A NATIONAL FRAMEWORK FOR CLOSING THE RETIREMENT SAVINGS COVERAGE GAP RONALD P. O HANLEY PRESIDENT & CEO STATE STREET GLOBAL ADVISORS

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1 A NATIONAL FRAMEWORK FOR CLOSING THE RETIREMENT SAVINGS COVERAGE GAP RONALD P. O HANLEY PRESIDENT & CEO STATE STREET GLOBAL ADVISORS

2 Source: Pensions & Investments, February 17,

3 Gen Xers Retirement Saving Shortfalls by Individual For Those Households with a Deficit, by Marital Status and Gender $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 Single Male Single Female Family Source: Jack VanDerhei. Retirement Savings Shortfalls: Evidence from EBRI s Retirement Security Projection Model, EBRI Issue Brief, no. 410 (February 2015) For illustrative purposes only. 3

4 Goldie Michelson at Clark University in 2008 Photo credit Clark University 4

5 Our Forecast: 3 and 5-year annualized returns across all asset classes barely breach the mid-single digits Source: State Street Global Advisors (SSGA) Investment Solutions Group (ISG) long term asset class forecasted returns (30-year annualized) as of December 31, It is not possible to invest in an index. Past performance does not guarantee future results. 5

6 Balance at Retirement The Power of Starting Early Balance at Retirement by Start Age $400,000 $300,000 $200,000 $100,000 $ Age of Initial Savings Source: State Street Global Advisors The above is for illustrative purposes only. The calculations assume a retirement age of 65, a savings rate of 11%, annually salary of $30,000, expected return of 5.17% and an investment in a 60% (S&P 500)/40% (U.S. Aggregate Bond) balanced fund as of December The simulation assumes a simple annual contribution and no wage growth. 6

7 Time Is Not on Our Side 7

8 Choosing the Right Path 8

9 Retirement Savings at Age 65 Comparing 401k to IRA Savings $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 $25,000 $30,000 $35,000 $40,000 $45,000 Starting Salary Source: State Street Global Advisors For illustrative purposes only. Analysis assumes starting age of 21 years old, retirement age of 65, with 2.5% annual wage growth rate. Investors assumed to be invested in Target Date Funds and risk and return expectations for those Funds provided by SSGA s Investment Solutions Group as of December 31, For the 401(k) participant, analysis assumes constant 11% savings rate (an 8% employee contribution and 3% employer match) and annual contribution cap of $18,000. For the IRA holder, analysis assumes constant 8% savings rate and annual contribution cap of $5, (k) IRA 9

10 States Taking Action to Create Plans for Small Employers Since 2012, at least 30 states have considered proposals to study or establish state sponsored plans Source: Georgetown University Center for Retirement Initiatives, as of May For illustrative purposes only. Laws enacted (2012-present) Legislative proposal and/or study in 2016 Recent state efforts ( ) No legislative actions underway 10

11 Choosing the Right Path 11

12 National Framework Auto-Enroll All Private Sector Workers Into a DC Plan Auto Escalation and Default Investments Tax Credits For Small Employers Eliminate Barriers To Open Multiple Employer Plans 12

13 Auto-Enroll All Private Sector Workers into a DC Plan 13

14 Source: Institutional Investor, June 5,

15 Auto-Escalation and Default Investments 15

16 Recently Hired Participants Holding Target Date Funds 28.3% 34.3% 44.4% 47.9% 49.8% 55.2% 57.3% 56.3% 58.9% Source: Jack VanDerhei. 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2013, EBRI Issue Brief, no. 423 (April 2016) For illustrative purposes only. 16

17 Helping Small Businesses 17

18 Tax Credits For Small Employers 18

19 Eliminate Barriers to Open Multiple Employer Plans 19

20 How Does Our Plan Stack Up? 20

21 EBRI: Impact of Modifying Coverage Auto IRAs Reduction in Retirement Savings Shortfalls for Various Scenarios (Baseline = $4.19 trillion) 3%, no opt-out 6.5% 3%, 10% opt-out 5.9% 6%, no opt-out 11.9% 6%, 10% opt-out 10.7% Source: EBRI. Retirement Savings Shortfalls (RSS) represent the present value (at age 65) of all simulated deficits in retirement for households where the head of household is Assumptions for auto IRA scenario: All employers (regardless of size) are required to provide DB/DC or Auto IRA, no erosion from DC to Auto IRA, Husband's employer size is used to categorize employer size for married HH, 100% autocorrelation for employer size. For additional detail, see: VanDerhei, Jack, Auto-IRAs: How Much Would They Increase the Probability of 'Successful' Retirements and Decrease Retirement Deficits? Preliminary Evidence from EBRI s Retirement Security Projection Model, June For illustrative purposes only. 21

22 EBRI: Impact of Modifying Coverage SSGA Plan Reduction in Retirement Savings Shortfalls for Various Scenarios (Baseline = $4.19 trillion) No opt-out 17.7% 10% opt-out 16.1% 25% opt-out 13.6% Source: EBRI Retirement Security Projection Model Version 2590 Retirement Savings Shortfalls (RSS) represent the present value (at age 65) of all simulated deficits in retirement for households where the head of household is For additional detail, see: Jack VanDerhei, Retirement Savings Shortfalls: Evidence from EBRI s Retirement Security Projection Model, February For illustrative purposes only. 22

23 EBRI: Impact of Modifying Coverage SSGA Plan Reduction in Retirement Savings Shortfalls for Various Scenarios by Age (Baseline = $4.19 trillion) 28% 25% 24% 25% 21% 21% 24% 21% 18% 18% 16% 13% 10% 10% Opt-out Scenarios 0% 10% 25% 8% 7% 6% 5% Source: EBRI Retirement Security Projection Model Version 2590 Retirement Savings Shortfalls (RSS) represent the present value (at age 65) of all simulated deficits in retirement for households where the head of household is For additional detail, see: Jack VanDerhei, Retirement Savings Shortfalls: Evidence from EBRI s Retirement Security Projection Model, February For illustrative purposes only. 23

24 Making Retirement Work 24

25 Questions?

26 Disclosures This document may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events or developments that SSGA expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by SSGA in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances, many of which are detailed herein. Such statements are subject to a number of assumptions, risks, uncertainties, many of which are beyond SSGA s control. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The views expressed in this material are the views of Ron O'Hanley through the period ended June 10, 2016 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. State Street Global Advisors 2017 One Lincoln Street Boston, MA Tracking Code: DC-3938 Expiration Date: 6/30/2018