Most Americans Not On Track To Retire Due To Low Savings And Poor Investment Choices, Financial Engines Study Shows

PALO ALTO, Calif. October 4, 2010 – Feeling the squeeze of the economic downturn, three out of four 401(k) participants (72 percent) are likely not on track to meet retirement goals based on their current 401(k) balance, plan contributions, and projected Social Security, according to a new report by Financial Engines, America’s largest independent registered investment adviser.1 Of that 72 percent, Financial Engines projects that the typical participant will be able to replace only 45 percent of their pre-retirement income, compared to a 70 percent goal.2 On a positive note, however, the report showed that participants in plans with automatic enrollment and Qualified Default Investment Alternatives (QDIAs) are better off than those without.

The 2010 Financial Engines National 401(k) Evaluation analyzed the portfolios of more than 2.8 million 401(k) participants from 272 employer plans. The report estimates the amount of income each participant can expect in retirement from their current 401(k) savings and investments, and evaluates each portfolio on the basis of risk and diversification, company stock and participant contributions. The results show a 401(k) system under pressure from the recent economic crisis but with signs of hope in the form of the automatic 401(k) and plan sponsors designing plans that automatically enroll all participants to get them started on the right track.

“This study is a wake-up call showing that employees continue to make retirement mistakes, which have been compounded by the financial crisis,” said Jeff Maggioncalda, president and CEO of Financial Engines. “Employers play a key role in ensuring that participants get the help they clearly need.”

Economic Downturn Hurt Contribution Rates, Especially Among Middle Class

The report also found that the economic downturn has had a negative impact on participant savings rates, with 39 percent of participants not saving enough to receive the full employer match, up from 33 percent in 2008. Of participants under age 40, 47 percent failed to save enough to receive the full employer match. In addition, participants earning between $25,000 and $75,000 per year had average lower 401(k) savings rates in 2010 than they had two years ago (six percent in 2010 compared to seven percent in 2008), reflecting the serious impact of the economic crisis on middle-class working Americans.

According to the report, while automatic enrollment is helpful in getting participants into the plan, automatic savings escalation (automatically increasing participants’ savings rates each year to an upper limit) is key to getting them saving enough for retirement. Sixty-seven percent of participants in plans with automatic escalation save enough to receive the full employer match, compared to just 52 percent of participants in plans without automatic escalation.

Qualified Default Investment Alternatives (QDIAs) Already Having Positive Impact on Participants

Although the U.S. Department of Labor finalized the QDIA regulations as recently as October 2007, the policy is already having a positive impact on newer participants. Younger participants with lower salaries and lower account balances are benefiting the most, as they are more likely automatically enrolled into the plan with an age-appropriate QDIA. For example, 52 percent of participants under age 30 in plans with a QDIA have the appropriate risk and diversification for their age, compared to just 12 percent of participants under 30 in plans without a QDIA. In addition, 50 percent of participants earning less than $25,000 per year in plans with a QDIA have age-appropriate risk and diversification, compared to just 24 percent in plans without a QDIA.

This report highlights that unless they are re-enrolled in an age-appropriate investment default, existing participants are not yet benefiting from the automatic 401(k). According to the report, after being re-enrolled in managed accounts, existing participants across all age and salary groups are better off, with younger participants with lower salaries and lower account balances benefiting the most. Plans that have re-enrolled all participants in managed accounts have nearly twice as many participants with age-appropriate risk and diversification than plans without (57 percent vs. 31 percent).

“Public policy makers have provided a clear roadmap and incentives for employers to implement automatic 401(k) features,” said Maggioncalda. “This study proves that automatic features are working, and the time has come for employers to implement them for all participants.”

For more information on the data sets analyzed and to download a copy of the Financial Engines National 401(k) Evaluation 2010, please visit www.financialengines.com.

Financial Engines Cites Important Role Of Defined Contribution Plans And Plan Sponsors In Helping Participants Secure Lifetime Retirement Income

PALO ALTO, Calif., September 15, 2010 – Financial Engines, (NASDAQ: FNGN), the leading independent provider of investment management and advice to participants in retirement plans, called for plan sponsor involvement, flexibility and choice in the development of retirement income solutions at this week’s joint hearing on lifetime income options for retirement plans hosted by the U. S. Department of Labor’s Employee Benefits Security Administration (EBSA) and the Department of the Treasury.

Financial Engines’ testimony, delivered by Christopher Jones, Financial Engines’ executive vice president of investment management and chief investment officer, emphasized that defined contribution plans and plan sponsors must play a significant role in helping 401(k) participants generate retirement income. The company called for flexibility and choice on behalf of 401(k) participants and plan sponsors, emphasizing the complexity and high stakes involved in turning accumulated 401(k) assets into retirement income. Financial Engines believes that any proposed default retirement income solution must avoid placing participants into a situation where they could permanently lose access to their money without having made an explicit choice.

