Your Guide to Investment for Retirement & Investment Fund Descriptions. The Evangelical Lutheran Good Samaritan Society

Transcription

1 Your Guide to Investment for Retirement & Investment Fund Descriptions Group Retirement plans The Evangelical Lutheran Good Samaritan Society Fund Performance as of Dec. 31, 2012 I Effective June 1, 2013

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3 About the ELCA Retirement Plan Investment Funds You should carefully consider the target asset allocations, investment objectives, risks, charges, and expenses of any fund before investing in it. All funds, including Portico Benefit Services funds, are subject to risk and uncertainty. Past performance cannot be used to predict future performance. Portico Benefit Services funds, including the ELCA Participating Annuity Investment Fund, are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Fund assets are invested in multiple sectors of the market. Some sectors, as well as the funds, may perform below expectations and lose money over short or extended periods. Review this guide and the Investment Memorandum for the ELCA Participating Annuity Trust for more information about our funds. With respect to the ELCA Participating Annuity Investment Fund, the goal of Portico Benefit Services is to increase a member s participating annuity income over time. However, substantial or extended losses or underperformance in the markets could cause a reduction in monthly participating annuity payments. Neither Portico Benefit Services nor its funds are subject to registration, regulation, or reporting under the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, or state securities laws. Members, therefore, will not be afforded the protections of those provisions of those laws and related regulations.

4 Contents 1 Introduction 2 Your Guide to Investing for Retirement 2 Creating a Retirement Investment Strategy 3 Tools for Growth 6 Asset Classes 8 What Is Right for Me? 11 Keeping Your Strategy Up to Date 12 How Have Stocks, Bonds, and Cash Equivalents Performed in the Past? 14 How Have ELCA Retirement Funds Performed Over Time? 15 Investment Fund Information and Descriptions 15 Investment Funds in Your ELCA Retirement Plan 18 Select Series 18 ELCA 80e Balanced Fund 19 ELCA Social Purpose 80e Balanced Fund 20 ELCA 60e Balanced Fund 21 ELCA Social Purpose 60e Balanced Fund 22 ELCA 40e Balanced Fund 23 ELCA Social Purpose 40e Balanced Fund 24 Build-Your-Own Series 24 ELCA Global Stock Fund 25 ELCA Social Purpose Global Stock Fund 26 ELCA Non-U.S. Stock Fund 27 ELCA Social Purpose Non-U.S. Stock Fund 28 ELCA U.S. Stock Fund 29 ELCA Social Purpose U.S. Stock Fund 30 ELCA Social Purpose Stock Index Fund 31 ELCA S&P 500 Stock Index Fund 32 ELCA Small- and Mid-Cap Stock Index Fund 33 ELCA Global Real Estate Securities Fund 34 ELCA High-Yield Bond Fund 35 ELCA Bond Fund 36 ELCA Social Purpose Bond Fund 37 ELCA Money Market Fund 38 References 38 Fund Description Footnotes 39 Glossary The trademarks listed below and contained in this publication are owned, controlled, or licensed by Portico Benefit Services, a ministry of the Evangelical Lutheran Church in America, and are protected by U.S. trademark and unfair competition laws. All rights reserved. ELCA 40e Balanced Fund (40e Balanced Fund) ELCA 60e Balanced Fund (60e Balanced Fund) ELCA 80e Balanced Fund (80e Balanced Fund) ELCA Social Purpose 40e Balanced Fund (Social Purpose 40e Balanced Fund) ELCA Social Purpose 60e Balanced Fund (Social Purpose 60e Balanced Fund) ELCA Social Purpose 80e Balanced Fund (Social Purpose 80e Balanced Fund)

5 Introduction Whether you are early, mid, or late in your career, you probably have dreams and goals for your retirement years. Making your dreams and goals a reality in retirement takes careful planning. Whether your retirement is soon or a long way off, the time to start planning is now. And it s easier than you might think. As a member of the ELCA Retirement Plan for The Evangelical Lutheran Good Samaritan Society, you have an opportunity to save on a pretax basis for your retirement and choose from among 20 ELCA investment funds. The ELCA lineup covers a wide range of investment funds, so you can invest according to the mix of investments that is right for you. This guide introduces you to the basic principles of investing and provides you with descriptions of the investment funds available in your ELCA retirement plan so you can make informed decisions. An investment of your time, now, in reading this guide may help you achieve your dreams and goals in retirement. The Board of Pensions of the Evangelical Lutheran Church in America is doing business as Portico Benefit Services. Portico does not provide tax, legal, or accounting advice. We provide members with certain written information of general application in order to help you understand how we administer your ELCA retirement plan. For advice specific to you, consult your tax, legal, or accounting adviser. Your Guide to Investing for Retirement I 1

