A Case Study: Plan Design, Participant Behavior and Better Outcomes

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1 A Case Study: Plan Design, Participant Behavior and Better Outcomes Greg Boswell O.C. Tanner Chris Monachino American Century Investments Richard Weiss American Century Investments FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE

Agenda Case study of a company and an advisor maximizing participants probability for retirement security Company overview and benefit philosophy Plan design and

2 Agenda Case study of a company and an advisor maximizing participants probability for retirement security Company overview and benefit philosophy Plan design and asset allocation decisions Key criteria for a target date manager to fit their participant needs Results from plan changes FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 1

3 Our Mission We help companies appreciate people who do great work. Because celebrating great work inspires people to invent, to create, to discover. And when people are inspired, companies grow. FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 2

4 Recognition Solutions FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 3

5 55 sales offices 1,500 employees 8,000 clients 19 million users/employees 460+ million worldwide revenue (USD) FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 4

6 Benefit Plan Philosophy may you never find another place that will treat you with more dignity Obert C. Tanner FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 5

7 Retroactively Addressing Enrollment and Asset Allocation Plan size: $250 million with 1,800 participants Participation at 89% Average deferral rate at 7.3% Conducting a recordkeeper change in October 2013 Intention to move from the former recordkeeper s model portfolios to a target-date solution Continued focus on retirement adequacy, concentrating on income replacement rates Re-enrollment and retroactive automatic enrollment and escalation with provider change Increased default contribution rate from 3% to 5% Implemented annual enrollment sweep at default rate, including any 1% deferrals Plan investment re-enrollment into target-date funds, the new QDIA FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 6

8 TDFs Must Balance Multiple Dimensions of Risk Participants are Diverse Markets are Uncertain Everyone Faces Multiple Risks Longevity risk Market risk Tail risk Inflation risk Interest rate risk Sequence of returns risk Abandonment risk FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 7

9 Measuring Target Date (Lifecycle) Investment Risk Longevity Risk Risk of running out of money in retirement Market Risk Inflation & Interest Rate Risk Sequence-of- Returns Risk Dispersion in outcomes caused by changes in the level of market prices Dispersion in outcomes due to rising inflation and/or interest rates Dispersion in outcomes caused by the sequence, rather than the level, of market returns Tail Risk Dispersion in outcomes caused by sudden, extreme changes in market prices Abandonment Risk Dispersion in outcomes caused by panic-driven selling out of risk assets FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 8

10 Audience Question: Which Target Date Risk is Paramount? 1. Longevity Risk 2. Market / Tail Risk 3. Inflation/Interest Rate Risk 4. Sequence of Returns Risk 5. None of the Above FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 9

11 Designed to Increase the Likelihood of Success for the Greatest Number of Participants FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 10

12 Less Risk Risk Cumulative Balance More Risk To vs. Through Debate Risk levels calibrated to wealth, not just age Retirement Date Wealth Participants face their maximum risk exposure the day they retire: they have the most to lose and the longest period ahead of them to fund from their savings Age Accumulation Phase 40 Yrs Drawdown Phase (Age 65-90) Source: American Century Investments Accumulation phase: assumes a $2,000 contribution starting at age 25, increased 6% annually, and returning 7% annually until age 64. Drawdown stage: assumes annual return of 5.5%, first year withdrawal at age 65 of 5.5% of capital, inflation-adjusted annually by 2.5%. This information is for illustrative purposes only and is not intended to represent any particular investment. FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 11

13 Audience Question: What is the Optimal Equity Exposure for Retirees? 1. 25% 2. 35% 3. 45% 4. 55% 5. It depends 6. Don t Know 7. Don t Care FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 12

14 Probability of Success* Optimal Equity (Risk) Exposure at Retirement The optimal risk allocation at retirement is a complex function of time horizon (life expectancy), withdrawal rate, and future market returns. 100% 90% 80% 70% 60% 50% Withdrawal Rate 4.0% 4.5% 5.0% 5.5% 6.0% Average 4-6% 40% 30% 20% 10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% *Probability of success defined as not running out of money before age 95 in simulation testing. This hypothetical situation contains assumptions that are intended for illustrative purposes only and are not representative of the performance of any security. There is no assurance similar results can be achieved, and this information should not be relied upon as a specific recommendation to buy or sell securities. Source: American Century Investments FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 13

15 Abandonment Risk Tail risks are minimized in One Choice Target Date Portfolios Major drawdowns in accumulation phase may lead to investor abandonment Risk of Falling 25% Below High Water Mark in Accumulation 70 (Outcomes are hypothetical in nature) 60 Failure Risk, % Source: American Century Investments Manager E Manager D Manager C Manager B American Century One Choice Simulation assumptions: 10% savings for 35 y ears to age 65, monthly contributions, salary growth commensurate with inflation at 2.0%. Glide path data from Morningstar, mutual fund prospectuses, and ACI. IMPORTANT: The projections or other information generated by American Century regarding the likelihood of various investment outcomes are hy pothetical in nature, do not reflect actual investment results and are not guarantees of future results. FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 14

16 Grow th of $10K Better Wealth Accumulation Wealth Accumulation and Volatility Comparison of 2015 Funds Beginning wealth 11/1/2007 Loss during credit crisis (11/1/2007-2/28/2009) Gain after credit crisis (3/1/ /31/2014) Total gain in wealth (11/1/ /31/2014) Annualized Std Dev (11/1/ /31/2014) Data as of 12/31/2014 Source: FactSet, Morningstar $16,000 American Century One Choice 2015 Instl Manager B 2015 Manager C 2015 Manager D 2015 Manager E 2015 $10,000 $10,000 $10,000 $10,000 $10,000 ($2,881) ($3,624) ($3,990) ($3,500) ($3,551) $6,986 $6,504 $7,862 $7,252 $7,278 $4,105 $2,880 $3,872 $3,752 $3, % 11.00% 13.10% 10.93% 11.26% One Choice Target Date Portfolios have protected more wealth on the downside and accumulated higher total gains since the onset of the Financial Crisis for participants nearing retirement, as this comparison of 2015 funds shows. Manager B 2015 $14,000 Manager C 2015 $12,000 $10,000 $8,000 $6,000 Manager D 2015 Manager E 2015 American Century One Choice 2015 Instl $4,000 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Results calculated from 10/31/2007 to 12/31/2014 Source: FactSet SPAR S&P 500 Total Return FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 15

0 6.8 6.6 7.3% Before 8.4% After Source: O.C.

17 Results with Retroactive Strategies Participation Rate Average Deferral Rate 98% 96% 94% 92% 90% 88% 86% 84% 89% Before 97% After % Before 8.4% After Source: O.C. Tanner/Transamerica, June 2014 Source: O.C. Tanner/Transamerica, March 2015 FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 16

18 Best Practices to Consider Execute retroactive automatic enrollment and escalation More than 6 in 10 participants support automatic enrollment at a 6% contribution rate. 1 Execute plan investment re-enrollment Outline the process with the recordkeeper, including participant communications and notices Establish regular intervals to evaluate and execute Every 3-5 years, for example 1 Source: Reflections in the Mirror, American Century Investments 2014 FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 17

19 Additional Disclosures Target-Date Fund Additional Information Fund Ticker/ISIN Investment Objectives Prospectus Net Expense Ratio Liquidity Safety Std Dev - as of 12/31/14* Tax Features 1-Year return as of 12/31/14 5-Year return as of 12/31/14 10-Year/Since inception return as of 12/31/14 American Century One Choice SM 2015 Instl ARNIX I 0.56 Daily Y 5.00 Z /31/2004 American Century One Choice SM 2025 Instl ARWFX I 0.62 Daily Y 5.99 Z /31/2004 American Century One Choice SM 2035 Instl ARLIX I 0.67 Daily Y 7.09 Z /31/2004 American Century One Choice SM 2045 Instl AOOIX I 0.74 Daily Y 8.19 Z /31/2004 American Century One Choice SM In Retirement Instl ATTIX H 0.56 Daily Y 4.81 Z /31/2004 Fidelity Freedom 2015 (No-Load) FFVFX G 0.64 Daily Y 5.67 Z /6/2003 Manager B JPMorgan SmartRetirement 2015 Instl JSFIX AC 0.59 Daily Y 5.66 Z /15/2006 Manager E T. Manager Rowe Price C Retirement 2015 (No-Load) TRRGX A 0.63 Daily Y 6.88 Z /27/2004 Vanguard Manager Target D Retirement 2015 Inv VTXVX C 0.16 Daily Y 5.66 Z /27/2003 * 3-y ear annualized standard dev iation as of 12/31/2014. A. The objectiv e is to prov ide the highest total return ov er time consistent w ith an emphasis on both capital grow th and income. AC. The Fund seeks total return w ith a shift to current income and some capital appreciation ov er time as the Fund approaches and passes the target retirement date. C. The fund seeks to prov ide capital appreciation and current income consistent w ith its current asset allocation. G. The fund seeks high total return until its target retirement date; thereafter it seeks high current income and, as a secondary objectiv e, capital appreciation. H. The fund seeks current income, w ith a secondary objectiv e of capital appreciation. I. The fund seeks the highest total return consistent w ith its asset mix. K. The fund seeks a total return consisting of long-term grow th of capital and current income. It allocates the assets more conserv ativ ely ov er time. Y. Principal not guaranteed. Z. The tax consequences of owning shares of the funds will vary depending on whether you own them through a taxable or tax-deferred account. Tax consequences result from distributions by the funds of dividend and interest income they have received or capital gains they have generated through their investment activities. Tax consequences also may result when investors sell fund shares after the net asset value has increased or decreased. The fund's prospectus contains this and other information, and should be read carefully before investing. Inception Date Source: Morningstar FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 18

20 Endnotes One Choice SM Target Date Portfolios You should consider the fund's investment objectives, risks, and charges and expenses carefully before you invest. The fund's prospectus or summary prospectus, which can be obtained by visiting contains this and other information about the fund, and should be read carefully before investing. The funds are designed to provide a comprehensive and broadly diversified investment solution for an investor planning to retire or start withdrawing their money in the target year of the fund. The target year is intended as a general guide and does not necessarily represent the exact year portfolio assets will be used. The fund is a "fund of funds," meaning that it seeks to achieve its objective by investing in other American Century Investments mutual funds. Over time, the asset mix and weightings are adjusted to become more conservative; the allocation to stocks will decrease, and the allocation to bonds and money market instruments will increase. One Choice SM In Retirement Portfolio maintains a constant asset mix designed to focus more on income than capital appreciation. It is intended for near- or in-retirement investors, or anyone seeking a conservative investment solution. Each of the target-date funds follows a pre-set asset allocation schedule that s specifically designed to provide the optimal trade-off of risk and reward potential based on the target date. The principal value of the fund(s) is not guaranteed at any time, including at the target date. A fund with a later target date is expected to be more volatile than one with an earlier target date. Diversification does not ensure against a loss. The fund's risks reflect those of the underlying investments. Market performance tends to be cyclical and if the market does not favor an underlying fund's style, that fund may suffer sharp declines as a result of earnings disappointments or other market or economic events. Foreign investment involves additional risks, including political instability and currency fluctuations. The value of an underlying fund's fixed-income securities is affected by interest-rate movements such that when interest rates rise, bond prices, and the value of the bond funds, fall. Performance reflects Investor Class shares, unless otherwise indicated. Past performance does not guarantee future results and investment return and principal value will fluctuate, so redemption value may be worth more or less than original cost. Total return includes reinvestment of all dividends and capital gains. Returns less than one year are not annualized. Returns presented do not reflect recurring and nonrecurring fees. Fund performance may be subject to substantial shortterm changes due to market volatility or other factors. Historically, small cap stocks have been more volatile than the stock of larger, more established companies. For more current month end performance, please visit our website. Holdings are subject to change without notice. One Choice Portfolios may differ significantly from the securities held in an index or benchmark. The index or benchmark shown does not include fees or expenses, and is not available for actual investment. Portfolio construction guidelines document operational policies and not necessarily investment restrictions imposed by the prospectus. References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. The opinions expressed are those of the investment managers and are no guarantee of the future performance of any American Century Investments portfolio. Statements regarding specific holdings represent personal views and compensation has not been received in connection with such views. This information is not intended to serve as investment advice and is subject to change without notice. Morningstar ratings are based upon Investor class of shares, unless otherwise indicated. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund s monthly performance (including the effects of sales Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. Past performance is no guarantee of future results. Investment return and fund share value will fluctuate and it is possible to lose money by investing in these funds. Rankings are calculated within their respective universe of funds in the category shown, and are based on Investor class of shares, unless otherwise indicated. Morningstar proprietary category ratings are based on risk adjusted returns Morningstar, Inc. All Rights Reserved. Certain information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Portions of the mutual fund performance information contained in this presentation were supplied by Lipper, a Reuters Company, subject to the following: 2014 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper rankings are historical and are based on average annual total returns with capital gains and dividends reinvested. FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 2015 American Century Proprietary Holdings, Inc. American Century Investment Services, Inc., Distributor FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 19

21 American Century Investments Performance focus for 50+ years Pure play business model Privately controlled and independent Profits with a purpose You should consider the fund s investment objectives, risks, and charges and expenses carefully before you invest. The fund s prospectus or summary prospectus which can be obtained by calling (or by visiting contains this and other information about the fund and should be read carefully before investing or sending money. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice American Century Investment Services, Inc., Distributor 2015 American Century Proprietary Holdings, Inc. All rights reserved. The contents of this American Century Investments presentation are protected by applicable copyright and trademark laws. No permission is granted to copy, redistribute, modify, post or frame any text, graphics, images, trademarks, designs or logos. FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 20

Invesco Diversified Dividend Fund. Building a solid foundation

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