A Building Futures Report: Q Trends

Transcription

1 No Image Cover Page A Building Futures Report: Q Trends 1 Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses. For this and other information, call or write Fidelity for a free prospectus or, if available, a summary prospectus. Read it carefully before you invest.

2 Transition Page Fidelity Investments: An industry leading retirement provider Fidelity s recordkept database is one of the industry s most comprehensive proprietary collections of defined contribution plan and participant information. Based on recordkept data of corporate defined contribution (DC) plans: 21,200 plans 13.5 million participants Data as of June 30, 2015 unless otherwise noted Data in this presentation exclude tax-exempt plans, nonqualified plans, and the FMR Co. plan. This analysis includes data from the Fidelity Advisor 401(k) Program.

3 Account Balance Currently, the average account balance is $91,100, an increase of 0.1% from one year prior. The median participant account balance is $23,500. Account balances are impacted by participant action (contributions, withdrawals, etc.) and market action. Account balances are also impacted by new participants having lower account balances than departing participants who may roll out their assets. 3

4 Account Balance (10-Yr Continuous Active Participants) The 10-Year Continuous Active Account Balance follows the same participants over time to show what they experienced during the last ten years. These participants had a $250,200 average account balance, up from $64,800 ten years prior (14.5% annual increase). This account balance increase was 45% due to participant action (net contributions) and 55% due to market increases. 4 Continuous Active Participants are actively employed with a balance for each year endpoint during the 10-year period.

5 Deferral Rates The average employee deferral rate has remained steady for seven years. Currently, the average employee deferral rate is 8.1%. Other than participant actions of increasing/decreasing deferrals (next slide), this figure is impacted by new participants joining the plan having lower deferral rates than departing participants leaving the plan. 5 Active Participants Only. Mean elective total deferral rates (point-in-time). Some figures may not add due to rounding.

6 Changes to Employee Deferral Rates Overall, 7.0% of participants made an employee deferral increase in the prior 3-months. In plans that offer Auto-AIP, 9.3% of participants had employee deferral increases in the prior 3-months. The long-term trend of more employee deferral increases than decreases was interrupted during Q Q1 09, but has resumed since (24 consecutive quarters). Annual Increase Program (AIP) is a big driver of this trend, see Deferral Increases due to AIP slide. 6 Continuous Active Participants Only (3-month). Mean elective total deferral rates (point-in-time).

7 Employee Deferral Increases due to AIP Annual Increase Program (AIP) was responsible for 20.3% of deferral increases made in the prior quarter. AIP represented about two-in-five (40.9%) of all deferral increases in prior 12-months. The seasonality is due to the majority of AIP increases occurring in Q1. 7 Continuous Active Participants Only (3-month).

8 Auto-Enrollment (AE) Impact to Participation Rate Younger, less well-compensated employees benefit from Auto-Enrollment (AE). The overall active participation rate is 69.7%, up from 64.1% seven years prior due to impact of AE. In plans who offer AE, the participation rate is 85.5%, which has also increased as more employees become eligible for AE within those plans. Further, those employees who are eligible for Auto-Enrollment in AE Plans have a participation rate of 87.4% (i.e. only 12.6% opt-out). 8 Data as of 12/31/2014. Active Eligible Employees Only.

9 Asset Allocation Changes in asset allocation can be driven by market fluctuations, as well as by exchange, contribution, and withdrawal activity. Equity = Domestic Equity, International Equity, Company Stock, Specialty, Self-Directed Brokerage Blended = Target Date Funds, Target Risk Funds, Balanced Funds Conservative = Short-Term, Stable Value, Fixed Income, Annuity 9

10 100% or 0% Equity Allocations For many participants, equity allocation was an all-or-nothing decision. Mainly through the increased use of Target Date Funds, fewer participants now hold such extreme portfolios. Less than one-in-seven participants (13.6%) hold 100% or 0% equity allocations. 10

11 Target Date Fund Adoption About one-in-three total participants (39.7%) holds 100% of their assets in Target Date Funds. For Millennials this figure is 62.2%. This trend has been chiefly driven by the use of Target Date Fund (TDF) Default. Default options have a sizeable impact on aggregate participant behavior. 11 Millennials were born between

12 Personal Rate of Return (PRR)* The median cumulative participant 1-year personal rate of return (PRR) is 3.5%. The median cumulative participant 3-year personal rate of return (PRR) is 40.7% (12.0% annualized). The median cumulative participant 5-year personal rate of return (PRR) is 76.0% (12.0% annualized). The median cumulative participant 10-year personal rate of return (PRR) is 84.1% (6.3% annualized). 12 * See Important Additional Information for more details.

13 Personal Rate of Return (PRR)* 10-Year Participant Performance vs. Applicable Fidelity Freedom Fund Lower 10-Year Risk* Higher Higher 20.6% 38.5% 59.1% of Participants of Participants of Participants 10-Year Return Lower 28.5% of Participants 12.3% 40.9% of Participants of Participants 49.1% of Participants 50.9% of Participants Balanced portfolios such as the Fidelity Freedom Funds outperformed 40.9% of participants over the 10- year return period. Also, 50.9% of participants took on more risk. Of those with higher risk, 24.3% underperformed against their age-based Freedom Fund (12.3% / 50.9%). During the 10-year return period, the median participant cumulative return was 84.1% (or 6.3% annualized). 13 Return is the time-weighted 10-year cumulative return. Risk is the standard deviation of returns, a measure of the volatility of returns. Applicable Freedom Fund is the one with the closest target date given the participant s date of birth, assuming a retirement age of 65. How to read: the top left box would indicate the percent of participants who had higher returns and lower risk (standard deviation of returns) than their applicable Freedom Fund over the 10-year return period. * See Important Additional Information for more details.

