Moving the Needle on Retirement Income

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2 Moving the Needle on Retirement Income MODERATOR: Lee Stevens, Vice President, National Sales Manager Institutional Market, Empower Retirement PANELISTS: Daniel Beard, Director of Administration, Office of Defined Contribution Programs, State Board of Administration of Florida Renée Wilder Guerin, Acting Director, Office of Participant Operations and Policy, Federal Retirement Thrift Investment Board Raymond Jimenez III, Associate Administrator/CFO, Adventist Retirement Steve Shepherd, Partner, Head of Institutional Annuities and Life Insurance Solutions, Aon Hewitt

3 As a plan sponsor, do you currently offer a lifetime income solution to your employees? 1. Yes 2. No, but we are considering adding it 3. No, we do not plan to add it at this time 4. I don t know what a lifetime income solution is Thank you to our Diamond Sponsor

4 For those considering adding a lifetime income solution, what s your time frame? 1. Within the next 12 months 2. 1 to 2 years Thank you to our Diamond Sponsor

5 What s your main concern with introducing an in-plan lifetime income solution? 1. Fiduciary concerns 2. Operational and administrative complexity 3. Plan-level portability 4. Participant appreciation, understanding and engagement Thank you to our Diamond Sponsor

6 Older workers approaching retirement face significant challenges managing their retirement savings and run the risk of exhausting their savings. Contributing factors include: Longer Life Expectancy Market Volatility Erosion of purchasing power through inflation Rising medical costs Unrealistic expectations about post-retirement employment Ill-advised financial decisions The consequences of failing for U.S. retirees are severe exhausting savings during retirement, relying solely on Social Security and living in poverty or near poverty.

7 Help participants generate lifetime income streams Annuity options are rarely found in 401(k) or other DC plans. Of the 366 Fortune 1000 companies responding to a recent Plan Sponsor survey: Fewer than 5% offer annuities More than 77% offer no income-oriented products or services Even when annuities are available, participants utilization rate has historically been very low. Only about 1% of DC plan participants convert their balances to annuities, says a recent EBRI report.

8 Daniel Beard, Director of Administration, Office of Defined Contribution Programs State Board of Administration of Florida

9 Florida Retirement System Investment Plan Payment Options Rollover Lump-sum On demand or scheduled Annuity payments Combination

10 Florida Retirement System Investment Plan Annuities MetLife Immediate Fixed Income Annuities Deferred Income Annuities (QLAC) Introduced December 2015 EY financial planners run quotes

11 Newsletter Quarterly Annuity Quote Quarterly Newsletter Includes latest annuity quote $100,000 balance Single/joint & survivor Included with quarterly statement [Quarterly Annuity Quote]

12 Monthly/Yearly Annuity Letters [Monthly Letter Sample] Monthly Letters To: Terminated IP members > $50,000 Deferred Retirement Option Program rollovers > $50,000 Annuity quote on 100%/50% of balance Yearly Letters Terminated IP > Age 69½ > $50,000 - RMD

13 Letters to Members Began in April 2010 Annuities from July 2002 to April purchased ($1.2 mil.) Annuities from April 2010 to present 60 purchased ($8.4 mil.) Increase in number of annuities purchased Increase in member s awareness of annuities

14 Renée Wilder Guerin Acting Director, Office of Participant Operations and Policy Federal Retirement Thrift Investment Board

15 Thrift Savings Plan CSRS Civil Service Retirement Plan FERS Federal Employee Retirement Plan TSP Thrift Savings Plan Uniformed Services

16 Thrift Savings Plan $450 billion 4.8 million participants Periodic payments No in-plan annuity Immediate annuity available as a distribution option

17 Annuity Purchase History Number Disbursed 2,500 2,000 1,500 1, ,372 Contracts Dollars Disbursed (000 s) 2015 Dollars $237,351

18 2015 Retirement Withdrawals 19% 8% 4% 69% 100% Annuity Payment Annuity and Single Payment Annuity and Monthly Payments Annuity, Monthly & Single

19 Participant Education

20 Participant Education Now Retirement letter and brochure Tweets Videos Later Greater withdrawal flexibility Outreach prior to retirement Zone of Confidence Re-engineer withdrawal election forms

