Questions:
1. Can you provide data to Plan Sponsors that shows the level of benefits the plan is providing as
well as their vendor’s success in improving those benefits over time?
2. How do participants know your guidance is working and why will they make the changes you suggest?
3. How do you fit in with the new trend toward automatic enrollment and target date funds?
4. Do your services work?
5. What sets you apart from internet advice providers?
6. What sets you apart from gap analysis programs?
7. What is the cost for your services?
8. How do you get the data?
9. What data is required from the Plan Sponsor?
10. What data is required from the record keeper?
11. What data is required from the investment provider?
12. What data is required from the investment advisor?
13. Are employees required to enter any data?
14. Do you provide investment education or investment advice?
15. How do you provide your reports? Is Internet access required?
16. What is required from employees in order to obtain reports?
17. What kind of advice/guidance does the Retirement Analyst provide?
18. How does the guidance/advice service create participant action and decision making?
19. Do your reports or web based services provide advice/guidance on other pension assets, and taxable and
non-taxable assets?
20. Do your reports include spousal assets?
21. What assumptions do participants input? How is participant input limited?
22. Can participants modify or question the guidance/advice given and receive updated recommendations?
23. Can you provide data to Plan Sponsors as to participant's utilization of the optional web based service and
their implementation of the advice provided?
24. What support do you provide to help promote the service to plan participants?
25. Describe your customer support capabilities.
26. For what types of assets do you provide guidance/advice?
27. Does your firm provide individual optimization or do you use model portfolios? If model portfolios, how many
do you use and how are they modeled?
28. How is individual risk tolerance determined?
29. Why are there two alternative solutions provided in the report?
30. How is inflation taken into account?
31. Describe how retirement income is calculated and how you assess the probability that a participant will reach
his or her goal.
32. Describe how the probability that a participant will reach his or her goal is calculated.
33. How is customer data stored?
34. How do you assure confidentiality of participant data?
Responses:
1. Can you provide data to Plan Sponsors that shows the level of benefits the plan is providing as well as their
vendor’s success in improving those benefits over time?
Yes, our Sponsor Report rolls up the data we calculate for each participant each time reports are produced, and compares it to
data from the first time our services were implemented. These are the plan’s “statistics of success” which includes the
projected percentage of ending salary (replacement ratio) for each participant compared to the minimum funding goal and the
required increases in rates of return and contributions for the two suggested guidance options. From these sponsors can identify
the participants who are “on track” to a comfortable retirement, the overall effectiveness of the plan’s communication efforts
and whether participants are utilizing our suggestions.
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2. How do participants know your guidance is working and why will they make the changes you suggest?
By utilizing a tried and true defined benefit model for each participant, we can show them that their account balance is above or
below the amount they need each quarter to be on track to attain either a minimum or full funding goal. Other programs tell that
they will need hundreds of thousands of dollars many years from now, which doesn’t mean anything to people today. We can show
that a $500 balance is more or less than they should have today. See How It Works. It is simple for participants to understand,
yet requires volumes of data, economic assumptions, and sophisticated mathematics to come up with the values.
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3. How do you fit in with the new trend toward automatic enrollment and target date funds?
Automatic plans are only a first generation improvement over completely discretionary plans. By our and other firm’s
calculations, participants who are starting after age 40 will be left under funded if they stay with the PPA safe harbor plan
design. Further, younger participants will be significantly over funded, which in itself isn’t a bad thing, but growing families
have other needs.
Our automatic enrollment reports shows a participant the benefits he could receive if he does not opt out of the plan. Further,
if the defaults leave him with inadequate benefits, our guidance will close the funding gap and enable him to invest in a more
appropriate target/lifectyle fund or increase his contribution. Our contribution suggestions are unique in the industry because
we tell how much to increase all at once or in steps, so that instead of increasing 1% for three years, we are able to tell him
to increase for six years instead, or by 2% or 3% per year.
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4. Do your services work?
We have been in business since 2001 and have enjoyed many success stories. One survey was done with a major provider and a
sponsor wrote to his local newspaper about our success with his plan. We get anecdotal comments all the time from advisors about
how well the reports generate new business and retain existing business, from sponsors who say they add value to their plan and
from participants who say they understand the planning process better and the benefits they could get from their plan by just
making a few changes.