6 Creating a Retirement Investment Strategy Getting Started Investing for a secure retirement is like tending a garden, because you must plant the seeds and help them grow to enjoy a good harvest later. First, you start with a plan what are your investment goals? What mix of investments is appropriate for you? How do you manage your investments so they flourish over time? After you establish your goals, you will want to use the right resources to help you achieve them. Your ELCA retirement plan helps to provide you with what you need to tend your retirement goals. As you plan for your retirement, here are some points to consider. How Much is Enough? How much you need in retirement will depend most on your individual situation and the retirement lifestyle you plan to enjoy. This includes things like whether or not your mortgage is paid off and the cost of living for the community you choose to live in. If you have not done so, take the time to assess your needs based on your personal situation and consider saving your own money in your ELCA retirement plan. You can easily start making pretax contributions to the plan. Your Investment Strategy: Age, Assets, and Attitude Only you can decide on the right approach to achieve your goals. Your strategy is unique to you and should take into account your: Age (time horizon): The passage of time tends to smooth out the ups and downs of the stock market and other investment markets. If you have a long time to go before receiving distributions from your retirement account, you may be willing to ride out the ups and downs of the markets. Even though stocks are more volatile, historically they have earned greater average returns over the long run than other types of investments. On the other hand, if you are nearing the time you will receive distributions from your account, you might want to invest more of your nest egg in assets that are less likely to decline significantly in value in the short run. For specific information about the available investment funds, see pages Assets (financial resources): Your decision on how to invest your future contributions and current balances in your ELCA retirement plan should be made in light of all your retirement investments. Those include individual retirement accounts (IRAs), real estate holdings, and a spouse s retirement benefit, among others. Attitude (risk tolerance): You have to decide how much and which types of risk you are comfortable with taking. Later in this guide you will find a detailed discussion of the types of investments and their various risks. Read that section, then decide on an investment strategy that is right for you. Read the following pages to learn more about how to build your retirement strategy, considering these and other factors. age assets + investment attitude strategy + = 2 I Portico Benefit Services

7 Tools for Growth To help you plot your strategy and nurture your investments in one or more of your ELCA retirement plan s investment funds, here are several basic investment principles you need to understand. The Power of Compounding Compounding is one of the reasons it pays to start building your retirement account as soon as you can. Through compounding, earnings can be generated in your ELCA retirement plan from any previous earnings that have been reinvested. The longer you stay invested and automatically reinvest your earnings, the more dramatically compounding can increase the value of your investment. Give Your Investments Time to Take Root The power of compounding can help your savings grow faster. The following example shows how the power of compounding can work for you and how it can pay off when you start to save sooner rather than later. Mary, who is 32 years old, starts saving $100 per month (through pretax retirement contributions) in an ELCA retirement plan. Mary does this every month for 30 years, then stops (at age 62). Five years later (at age 67), Mary retires. If Mary's ELCA retirement plan account earns an 8% annual return over the 35 years, the account balance would grow to $222,000*. What if Mary waits just five more years to start saving? As you see in the chart below, five years can make a big difference in how much money Mary has at retirement. Asset Allocation Asset allocation is the practice of spreading your retirement savings across different types of investments (asset classes). Because no one can know which asset classes will do best in the future, diversifying among the various asset classes can help reduce volatility (fluctuations) in your retirement account and may increase your long-term returns. The right asset allocation for you should be based on your age (time horizon), assets (financial resources), and attitude toward risk. Your asset allocation decision will have a big effect on what your investments will earn over time and the degree of volatility (the magnitude of up-or-down changes in value from year to year) in your account. With an ELCA retirement plan, your asset allocation decision allows you to choose how involved you want to be in overseeing and managing your investments, according to the investment fund(s) you pick. If you want investment professionals to diversify your account among asset classes for you, one of the Select Series balanced funds may be an option for you. We manage your investment with the objective of achieving the highest projected return for the projected level of risk. If you have the interest, time, and knowledge to manage your investments yourself, our Build-Your-Own Series funds offer a hands-on approach. Each of these funds targets a specific asset category, and you take on the responsibility of choosing the right mix of funds to diversify your savings. (See pages 6 7 for more details.) The benefit of starting early Mary Starts Saving at Age 32 Mary Starts Saving at Age 37 How much saved per month? $100 $100 For how many years? 30 years (until age 62) 30 years (until age 67) Total amount saved $36,000 $36,000 Pretax retirement balance at age 67 $222,000* $149,000* *At 8% annual return, for illustrative purposes only. Your account may grow to more or less than the amounts shown and may lose value. Your Guide to Investing for Retirement I 3

