New York Life Retirement Plan Services Stable value toolkit for plan advisors.

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1 stable value New York Life Retirement Plan Services Stable value toolkit for plan advisors. Used as both part of a diverse investment allocation and as a safe haven for the risk averse, it is estimated that stable value investments currently represent one out of every five dollars within defined contribution (DC) plans. 1 As millions of baby boomers near retirement age, it is expected that conservative investment options will play an even more dominant role. Stable value investments come in many forms, and one size does not fit all. However, all these funds offer universal benefits principal preservation, stable returns, and cash-like liquidity to the DC plan participant who is saving toward their financial goals. For you, as a plan advisor, it is important to understand what stable value funds have to offer and to quickly compare and evaluate popular investment structures. New York Life Retirement Plan Services (New York Life) can help you with those needs.

2 Understanding Stable Value Stable value funds may be the only mainstream investment option that combines the benefits of both insurance and investments. The protections of a stable value product are backed by financially viable insurers and banks, and in most circumstances guarantee the participant will not lose the principal or aggregate value of their investment. Not even money market funds can offer that type of guarantee. Stable value has a unique value proposition: the upside of a bond portfolio coupled with the protection of principal and liquidity for qualified withdrawals. These benefits are steady and have been delivered over decades of different economic cycles and by the various forms that stable value takes. Insurers can provide these higher returns by taking on additional risks such as investing in longer duration portfolios, higher yielding assets, etc. Stable Value Offers Higher Return Potential than Money Market Funds Value $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 Jun-89 Jun-90 Jun-91 Jun-92 Jun-93 Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 $1.50 $1.00 $0.50 $0.00 Growth of $1 12/31/88 thru 06/30/12 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-00 Jun-11 Jun-12 Model Stable Value Account imoneynet MFR Money Funds Index Barclays Intermediate Gov/Credit Index Past performance does not guarantee future results. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Source: Stable Value Investment Association presentation 8/21/ Key Terms Quality: Stable value funds are typically high quality investment vehicles both in terms of the credit ratings for firms standing behind the product, as well as the underlying fixed income investment portfolios. They provide guarantees not typically found in other mainstream retirement plan investments. Liquidity: Stable value funds are designed to be liquid. Insurance underwriters calculate the risk of outflows of money from the fund when participants move out independently of each other. However, to the extent that outflows are the result of large corporate actions, or other induced behavior, the risk can no longer be diversified or estimated. Therefore, certain limitations to withdrawals at the full covered value may exist on large, uncommon events that could precipitate a run-on-the-bank scenario. Termination: Exit provisions are related to the structure, investment strategy and level of guarantee of a fund. For exiting plans, these terms may differ between stable value CITs and insurance accounts especially if the insurer takes on more risk. For example, the average duration of an insurance fund is almost twice as long as that of a CIT, requiring a longer winddown period. Spread: This is the return the issuing company hopes to make over its stated or guaranteed rate and can vary significantly over time. It is not unlike a bank CD that is invested in higher yielding assets by the bank that is earning the spread. The insurer bears the risk of its investments in its general account relative to its contractual rate, and may or may not earn the spread because of asset defaults, underperformance, adverse rate moves, etc. Unlike fees that are fixed, insurance guaranteed products cannot declare or predict spreads in advance because they are unknown. It is important to note that there are costs associated with providing these protections. Insurance firms are closely monitored by regulators and usually have to deploy capital to back up the guarantees. Also, providing higher returns but allowing benefits to be paid like cash comes with the cost of potential limitations to liquidity in some situations. However, stable value options still remain very attractive given the long term benefits they provide. The insurance aspects of stable value funds can make them difficult to compare and measure. Traditional tools used to evaluate performance in the mutual fund universe are inappropriate or inadequate. For example, participants in stable value funds are generally insulated from daily market volatility, so it doesn t make sense to use market value-based tools to measure these funds. Competitive rates and fees are important aspects in evaluating stable value options, but they are not the only factors to consider while choosing the fund that is the right fit for your plan. Developing a broad-based scoring system to compare options and determine which best fits your plan and its participants is more appropriate. STRUCTURes CIT Synthetic Wraps A collective investment trust will negotiate synthetic wraps on a portfolio of assets to provide stable value products. Assets are trusteed in the plan s name and the plan purchases ownership units in the collective fund. Insurance General Account An insurance company general account supports all the company s liabilities in one large portfolio of assets. These assets are wholly owned by the insurance company and reflected on their balance sheet. The assets are commingled and not earmarked or attributed to any individual plan, liability or policyholder. Comparing Stable Value Products Small and mid-sized retirement plans are typically able to offer stable value products to their participants via pooled funds. The two primary forms are bank-held collective investment trusts (CIT) and insurance accounts. Both generally pool the assets of multiple plans, commingle the Innovative investment and cash flow experience and apply a blended yield that is the rate each participant earns on his balances. Both are strong vehicles that offer traditional stable value benefits, but differences may arise due to variations along the range of investments and insurance. For example, the more investment-based funds such as CITs will be more transparent and fee driven. Also the fund manager will often spread the insurance risk through the use of multiple, third party, wrap providers that can help diversify the guarantor risk. CITs typically come with lower guarantees related to minimum floors or rates declared in advance and regarding safeguards against portfolio deterioration. They also involve considerably greater negotiated outcomes per wrap agreement. Insurance Separate Account 3 Assets are segregated from the insurance company general account and general creditors. Therefore, assets are only earmarked for the liabilities of that specific account.