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5. What sets you apart from internet advice providers?
The biggest difference is that we are fee for service providers who gather data to create guidance reports that enable
participants to gain confidence in the retirement planning process to use their employer sponsored plan to provide themselves
adequate retirement benefits.
We are not investment advisors, but work with a plan’s investment advisors or fiduciary advisors by incorporating their model
portfolios and economic assumptions into our guidance. This open architecture enables any plan, provider, or advisor to gain the
advantages of our services without changing the existing relationships.
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6. What sets you apart from gap analysis programs?
Gap Analysis programs typically incorporate a small number of data points and some broad assumptions to determine if a
participant’s current contributions and investment return will provide adequate benefits. While some are more sophisticated than
others, their primary purpose is to unsettle people into taking some action – usually to invest in asset management or increase
contributions.
While this is better than just telling participants to contribute as much as they can, it lacks the actuarial rigor that The
Retirement Analyst provides. The most glaring “gap” is that most gap programs assume a rate of return – say 8% – for everyone.
Invariably this overstates or understates the result most participants will achieve which negates the value of the process. We
calculate an expected return for each participant based on his ending account balance by fund. Most gap programs calculate in
present value dollars, which does not correctly account for the effects of inflation in anticipating income needs.
The most critical departure is that The Retirement Analyst adds the actuarial sophistication of a personal defined benefit plan
applied to defined contribution accounts. This enables us to show participants how much they should have in their account each
quarter to receive adequate benefits, track the return on their investments compared to their expected return, and understand
mid-course corrections if their strategy is falling behind.
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7. What is the cost for your services?
We have priced our services to be very affordable so that Plan Sponsors or Providers will be able to provide reports for all
employees. Actual pricing is based upon several factors, including the number of reports, frequency of reporting, and
variability of investment choices.
For specific pricing information, please click on the link below and complete the brief questionnaire. We will promptly provide
a proposal.
Click here to request a proposal.
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8. How do you get the data?
Our application is data intensive – It has to be or it is incorrect and fiduciaries need to know that up front. Simple programs
will expose fiduciaries to liability just as much or more than any investment because we are dealing with contributions as the
key determinant to success, which are much more powerful than investment returns.
We typically get data from Sponsors/Consultants/Payroll companies, TPAs/record keepers, investment providers/advisors, and
participants. Data files are loaded directly into our database via our secure web site, through direct links with record keeping
systems or by entering it on our web site after logging in with appropriate permissions.
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9. What data is required from the Plan Sponsor?
The data required from the Plan Sponsor is standard census data and general plan data. Census Data includes name, social
security number, date of hire, date of birth, current wages, tax exemptions and current deferral percentages. General Plan Data
is information about the plan and includes matching formula, annual limitations and assumptions that apply to all participants.
Lastly a list of the funds that are in the plan.
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10. What data is required from the record keeper?
The data required from the record keeper includes historical account values such as beginning and ending balances, contributions
for all appropriate money types and allocations for new contributions and ending account balance by fund. If Data for up to 20
quarters can be sent as separate files or one file.
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11. What data is required from the investment provider?
Product/investment providers provide us a list of all funds and code numbers/tickers/Cusips that are used by their recordkeeping
system to identify each fund. If they have a standard TPA download file, we can work with that native format to get the data we
need without the expense and hassle of special programming.
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12. What data is required from the investment advisor?
Investment Advisors who are creating model portfolios or managed accounts provide their economic assumptions for any asset class
that is represented by the plan’s funds. Because ERISA requires Modern Portfolio Theory as the basis for proper diversification,
we use expected return, standard deviation and correlation coefficients as the basis for the benchmarks we create for each
participant. They provide excepted returns and standard deviations for their models as well. We can work with those who use an
alternative portfolio modeling methodology to come up with appropriate inputs and calculated values.
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13. Are employees required to enter any data?
Employees are not required to enter any data whatsoever. Our printed reports are delivered as "finished products" to all
employees without them having to make a phone call or visit a web site. Our web based service enables employees to fine tune
some of the variables and add additional data about some types of outside investments.
