What’s Working and Not Working for 401(k) Small Plan Participants

GUARDIAN RETIREMENT SOLUTIONS™FOR PLAN SPONSORS

The Guardian Small Plan 401(k) RetireWell StudySM 2.0

Who Did We Survey?Methodology Guardian Retirement Solutions™ enlisted the assistance of Brightwork Partners, LLC to conduct a nationally-representative, quantitative 25-minute online survey of 2,000 active 401(k) participants in November 2014.

To qualify, respondents had to meet the following criteria:

Workfull-timeorpart-timeforafor-profitenterprise

Be eligible to contribute to a 401(k) plan

Currently contributing to a 401(k) plan

If not currently contributing, have a balance in their current plan of $1,000 or more

Small Business Owner Focus Because employees of smaller businesses represent a relatively small proportion of all 401(k) participants nationally, the sample was designed to represent these workers robustly while also representing participantsemployedatfirmsofallsizesaccurately.

401(k) Plan Participants by Size of Workplace (employees)

34%

21%15%

13%

12%5%

10000+

2500 to 9999

500 to 2499

100 to 499

25 to 99

1 to 24

BrightworkPartnersisnotanaffiliateand/orsubsidiaryofTheGuardianLifeInsuranceCompanyofAmerica (Guardian) or The Guardian Insurance & Annuity Company, Inc. (GIAC).

401(k)s Work for Plan Participants1

Six Things We Learned

RetirementConfidence May be Misplaced2

Small Plan Participants are Missing Out5

Participant Education May Improve Outcomes

3

Financial Professionals Can Help

6

Contribution Rates Could be Driven Higher4

2

3

Statistically Speaking Whether as an anticipated percentage of their retirement income, or as anemotionalimprintlookingahead,participantslookfirstandforemosttotheir 401(k):

1/3 of retirement income comes from 401(k): The 401(k) plan,andotherdefinedcontributionplansthatmaybeavailableto the household, are by far the biggest anticipated source of income, accounting for more than one-third of participants’ retirement income.

The DC Plan Drives Retirement Income Essentially,notonlydoplanparticipantsofallplansizesexpectthe majority of their income to be from 401(k)s, they also perceive it to be the most important source of income in retirement.

Emotionally Speaking Not only do participants ofallplansizesexpectamajority of their income to be from 401(k)s, 77% also perceive it to be the most important source of income in retirement.

401(k)s Work for Plan Participants

Q1: Approximately what percentage of your household income do you expect this source to provide in retirement?

Q2: How important do you expect this income source to be to your household in retirement? ("Very Important" indicated below)

401(k) plan, 403(b), 457 or other types of taxdeferreddefined contribution plan

34% 77%

Social Security 24% 62%

Income from personal savings, including Individual Retirement Accounts (IRAs)

12% 61%

Earnings from employment, including self-employment

10% 56%

Other (including definedbenefit)* 20% —

1

*DefinedBenefitPlans,Incomefromrealestate,incomefrominheritance,otherworkplace retirementplans,andfixedorvariableannuities.

401(k)

4

Participants Not Overly Concerned with Fees For all the emphasis on fee disclosure during the past few years, participants are pretty un-phased when it comes to fees and expensesintheirplan.

Q: From what you know or have read, would you say the fees and expensesinyour 401(k) are:

So how do participants feel about 401(k) plans overall? 401(k)s are working for participants because an overwhelming 92% tell us they are satisfied with their plan overall, including 32% who say they are very satisfied.Similarlylargeproportionsarealsosignificantlysatisfiedwithother parts of their 401k plan:

Overall Satisfaction is High

92% of Participants are Very or Somewhat Satisfied with their 401(k) Plan.

90%

87%

89%

Are Very or Somewhat Satisfied with the Investments Available to Them in Their Plan

Are Very or Somewhat Satisfied with the Information They Get About Their Plan

Are Very or Somewhat Satisfied with the Features of Their Plan (Apart from the Investments)

23% Very Reasonable

59% Somewhat Reasonable

14% Somewhat Unreasonable

5% Very Unreasonable

6

Retirement Replacement Ratios

Too Ambitious?

95% Income

Replacement Ratio

2 Retirement Confidence May be Misplaced

5

Participants Target a High Average Replacement Ratio Participants embrace 401(k)s as their primary retirement savings vehicle for many reasons, but mainly because they know the task ahead in retirement is huge. Participants have big dreams; on average, they are hoping to replace fully 95% of their current income in retirement.

Thisisquiteanambitiousgoalandexceedsthe70-80% replacementratiomostindustryexpertsrecommend.

Desired Income Replacement Ratio % of Participants

< 50% 19%

50% - 70% 18%

70% - 100% 13%

100% 27%

> 100% 15%

7

Confidence in Reaching Target Replacement Ratio is Mixed Participantsaremixedintermsoftheiroutlook;fully50%areonly “somewhatconfident”thattheywillhittheirtarget.

Q: How confident are you that you will achieve that target income in retirement?

Participants who are on their way to success—the “very confident” 21% in this chart, usually have high balances, above-average incomes, high deferralrates,useafinancialprofessionalandallocateassetsappropriately.They are doing just about everything right and they know it.

Participants who are on their way to failure, the 28% who are not confident that they will achieve their retirement income target, are doing almost everything wrong and they know it as well.

Atleastattheextremes,participantsareprettyrealisticabout the connection between savings behavior today and retirement income tomorrow.

Where it’s tougher to gauge is in the vast middle, the 50% of participants who are “somewhat confident” that they are on track. Clearly, some are, somearen’t,there’salotofhopemixedwithfearasparticipantslookahead.

50%somewhatconfident

22%not very

confident

21%very

confident

6%

not confident

at all

Participants are Confused In spite of the ambitious aspirations—95% income replacement—there’s an obvious disconnect here between the income replacement ratio participants are targeting, and the reality of some of theirexpectationsin retirement.

69% DoNotExpect to Live as Well or Better in Retirement

62% DoNotExpecttoHaveEnough Money to Pay for Healthcare

49% ExpecttoWork in Retirement

6

QUESTIONS TO ASK YOURSELF Do you feel

participants are getting the education they need & deserve to understand their retirement readiness?

7

Participant Education May Improve Outcomes

Lack of Vocabulary Some basic 401(k) terms still don’t have much of a footprint among participants.Mostparticipants,forexample,haveheardtheterm “contributionrate”or“vesting”orhaveheardaboutloansfromtheir accounts. But only half or fewer have heard of target date funds, dollar cost averaging or target risk funds. An unsettling notion given these participants are targeting high rates of return.

Q: Which of the following terms, if any, have you heard of in connection with your 401(k)?

Contribution rate

Vesting of employer contributions

Loans from your account

82%

77%

75%

Target date funds

Dollar cost averaging

Target risk funds

50%

45%

39%

3Lack of Comprehension While being familiar with a term is one thing, comprehension is another. Among those who have heard of vesting,forexample,fewer than half assert that they understand the term completely.

Two-thirds of participants who have heard of target date or target risk funds assert they do not understand the term. And let’shazardaguessthatif we really put these participants under a microscope, their comprehension might turn out to be even more limited than they are willing to admit.

8

Limited Understanding May Mean Limited Engagement Without demonstrating causality, it’s certainly reasonable to speculate on the link between comprehension and clarity, and participant engagement. This chart demonstrates how participants are famously disengaged – possibly owing to a lack of understanding of various aspects of their plan. Disengagement is also more pronounced in the small plan market represented by the yellow bars.

Q: In the Past Year Did You…

One-third of all 401(k) participants didn’t do anything! While sometimes this is a good thing for longer-term investors (although you would hope they are properly invested if they are leaving it alone), it does raise questions around overall engagement. If participants had a better grasp of basic retirement planning terms or how 401(k)s work, or what a 401(k) plan could do for them, wouldn’t they be more appropriately engaged?

Increase the proportion of the income you save through your 401(k) plan

34%

Total (All Plan Sizes) 1 to 24 (Employees)

16%

Contribute to a Roth 401(k) plan23%

18%

Enroll in a 401(k) account with this employer

23%16%

Stop contributing to your 401(k) plan

None of these

10%18%

30%

37%

ACTION YES

QUESTIONS TO ASK YOURSELFAreyousatisfiedwith

the education support your plans receive today?

Does your plan have an education policy in place to address engagement?

Missed Tax Efficiency? Powerful as the 401(k) platform is for helping participants achieve their goals,itstillremainsunderutilized.

Not Maxing Out The average 401(k) participant under 50 contributes $8,700 per year to his or her account; for those 50 or over the average is $9,100. In both cases this equates to a median deferral rate of 9% of personal income, certainlylessthanmostfinancialprofessionalsrecommendtobuild secure retirement income. It’s good, but it’s not great.

They're Saving Elsewhere... However, participants not taking full advantage of their 401(k)s is all the more tragic because they are saving additional dollars for retirement, they just aren’t using their 401(k) plan as the vehicle. More than half of participants(52%),infact,expectpersonalsavingsoutsidetheirdefinedcontribution plan to contribute to their retirement income. Recall they are looking to personal savings to provide 12% of their retirement income dollars, just behind Social Security but ahead of earnings from employment in retirement. Just think how much more powerful this additionalsavingswouldbeinsidethetax-advantagedstructure of 401(k). 52% expect retirement income from outside of their defined

contribution plan (includes IRA Rollovers which may be from DC Plans)

Personal Savings is viewed as the 3rd largest source of income (after defined contribution plans and social security)

Under Age 50 – Only15%MaxingContributions

Over Age 50 – Only11%MaxingContributions

4 Contribution Rates Could be Driven Higher

9

Most Are Not Maxing Out

10

54% Focused on Account Balance

29% Focused on Income

Showing an Income Calculation May Work If participants knew that their current contribution rate would replace only 50% of their income in retirement—that’s the bottom bar on this chart—fully 41% of them say they would increase the rate while 55% would leave it the same. If, in contrast, they thought they were on track to replace 100% of their income—that’s the top bar—25% still say they would increase their contribution rate (although 12% say they would dial back).

Q: If you knew that your current contribution rate… would enable you to replace (50%/75%/100%) of your working income in retirement, what would you be likely to do…?

50%* | 41% 75%* | 30% 100%* | 25%

*CurrentIncomeReplacementRatio %Likelihood to Increase Contribution Rate

Withoutpretendingthatthisisapredictivemodelofexactlywhatwouldhappen with better participant education and planning tools, this result nonetheless shows the direction and potential sensitivity of actual savings behavior to better information. The simple conclusion is that the more participants know, the more they will save.

5 Ways To Drive Contribution Increases – Here are some additional actions that could help drive increased contributions:

Q: How likely would you be to increase the proportion of your income you contribute to your 401(k) if…?

You had a better sense of how much retirement income your contributions are creating79%1.

You had a better understanding of the investments available to you in your 401(k) plan75%2.

Afinancialprofessionalshowedyouhowtoinvestassetsinyour401(k)73%3.

You had better educational materials from the company that manages your 401(k) plan69%4.

You learned that others of your age and income were saving a bigger proportion of their income than you are69%5.

QUESTIONS TO ASK YOURSELF Have participants been

offered a retirement income gap analysis?

Are regular enrollment and lunch n' learn offered?

What does the investment menu look like?

Still Focused on Balance, not Income Participants are stuck on an accumulation mindset. 54% pay a "great deal" of attention to their account balance. Only 29% pay a "great deal" of attention to income.

11

Small Plan Participants are Missing Out5Plan Features In terms of plan features and available investment options, small plans tend to fare worse than their larger counterparts.

Q: For each item below, please indicate whether that feature is available to you in your current 401(k) plan or not.

Intermsofplandesign,forexample,amatchismuchlessprevalentatfirmswithfewerthan25employeesthanwithemployeesoffirmsofallsizes.This,ofcourse,isabigexpenseforabusinessowner.Butlookatsome other features which are also less prevalent at the small end, many of which wouldn’t or shouldn’t cost the business owner much if anything: retirement income planning tools, telephone service reps, auto enrollment and auto deferral rate step up and a managed account program. Why can’tworkersatsmallfirmshaveequivalentaccesstothesefeaturestoo?

A contribution from your employer matching your own

contribution up to a certain amount

Total (All Plan Sizes) 1 to 24 (Employees)

Planning tools that help you estimate how much income in retirement your

contributions are building 53%

Having knowledgeable and responsive telephone

service reps

A managed account program in which a financial professional

selects, allocates and trades investments in your 401(k) for a fee

33%43%

65%

62%

57%49%

78%

Stock mutual funds covering a broad range of company sizes, sectors and

regions of the world

50%

Total (All Plan Sizes) 1 to 24 (Employees)

46%

Stock in your own company 47%

20%

Mutual funds you can select based on the year in which you expect to retire (target

date funds)

47%37%

Individual stocks or bonds, apart from stock in your own company

41%34%

Stable value funds 37%27%

Fixed rate accounts 36%32%

Investment Options Participants generally have access to fewer investment options than 401(k) participants at larger companies.

Q: As far as you know, does your 401(k) plan offer...?

In virtually every asset class tested, small market participants are less likely to have access. This is particularly true in the case of employer stock, but recall these participants are also less likely to have access to amatch(oftenpaidinemployerstock)andveryfewcompaniesthissizewouldhavestocktradingonanexchange.

It’s important to recall that small market participants are probably less knowledgeable and less engaged in their plans than their larger company counterparts.Soinpartthesefindingsreflectuncertaintyontheonehandand lower access to most investment options on the other.

