SPONSORING A SUCCESSFUL
RETIREMENT PLAN
Positioning your bank to
compete effectively
Presented by:
Clarisse I. Andrus, CEBS
Senior Consultant
Pentegra Retirement Services
June 2012
EFFECTIVE PLAN DESIGN CAN HELP
ENSURE YOUR BANK’S SUCCESS

Designing an effective retirement program means not only developing a plan
that assists employees in meeting their retirement goals, but also addressing
your bank's business needs

All community banks share a similar goal—to attract and retain valuable
employees in order to provide a high level of customer service that will enhance
the growth and profitability of the institution
DESIGNING AN EFFECTIVE
RETIREMENT PROGRAM

Designing the right retirement program for your organization begins with an
understanding of:
–
Your management philosophy
–
Your compensation strategy
–
Competitive considerations and analysis
–
Demographic considerations
–
The maturity of your institution
–
The different types of plans available
TRANSLATING BUSINESS OBJECTIVES
TO BENEFITS PHILOSOPHY

Two basic approaches used in developing a benefits philosophy

Objective Approach—Compensation and benefits are offered in order to fulfill a
specific function; benefit adequacy involves an analysis of what level of
compensation and benefits allow an employee to maintain a certain standard of living

Competitive Approach—Benefits and compensation packages are offered in order to
attract and retain employees; benefit adequacy involves an analysis of wages and
the level of benefits offered by competitors

While these two approaches are different, they are not exclusive; a successful
benefits program will reflect a blend of both philosophies
HOW MUCH DO EMPLOYEES NEED?

The objective approach involves examining the level of income needed in order
to retire comfortably

Replacement ratios are used as a tool in determining how much income a
retirement program should provide

A replacement ratio is the percentage of gross pay prior to retirement that one
needs after retirement to maintain the pre-retirement standard of living

Replacement ratios take into consideration the fact that the post-retirement
standard of living will reflect lower taxes and other fixed costs
THE OBJECTIVE APPROACH

Experts recommend that employees retiring in the next few years will need
between 70% and 90% of their pre-retirement income to maintain a similar
standard of living in retirement

These factors take into consideration the fact that post-retirement standards of
living reflect lower taxes and other fixed costs

They do not take into consideration the impact of inflation on purchasing power
after retirement

Replacement ratios
THE COMPETITIVE APPROACH

In order to remain competitive, plan sponsors must also analyze benefit
programs in relation to peers

While some turnover is unavoidable, plan sponsors that provide competitive
benefit plans will generally experience lower turnover among middle and upper
management positions

While the cost of providing a competitive benefit program can be high, the cost
associated with turnover or failure to attract and hire the professionals you need
to run your business can be even more substantial

In our experience, an employer’s overall retirement costs, exclusive of social
security, are often in the 10-15% range
THE COMPETITIVE APPROACH

Our mutual institutions spent, on average, 9.3 percent of covered payroll for a
defined benefit plan

Our stock clients have an average cost of 7.8 percent for defined benefit plans

More importantly, 31 percent of our mutual institutions have an average cost
over 10 percent of payroll, while only 16 percent of stock institutions do

Obviously, without other stock based capital accumulation plans, mutual
institutions provide greater benefits under their defined benefit plan than stock
institutions
THE COMPETITIVE APPROACH

Defined Benefit Plans can be structured with a cost as low as 4-5% of payroll
and rarely exceed 15%

In addition, the average employer contribution to a 401(k) plan among financial
institutions was 3 percent of payroll

401(k) plans and profit sharing plans can range from just administrative costs to
25% of payroll

Money purchase plans and leveraged ESOPs have a much wider range of
costs starting in the range of 1-5% of payroll up to 25%
A WIDE RANGE OF OPTIONS

In summary, employers have a vast array of plan options to choose from in
designing their retirement plans.

There is no single best type

Generally, employers should look to combining various types of plans

Don’t need to necessarily spend a significant percent of payroll to have a
competitive plan

Goal: to balance providing appropriate benefit levels while being sure to
consider IRS limits and deductibility along with demographics and competition
YOUR INSTITUTION

Plan design differs depending on whether or not you are a stock institution or
mutual institution

Stock institutions will typically integrate company stock with retirement plans

Mutual institutions, without the ability to offer company stock based capital
accumulation programs, will generally provide somewhat richer retirement plans
by providing both a defined benefit plan and a 401(k) plan
RETIREMENT PLAN OPTIONS



Defined benefit plans
–
Pension plans
–
Cash Balance plans
Defined contribution plans
–
401(k) plans
–
Profit Sharing plans
ESOPs
–

KSOPs
Executive Benefit plans & BOLI
WHAT’S THE BEST PROGRAM FOR
YOUR BANK?

Effective plan design combines elements of both the objective and competitive
approach
–
Participant demographics
–
Maturity of institution
–
Competitive factors
–
Benefits philosophy
–
Compensation strategy and budget
–
Overall cost and benefit objectives “cost vs. adequacy”
HOW DO YOU MEASURE THE EFFECTIVENESS
OF YOUR RETIREMENT PROGRAM?

Participation Rates

Salary Deferral Rates

Compliance Testing

Asset Allocation

Investment Strategy

Investment Monitoring

Fiduciary Responsibility

Plan Fees

Administrative Ease

Employee Education
ADDITIONAL PLAN DESIGN
FEATURES TO CONSIDER

Roth 401(k) Option

Automatic Enrollment

Qualified Automatic Contribution Arrangement (“QACA”)

Safe Harbor 401(k) Options

Safe Harbor Automatic Enrollment

Catch-up contributions (age 50 and above)

Loans

Default Investment Alternatives

Target Date Investment Funds

Self Directed Brokerage Accounts
CHOOSING THE RIGHT PROVIDER

Reputation, history and stability

Cost transparency

Ability to provide a “total” retirement solution—bundled approach vs.
unbundled approach

Access to a team of retirement benefits experts (ERISA attorneys, actuaries,
benefits consultants, investment managers and education specialists)
available on a direct access basis
NEXT STEPS


Initiate review of retirement benefits strategy and coordination, including:
–
DB plan
–
401(k) plan
–
Executive Benefit Plans
Perform a plan review to determine the effectiveness of your retirement benefit plans
THE PENTEGRA ADVANTAGE

We believe we provide the best retirement plan value for community banks
available today, and the unique benefit of working with a provider familiar with
your employees’ needs that can offer insights about trends and competitive
challenges in the community banking industry
ABOUT THE SPEAKER
Clarisse I. Andrus, CEBS is a Senior Consultant in the Midwest Region for
Pentegra Retirement Services. Prior to this position, Clarisse was a Vice President
for a major employee benefits consulting firm. Clarisse has more than 30+ years of
experience in all aspects of employee benefits and retirement planning, with special
emphasis on the design, funding, administration and implementation of qualified
and nonqualified retirement programs. Clarisse has worked with many corporations
on the strategic design and funding of retirement programs. Clarisse holds an M.A.
in Speech Communications from Wayne State University and a B.A. with a double
major in English and Journalism from Wayne State University. She also holds the
Certified Employee Benefits Specialist (CEBS) designation and FINRA 6 and 63
Licenses. Clarisse has also been a speaker on various retirement topics at both
local and national employee benefit seminars, conferences and events.