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14. Do you provide investment education or investment advice?
We have the ability to configure our reports in accordance with the needs of the Plan Sponsor or Provider, either as investment
advice or investment education (“guidance”). We have designed the two versions in accordance with the U.S. Department of Labor’s
interpretive bulletin relating to participant investment advice (29 CFR 2509.96-1).
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15. How do you provide your reports? Is Internet access required?
The primary delivery system for our service is a two-page, full color printed report. click here for sample reports Printed
reports have the advantage of reaching ALL employees, whether they are making contributions to the plan or not, whether they have
Internet access or not, and without regard to someone's level of computer literacy.
In addition to the printed reports, participants can use our web based service to change some of the default data and add some
outside investments. After personalizing their information, they can print amended reports directly from the web site and save
the new data to our data base. Future printed reports will then reflect the updated data.
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16. What is required from employees in order to obtain reports?
We can deliver a "finished product" to all employees without any of them having to make a phone call or visit a web site.
This is an extremely important benefit of our program because experience has shown that the majority of employees will not use
the Internet to obtain advice because of (1) unavailability of computer or an ISP account; (2) fear of computers or lack of
computer literacy; (3) inability to follow complex instructions; (4) lack of time or patience; or (5) insufficient data
availability. That's why we characterize our service as "advice for everyone else."
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17. What kind of advice/guidance does the Retirement Analyst provide?
The Retirement Analyst employs a simple, three-step process to show employees how to realize reasonable retirement objectives.
First, each employee will have a clear description of a retirement income goal and, if actively participating, an analysis of
his/her current investment strategy. Next, the report provides alternative strategies designed to meet the goal along with
specific investment advice/guidance that offers the greatest chance of achieving that goal while minimizing risk (i.e.,
volatility). Finally, the report includes a comparison between the actual growth of their current strategy and the expected
growth of their actual current allocation. A key benefit of our report is its illustration of account growth compared to
quarterly benchmarks, which immediately validates the advice/guidance.
The report also provides instructions for implementing our advice/guidance, directing the participant or non-participant employee
to the plan’s other service providers' toll free numbers and/or web sites, as appropriate to implement suggested changes. Our
web site will include appropriate hyperlinks to these other service providers.
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18. How does the guidance/advice service create participant action and decision making?
We evoke participant action by establishing attainable retirement income goals and illustrating current account balances
vis-à-vis benchmarks that show the amount required today to achieve the next attainable goal. Participants immediately recognize
when action should be taken and can correct a failing investment strategy by subscribing to a solution that offers a positive
choice for success. By calculating and illustrating actual past returns and comparing them to expected returns, we provide
positive reinforcement and instill confidence in a successful retirement plan.
Each time a participant receives a new report, one quick glance at the Retirement Track will provide immediate feedback as to the
status of his/her retirement plan.
Participants are always encouraged to make required changes by either calling a toll-free Voice Response Unit or service center
or by visiting their plan provider’s web site. Users of our web site will also be encouraged to effect recommended changes
through hyperlinks or “one click execution” if available through their plan provider.
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19. Do your reports or web based services provide advice/guidance on other pension assets, and taxable and
non-taxable assets?
The Retirement Analyst is designed to provide useful investment advice to the great majority of employees. Accordingly, most
employees will rely on social security, defined contribution plans, defined benefit plans, and other tax deferred investments
such as personal IRAs for the majority of their retirement income. In this manner we can deliver an accurate and usable service
on a very cost-effective basis.
Our optional web based service allows participants to add additional tax deferred holdings. The projected values of an outside
investment, such as a personal IRA, will be included in the ending balance at retirement. This will affect the advice by
requiring a lower investment rate of return and/or reduced contributions.
Other taxable assets are not included at this time as calculating future tax brackets is beyond the scope of most participants
who will benefit from our services. Those participants with significant outside assets should seek professional legal and estate
planning advice and not rely on any web site based service to replace such advice.
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20. Do your reports include spousal assets?
