Retirement Readiness. Jennifer Schuessler Regional Sales Director. FOR INSTITUTIONAL USE ONLY. Not for Public Distribution.

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1 Retirement Readiness Jennifer Schuessler Regional Sales Director

2 The historic 401(k) dialogue Investment lineup performance review Measuring participation and deferral Post-PPA plan design $ First-generation QDIA Benchmarking fees

3 The dialogue ahead More knowledgeable sponsors Income replacement rates Measuring retirement readiness Healthcare in Retirement Updated target-date solutions

4 Outcomes are a product of many variables Investments

5 Plan design challenges still exist: Impact of the Pension Protection Act of 2006 Only 47.2% of 401(k) plans have automatic enrollment Up from 23.6% in % use auto-enrollment for new hires only 64.7% of plans have a default savings deferral rate of 3% or less Default savings deferral rate % 1% 2% 3% 4% 5% > 5% % of plans 2.3% 10.6% 51.8% 12.6% 10.6% 12% 60.2% have no auto-escalation or voluntary escalation only Source: Profit Sharing Council of America 56th Annual Survey

6 Many plans are acting differently than sponsors believe they should Optimal savings rates according to sponsors Current default contribution rate: Among plans that offer automatic enrollment 1% 2% 2% 2% 5% 5% 3% 55% 47% 4% 7% 17% 5% 6% 7% 8% 9% 10% Other 11% 6% 9% 12% 2% 3% 0% 0% 0% 0% 5% 0% 5% 9% 2010 (n = 44) 2012 (n = 66) Source: Defined Contribution Institutional Investment Association 2012 Plan Sponsor Survey.

7 How prepared for retirement are typical working Americans? Census-weighted survey of 4,148 working Americans, ages 18 65, conducted online 12/16/13 1/14/14 Estimates the percentage of current income that a household might expect to replace beginning at age 65 Includes future wage growth from present age to the retirement age of 65, as well as an estimate for future Social Security benefits Measures effectiveness of workplace savings plan design and professional advice Source: Putnam Investments

8 IMPORTANT: The projections, or other information generated by the Lifetime Income Score regarding the likelihood of various investment outcomes, are hypothetical in nature. They do not reflect actual investment results and are not guarantees of future results. The results may vary with each use and over time. The Lifetime Income Score represents an estimate of the percentage of current income that an individual might need to replace from savings in order to fund retirement expenses. This income estimate is based on the individual s amount of current savings as well as future contributions to savings (as provided by participants in the survey) and includes investments in 401(k) plans, IRAs, taxable accounts, variable annuities, cash value of life insurance, and income from defined benefit pension plans. It also includes future wage growth from present age (e.g., 45) to the retirement age of 65 (1% greater than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)) as well an estimate for future Social Security benefits. The calculations also take into account mortality rates for a variety of commonly diagnosed health conditions, including high blood pressure, high cholesterol, Type 2 Diabetes, cancer of any type, and cardiovascular disease of any type apart from high blood pressure. In addition, the model also takes into account the consistent use of tobacco on a household basis. The Lifetime Income Score estimate is derived from the present value discounting of the future cash flows associated with an individual s retirement savings and expenses. It incorporates the uncertainty around investment returns (consistent with historical return volatility) as well as the mortality uncertainty that creates a retirement horizon of indeterminate length. Specifically, the Lifetime Income Score procedure begins with the selection of a present value discount rate based on the individual s current retirement asset allocation (stocks, bonds, and cash). A rate is determined from historical returns such that 90% of the empirical observations of the returns associated with the asset allocation are greater than the selected discount rate. This rate is then used for all discounting of the survival probability-weighted cash flows to derive a present value of a retirement plan. Alternative spending levels in retirement are examined in conjunction with the discounting process until the present value of cash flows is exactly zero. The spending level that generates a zero retirement plan present value is the income estimate selected as the basis for the Lifetime Income Score. In other words, it is an income level that is consistent with a 90% confidence in funding retirement. It is viewed as a sustainable spending level and one that is an appropriate benchmark for retirement planning. The survey is not a prediction, and results may be higher or lower based on actual market returns.