Financial Engines Ranked The Largest Registered Investment Advisor (RIA) In America By Registered Rep.

PALO ALTO, Calif., August 9, 2010 – Financial Engines (NASDAQ: FNGN), the leading independent provider of investment management and advice to participants in retirement plans, today announced that it has been named the largest Registered Investment Advisor (RIA) in America in the July 2010 issue ofRegistered Rep. The magazine ranked the top 100 fee-only (i.e. not receiving commissions) RIAs based on assets under management as of June 1, 2010.

According to the Registered Rep. rankings, as of June 1, 2010, Financial Engines had over $25 billion in assets under management in the more than 400,000 individual 401(k) accounts it manages through the company’s managed accounts program.

“We’re proud to be ranked the largest Registered Investment Advisor in America,” said Jeff Maggioncalda, president and CEO of Financial Engines. “Financial Engines was founded on the simple idea that everyone deserves personalized investing advice and management, and we’ve become the largest advisor in the country due to our strict independence and focus on helping the average investor.”

The complete list of Registered Rep.’s Top 100 RIAs can be found here.

Financial Engines Hosts Retirement Income Summit

PALO ALTO, Calif., June 22, 2010 – Financial Engines (NASDAQ: FNGN), the leading independent provider of investment management and advice to participants in retirement plans, today announced the speakers presenting at the first ever Financial Engines Retirement Income Summit, hosted by The Financial Engines Retiree Research Center. Taking place on Tuesday, June 22, 2010 in Menlo Park, California, the daylong summit will highlight the latest research by thought leaders in investment management, behavioral finance and academia, including the work of the Retiree Research Center and the Stanford Institute for Economic Policy Research.

“As members of the Baby Boom generation begin to retire amidst a financial landscape that looks very different than when their parents retired, solving the retirement income puzzle has become one of the most important financial challenges of our time,” explained Jason Scott, managing director for The Financial Engines Retiree Research Center. “We’ve been committed to conducting academic research in this area and look forward to a healthy discussion on the implications of the research at the Retirement Income Summit.”

Speakers scheduled to present research at the Summit include:

Speaker                                                                Topic

 

William Sharpe,

Nobel Laureate and

Co-Founder of Financial Engines

 

Financing Retirement: Individual and Collective Approaches
 

John Shoven,

Professor of Economics, Stanford University and Director of the Stanford Institute for Economic Policy Research,

Board Member, Financial Engines

 

New Age Thinking: Alternative Ways of Measuring Age, Their Relationship to Labor Force Participation, Government Policies and GDP
 

Wei-Yin Hu,

Director of Financial Research, Financial Engines

 

The Annuity Puzzle:  Rational Reasons Why People Prefer Lump Sums
 

Jason Scott,

Managing Director, Financial Engines Retiree Research Center

 

 

Bridging the Gap Between Economic Theory and Practice:  Translating Preferences into Efficient Investment and Spending Strategies

 

 

Christopher Jones,

Chief Investment Officer, Financial Engines

 

Plan Sponsor Roundtable: Retirement Income in DC Plans

 

The Retiree Research Center is dedicated to helping retirees maximize their standard of living in a world of uncertain investment performance, uncertain longevity, and uncertain health care costs. Published research from the Retiree Research Center to be discussed at the Summit can be found at https://corp.financialengines.com/employer/research_and_resources.html, while research published by the Stanford Institute for Economic Policy Research can be found at http://siepr.stanford.edu/pubsarchiveorg/1/dpa.

Financial Engines, Inc. Prices Initial Public Offering

PALO ALTO, California – March 16, 2010 – Financial Engines, Inc. today announced that it has priced its initial public offering of 10,600,000 shares of common stock.  Of the shares being offered, 5,868,100 shares are being sold by the company and 4,731,900 shares are being sold by certain stockholders, at a price of $12 per share, through an underwriting group managed by Goldman, Sachs & Co., acting as sole book-running manager, along with UBS Investment Bank, Piper Jaffray & Co. and Cowen and Company, LLC.

The company has granted the underwriters an option to purchase an additional 1,590,000 shares.  Financial Engines, Inc.’s common stock will be traded on The Nasdaq Global Market under the symbol “FNGN.”