Spousal assets are not included in our program because the retirement income goals are based solely on the participant’s
estimated ending salary. Inclusion of a working spouse’s assets would overstate the assets attributable to the participant and
render our advice erroneous.
In addition, spousal assets are not included because neither we nor the Plan Sponsor has an advisory or fiduciary relationship
with the spouse. This is an issue that Plan Sponsors have raised with respect to their fiduciary liability. Spouses can
separately subscribe to our web based service to obtain their own advisory reports.
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21. What assumptions do participants input? How is participant input limited?
We believe one of the strongest features of our reports is that participant interaction is not required to obtain meaningful
investment advice/guidance. If the participant uses our web site, he/she can change information regarding retirement age,
salary, IRAs, etc. that enables “fine tuning” of the analysis.
If the participant uses our web site, he/she cannot change any assumptions that would produce unrealistic expectations or
inappropriate advice. Some of the fields have limits which, if exceeded, display an error message requiring correction.
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22. Can participants modify or question the guidance/advice given and receive updated recommendations?
Yes, subscribing to the optional web based service enables changes in certain default assumptions and the input of additional
data for consideration. These changes will produce different advice so the participant can do “what if?” scenarios until
satisfied that all pertinent information has been included and comfortable with the new strategy. A new report can be printed
directly from the web site.
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23. Can you provide data to Plan Sponsors as to participant's utilization of the optional web based service and
their implementation of the advice provided?
Yes. We provide regular reports that include all utilization data including average number of visits per participant per quarter
and average session time. Because the web site is only an optional adjunct to the primary delivery system, we expect average
session times to be far less than others who rely primarily upon the web site to deliver their service. This will prevent the
loss of productivity that often occurs with these other services, especially during the roll-out phase.
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24. What support do you provide to help promote the service to plan participants?
Our service is very affordably priced to enable plan sponsors or providers to deliver reports to all employees, virtually
eliminating the need for any promotion. In the event that employees are required to pay some or all of the cost, we will assist
with newsletter copy and provide informative brochures/flyers and payroll stuffers.
We believe that a comprehensive yet simple and understandable report that costs, on average, less than 10 cents a week should not
require a high powered "sales pitch." Other providers’ promotional costs alone are frequently in excess of the total cost of our
entire program!
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25. Describe your customer support capabilities.
A principal is available 24 hours a day seven days a week for urgent technical support required by major clients (Plan Sponsors
and Providers). Our service center supports routine participant inquiries during normal business hours. However, because we do
not require any participant input, and because of the simplicity of our reports, the requirement for participant support has been
extremely minimal.
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26. For what types of assets do you provide guidance/advice?
The advice version is designed to provide investment specific advice for mutual funds, commingled funds, and separate accounts
(investment advice). We can also provide investment guidance based on asset classes (investment education).
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27. Does your firm provide individual optimization or do you use model portfolios? If model portfolios, how
many do you use and how are they modeled?
We actively manage ten basic model portfolios (non-investment specific asset class indexes/benchmarks) with expected returns
ranging from 6% to 15%. Specific plan investment options are analyzed and then matched to the asset classes employed by these
model portfolios. This results in ten "plan specific" portfolios. As our economic assumptions for the basic model portfolios
change, the weightings of the asset classes in the portfolios are in turn changed. Our program automatically selects portfolios
based on the rate of return required by each choice to meet participants' retirement income goals.
Portfolio allocations are reviewed monthly and reported upon quarterly.
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28. How is individual risk tolerance determined?
One of our primary objectives in designing this program was to enable each and every employee to have access to our advice,
participant or non-participant, Internet savvy or not. In order to accomplish this, we needed to completely eliminate any need
for participant input. We have therefore elected to forego the familiar individual risk preference utility employed by others.
Rather, we establish a specific retirement income goal using the participant’s current salary adjusted for reasonable
salary increases and inflation. We then calculate the required investment returns and contribution levels for two solutions that
will attain the account balance at retirement that will provide the goal’s level of income.
We view this as a more practical approach because “comfort” is not one of the three variables that determines whether a specific
financial goal is met. We feel this makes a lot more sense than enabling participants to be “comfortable” all the way to the
poor house.