9 How is the retirement system working? The 2013 research indicates that working Americans could expect to replace 61% of their household income in retirement with variation based on key behaviors Financial behavior by household Median scores among best prepared Median scores among least prepared Impact of deferrals > 10% deferral: 113% < 3% deferral: 53% Plan eligibility Eligible for plan: 75% Not eligible: 42% Professional financial advice Use of an advisor: 82% No advisor: 56% Results are based on a survey of 4,148 working Americans between the ages of 18 and 65, with segments weighted in accordance with U.S. Census parameters for all working adults. The survey was conducted for Putnam Investments by Brightwork Partners LLC in Q

10 Evidence of the importance of saving 10% or more Lifetime Income Score % savings > 0% but 3% > 3% but 10% and greater 15% and less than 3% less than 10% greater Results are based on a survey of 4,148 working Americans between the ages of 18 and 65, with segments weighted in accordance with U.S. Census parameters for all working adults. The survey was conducted for Putnam Investments by Brightwork Partners LLC in Q

11 A clear metric to benchmark and measure progress of retirement plans For illustration, a plan with: $60,000 average salary 7.5% deferral rate $50,000 average balance Average age 44 A Lifetime Income Score of 71% means: An assumed targeted income replacement of 75% Average monthly income: $2,660/month The Lifetime Income Score was designed to estimate the average level of income that employees in a retirement plan are currently on track to replace FOR ILLUSTRATIVE PURPOSEES ONLY

12 A focus on monthly income in retirement helps employees save more TRADITIONAL APPROACH: TOTAL PLAN BALANCE OUR APPROACH: MONTHLY INCOME ESTIMATED GOAL ESTIMATED GOAL $1,500,000 $4,200 CURRENT BALANCE $63,452 CURRENT MONTHLY INCOME $3,400 FOR ILLUSTRATIVE PURPOSES ONLY.

13 Savings rates are one of the biggest factor in income replacement THOSE SAVING 3% OR LESS 54 Income replacement ratio THOSE SAVING 4% 6% 73 Income replacement ratio THOSE SAVING 6% 8% 87 Income replacement ratio THOSE SAVING 10% OR MORE 113 Income replacement ratio Results are based on a survey of 4,148 working Americans between the ages of 18 and 65, with segments weighted in accordance with U.S. Census parameters for all working adults. The survey was conducted by Brightwork Partners LLC in Q

14 Participant Website Homepage focused on estimated monthly income in retirement Easily model different savings scenarios Potential next steps to help boost retirement income Implement changes immediately Add outside accounts FOR ILLUSTRATIVE PURPOSES ONLY

15 Bringing retirement health-care costs into the conversation Personalized estimates of monthly income and healthcare expenses Ability to further customize estimated health-care expenses Encourages increased savings FOR ILLUSTRATIVE PURPOSES ONLY.

16 Seeing how they compare Behavioral economics is a powerful motivator to increase savings. How do I compare? shows employees how they compare with top savers in their peer group. FOR ILLUSTRATIVE PURPOSES ONLY..

17 How true personalization drives results: a tale of two participants UNDER 30 Low income Below average deferral High level of engagement Moderate income Below average deferral Low Level of engagement TYPICAL PROVIDER EXPERIENCE Postcard Education meeting Campaign FOR ILLUSTRATIVE PURPOSES ONLY

18 How true personalization drives results: a tale of two participants UNDER 30 Low income Not saving enough Engagement: High Single Auto-enrolled in 2012 Not focused on retirement Prefers electronic APPROACH Personalized URL Single click to initiate change Increase deferral beyond auto enroll Engaging imagery: not far-away retirement

19 How true personalization drives results: a tale of two participants Moderate income Not saving enough Engagement: Disengaged Married, children Not maximizing the company match Checked balance this year via phone Prefers print APPROACH Pre-filled auto reply card Get to the match as a budget-focused message Smaller increase suggested Easy to make change for a busy professional FOR ILLUSTRATIVE PURPOSES ONLY.