14 Contribution Allocation Changes in contribution allocation are driven by participant behavior, whereas asset allocation is heavily impacted by market movement. Equity = Domestic Equity, International Equity, Company Stock, Specialty, Self-Directed Brokerage (SDB) Blended = Target Date Funds, Target Risk Funds, Balanced Funds Conservative = Short-Term, Stable Value, Fixed Income, Annuity 14 Active Participants Only.

15 Employee Contributions In the prior 12-months, 87.4% of active participants made employee contributions, up from 82.8% ten years prior Also, 85.0% of active participants received employer contributions in the prior 12-month period (not graphed) Overall, 93.8% of active participants made contributions (employee, employer, or roll-in) in the prior 12- month period (not graphed) 15 Active Participants Only.

16 Average Contribution Amounts The average 12-month employee contribution was $6,300, up from $5,130 ten years prior (per participant making >$0 employee contributions). This represents a 2.1% annual increase in employee contribution amounts. The average 12-month employer contribution was $3,680, up from $2,550 ten years prior (per participant receiving >$0 employer contributions). This represents a 3.7% annual increase in employer contribution amounts. 16 Active Participants Only.

17 Plan Design Plans offering Auto-Enrollment (AE) has increased to 28.3% of plans, representing 63.2% of the participant base Plans offering Roth Deferrals has increased to 52.2% of plans, representing 69.9% of the participant base Also, 76.7% of plans offer Annual Increase Program (AIP) and 13.6% of plans offer Auto-AIP (not graphed) Also, 84.3% of plans have Target Date Fund (TDF) Default, up from 69.1% five years prior (not graphed) 17

18 Loans Outstanding The percent of active participants with a loan outstanding is 21.9%. The percent of active participants initiating a loan in the prior 12-months is 10.9%. 18 Active Participants Only.

19 Hardship Withdrawals While hardship withdrawals (HWs) continue to increase, they represent a very small portion of active participants. The percent of active participants taking a hardship withdrawal was 2.2% in the prior 12-months. In order to take a hardship withdrawal, you have to prove a financial need. Examples of reasons for HWs: 1) foreclosure, 2) tuition, 3) purchase of primary residence, 4) medical expenses. 19 Active Participants Only.

20 Exchanges In the prior 12-months, 10.3% of participants made an exchange. One reason for this long-term decline is the continued adoption of Target Date Funds (TDF). Only 1.5% of participants who held 100% of assets in TDFs made an exchange in the prior 12-months. See Target Date Fund Adoption slide for more. 20

21 Participant Demographics Age Wave The median age for participants was 45.4, up from 44.4 ten years prior. The median tenure for active participants is 7.4 years, while the mean tenure is 10.2 years. The median salary for active participants is $66,600, while the mean salary is $94, Active Participants only for tenure and salary figures.

22 Important Additional Information Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact your investment professional or visit advisor.fidelity.com for a prospectus or, if available, a summary prospectus containing this information. Read it carefully. As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation and your evaluation of the security. Dollar cost averaging does not ensure a profit or protect against loss in a declining market. For the strategy to be effective, you must continue to purchase shares in both up and down markets. Personal Rate of Return (PRR): A measure of portfolio performance that indicates the return earned over a given time period. Personal rate of return used in our analyses (unless otherwise noted) is time weighted, which means it was calculated by subtracting beginning market value from ending market value and dividing by beginning market value for each sub-period. A new sub-period began each time there was cash flow. The sub-period returns were then geometrically linked together to calculate the return for the entire period. All returns shown are historical and include change in share value and reinvestment of dividends and capital gains, if any. Risk is defined as the volatility of historical portfolio returns; it measures the average deviation of a series of historical returns from its mean. Large values of risk indicate large volatility in the historical return series, and small values indicate low volatility. Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Past performance is no guarantee of future results. 22

23 Important Additional Information Fidelity Freedom Funds are designed for investors expecting to retire around the year indicated in each fund s name. Except for the Freedom Income Fund the funds asset allocation strategy becomes increasingly conservative as it approaches the target date and beyond. Ultimately, they are expected to merge with the Freedom Income Fund. The investment risk of each Fidelity Freedom Fund changes over time as its asset allocation changes. These risks are subject to the asset allocation decisions of the Investment Adviser. Pursuant to the Adviser's ability to use an active asset allocation strategy, investors may be subject to a different risk profile compared to the fund's neutral asset allocation strategy shown in its glide path. The funds are subject to the volatility of the financial markets, including that of equity and fixed income investments in the U.S. and abroad, and may be subject to risks associated with investing in high-yield, small-cap, commodity-linked, and foreign securities. No target date fund is considered a complete retirement program and there is no guarantee any single fund will provide sufficient retirement income at or through retirement. Principal invested is not guaranteed at any time, including at or after the funds' target dates. For plan sponsor or institutional use only. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI