Aon Plc · NYSE:AON
Aon — Aon Hewitt — 2012 Retirement Webinar Series
30 slides from Aon's conference presentation, Mar 8, 2012
Slide 1: Lump Sum Payments for Terminated Vested Participants
Lump Sum Payments for Terminated Vested Participants 2012 Retirement Webinar Series March 8, 2012
Slide 2: Today's Participants and Agenda
Lump Sum Payments for Terminated Vested Participants Today’s Participants Joe McDonald Aon Hewitt Agenda: Agenda: Byron Beebe Hot Hot Topics Topics in in Pension Pension Risk Risk Aon Hewitt Management Management Considerations Considerations for for Lump Lump Joy Ferguson Sum Sum Cash C
Slide 3: Hot Topics in Pension Risk Management
Hot Topics in Pension Risk Management
Slide 4: Five Key Trends for 2012
Five Key Trends for 2012 Survey: 2012 Hot Topics in Retirement 1 5 Employer confidence Reduced retiree plummets, but still want medical subsidies and to help employees new efforts toward achieve success cost management 2 4 Improving results Focus on managing through tools like risk in defined benefi
Slide 5: Perspectives on Risk: Confidence and Priority
Perspectives on Risk―Confidence and Priority Type of Risk Priority Confidence Investment 1 7 Interest Rate 2 3 1 High Priority Compliance 3 9 9 Low Priority Fiduciary 4 8 Diversification 5 6 1 Low Confidence Litigation 6 5 9 High Confidence Plan Design 7 4 Demographic 8 2 Longevity 9 1 5
Slide 6: Lifecycle of a Pension Plan
Lifecycle of a Pension Plan Equity- Open Focus Liabilities Assets Closed Glidepath Fully Frozen Funded Termination 6
Slide 7: Managing Liabilities—Trends
Managing Liabilities—Trends Prevalence of Defined Benefit Plans 2011 Open No Plan 33% Liabilities Open Closed Closed 31% 20% 1995 Frozen Frozen 16% No Plan 20% Open 80% Source: Aon Hewitt review of Fortune 500 data 7
Slide 8: Defined Benefit Plan Activity Among Fortune 500 Organizations
Defined Benefit Plan Activity Among Fortune 500 Organizations 1996– Action 2003 2004 2005 2006 2007 2008 2009 2010 2011 20121 Close 8 6 8 12 7 7 7 5 0 1 Freeze 28 6 7 15 12 7 19 6 5 2 Terminate 0 1 2 0 2 0 0 0 0 0 No Publicly Reported Change2 294 320 315 303 309 314 302 317 323 325 Total Organizatio
Slide 9: Expected Changes to Defined Benefit Plans in 2012
Expected Changes to Defined Benefit Plans in 2012 Close participation 10% 8% Freeze the plan 5% 12% 80% Reduce benefits 6% 5% If offering traditional of plan sponsors change to hybrid 2% 2% with open plans were not expecting Very Likely Extend participation to 2% 1% to make changes new hires Somewha
Slide 10: Managing Assets—Trends
Managing Assets―Trends Likely Plan Sponsor Actions in 2012 60% Note: Percentages shown Equity- Focus 58% include sponsors answering very likely or somewhat likely 50% 54% 49% Glidepath Assets 40% 42% 30% Fully Funded 20% 10% 11% 0% tudy ti on erist i cs ni mu m oun t i ng ab il ity S e t al loc a ra
Slide 11: Settlement Strategies—Trends
Settlement Strategies―Trends Likely Plan Sponsor Actions for 2012 Equity- Open Focus 40% Note: Percentages shown include sponsors answering 35% very likely or somewhat likely Closed Glidepath 30% Fully 20% Frozen Funded 19% Terminate 10% 6% 6% 0% s n es ty LS to TV u m opti o r retire th er p ar r p
Slide 12: Considerations for a Lump Sum Cash Out
Considerations for a Lump Sum Cash Out
Slide 13: The Opportunity to Offer Lump Sum Cash Outs
The Opportunity to Offer Lump Sum Cash Outs The Pension Protection Act Changed the basis for minimum lump sum payments from pension plans New basis is fully phased in for 2012 Before PPA PPA 2012 and later 30-year treasury rates corporate bond rates Opportunity: Offer single sum payments to term
Slide 14: Why Consider a Lump Sum?
Why Consider a Lump Sum? 9 Offers participants 9 Limits future choice and access to risk exposure benefits earlier 9 Reduces 9 Reduces PBGC ongoing premiums Advantages administrative costs 9 Settles obligations at 9 Reduced administration value close to in future plan termination actuarial liability
Slide 15: Decision Points
Decision Points Program Financial Administrative Design Implications Concerns Eligibility Settlement Accuracy of the data Window or permanent accounting triggers Ability to find inactive Maximum lump sum Review interest rate participants or benefit amount environment Review any thres
Slide 16: Taking the Plunge
Taking the Plunge Need a project plan to address all aspects of the project Financial Analysis Investment Strategy Design & Compliance Communication Strategy Administration 16
Slide 17: The Baptist Health System Story
The Baptist Health System Story
Slide 18: About Us…
About Us… One of the largest health care systems in Alabama – Four hospitals – 4,300 employees Citizens Baptist – Over 1,000 licensed beds Princeton Baptist Shelby Baptist Not-for-profit, 501(c) corporation Walker Baptist Founded in Birmingham in 1922 by a group of Baptist congregations 18
Slide 19: Where We Started…
Where We Started… Froze defined benefit pension plan on December 31, 2005 As a non-electing “Church” plan, not subject to the same rules as ERISA plans Pension plan was underfunded primarily due to asset and interest rate experience over recent years Predominantly an inactive population: 2,2
Slide 20: What We Wanted to Do…
What We Wanted to Do… For Baptist For the Participant Initiate a 10-year glidepath toward plan For the former employees with deferred termination benefits Reduce financial risk exposure of plan – Create option not currently available – Remove plan obligations at a lower – Gain access to pensio
Slide 21: About the Lump Sum Window…
About the Lump Sum Window… Limited timeframe: 45-day election period (10/1/2011–11/15/2011) Lump sum: Offered at 7.5% interest due to Church plan status Eligible participants: Select group: Terminated vested participants Lump sum values up to $35,000 About 50% of terminated vested population 1
Slide 22: Getting Ready…
Getting Ready… 9 month process… Data Calculations Communications Locate participants Calculate benefits Develop strategy Confirm addresses Finalize eligible group Draft communications Early mailing Focus group testing requesting key Final approvals (board information (address, & le
Slide 23: A Thoughtful Outreach to Participants…
A Thoughtful Outreach to Participants… Earlier Mid-September Late-September Mid-October Late-October Focus Groups Announcement Election Reminder 1 Reminder 2 (test messages) (flyer, sent to eligible Package (flyer) (postcard) participants) Call Center (cover letter, guide) Training Modeling Tool (ex
Slide 24: Got Participants to Pay Attention…
Got Participants to Pay Attention… 78% of located participants made active election (even if choosing annuity) 53% of located participants elected a lump-sum payment 655 Missing Address Elected Lump Sum 98 585 Elected Annuity ~1,450 number of in-bound calls to the call center 24
Slide 25: And the Results Showed!
And the Results Showed! $10.6 million paid out in lump sums $18.5 million released in obligations1 $7.9 million decrease in funded deficit 2 1 Obligations measured at 5% (market rate at 12/31/2011) 2 Savings due to lump sum interest rate of 7.5%, allowed due to Baptist’s Church plan status 25
Slide 26: Lessons Learned…
Lessons Learned… Preparation is key Data, data, data… Create detailed project plans Finalize benefits for all for each phase terminated vesteds (even if Invest time up-front on all not ready for a lump sum aspects (communications, window now) legal, financial, administrative) Locate particip
Slide 27: Summary
| Summary AON: lewitt
Slide 28: 2012 Retirement Webinar Series
2012 Retirement Webinar Series Date Topic March 8 Lump Sum Cash Outs March 22 Mark-to-Market Accounting April 19 Total Rewards Optimization and Delivery May 3 Diversity: Disparity in Savings and Driving Solutions May 24 Retirement Income Adequacy 28
Slide 29: Your Questions
Your Questions 29 AON: lew itt
Slide 30: Thank you.
Thank you. For additional information, please contact: Byron Beebe, FSA Joe McDonald, FSA Aon Hewitt Aon Hewitt Byron.Beebe@AonHewitt.com Joe.McDonald@AonHewitt.com