20 Driving higher savings rates RESULTS OF OUR APPROACH KEY FEATURES MOTIVATE EVEN HIGHER SAVINGS RATES 35% of participants change their deferral rate Health Cost Estimator 7.7% 9.9% How do I compare? 7.5% 9.6% 25% is the average deferral rate increase Before After Before After Based on Participant website usage data for the period 1/1/13 12/31/13; users are defined as participants who logged on to the website and moved the deferral rate slider at least once. Results based on over 8,000 participants who accessed the Health Cost Estimator during 2013; How do I compare? results are from launch 4/11/14 5/8/14.

21 Delivering higher income replacement results Long-term impact of ongoing, targeted messaging 1 63% In , I was on track to replace 63% of my income 86% Now 3, I am on track to replace 86% of my income 37% increased My overall income replacement by 37% 1 Contributing Participants Exposed to Audience of One. 2 As of March 31, As of June 30, N = 920,332 participants. FOR ILLUSTRATIVE PURPOSES ONLY. Soure: Empower Retirement Assumptions: Income replacement results reflect the experience of participants earning between $14,500 and $10 million annually who were contributing to their retirement plan as of June 30, Retirement age is 65. If over 62, retirement age would be current age plus three years. Based on information provided for annual salary, state of residence, hire date, date of birth, and gender. If not provided, gender defaults to female. Tax-filing status defaults to single if state of residency is the same as tax-filing state. Includes Social Security, which is calculated based on normal Social Security retirement age, as per federal regulations. The tax-filing income growth rate is 5%. Income growth rate represents the tax-filing increase in salary expected over time, which is the approximate historical rate of growth (including inflation) for a typical person s salary. The projection considers the IRS annual compensation limit, indexed periodically. Contribution amount is based on current election in defined contribution plan. Annual retirement income estimate and initial risk category are calculated using the investments currently held in retirement plan account. Balances from brokerage account(s) or loan(s) are not included in forecast. Income replacement calculation includes balances from other plans that are turned on for Retirement Dream Machine.

22 Use the power of data to inform decisions Measure how well your plan prepares employees for retirement Find the employees who need the most help Set specific goals, create targeted campaigns, and measure results Manage to the goal of monthly income replacement in retirement FOR ILLUSTRATIVE PURPOSES ONLY.

23 So what new ideas will power the dialogues of the future? Driving savings (i.e., deferrals) is key to retirement readiness Retirement readiness through income replacement forecasts is the way to measure and manage the success of a retirement plan Any conversation about retirement readiness should to include health-care costs in retirement How to help participants distribute their retirement savings.