8 Tools for Growth Rebalancing Your Investments One of the challenges in managing an investment portfolio is maintaining its initial asset allocation over time so the ranges of potential risk and return within the portfolio remain constant. This process is called rebalancing and is necessary because changes in the markets cause gains and losses among asset classes, which in turn change your asset allocation. Rebalancing puts your investments back in order by bringing your portfolio back to its target asset allocation. When you invest in one of the Select Series balanced funds, we periodically rebalance your investment for you to maintain its target asset allocation. If you choose to invest your account in a mix of our Build-Your-Own Series funds, you are in charge of rebalancing your investments over time to maintain your target asset allocation. Return You invest to earn a return on your investment. Return can result from interest income and capital appreciation (increase in value) or depreciation (decrease in value). It is usually expressed as a percentage, whether as a rate of income from interest payments or as a percentage increase or decrease in value. An important factor that affects your return is income taxes. For example, an after-tax investment earning a taxable return of 8% annually is earning the equivalent of 6.8%, after taxes, for an investor in the 15% tax bracket. This is why tax deferral a feature of your ELCA retirement plan is such an important advantage. Your pretax retirement contributions, employer contributions, and rollover contributions and any investment earnings on your account are tax-deferred until you begin taking distributions from the plan. Risk/Return Tradeoff All investments carry some degree of risk, either of loss of capital (value) or of loss of purchasing power (inflation risk). Investors expect the long-term return on investments to compensate them for the risk taken. Generally, the greater the risk taken, the greater the potential return. Conversely, if you are willing to invest only in low-risk investments, your return is likely to be correspondingly low. This is the risk/return tradeoff. Your own attitude toward risk (your risk tolerance) will help you determine how best to invest your retirement account. Your ELCA investment funds range from conservative funds with less potential volatility and lower returns to more aggressive and potentially more rewarding funds. Whatever your risk tolerance, diversifying your account in different types of investments can help you manage your risk during a market downturn. How comfortable are you with market risk? To some extent, the answer depends on your age (time horizon) the time left before you begin receiving distributions from your account. Risk is also a reflection of your personality. Some people are comfortable with risk, and others avoid risk at almost any cost. See the chart on page 5 for the risk/ return scale of the ELCA investment funds. For detailed information about each ELCA retirement plan investment fund, see pages of this booklet. 4 I Portico Benefit Services

9 Tools for Growth Risk and Return The relative potential long-term risk and potential return character istics of the ELCA investment funds are shown below. risk/return scale for elca investment funds Potential Risk 1 Low Medium High Potential Return 2 High 80e Balanced Fund 3, 5 Medium 40e Balanced Fund 3, 5 60e Balanced Fund 3, 5 High-Yield Bond Fund Global Stock Fund 3, Non-U.S. Stock Fund 3, U.S. Stock Fund 3, Social Purpose Stock Index Fund, S&P 500 Stock Index Fund 4, Small- and Mid-Cap Stock Index Fund Global Real Estate Securities Fund Bond Fund 3 Low Money Market Fund 1. Potential risk refers to the degree of annual volatility in potential returns. Higher risk funds have a greater potential of losing value in any one-year period. This chart is intended to show relative levels of risk/return potential for the funds. It does not purport to show absolute levels of risk/return. 2. Potential return refers to long-term returns. Over most 10-year periods, higher-potential-return funds are anticipated to return more than lower-potential-return funds. 3. Includes similar social purpose fund. 4. S&P 500 is a trademark of The McGraw-Hill Companies Inc. and has been licensed for use by Portico Benefit Services. The ELCA S&P 500 Stock Index Fund is not sponsored, endorsed, sold, or promoted by Standard & Poor s, and Standard & Poor s makes no representation regarding the advisability of investing in the fund. 5. Due to diversification across, as well as within, asset classes, the Select Series balanced funds are managed with the objective of obtaining the maximum projected return possible per unit of projected risk. Your Guide to Investing for Retirement I 5