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29. Why are there two alternative solutions provided in the report? The first solution, Choice 1, looks
first to increasing expected investment return (with commensurately greater risk) and usually requires a lower contribution than
the second solution. The second solution, Choice 2, emphasizes a greater contribution with a lower expected investment return
(and commensurately less risk). If increasing both expected investment return and contribution to their respective maximum
levels still results in a shortfall, the program will illustrate a later retirement date. In addition, we provide examples of
the out-of-pocket cost for several incremental contribution increases.
If the participant chooses either of the solutions, the Retirement Track illustration on his next report will show that he/she is
now on track to attain his/her retirement goal. If one of the incremental contribution increases is chosen, the next report will
show that he/she is closer to attaining the goal.
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30. How is inflation taken into account? All inflation estimates will be inherently inaccurate unless
revisited and adjusted frequently. If inflation is understated by even one percent, long-term projections completely break down.
That’s why we base our methodology on developing quantifiable, period-by-period account balance benchmarks against which the
participant can compare the actual account balance from each statement. These benchmarks represent the inflation-adjusted
present value of all cash flows, beginning with the last retirement income payment back to the first account balance data
available.
We use our inflation estimate to establish an inflation-adjusted retirement income goal and as a factor to increase the deferral
amount each year to accommodate average salary increases. This is important because deferrals are based on a percentage of
salary which is in turn expected to increase each year at the inflation rate. Our current default assumption is 3% per annum.
Participants can change this variable assumption for their own reports through our optional web site service.
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31. Describe how retirement income is calculated and how you assess the probability that a participant will
reach his or her goal.
Our calculation of retirement income is the future value of the current salary adjusted by the expected inflation rate. This
value assumes that the participant's salary will maintain its purchasing power throughout his/her working years. This
calculation produces a retirement income goal of 100% of ending salary. A lesser goal, typically 80%, is also calculated as a
lesser, yet meaningful goal.
The account balance needed at retirement is the present value, at retirement, of all inflation-adjusted cash flows during the
retirement years from normal retirement age to age 95 (actual ages are chosen by Plan Sponsor or provider).
Our web site allows participants to enter a different present value salary that is adjusted by the inflation rate. This utility
may be appropriate for younger people who feel their careers and salaries may grow in excess of the inflation rate.
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32. Describe how the probability that a participant will reach his or her goal is calculated.
Any assessment of probability is, by definition, based upon a set of assumptions. The correct outcome will be based solely upon
the extent the assumptions ultimately prove to be correct.
As an alternative to limiting the participant to the “probability” of attaining a goal based on a set of long term assumptions,
we provide the Retirement Track illustration as a visual representation of incremental progress toward the goal each reporting
period. The key difference between the two methodologies is that probability calculations use future value calculations to
determine a range of possible outcomes, while the Retirement Analyst uses present value calculations to determine the optimal
outcome based on the assumptions.
Midcourse corrections are made within an acceptable range of incremental values to assure the outcome. If any of the fundamental
assumptions change, a new track is provided and current account balances can be instantly compared to the new required balances.
We can characterize the Retirement Track as a four lane highway from Point A to Point B. Sometimes we might drive in the
fast lane (above required account balance) and sometime in the slow lane (below required balance), but as long as we stay on the
highway, we are 100% certain that we will get to Point B. Ideally, the account balances will be slightly greater than the
benchmarks during bull markets (fast lane) and slightly below the benchmarks during bear markets (slow lane).
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33. How is customer data stored?
Our system and customer data is housed in a Class 4 facility and stored on our dedicated servers with daily backup to off-site
secure Internet backup.
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34. How do you assure confidentiality of participant data?
Our network was designed with the latest technology and security measures currently available. Our entire system includes a
firewall, detection servers, a "demilitarized zone," virtual private networks, and monitoring software. In front of the
firewall, we have an IP packet-filtering server in addition to the router's security package. All internal traffic is routed
through a proxy server.
Clients/participants access account information by logging in with an appropriate user name and password. User names for
participants will be their social security numbers. All outside communication with the web server is encrypted using the latest
SSL encryption technology. We employ 128 bit encryption, the highest level currently available.
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