24 Disclosures For more complete information about any of the investment products available within the retirement plan, please call Investors should carefully consider the investment objectives, risks, charges and expenses of the fund. Please carefully read the fund fact sheet which contains this and other important information before you invest or send money. 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. Empower Retirement TM refers to the products and services offered in the retirement markets by Great-West Life & Annuity Insurance Company (GWL&A), Corporate Headquarters: Greenwood Village, CO; Great-West Life & Annuity Insurance Company of New York, Home Office: White Plains, NY; and their subsidiaries and affiliates. The trademarks, logos, service marks, and design elements used are owned by GWL&A. Core securities, when offered, are offered through GWFS Equities, Inc. and/or other broker dealers. GWFS Equities, Inc., Member FINRA/SIPC, is a wholly owned subsidiary of Great-West Life & Annuity Insurance Company. Core investment options offered through a group fixed and variable deferred annuity issued by GWL&A or, in New York, by GWL&A of NY, mutual funds, separately managed accounts, and/or collective trust funds. Not all features currently available. Some features are under consideration and/or in development. Presented for discussion purposes, non-binding and subject to change without notice. Great-West Financial Retirement Plan Services LLC is not acting as an investment advisor for the plan. The information, analyses and fund alternatives described in this material are intended to provide assistance to the plan sponsor or other fiduciary responsible for plan investments and should not be relied upon as the sole basis for any investment decision. Great-West Financial Retirement Plan Services LLC and its affiliates may receive compensation with respect to proprietary investments and may receive compensation with respect to other plan investments. Other share classes may be available for the investment products described, and the plan sponsor is welcome to request more information on the options available. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for investment, accounting, legal or tax advice. Although data is gathered from reliable sources, the completeness or accuracy of the data shown cannot be guaranteed. Advised Assets Group, LLC (AAG) uses Financial Engines Advisors L.L.C. (FEA) to provide sub-advisory services. AAG is a federally registered investment adviser and wholly owned subsidiary of Great-West Life & Annuity Insurance Company (GWL&A). FEA is a federally registered investment adviser and wholly-owned subsidiary of Financial Engines, Inc. More information can be found at Financial Engines, Inc. is an independent company that is not affiliated with Great-West Financial Retirement Plan Services, LLC, AAG, its parent company GWL&A, or any other affiliated companies and/or subsidiaries. Financial Engines is a registered trademark of Financial Engines, Inc. All trademarks, logos, service marks, and design elements used are owned by their respective owners and are used by permission Financial Engines, Inc. All rights reserved. Empower Retirement TM provides plan recordkeeping and administrative services. Future results are not guaranteed by FEA, AAG or any other party. Team experience as of 12/31/14 unless otherwise noted.

25 Disclosures All case studies are shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. They are based on market conditions at time of the analysis and are subject to change. Results shown are not meant to be representative of actual investment results. Past performance is not a guarantee of and may not be indicative of future results. Income+ is a feature of Professional Management intended to provide income payouts from a 401(k). Financial Engines Patent Pending. Availability subject to deployment schedule. Potential retiree prototypes and service designs, features, and timelines are presented for discussion purposes only, non-binding and subject to change without notice. Does not constitute a transfer of intellectual property rights. Neither AAGI nor Financial Engines guarantees future results. Rebalancing does not ensure a profit and does not protect against loss in declining markets. There can be no assurance that the professionals currently employed by Empower TM Retirement will continue to be employed by Empower TM Retirement or that the past performance or success of any such professional serves as an indicator of such professional s future performance or success. Retirement Dream Machine is an investment education tool offered by Great-West Financial Retirement Plan Services, LLC pursuant to the Department of Labor s Interpretive Bulletin Investments in the funds are not deposits of, or guaranteed or endorsed by Empower Retirement TM. The shares are not insured by the FDIC, Federal Reserve Board or any other government agency. Investments in funds involve risk, including possible loss of the principal amount invested. Returns and share prices will fluctuate, and redemption value may be more or less than original cost. Diversification does not ensure a profit and does not protect against loss in declining markets. All noted awards, ranking and accolades are attributed to products and services now provided by Empower Retirement. Neither Empower Retirement TM nor its subsidiaries or affiliates provide tax, legal, accounting and/or investment advice. Please consult your tax advisor or attorney for such guidance. Brokerage services provided by TD Ameritrade Inc., member FINRA/SIPC/NFA. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. All rights reserved. Used with permission. Additional information can be obtained by calling TD Ameritrade at (866) TD Ameritrade and GWFS Equities, Inc. are separate and unaffiliated. Securities available through Schwab Personal Choice Retirement Account (PCRA) are offered through Charles Schwab & Co., Inc. (Member SIPC), a registered broker-dealer. Additional information can be obtained by calling (800) Charles Schwab & Co., Inc. and GWFS Equities, Inc. are separate and unaffiliated. Apple, the Apple logo, and iphone are trademarks of Apple, Inc. This is an independent advertisement that has not been authorized, sponsored, or otherwise approved by Apple, Inc Great-West Life & Annuity Insurance Company. All rights reserved. PT (1/15)