Retirement Benefits at Augustana

1. Retirement Benefits at Augustana January, 2013

2. Introductions • Laura Ford • Director of Human Resources • Augustana College • Rob Reiskytl • Actuarial Consultant, Retirement Benefits • Aon Hewitt Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

3. Agenda • Task Force and Process • Current Retirement Plans • Recommended New Plans • Analysis and Discussion • Next Steps Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

4. Retirement Benefits Task Force Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

5. Allow faculty, staff and administration: To retire as planned, On your own terms. Reasons for Change • Increase engagement • Improve expected outcomes • Simplify • Administration • Participant experience Goal = Cost Neutral for the College, with Improved Outcomes for Employees Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

6. Outside Consultants Retirement Task Force Director-Level Administrators Faculty Senate President’s Staff Advisory Council Faculty Welfare Committee Collaborative Process Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

7. Current Plans • Group Retirement Benefit 10% Contribution Each Year Provided by the College • Supplemental Retirement Benefit Voluntary salary deferrals 403(b) plan • 10% = competitive benefits • Additional savings needed • Longer life expectancy • Increasing retiree health care cost • Uncertain future of Social Security Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

8. New Augustana Retirement Benefits • Strong Basic benefit, plus matched savings incentive • Minimum match helps those least able to save for retirement • Automation • Automatically enroll employees at 6% of pay • Automatically escalate employee savings rates 1% per year, stopping at 10% of pay • Employees can opt out (or change savings rate) at any time • Reset to defaults each year if opt down, or opt out • Eligibility: • One year of service for Basic • Immediate for 403(b) deferrals and match • Minimum match for non highly compensated employees only • Minimum hours requirement, employed on last day of plan year, and must save at least $250 Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

9. Tracking Toward Adequate Retirement Income • 401(a)/403(b) total contribution rate required based on age savings start • Faculty/Staff plus College contributions • Percent of each year’s pay • Add 1%-2% of pay to contribution targets if participant pay less than $30,000 24% (age 65) 18% (age 67) 19% (age 65) 15% (age 67) 15% (age 65) 12% (age 67) Start at 25 Start at 30 Start at 35 Average percentage shown; approx 3% range around average allows for changing assumptions. Calculations assume consistent savings rate every year during working career until retirement at age 65 (or 67) with targeted retirement resources of 11 times pay at 65 or 9.4 times pay at 67, 7% annual return on 401(a) and 403(b) assets during accumulation, 4% annual pay increases, and unsubsidized future retiree medical coverage Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

10. Participation and Savings Rates • Faculty/Staff/Admin savings plan behavior1 • 65% Percent participation in 403(b) • 5.9% Average savings rate (among savers) • General Industry employee savings plan behavior2 • 76% Percent participation in company savings plan • 7.2% Average savings rate (among savers) • Augustana • 31% Percent participation in 403(b) • 9.0% Average savings rate (among all savers) • 6.4% Average savings rate (excluding high- rate outliers: 21 of 629 eligible participants = 3% of eligible employees) 1 PSCA 2012 403(b) Plan Survey 2 Aon Hewitt 2012 Universe Benchmarks. Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

11. 6.4% Average Savings Rate * Savings Rates * Excludes high rate outliers at 20% of pay or more. Otherwise savings rate is 9.0% of pay among all savers Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

12. 26% do not provide a contribution from the organization Source: PSCA 2012 403(b) Plan Survey Prevalence of Matched Savings (Higher Education Only) 79% Prevalence of matched savings among higher education 403(b) plans with contributions provided by the organization Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

13. Retirement Income Adequacy • Average Total Private Resources Needed • In addition to Social Security • Expressed as Multiple of Pay Amount Needed Retirement Age 11 x Pay 65 9.5 x Pay 67 Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

14. 9.37 5.15 times pay Benefit Projection—With 1% Savings Plus Escalation to 10% • Employee initially saves 1% of pay, slowly increasing savings rate by 1% per year • Results at age 67, including personal savings, under different economic scenarios: • 9.37 times pay if 4.0% pay increases and 7.0% return on assets • 9.43 times pay if 2.5% pay increases and 5.5% return on assets • 9.45 times pay if 2.0% pay increases and 5.0% return on assets • 10.3 times pay if 1.5% pay increases and 5.0% return on assets 35 year old new employee, earning $25,000 Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

15. Advantages Modernizes and aligns with prevalent and growing plan design trend (matched savings) Recognizes that some employees may not be able to save much toward retirement Basic contribution provides strong minimum benefit, and match (with minimum) sends direct message on importance of voluntary employee savings Upside potential benefit increase for strong savers Engagement increases directly through personal involvement and a sense of ownership and urgency Sends message of shared responsibility, working together toward retirement income adequacy Automation should increase participation and savings rates Plan restart will maintain future efficiency of participation Flexibility for employees to opt out or change automatic defaults on participation, savings rate, and investment elections Review and Open Discussion • Disadvantages • Complexity of minimum match • Requires voluntary participation in order to receive full benefit • Some employees unable or unwilling to save in 403(b) plan • Future retirement savings outside the 403(b) may need to be redirected into the plan • Employees tend to stay at automated default fund and savings rate long after initial enrollment • Automation may be perceived as overly paternalistic • Restart may be viewed as aggressive among those who already opted out or who actively chose to decrease their savings rate Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

16. Your Questions ? Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

17. Next Steps Fine-tune the details (waiting periods, vesting schedule, loans & withdrawals, etc.) Review investment alternatives with ideal of streamlining vendors and choices Determine best-fit recordkeeping relationships Create a transition plan to move from old to new Adopt new plans Benefit change anticipated 1st Quarter of 2014 at the earliest 16 Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013 Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

18. Appendix

19. Guiding Principles—Primary • The Retirement Benefits Task Force determined the following set of Guiding Principles for Retirement Benefits at Augustana College • Reward participation and increase engagement in the retirement benefits package in order to improve outcomes for the College and its employees. • Provide a core retirement benefit to all employees, with additional amounts from the College based on annual employee contributions. • Provide a retirement benefits system where faculty and staff can accumulate adequate retirement income from all sources (College-provided, social security, and personal savings). • Structure the design and communication of the benefits to actively promote personal responsibility, through plans that are easy to understand and flexible with a reasonable range of choices. • Strive to maintain the current cost of the retirement benefits, while acknowledging that a new plan design may result in both improved results and modest cost variance. • Preserve institutional unity through a uniform retirement benefit structure for all faculty, administration and staff. • Deliver retirement income through annuities and lump sum payments, with modest emphasis on flexible features such as loans and withdrawals. • Be sensitive to the impact on current employees if changing the plans. Transition, if any, should be short-term to avoid complexity of having multiple classes of employees. Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013

20. Guiding Principles—Secondary • Consider leading-edge designs, features, and resources to improve employee understanding and long-term success. • Reduce legal complexity and administrative/compliance burden when reasonable and practical. • Provide competitive retirement benefits, especially among peer institutions, with awareness of emerging trends. • Recognize that retirement benefits, if at a basic competitive level, provide an important positiveinfluence but not a primary driving factor for attracting and retaining key talent. • Provide increased retirement benefit value with increased service to the College, but not with increased age. Consulting | Retirement Proprietary & Confidential | 696610114 Campus Forums.ppt 01/2013