BMO Retirement Services White Paper: Automatic Features Essential to Effective 401(k) Plans

CHICAGO, IL--(Marketwired - Apr 23, 2014) - BMO Retirement Services today released a white paper, "BMO Defined Contribution IQ™: Automatic Features." It is first of a new nine-part, bi-monthly education series titled Defined Contribution IQ -- or DC IQ -- developed for retirement plan sponsors and their consultants. The reports will examine issues related to retirement plans, including plan design, participant utilization and operational efficiency.

The inaugural white paper examines the use of automatic features within a defined contribution plan. It notes that it is widely known that features such as auto-enrollment and auto-escalation typically increase employee participation, and are therefore likely to improve retirement readiness. In contrast, plan sponsors have not traditionally received guidance on how to implement these features effectively. The paper identifies the key questions that need to be addressed:

• When should employees be automatically enrolled?

• Which default investment option should be used?

• What annual auto-escalation rate should be adopted?

"For increased transparency and ease of understanding, we believe access to a retirement plan should be treated like any other employment benefit," said Todd Perala, series author and Director of Strategic Initiatives, Retirement and Trust Services, BMO Global Asset Management. "We recommend that during the annual benefits enrollment, plan sponsors simply inform employees that unless they opt out, they will be enrolled in the 401(k) plan at the beginning of the new benefits year."

The paper also highlights that a deferral rate as high as six percent for automatic enrollees does not increase the number of participants opting out. For this reason, BMO suggests automatically enrolling participants at the maximum matching level. Moreover, the paper recommends automatically escalating deferral rates by one to two percent annually, ideally timed with yearly salary increases to limit reductions in take-home pay.

Mr. Perala suggests a carefully chosen target-date fund may be the most suitable qualified default investment alternative (QDIA). Traditionally, principal-safe investments were considered an ideal choice; the paper notes, however, that these investments rarely generate the growth needed to provide for a financially secure retirement.

"While a target-date fund may have the potential for loss of principal, it also has the ability to generate the earnings over time that will be needed to support a more lengthy retirement period," said Mr. Perala. "Among the universe of target-date funds, most of which use a fund-of-funds approach, we recommend plan sponsors select a fund family whose managers actively monitor the underlying investments. This ensures that no individual stock comes to represent an overly significant percentage of the fund's total holdings."

To read the full white paper, visit: www.bmo.com/dciq.

For more information about BMO Retirement Services, please visit: www.bmoretirementservices.com.

About BMO Retirement Services
BMO Retirement Services is an integral part of BMO Global Asset Management and a premiere, award-winning provider of retirement services. We have been recognized as a national provider of both defined contribution recordkeeping and defined contribution investment-only services by the National Association of Plan Advisors.

BMO Global Asset Management provides holistic, solution-driven services to our institutional and high-net-worth clients. With a 40-year legacy of fiduciary service -- and goal of promoting retirement readiness to our more than 500,000 participants in over 1,000 retirement plans -- our clients include retirement plans, Taft-Hartley funds, government and public funds, not-for-profit organizations and family offices. BMO Global Asset Management's commitment to service excellence has led us to be recognized by Pension & Investments as one of the Top 100 largest asset managers.

We are a part of BMO Financial Group (NYSE: BMO), a fully diversified financial services organization with CA$542 billion total assets and more than 45,000 employees as of January 31, 2014.

Disclosures
BMO Retirement Services is a part of BMO Global Asset Management and a division of the BMO Harris Bank N.A., offering products and services through various affiliates of BMO Financial Group.

BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management, retirement, and trust and custody services. Certain of the products and services offered under the brand name BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations. BMO Financial Group (NYSE: BMO), is a service mark of Bank of Montreal (BMO).

All investments involve risk, including the possible loss of principal.

Investment products are: Not FDIC Insured | No Bank Guarantee | May Lose Value

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