Experts Optimistic About Future of Retirement Plan Business

PURCHASE, NY, November 12, 2008 -- Despite volatile investment markets, the freezing and terminating of defined benefit plans and limited formation of new plans, retirement market thought leaders and professionals alike are upbeat about the industry's future when looking five years ahead. According to Diversified Investment Advisors' just-released Prescience 2013: Expert Opinions on the Future of Retirement Plans, this positive outlook is due in part to the cultural shift from a voluntary benefits approach to automation, as well as market growth spurred by employees' realization that they need to save more money for retirement than originally planned in light of market instability and inflation.

"The third such study conducted by Diversified, Prescience has become an invaluable business planning tool in today's rapidly-changing business environment because it provides plan sponsors and their advisors with a clear picture of the future of the retirement plans business. As a result, employers and providers can invest in products and services that will meet future needs," noted Laura White, vice president of marketing.

With two years to go, many trends uncovered in the Prescience 2010 study, conducted in 2005, have already come to pass, including: increasing prevalence of defined benefit plan freezes; increasing plan sponsor due diligence; fee disclosure regulations; significant legislation, as well as use of target date funds, automatic enrollment and automatic deferral increases.

The panel is especially optimistic about the future of 401k plans as more employees become eligible to participate and eligibility periods shorten. In fact, 68% of experts anticipate that participation rates will increase by 10% or more.

Experts also predict that the impact of the Pension Protection Act will continue well into the next decade. The consensus of panelists suggests that 77% of plans will offer immediate eligibility for participation; 73% will offer automatic enrollment; 49% will offer immediate eligibility for employer contributions and 48% will provide for immediate vesting. In addition, they suggest that the demise of defined benefit plans will slow, that only 6% will be terminated and that 23% will be frozen by 2013.

The aging workforce will also drive positive shifts in the retirement plans market and many employers will need to manage workforce management issues as well assist retiring employees in achieving an acceptable standard of living. For example, experts project that 32% of employers will offer phased retirement programs, allowing aging participants to remain employed after they start taking distributions from retirement plans. They also project that 40% of sponsors will include lifetime benefit options in their plans' investment arrays. This is likely to lead to increased demands on recordkeepers and investment management firms to develop solutions to meet employer needs, as well as a greater focus on employee communication, education and counseling.

However, the tax status of retirement benefits may not keep up with the times, say experts. For example, 39% agree that the trigger age for required minimum distributions will increase from age 70½ , while 36% agree that the minimum age for penalty-free withdrawals, 59½, will also increase.

Other key findings of the Diversified study:

• Recordkeeping service agreements will gravitate toward per-head charges instead of asset-based fees that have historically been the norm. This new fee structure will also encourage participants to increase their contributions since fees will be reduced as a percent of assets.
• Globalization will also become a greater factor in the retirement plans market to meet the needs of a globally mobile workforce. Plans will also revise their fund array to asset allocations that are less tied to the fate of the U.S. securities markets that now make up less than 50% of the world market capitalization.
• Investment options will be under intense scrutiny by plan sponsors, fiduciaries and regulators. For example, target date funds will come under increased scrutiny by lawmakers, say 70% of experts.
• Among the biggest shifts in future trends is that retirement plans of the higher education sector will be invested primarily in mutual funds, a departure from tradition, say 67% of experts.

Prescience 2013, which was fielded in the second quarter of 2008, also provides insight into the market's evolution to institutional funds specifically designed for retirement plans, the development of increasingly targeted and personalized participant communications and the increased focus on due diligence.

About the Study

Prescience 2013: Expert Opinions on the Future of Retirement Plans was conducted in the second quarter of 2008. It examined trends in retirement plans with $25 million to $1 billion in assets. Fifty-nine retirement plan experts from 45 organizations nationwide answered the survey. These thought leaders and professionals represent trade associations, research organizations, consulting firms, academic institutions, financial professionals, investment management firms, record keepers and trade media. To request a copy of the study, e-mail RetirementResearchCouncil@divinvest.com.

About Diversified Investment Advisors

Diversified Investment Advisors, Inc. is a national investment advisory firm specializing in retirement plans. The company's expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401k and 403(b) (Traditional and Roth); 457; non-qualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA. Diversified helps more than 1.3 million participants save and invest wisely for and throughout retirement.

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