10 Asset Classes The ELCA investment funds include the Select Series and Build-Your-Own Series, which are invested in three basic types of investments: stocks, fixed-income, and real assets. Following is a reference guide on each asset class. The investment funds in your ELCA retirement p lan are diversified among many securities and made up of one or a combination of these three basic kinds of investments. Stocks Shares of common stock are units of ownership in companies. Individual stock prices can rise and fall dramatically. The value of an investment in stocks may rise through capital appreciation (if the market price of the stock goes up and the stock becomes worth more than its purchase price) and through dividends (a share of the company s profits paid out to shareholders). Market influences also may cause the value of stocks to rise or fall. Stock funds can consist of U.S. stocks or international stocks. Global stock funds include stocks of both U.S. and non-u.s. companies. There also are stock funds known as sector funds, devoted to specific industries. Risks If a company performs poorly, investors can lose all or part of their investment. Also, a company s stock price may drop when the overall market goes down, even if the company is doing well. Non-U.S. stocks carry the added risks of currency exchange rates and political instability. Rewards As an owner, you may benefit from company profits. Stocks historically have provided higher long-term returns than fixed-income investments. Fixed-Income Investments Fixed-income investments represent a debt. When you buy a fixed-income investment, you are buying an I owe you. The issuer of the fixed-income investment (the borrower) promises to repay you (the investor) the original amount of the loan when the fixedincome investment matures, plus a stated rate of interest. Three examples of common fixed-income investments include: 1 Investment-grade government and corporate bonds 2 High-yield bonds, which are below-investment-grade 3 Cash equivalents, like money market funds, that invest in short-term, high-grade government and shortterm corporate debt securities Fixed-income investments can be issued by a corporation, government, or other organization. Corporate bonds often pay higher interest than government bonds. On the other hand, federal government bonds are considered the safest of all bonds because they generally are guaranteed by the U.S. government. Risks The value of a fixed-income investment can fluctuate (move up and down) over short time periods. The fluctuation is related to the investment s creditworthiness, maturity, interest payment schedule, and the changes in market interest rates. The value of a fixedincome investment generally moves in the opposite direction from interest rates. Therefore, if interest rates rise, the values of existing fixed-income investments (including U.S. government bonds) typically will decline. Note: Fixed-income investors may lose all or part of their investment if the issuer defaults (fails to make interest and principal payments). Are the ELCA Funds Mutual Funds? The ELCA investment funds are not mutual funds, although they share some similar features the ELCA funds offer diversification among many securities and professional investment management. ELCA retirement plan members do not have individual voting rights in ELCA funds. While mutual funds may be an appropriate investment for non-retirement as well as retirement purposes, the ELCA investment funds are designed specifically for retirement savings. Our investment staff strives to provide you with attractive long-term investment returns for your retirement savings with lower expenses than many mutual funds in the marketplace. You also have the advantage of tax-deferral through the ELCA funds, which may not be the case with a mutual fund account operating outside a retirement plan. Neither Portico Benefit Services nor its funds are subject to registration, regulation, or reporting under the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, or state securities laws. Members, therefore, will not be afforded the protections of those provisions of those laws and related regulations. 6 I Portico Benefit Services

11 Asset Classes In general, cash equivalents have a lower rate of return than other types of investments, and may not exceed the rate of inflation over time. However, they offer relatively high stability of principal (cash equivalents are less likely to experience negative returns than are other types of investments). Rewards Fixed-income investments can provide a regular source of income. Their returns generally fluctuate less than those of stocks (and are generally lower over the long term). Real Assets Real assets is the asset class used to describe tangible items such as real estate, timberland, oil and gas, etc. Real assets can be purchased directly or indirectly through a variety of investment instruments including publicly traded equity securities, which may include, among others, real estate equity securities (such as stock of Real Estate Investment Trusts or REITs), energy, and energyrelated equity securities. Real assets may also include equity investments in private market instruments such as real estate partnerships. Real assets have some characteristics of equities (stocks); and in certain respects they may be viewed as increasing the equity allocation of a portfolio. Risks Investments in real assets carry market risk, just like other equity securities (stocks, for example). Also, some real asset investments can be illiquid they may not be sold quickly in the ordinary course of business without risk of loss. Rewards Real assets historically have returned more than inflation over time and may provide a hedge against unanticipated inflation. Choosing Your Asset Allocation On the following pages, we provide information to help you as you plan your asset allocation. We include three examples of asset allocation approaches you might consider when deciding on your strategy. The right asset allocation for you is based on a number of factors unique to your own situation. For example, you may have worked elsewhere before starting in your current position. If so, in designing your investment strategy you should take into consideration any other investments and retirement or savings plans you may already have and how they are allocated. You may also want to increase the pretax contributions you make to your ELCA retirement plan account in order to build additional retirement income. Your Guide to Investing for Retirement I 7

12 What Is Right for Me? Now that you have read about the various types of asset classes, you can better understand the investment funds available in your ELCA retirement plan. You can select from among 20 different investment funds available in two categories Select Series and Build- Your-Own Series. Select Series If you want investment professionals to manage the mix of your investments in the plan, investing your entire account in one of the six Select Series balanced funds may be a good option for you. We diversify your account for you and periodically rebalance it to maintain its target asset allocation. Each fund in the Select Series is carefully managed with the objective of obtaining the highest projected return for the projected level of risk. Build-Your-Own Series If you prefer to manage your mix of investments in the plan yourself, use our Build-Your-Own Series funds. Each of these funds targets a specific asset class, and you take on the responsibility of choosing the right mix of funds to diversify your savings. You are also in charge of rebalancing your investments over time to maintain your target asset allocation. The Build-Your-Own Series may be appropriate for you if: You have the interest, knowledge, and time to handle these important investment management activities on your own or You are investing in a specific asset class (or classes) to complement other investments you have elsewhere Social Purpose Funds Perhaps social purpose investing is important to you. Of the 20 investment funds available in your ELCA retirement plan, eight are social purpose funds. These funds use a three-pronged approach to investing that includes, shareholder advocacy 1, social screening 2, and positive social investments 3. Our social purpose funds are designed to deliver attractive returns over the long term while investing in ways that are compatible with the social policies of the ELCA. Shareholder Advocacy Our social purpose funds promote change through shareholder advocacy, consistent with our fiduciary obligations to members. To motivate corporate leaders to act in the best interests of shareholders, we (in coordination with other stakeholders where appropriate): May hold dialogues with corporate leaders May present shareholder resolutions Vote our proxies Social Screening Each year, investment managers for the screened portfolios receive a list of companies that may not be considered for future investment due to business practices that conflict with the ELCA s social criteria screens 2. Social criteria screens include: alcohol, community economic development 4, environmental 4, gambling, military weapons, pornography, and tobacco. All screening activities are made consistent with Portico Benefit Services fiduciary obligations to members. Additional detail on these screens can be found at elca.org/our-faith-in- Action/Justice/Advocacy/Corporate-Social- Responsibility/CCA-3-Economic-Social- Criteria-Investment-Screens.aspx. Positive Social Investments Where applicable, our social purpose fund managers seek and invest in activities they believe will positively benefit the community while achieving acceptable returns for plan members. Managers look for investments, which may include the following: Community development Affordable housing Sustainable forestry Women- and minority-owned businesses Clean energy and the environment 1. Takes place for both social purpose funds and unscreened funds. 2. Due to practical implementation realities, not all portfolios in the social purpose funds are screened. Unscreened portfolios include real estate, alternative real assets, and commingled assets. 3. Made primarily in social purpose funds and consist mainly of investment-grade fixed-income and alternative assets. 4. Indicates positive social investment screen. Environmental screen is both positive and negative. 8 I Portico Benefit Services