A registration statement relating to the shares of common stock was declared effective by the Securities and Exchange Commission today.  Any offer or sale will be made only by means of a written prospectus forming part of the effective registration statement.  Copies of the final prospectus relating to the offering may be obtained, when available, from Goldman, Sachs & Co., 85 Broad Street, New York, New York  10004, Attn: Prospectus Department, (212) 902-1171, (866) 471-2526 (toll-free), (212) 902-9316 (fax).

This news release shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

Participants Using 401(k) Help Offered Through Their Employer Have Higher Returns

LINCOLNSHIRE, Ill. and PALO ALTO, Calif., January 25, 2010 – 401(k) plan participants using professional investment help provided by their employer—such as target date funds, managed accounts and online advice—experience better returns on their retirement investments than those who do not, according to a joint study from Hewitt Associates and Financial Engines titled Help in Defined Contribution Plans: Is it Working and for Whom? The study also found that a participant’s age is the key predictor of the type of help used, with younger, less-tenured participants more likely to use target date funds and older, more-tenured participants more likely to use managed accounts.

Hewitt Associates, a global human resources consulting and outsourcing company, and Financial Engines, a leading independent investment advisor providing retirement help, examined the behavior and portfolio risks of more than 400,000 401(k) plan participants to determine whether participants using professional investment help experienced better financial results than those who did not.

The study’s findings revealed that, on average, the median annual return for participants using investment help was almost 2 percent (186 basis points, net of fees) higher than those who did not. For example, a 45-year old who uses professional investment help will have saved 47 percent more by age 65 than if he or she had not used help, assuming the almost 2 percent higher median annual return is maintained over the 20-year period. The difference becomes even more dramatic if the initial investment is made at a younger age. A 25-year-old who uses professional investment help when investing $10,000 could have $105,800 by age 65 compared to just $52,100 had he or she not used help—a 103 percent increase, again assuming the higher median annual return is maintained over the entire period.

Past Hewitt research1 shows that investment help is becoming increasingly standard with 401(k) plans. Half (50 percent) of companies now offer their employees some type of 401(k) investment advice compared to just 17 percent a decade ago.

“Employers offer workers investment help like target date funds, online advice and managed accounts because they help participants make smart investment decisions with minimal effort or expertise,” said Pam Hess, director of retirement research at Hewitt. “Our new research shows that these features can really pay off for participants—simply taking advantage of them can equate to thousands of dollars in additional retirement savings over time.”

Link Between Participant Age and Type of Help Selected

In general, the Hewitt-Financial Engines analysis found that target date funds appeal mostly to younger participants with shorter tenures and lower account balances, salary and contribution rates. The average participant enrolled in a target date fund was 38 years old with 3.8 years of tenure and a plan balance of $6,295. Online investment advice users also tend to be younger, but have significantly higher account balances, salaries, and contribution rates, compared to target date fund users. The average age of a participant using online investment advice was 41 years old with 9.4 years of tenure and a plan balance of $69,057. Managed account users tend to be older (average age 49 years old), with longer tenures and an average balance of $45,816.

“These findings trended the way we expected,” added Hess. “Younger workers are more likely to use target date funds, since their financial needs generally are simpler and similar to others in their age group. On the other hand, enrollment in managed accounts increases as workers near retirement because these employees have more complex and individualized needs. It’s important for employers to offer a wide range of professional investment help to meet the retirement needs of their diverse workforce.

Participants Not Using Help Have Highest Portfolio Risk

According to the study, participants who use professional investment help follow a more appropriate glide path, where risk starts out higher early in their careers and “glides” downward as they approach retirement2. Also, their portfolio allocations were more efficiently invested. In contrast, those not using help have higher risk levels, on average, and a minimal reduction in risk as they approach retirement. This was most apparent in near-retirees’ and retirees’ portfolio performance.  The study found that participants 55 and older not using help had risk levels that actually increased with age, indicating that they are taking on more risk as they approach retirement.

“When left to their own devices participants are making mistakes that harm their prospects for a secure retirement,” says Christopher Jones, Chief Investment Officer, Financial Engines. “Participants can’t be expected to go it alone. For the 401(k) to succeed as an adequate retirement savings vehicle, different kinds of help need to be available to every participant in the plan.”

About the Help in Defined Contribution Plans Study

Help in Defined Contribution Plans: Is it Working and for Whom? is the result of a joint collaboration between Hewitt Associates and Financial Engines. The two companies contributed complementary participant data, financial technology, and portfolio analytics. The report is based on a dataset of seven plan sponsors representing more than 400,000 individual participants and more than $20 billion in plan assets. This report looked at participant behavior and portfolio risks and returns during the volatile period between January 1, 2006 and December 31, 2008 for a large sample of the participants3.

 

Copies of the report can be downloaded at no charge at www.hewitt.com and www.financialengines.com.