3 Comparing Stable Value Products continued Insurance accounts are invested in the general account 2 of the insurer and are backed by the full faith and credit of the insurance company. Insurance accounts may bear more investment risk and provide stronger guarantees than CITs (this is expressed in the duration and return figures in the chart below), but a likely tradeoff for a general account product may be less transparency regarding underlying investments and earnings, not unlike insurance products in general. The stronger guarantees can come in the form of higher rates that are fixed and guaranteed in advance, minimum floors of 1% or above and greater coverage in the case of portfolio deterioration. An insurance guarantor is often a single entity that has its name and reputation fully associated with the structure and is very motivated to avoid headline risks. Bank CITs Total assets $147 Billion $282 Billion Number of plans 39, ,882 Average duration 2.39 years 5.03 years Net 12-month return 2.49% 3.64% Insurance accounts* Source: Stable Value Investment Association 16th Annual Stable Value Funds Investment and Policy Survey. Data as of 12/31/2011. Used with permission. *These figures include both insurance general account and separate account contracts In the retirement plan space, there is a place and need for both types of stable value funds, but it is imperative for advisors and plan sponsors to understand the differences so that they can make an informed decision best suited for their DC plan. The following chart illustrates some similarities and differences between two common types of stable value funds, bank CITs and general account insurance accounts. CIT And Insurance Account Comparison CIT Insurance ACCount Benefits/Similarities Safety of principal 3 3 Smooth stable returns 3 3 Invested in high quality, diversified portfolios 3 3 Returns higher than money market funds over time 3 3 Contracts backed by financially viable companies 3 3 Plan accounting at stable net asset value (NAV) 3 3 Liquidity for qualified withdrawals/benefits by participants 3 3 Revenue sharing to plan sponsors 3 3 Compliance with 408 (b) (2) 3 3 STRUCTURAL features Structural Features Overseeing firm Stable value fund manager Insurance company Ownership of assets Held in a CIT in plan s name Insurance company s general account Number of guarantors/book value wrappers Multiple Single, the insurance company Contract types Primarily synthetic wraps offered by a bank or insurance company Insurance general account annuity Public name of structure May or may not be tied to overseeing firm; not tied to wrap firm names Guaranteeing insurance company name Underlying investments Specific portfolio of assets Insurance company s general account Daily NAV Yes Typically not available as it is in insurer s general account Earnings Fee based Spread based [see description under Spread, page 2] Credited Rates Rates declared and guaranteed in advance Minimum floor guarantees No, reset using past portfolio performance Minimum of 0% in most circumstances Rate reset frequency More frequent Less frequent Yes, guaranteed in advance for up to 1 year Rate guaranteed by statute not to fall below 1% to 3% Investment guidelines Restricted More liberal for higher yielding assets Overall portfolio duration Shorter Longer Portfolio risks (interest rates, investment, default) Contract Coverage Book value coverage for participant withdrawals Limits in book value coverage Competing options must have an equity wash Contract process Capacity Exiting plan termination at market value Exiting plan termination at book value Passed through via rate; impairments may not be covered Insurer bears risk of investment losses, especially impairments Materially identical for qualified participant withdrawals Materially identical but more negotiated by individual wrap agreements in CITs Required by both to prevent mass withdrawals Customized, individually negotiated; varies by each wrapper contract Limited, greater reliance on outside wraps No, not typical Yes, varies from 12 to 24 months Simpler form, standardized, not individually negotiated Insurance firm capacity is readily available Yes, plan has immediate exit rights at a calculated market value Yes, can be paid out in installments or in a lump sum over a certain duration * For simplicity, the information in this chart represents a typical setup of CITs and General Account insurance funds. Similar benefits and guarantees may be offered via insurance company separate account structures backed by the insurer. CITs may hold some general account products such as GICs or wraps issued by an insurance company separate account along with synthetics. There are many different types of stable value investments. One should carefully review one s investment options before making any investment decisions.