21 Raymond Jimenez III Associate Administrator/CFO Adventist Retirement

22 Adventist Retirement DC Plan Profile Over $1 billion in assets Over 25,000 participants with a balance Participant Profile Retirement plan is primary retirement asset for many participants Plan Features Managed Accounts Online Advice Target Date Funds Asset Allocation Models In Plan Retirement Income Guaranteed Lifetime Withdrawal Benefit (GLWB)

23 Adventist Retirement The Case for Guaranteed Retirement Income Retirees are living longer Timing retirement can be a risky proposition for participants Participants and plan sponsors value certainty and predictability Average participants tend to invest based on emotion, damaging their retirement income potential

24 Adventist Retirement Why an in-plan retirement income solution Majority of Americans do not have access to professional financial advice In-plan solutions provide the best opportunity for participants/investors to gain access to retirement income solutions Many participants do not have enough assets outside their retirement plan to fund a retirement income solution Does not require a distributable event to fund a retirement income solution. Many employers are making it a priority to help their employees particularly the Baby Boomer generation become retirement ready by helping employees account for their retirement income needs Retirement income solutions help plans balance their investment lineup by helping participants account for both the accumulation phase of retirement as well as the income phase

25 Guaranteed Lifetime Withdrawal Benefit

26 Adventist Retirement GLWB Roll Out Fund Addition Letter Direct Mail Campaign Link to microsite Banner Website Messaging Plan Highlights with SecureFoundation II Information Direct Mail Plan Sponsor Flyers - Participant Flyers Direct Mail Participant Education Presentations Pre-Retirement Presentations Directed at those 55 and older, presented at Employer locations

27 Steve Shepherd Partner, Head of Institutional Annuities and Life Insurance Solutions Aon Hewitt

28 Employees Not on Track for Adequate Income Average participant needs 11.1x pay at age 65 for retirement income, yet DC-only participants fall short Less than 1 out of 5 DC-only participants is on-track for a reasonably adequate retirement Multiple of ending salary x pay Need 4.1 x pay 7.0 x pay Reality Income Gap 0 Reasonably adequate retirement defined as being within 2x pay of projected retirement needs Source: Aon Hewitt s The Real Deal, 2015 Retirement Income Adequacy at Large Companies; based on results for full-career contributing employees who only have a defined contribution plan available for retirement income accumulation.

29 Converting Savings to Retirement Income 67% Feel supporting the process to have participants convert balances to lifetime income is very or moderately important 48% Are very likely or moderately likely to address ways to encourage lifetime income in 2016 Prevalence of Tools and Products to Convert Savings to Lifetime Income In-plan annuity or insurance product 7% 30% In-plan managed account with drawdown 66% Online tools or apps to help see how much to spend 12% Facilitation to purchase annuities outside plan 45% Distribution option to receive monthly payments Source: Aon Hewitt s 2016 Hot Topics in Retirement and Financial Well-being Survey Percentages shown are those who answered Already Offer

30 Barriers to Adding In-Plan Income Solutions 53% Waiting to See Market Develop 43% Fiduciary Concerns 40% Operational or Administrative Concerns 34% Participant Utilization Concerns Source: Aon Hewitt s 2016 Hot Topics in Retirement and Financial Well-Being Survey Percentages shown are those who answered Major Barrier

31 How Sponsors Think about the Market 1. Early Adopters 2008 Safe Harbor Due Diligence 2. Wait & See Counterparty Risk Future Regulatory Actions 4. Legally Required 3. Follow the Crowd

32 Retirement Income Solution Categories Income Category Scheduled Payout Ongoing Guaranteed Income Purchase Lump Sum Annuity Purchase Longevity Insurance Type of Option Managed Payout Existing Funds Managed Payout New Fund Deferred Guaranteed Withdrawal Benefit Deferred Guaranteed Income Benefit Deferred Fixed Annuity Traditional annuity End of plan Annuity Platform Longevity Insurance

33 Aon Hewitt s Views on Retirement Income Prepare for Evolving Environment Evaluate Market as it Matures Continue to Assess Options Retirement income options are evolving DC plans - critical retirement income source Firms starting to implement The Government supporting and encouraging The market is addressing initial sponsor concerns Greater fee transparency Lower counterparty risk Better portability through middleware Plan Sponsor action steps: Examine non-insurer and insurer solutions Assess the right time to add retirement income Consider short-term and long-term fiduciary implications

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