13 What Is Right for Me? Asset Allocation Examples The following examples are designed to help you decide on the right asset allocation for you. Each example depicts a common investment phase and offers a hypothetical asset allocation showing what some investors might do at a similar point in their careers. For advice specific to you, please consult your financial adviser. Growth Phase: Early Career You may be just beginning your career and starting to invest. Your nest egg might be relatively small right now, but you know that you have a long time horizon 30 years or more in which to grow your account. Therefore, you may feel comfortable allocating much of your account toward stocks and other equities, knowing that you have time on your side to ride out the ups and downs of the market. You also should consider investing a portion of your account in other types of investments (such as fixed-income investments) to provide some protection against stock market volatility. Growth Phase/Early Career Example: Jeremy Jeremy is age 28 and is just starting his career. He plans to work for perhaps another 35 years and feels comfortable taking considerable market risk with his portfolio to earn the kinds of returns he would like over the long term. He considers himself an aggressive investor. Jeremy may want to invest his entire account in the Select Series ELCA 80e Balanced Fund. This fund invests approximately 80% of its assets in U.S. stocks, non-u.s. stocks, and other equities, and Portico Benefit Services investment management team carefully monitors the allocation and rebalancing when necessary. 80% 20% n Stocks and other equities n Other investments Note: If it is important to Jeremy to use socially responsible investments, he can instead invest his entire account in the ELCA Social Purpose 80e Balanced Fund. This investment fund provides the same asset classes in the same proportions as does its similar unscreened fund, the ELCA 80e Balanced Fund. Moderate Growth Phase: Mid-Career If you have a long time horizon for growing your retirement assets 10 to 20 years or more you might want to invest primarily in stocks and other equities both U.S. and non-u.s. Any short-term dips in your account s value are likely to be made up over time. Plus, you are likely to outpace inflation over the long run and realize a better return on your investments than if you invested primarily in bonds and/or cash. However, allocating a portion of your account to fixed-income investments provides balance in your portfolio among asset classes. Moderate Growth Phase/ Mid-Career Example: Ann Ann is age 50 and has made a career change. She has about 15 years until retirement and feels she can afford to take some risk with her retirement account. Ann believes any difficult market periods during a 15-year period will be balanced by some recovery periods. Ann wants to invest a higher proportion of her retirement account in stocks (the asset class that in the past has produced the highest long-term returns). She also wants to balance the stock with fixed-income investments to help reduce her risk. Ann is a moderate growth investor, so she may want to invest her entire account in the Select Series ELCA 60e Balanced Fund, giving her an allocation of approximately 60% U.S. stocks, non-u.s. stocks, and other equities and 40% other investments. 60% 40% n Stocks and other equities n Other investments Note: If it is important to Ann to use socially responsible investments, she can instead invest her entire account in the ELCA Social Purpose 60e Balanced Fund. This investment fund provides the same asset classes in the same proportions as does its similar unscreened fund, the ELCA 60e Balanced Fund. Your Guide to Investing for Retirement I 9

