efficiency• Investment efficiency = (Actual percentage of diversified equities)

(Optimal equity level)

• Investment efficiency =100%-|(Optimal equity level-Actual percentage of diversified equities)/(Optimal equity level)|

• Actual percentage of diversified equities = Plan assets invested in diversified equities, excluding company stock

• Optimal equity level = 100% - Participant's average age / 100

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Objective Function Results

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Top Level Function

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Objective Function Weights

Criteria Weights without existing plan Weights with existing plan

Value for plan provisions 34% 25%

Value for plan adequacy 56% 41%

Value for governance and other provisions 10% 7%

Value for plan success (existing plans only) N/A 27%

Total 100% 100%

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Example (Appendix B of Report)

Criteria Value

B1. Base case: 5% employer contributions 72%

B2. Base case but with alternate formula taking into account plan success 77%

B3. Base case but with 8% employer contributions 85%

B4. Base case but with auto-enrollment and auto-escalation 76%

Analytic Hierarchy Process

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Analytic Hierarchy Process• Weights are determined using the Analytic Hierarchy Process

(AHP)• Structured technique for organizing and analyzing complex

decisions• A branch of operations research, invented by mathematician

Thomas L. Saaty• Method to ensure importance of each criterion are

consistent with each other

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Principles of AHP• Each criterion rated in terms of its importance relative to

other criteria. • A method to evaluate each criterion relative to each other in

a consistent manner• Based on linear algebra concepts — eigenvectors• Converts values in a two-dimensional matrix to vectors to get

objective function weights• Google PageRank search engine algorithm uses eigenvectors!

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“Pairwise” Comparisons• AHP uses pairwise comparisons to establish a

ranking hierarchy for each criterion• Qualitative judgment on a scale of 1 to 9 between

each two alternatives.• Comparing each one to the others: six pairwise

comparisons

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Pairwise Comparisons with Four Nodes

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AHP Value Judgment Scale

Intensity of Importance Definition Explanation

1 Equal importance Two elements have the same value

3 Moderate importance One element is moderately better

5 Strong importance One element is significantly better

7 Very strong importance One element is greatly better

9 Extreme importance One element is better than theother at the highest possibledegree

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Value judgments for Each Pairwise Comparison Plan provisions 5 Plan adequacy 3 Plan adequacy slightly more important than actual plan

provisions

Plan provisions 5 Governance and other 1 Plan provisions such as employer contributions, vesting and enrollment significantly more important than other criteria

Plan provisions 1 Plan success 1 For an ongoing arrangement, plan provisions as important as participation levels and investment efficiency

Plan adequacy 5 Governance and other 1 Plan adequacy significantly more important than governance and other criteria

Plan adequacy 1 Plan success 1 Plan adequacy just as important as plan success

Governance and other 1 Plan success 3 Plan success somewhat more important than governance and other criteria

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Reciprocal Matrix• For each pairwise comparison, the number representing the greater weight is

transferred to the cell that intersects in the matrix

• Reciprocal of that number is put into the cell of the other intersection, working horizontally

Criteria Plan Provisions

Plan Adequacy

Governance and Other

Plan Success

Priority

Plan provisions

1 1/3 5 1 .25

Plan adequacy

3 1 5 1 .41

Governance and other

1/5 1/5 1 1/3 .07

Plan success

1 1 3 1 .27

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"Priority" is the Weight• The priority is the normalized value obtained by this formula:

Priority for criterion i = Sum of normalized values for row / Number of rows

where:• Normalized value for cell [i, j] = value in cell [i,j]/Sum of values

in column j

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Consistency Index and Consistency Ratio• Method to verify if results are consistent

• Consistency index using as the lambda max a measure of the maximum eigenvalue of the matrix Lmax = λmax.

• Consistency Index (CI) = (λmax – n) / (n – 1)• Consistency ratio (CR) = CI / RI

• where RI is the Random Index, the CI value obtained from randomly generated matrices

Lambda max 4.188127247 Consistency index 0.062709082

Assessment Very consistent (<10%) Consistency ratio 0.069676758

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References

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References Used to Derive Ranges• Aon Hewitt, 2011 Trends and Experience in Defined Contribution Plans, 2011• Deloitte / International Foundation of Employee Benefit Plans, Annual Defined Contribution

Benchmarking Survey, 2014• Vanguard Institutional Investor Group, How America Saves 2014, 2014• Michael Clingman, Kyle Burkhalter, and Chris Chaplain, Replacement Rates for Hypothetical Retired

Workers, Actuarial Note Number 2015.9, Office of the Chief Actuary, Social Security Administration, July 2015

• BrightScope / Investment Company Institute, The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, December 2014

• Jack Van Derhei and Lori Lucas, The Impact of Auto-enrollment and Automatic Contribution Escalation on Retirement Income Adequacy, Employee Benefit Research Institute Issue Brief, no. 349, November 2010

• PLANSPONSOR, 2014 DC Survey: Plan Benchmarking, January 2015, http://www.plansponsor.com/2014-DC-Survey--Plan-Benchmarking/

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Quick references to the report• Section 3.2, Objective Function• Benchmarking criteria:

• Plan Provisions (Section 3.3)• Plan Adequacy (Section 3.4)• Other Criteria (Section 3.5)• Plan Success (Section 3.6)

• Appendix A: Using/Modifying the Excel Model Spreadsheet• Appendix B : Examples

Summary

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A System to Evaluate and Compare DC Plans

• Rational approach to quantify plan features, based on:• Contribution levels• Fees• Investment options• Auto-enrollment, auto-escalation• Eligibility, vesting• Replacement ratio adequacy• Plan participation and investment efficiency• Nonmonetary features (e.g., income solutions, communications, etc.)