However, whether it’s features or investment options, there are opportunities to help enhance overall plan design and investment features made available to small plan participants.

12

QUESTIONS TO ASK YOURSELF Do we offer a broad

range of investment optionsacrosstherisk/reward spectrum?

Do we offer target date, target risk, or managed account options?

Do we leverage fiduciarysupport providers?

Do we have a current investment policy statement?

When was the last time we benchmarked the fees and services of our plan?

13

Financial Professionals Can Help6Many Don't have a Plan Over60%ofplanparticipantsdonothavearelationshipwithafinancialprofessional,afigurewhichdoesn’tvarymuchbysizeofworkplace. Additionally,almost70%lackaformalfinancialplan.And,let’s remember, these are the same participants who are targeting a 95% income replacement ratio!

Q: Does this household have a formal, written financial plan?

Amongthenearlyfourintenparticipantswhodohaveafinancial professionalrelationship,however,retirementplanningconfidenceis much higher—25 to nearly 30 points higher--in fact, when it comes to knowing how to calculate how much money they need in retirement, havingenoughmoneytocoverhealthcareexpensesinretirementandbeingreadyforretirementfinancially.

33% – Have a formal financial plan

67% – Do NOT have a financial plan

Overall Satisfaction with 401(k) Increases with the Presence of a Financial Professional.

Ifaparticipantisfortunatetoworkwithafinancialprofessional,theyaremuchmorepositiveabouttheir401(k)experienceoverall.

Greenmeansmoresatisfiedwitheachdimensionthanallparticipants,orangemeanslesssatisfied.

Asanexample,take“theinformationyougetaboutyour401(k)plan” atthetop.Amongallparticipants,30%areverysatisfiedwithplan information.Amongthosewhoworkwithafinancialprofessional, however,thisfigurejumpsto41%—that’stosayit’s11pointshigher, so that’s the green bar.

Amongparticipantswithoutafinancialprofessional,theproportionwhoareverysatisfiedwithplaninformationdropsto23%,sevenpointslowerthan all participants, so that’s the red bar.

Q: All things considered, how satisfied are you with:

The information you get about your 401(k) plan

Less Satisfied than All Participants

More Satisfied than All Participants

The investments available to you in your 401(k) plan

The features available to you in your 401(k) plan apart from the

investments

Your 401(k) plan overall

11%

11%

11%

11%

-7%

-7%

-6%

-7%

No FinancialProfessional

Use FinancialProfessional

QUESTIONS TO ASK YOURSELF Are you getting value

from your current financialprofessional?

Do they facilitate programs to support the education needs of your participants?

In all cases, working withafinancialprofessionaldrives higher satisfaction among plan participants.

The Guardian Life Insurance Company of America7 Hanover Square New York, NY 10004-4025 www.401k.GuardianLife.com

GP01725704/152015-3642(Exp.04/16)

It’s About YOU At Guardian Retirement SolutionsTM it’s about you. Your business, your employees, your retirement plan. We are dedicated to working with you, your third-party administrator (TPA) and your financial professional to help you provide your employees with a retirement solution to help them save for the long-term.

Guardian Retirement SolutionsTM is focused solely on serving the unique needs of small businesses like yours by providing access to services typically reserved for large plans. You can count on us to provide the resources, support and tools you’re looking for as you develop a retirement solution that works for you and your employees.

Contact Guardian Retirement SolutionsTM

Call: 877-500-2380

Visit: 401k.GuardianLife.com

The Guardian Advantage® group variable annuity contract and The Guardian Choice® group variable funding agreement are issued by The Guardian Insurance & Annuity Company, Inc. (GIAC), a Delaware corporation whose principal place of business is 7 Hanover Square, New York, NY 10004. GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, NY.

Guardian does not issue The Guardian Choice® and The Guardian Advantage® and does not guarantee the benefits they provide.

Guardian Retirement Solutions™ refers to the administrative support services, including participant recordkeeping as well as marketing, enrollment and educational materials, provided by GIAC in conjunction with the individual and group retirement products issued by GIAC.

This guide is not intended by The Guardian Life Insurance Company of America, The Guardian Insurance & Annuity Company, Inc. (GIAC) or any of its employees or agents to be considered as investment, tax, or legal advice.

Please consult your investment, tax and legal advisors for guidance and information that is specific to your plan.

Brightwork Partners is not an affiliate and/or subsidiary of The Guardian Life Insurance Company of America (Guardian) or The Guardian Insurance & Annuity Company, Inc. (GIAC).