14 What Is Right for Me? Conservative Growth Phase: Late Career As you near retirement (10 years or less), you may want to maximize your account value by increasing your pretax retirement contributions as much as possible. At the same time, you may consider it appropriate to lower the risk in your retirement account by raising the percentage of your account that is allocated to fixed-income investments (thus reducing your exposure to stocks). With a shorter time horizon until retirement, you now have less time to recover from a major stock market downturn. Whatever your stage in life, you may feel that a conservative investment allocation better suits your personal risk tolerance and circumstances than does a more aggressive allocation. However, over the long run a conservative approach may not adequately outpace inflation, and thus your retirement account balance could be less likely to grow sufficiently over time to meet your retirement income goals. Remember Many of us will live for 20 or even 30 years after we retire. Therefore, you should consider keeping some of your remaining account balance invested in the stock and bond markets to stay ahead of inflation. Conservative Growth Phase/Late Career Example: Reuben Reuben is age 62 and considering retiring within the next 10 years. He has grown his retirement savings over many years and is mainly interested in adjusting his investments to an asset allocation that may provide some growth while also helping to preserve his account value for his retirement income needs. Reuben believes that a smaller percentage of stock exposure will continue to help generate the growth he wants in his portfolio. Reuben may find that investing his entire account in the ELCA 40e Balanced Fund is appropriate for him. This fund s target allocation is 40% stocks and other equities and 60% other investments. 40% 60% n Stocks and other equities n Other investments Note: If it is important to Reuben to use socially responsible investments, he can instead invest his entire account in the ELCA Social Purpose 40e Balanced Fund. This investment fund provides the same asset classes in the same proportions as does its similar unscreened fund, the ELCA 40e Balanced Fund. 10 I Portico Benefit Services

15 Keeping Your Strategy Up to Date Once you decide on an investment strategy, you are ready to start sowing the seeds for your financial future. Just like taking care of a garden, tending your ELCA retirement plan account is a long-term commitment. Between now and the time you retire, you will want to periodically monitor and re-evaluate your investments, making changes if and when you think it is appropriate. Here are some of the reasons you might want to consider moving your account balance among the investment funds and/or changing the way your future contributions are allocated. Market Fluctuations Market fluctuations may result in changes in the proportion of the different asset classes in your portfolio. You might need to adjust your account balance (rebalance your portfolio) to get back to your target asset allocation. Note: If you chose one of the Select Series balanced funds as your investment fund, the fund is periodically rebalanced for you. Financial Factors Your annual income may grow slower or faster than you expected. Your investments may perform better or worse than you originally assumed. Changes in your personal circumstances You may decide to retire early, or work longer than you originally thought. You may face health issues you never anticipated. Perhaps you will want more or less income in retirement (relative to your final salary) than you anticipated in your earlier calculations. Also, a spouse s income potential might change. Passage of time As you approach retirement and your time horizon becomes shorter, you might choose to invest more conservatively. About 10 years from when you would like to retire, you should begin considering how you will use your plan assets for income. The choices you make years before retirement for creating your retirement income stream will determine whether the money in your account should be transitioned to other investment funds in your ELCA retirement plan as your need for retirement income approaches. We can help you understand your options as you make these important decisions. You can turn to us for guidance both before and during your retirement years. Your Guide to Investing for Retirement I 11

16 How Have Stocks, Bonds, and Cash Equivalents Performed in the Past? Why Does it Matter? You may have seen the familiar phrase Past performance is no guarantee of future results in Portico Benefit Services publications and in other investmentrelated materials. If past performance delivers no guarantee, then why does past performance get reported at all? Past performance can provide insights into how investments have behaved in short and long time periods. Look at this graph for three major asset classes: stocks, bonds, and cash equivalents. Note that the performance of each asset class is different, but also within each asset class, performance can vary widely depending on the timeframe in question. Note how in the year 2012, stocks returned 16.1%, while bonds returned 4.2%. Does that mean investing 100% in stocks is appropriate for you? Probably not. There s more to investing than going after the highest short-term returns. What Should You Think About When Making an Investment Decision? There are a number of things to take into consideration before making an investment decision. Among those are your: Age (time horizon): The passage of time tends to smooth out the ups and downs of the stock market and other investment markets. If you have a long time before you can receive distributions from your retirement account, you may be willing to ride out the ups and downs of the markets. Even though stocks are more volatile, as you can see, they have historically earned greater returns over the long run than other types of investments. Assets (financial resources): Your decision on how to invest your future contributions and current balances in your ELCA retirement plan should be made in light of all your retirement investments. Those include individual retirement accounts (IRAs), real estate holdings, and a spouse s retirement benefit, among others. Attitude (risk tolerance): You have to decide how much and which types of risk you are comfortable with taking. You should also understand the various types of risk and how they can affect your retirement goals. 20 % Stocks 2 Historical performance 1 Stocks, Bonds, and Cash Equivalents 16.1 Diversification Helps Reduce Volatility Another important consideration is diversification, which is the practice of spreading your investments both across and within asset classes. This process helps reduce volatility (fluctuations up or down) in the value of your investments should any single investment or asset class perform poorly over the short term and allows you to benefit from market gains as they occur, no matter which of the asset classes you are invested in is performing well Annualized returns n Since 12/31/1925 n Last 10 years n Last year (2012) Bonds 3 Cash equivalents 4 1. Historical asset class returns do not represent actual performance of ELCA Funds. Returns are not guaranteed and may vary significantly from what is shown. Returns are gross of fees. This data is provided solely for informational and illustrative purposes and investing in these index proxies is not possible. Past performance is no guarantee of future results. Data obtained from Wilshire Associates Inc. (Wilshire Compass). 2. Stocks represented by U.S. Large Cap Index proxy from Dec. 31, 1925, to Dec. 31, Bonds represented by U.S. Core Bond Index proxy from Dec. 31, 1925, to Dec. 31, Cash equivalents represented by T-Bill Index proxy from Dec. 31, 1925, to Dec. 31, I Portico Benefit Services