4 Finding the right fit? Once you understand what stable value products are and whether they are a good fit for your retirement plan, there are a few steps to take to ensure due diligence when selecting the right stable value option. Taking these steps should help you and your client select an option that is a good long-term fit for your plan. Ready to discuss stable value options in more detail? Contact your New York Life representative or visit us at stablevalueinvestments.com. Review and understand the stable value information outlined in the grid on the previous page. Ask for template contracts from different sources, including both a CIT wrap and a general account contract. Generally, both have industry-standard features related to liquidity, termination rights, qualified benefit coverage etc. Get to know different structures and managers including their total assets, longevity, reputations, past performance, etc. Familiarize yourself with the organizations making the guarantees behind each fund, including their history, longevity, stability, financial strength, credit ratings and core businesses. Monitor and assess these organizations regularly. Understand broadly the investment strategy of each structure, and ask for a history of fund assets to determine growth patterns. Repeat the entire process at least once a year to confirm the stable value option you have in place is still appropriate for the plan and its participants. AK HI WA OR NV California CA ID AZ UT MT WY CO NM ND SD NE KS OK TX MN WI IA IL MO AR MS LA MI IN KY TN AL PA OH WV NC SC GA VA VT ME NH NY MA RI CT NJ DE MD FL EAST Glenn Macdonald, Director glenn_macdonald@newyorklife.com Cell: MidweST / South Central Joe Simmons, Director joseph_simmons@newyorklife.com Cell: WeST Deborah Vince, Director deborah_vince@newyorklife.com Cell:

5 1 New York Life Retirement Plan Services recordkeeping data as of 09/30/ Insurance accounts may also be invested in a separate account of the insurer, but for ease of comparison, this brochure focuses on insurance general account contracts. 3 For ease of comparison this brochure focuses only on insurance general accounts and CITs. Insurance funds is used as a general term for all guaranteed insurance accounts. These can be general account or separate account and may have some structural differences, but in all cases it refers to stable value structures that are backed by the financial strengh and ability to pay claims of a single insurance company. Past performance is no guarantee of future results. The information contained herein is general in nature and is provided solely for educational and informational purposes. Neither New York Life Investment Management LLC, its affiliates nor its representatives provide legal, tax, nor accounting advice. Please contact your own advisors. The stable value option seeks capital preservation, but there can be no assurance that this goal will be achieved. Returns will fluctuate with interest rates and market conditions. All investing involves risk, includingthe loss of principal. Securities distributed by NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ New York Life Retirement Plan Services is a division of New York Life Investment Management LLC. New York life Retirement Plan Services 690 Canton Street Westwood, MA newyorkliferetirementplans.com NYLIM /2013