17 How Have Stocks, Bonds, and Cash Equivalents Performed in the Past? Annualized Returns May Not be Typical It s important to remember that within each asset class there are both short-term and longer-term returns. You may see an annualized return for a particular asset class and believe that over time, the returns for this particular asset class might perform similarly. Remember, though the annualized return is provided so investors can see a level annual rate of return over a given period of time, the actual rate of return in any given year over that time period will likely be different. An annualized return is not one you d typically see in any given year. These types of return figures may mask another important consideration when looking at asset classes: volatility. At any given time, an asset class may perform well above or well below its annualized return. Look at the charts below. While there s a lot going on in these charts, you will notice a wide range for 12-month rolling returns. Within stocks (the U.S. Large Cap Index proxy since Dec. 31, 1925, for example), you can see the highest ever 12-month rolling return is well above 150%. Not bad? Maybe not, but there have also been times when stocks have performed poorly, with the lowest ever 12-month rolling return well below 50%. Yet, the annualized return in this time span is just under 10% a number that may or may not be seen in any given 12-month timeframe. No one can predict when the asset class would perform well or poorly. This uncertainty speaks to the need for the individual investor to understand the risk and reward potential for each asset class. What is a rolling return? A rolling return, such as a rolling 12-month return, is nothing more than looking at 12-month (one year) returns at the end of each month instead of only at the end of the 12-month calendar year. By looking at these 12-month increments more frequently, you get a better perspective on how returns have moved around during the year instead of seeing a one-time snapshot at the end of a quarter or calendar year. Highest and lowest 12-month rolling returns 1 Stocks, Bonds, and Cash Equivalents 200% Since 12/31/ Stocks 2 Bonds 3 Cash 4 Stocks 2 Bonds 3 Cash 4 80% Last 10 years n Range n Annualized returns Historical asset class returns do not represent actual performance of ELCA Funds. Returns are not guaranteed and may vary significantly from what is shown. Returns are gross of fees. This data is provided solely for informational and illustrative purposes and investing in these index proxies is not possible. Past performance is no guarantee of future results. Data obtained from Wilshire Associates Inc. (Wilshire Compass). 2. Stocks represented by U.S. Large Cap Index proxy from Dec. 31, 1925, to Dec. 31, Bonds represented by U.S. Core Bond Index proxy from Dec. 31, 1925, to Dec. 31, Cash equivalents represented by T-Bill Index proxy from Dec. 31, 1925, to Dec. 31, Your Guide to Investing for Retirement I 13

18 How Have ELCA Retirement Funds Performed Over Time? You saw how particular asset classes have performed over time, but what about the funds within your ELCA retirement plan? The chart below provides historical information for many of the 20 available investment funds within the plan 1. As you may have noted earlier, just as the asset classes described have seen higher and lower 12-month rolling returns than their annualized return, the range of 12-month rolling returns varies by fund and can be dramatically different from their annualized return. 1. Historical fund performance shows the range of 12-month rolling returns from Dec. 31, 2002, to Dec. 31, 2012, except for the 80e and 40e Balanced funds, which only have information available beginning Jan. 31, Range of 12-month rolling returns 2 Dec. 31, 2002, to Dec. 31, % ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 ELCA Global Stock Fund 2 ELCA Non-U.S. Stock Fund 2 ELCA U.S. Stock Fund 2 ELCA Social Purpose Stock Index Fund 2 ELCA S&P 500 Stock Index Fund 2 ELCA Smalland Mid-Cap Stock Index Fund 2 ELCA Global Real Estate Securities Fund 2 ELCA High- Yield Bond Fund 2 ELCA Bond Fund 2 ELCA Money Market Fund 2 2. An investment in these funds could lose money over short or long periods of time. Past performance is no guarantee of future results. Actual fund returns are net of all fees. 14 I Portico Benefit Services

19 Investment Funds in Your ELCA Retirement Plan Investment funds purchase units of investment pools managed under the supervision of Portico Benefit Services. Inter-fund transfers of investment pool units may occur and the value of units transferred will be based on the daily net asset value of the investment pool. There are no commissions or fees associated with these inter-fund transfers In managing all of its funds, Portico may from time to time use financial futures and/or options to help control overall portfolio risk and enhance portfolio values and returns. Portico is not required to register as a commodity pool operator under the Commodity Futures Trading Commission (CFTC) rules and will not be subjected to the operating criteria of CFTC Rule 4.5. Nevertheless, Portico will use financial futures and options prudently in the context of total portfolio circumstances for the purposes of furthering the objective of the plan. Neither Portico nor its funds are subject to registration, regulation or reporting under the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, or state securities laws. Members, therefore, will not be afforded the protections of those provisions of those laws and related regulations. Plan administration and plan asset management are subject to prudent investor and exclusive benefit rules. Your ELCA Retirement Plan Advantage Your ELCA retirement plan is designed to offer you: Social purpose funds Customized retirement income options Wide variety of investment funds Portico Benefit Services is a separately incorporated ministry of the Evangelical Lutheran Church in America, and our mission is to enhance the well-being of those who serve through the ELCA and other faith-based organizations. We focus on you and your needs. If you have retirement savings outside your ELCA retirement plan, consider rolling those savings to your ELCA retirement account. Consolidate Your Savings and Let Your ELCA Retirement Plan Work even Harder for You The plan accepts pretax rollovers of at least $200 from: Traditional pretax IRAs 403(b) plans 401(k) plans Governmental 457(b) plans For more information, contact us at Fund Transfer Restrictions Your ELCA retirement plan may contain fund transfer restrictions. If it does, contact Portico Benefit Services to see if these restrictions apply to your plan. You will have a seven calendar day waiting period from the time you transfer money out of an investment fund until you can transfer money back into the same fund. Note: Transfer restrictions do not apply to the ELCA Money Market Fund. Investment Fund Information I 15

20 Investment Funds in Your ELCA Retirement Plan Fund Managers The ELCA investment funds are investment pools managed under the supervision of Portico Benefit Services. They are not mutual funds. Portico is responsible for establishing the investment objectives and strategy for the various investment choices in your ELCA retirement plan. Where Portico does not manage assets directly, Portico's investment staff identifies and hires money managers in each investment category to assist in carrying out Portico's strategy. The current investment manager(s) of each ELCA fund is shown below. ELCA Fund managers Asset Category Manager(s) 1 ELCA Fund(s) Passively managed U.S. stock S&P 500 Stock Index 3 Small- and mid-cap stock index BlackRock Financial Management, L.P. ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 ELCA Global Stock Fund 2 ELCA U.S. Stock Fund 2 ELCA S&P 500 Stock Index Fund 3 ELCA Small- and Mid-Cap Stock Index Fund Passively managed U.S. stock Social purpose stock index Actively managed U.S. stock Non-U.S. stock Alternative equity Investment-grade bond High-yield bond State Street Global Advisors Delaware Investment Advisors Frontier Capital Management Hotchkis and Wiley Capital Management JPMorgan Asset Management Los Angeles Capital Management and Equity Research, Inc. LSV Asset Management Acadian Asset Management JPMorgan Asset Management Baillie Gifford Overseas, Limited Mondrian Investment Partners State Street Global Advisors T. Rowe Price Associates Adams Street Partners Analytic Investors, LLC Portico Benefit Services JPMorgan Asset Management Wilshire Private Markets Group PIMCO Portico Benefit Services State Street Global Advisors Shenkman Capital Management, Inc. T. Rowe Price Associates ELCA Social Purpose Stock Index Fund ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 ELCA Global Stock Fund 2 ELCA U.S. Stock Fund 2 ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 ELCA Global Stock Fund 2 ELCA Non-U.S. Stock Fund 2 ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 ELCA Global Stock Fund 2 ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 ELCA Bond Fund 2 ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 ELCA High-Yield Bond Fund Inflation-indexed bond State Street Global Advisors ELCA 40e Balanced Fund 2 Global real estate securities Cohen & Steers Capital Management, Inc. ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 ELCA Global Real Estate Securities Fund 16 I Portico Benefit Services

21 Investment Funds in Your ELCA Retirement Plan ELCA Fund managers (CONTINUED) Asset Category Manager(s) 1 ELCA Fund(s) Public natural resources Wellington Management Company ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 Illiquid real assets (e.g., private real estate) Portico Benefit Services ELCA 80e Balanced Fund 2 ELCA 60e Balanced Fund 2 ELCA 40e Balanced Fund 2 Cash equivalents The Vanguard Group ELCA Money Market Fund Residual cash Standish Mellon Asset Management Company, LLC All funds 1. The investment managers are current as of May 1, Portico Benefit Services reserves the right to change investment managers from time to time without notice. 2. Includes similar social purpose fund. 3. S&P 500 is a trademark of the McGraw-Hill Companies, Inc., and has been licensed for use by Portico Benefit Services. The ELCA S&P 500 Stock Index Fund is not sponsored, endorsed, sold, or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the fund. The following pages contain detailed descriptions of each of your ELCA retirement plan investment funds, including target asset allocations, investment objective, investment strategy and risks, potential risk and return characteristics, fees, and historical fund performance information. Read this information carefully before making your investment decision. Notes: An investment in these funds could lose money over short or long periods of time. Past performance is no guarantee of future results. Actual fund returns are net of all fees, and are annualized for periods greater than one year. Investment Fund Information I 17