The Retiresmart SM Income Strategy A strategy for the road to retirement readiness A special report from MassMutual Retirement Strategies For adviser Use Only. not for use with the public.
Contents 1 Synopsis 2 Background: The DC plan boom 2 The Impact of 2008 3 Proposals to strengthen retirement readiness 4 How a RetireSmart Income Strategy works 7 Product allocation choices at retirement 9 RetireSmart Income Strategies and Traditional DB Plans: A comparison 10 Planning flexibility in a RetireSmart Income Strategy 12 Three steps to implementing a RetireSmart Income Strategy 13 In summary
Synopsis As 80 million Baby Boomers approach retirement, their lack of retirement readiness after years of participation in defined contribution (DC) plans has become clear. With dwindling numbers of Americans covered by defined benefit (DB) pensions and Social Security s future in doubt, what can today s workers do to plan for secure retirements? In the wake of a global financial crisis and stock market crash, 401(k)s and other types of DC plans have been criticized as inadequate by policymakers and the media. Time magazine even asked in a 2008 cover article: Should the 401(k) Be Killed? 1 But for millions of Americans who must make practical choices, this is a rhetorical question. DC plans are the new mainstream. Traditional DB plans aren t coming back, because most employers believe they are too expensive and complex to administer. A more meaningful question is: Can DC plans be designed so that each participant can find a path to the same type of retirement security traditional pensions once delivered? MassMutual believes the answer is yes and we have developed this Special Report to show financial professionals why, and how. Our answer is to expand DC plans and coordinate them with retirement income planning to create a new strategy, which we call the Retiresmart SM Income Strategy. We make three key points in this report: 1 The Retiresmart Income Strategy isn t another product or DC investment menu choice. It s a life plan strategy that can begin on the first day of plan participation and continue until the last day of retirement. 2 The Retiresmart Income Strategy integrates four building blocks, all of which are proven financial solutions that exist in today s retirement market and can be made accessible. 3 Financial professionals have a timely opportunity to assemble the Retiresmart Income Strategy building blocks, communicate them to plan sponsors and participants, and implement them with sensitivity for each participant s goals and needs. 1
Background: The DC plan boom The modern participant-directed DC plan, exemplified by the 401(k), was born in the 1980s and came of age in the 1990s and early 2000s. In 1984, 401(k) plans covered about 7.5 million active participants and held $92 billion in assets. By 2010, they had grown to more than 50 million active participants and $2.8 trillion in assets. 2 Over this period, the soaring popularity of participantdirected DC plans coincided with a parallel decline in DB plan coverage. During the boom years for DC plans, surveys consistently showed that employees appreciated their features especially visible account balances, personal investment control, and portability. Starting about a decade ago, online 401(k) portals gave participants Internet access to account balances, investments, and planning tools, which greatly increased accessibility and convenience. As DC plans kept surging in the 1990s and early 2000s, hardly anyone had anything nice to say about traditional DB plans. Wall Street analysts warned companies of the open-ended financial liabilities and budgetary and legal volatility associated with DB plans. 3 As job mobility increased, the press denounced the lack of portability in DB plans. Thousands of companies responded to these pressures by converting their DB plans to cash balance accounts. The Impact of 2008 The problem of retirement readiness hit home in 2008, when the U.S. economy went into a recession and the S&P 500 Index lost 37% just as the leading edge of Baby Boomers started retiring. The impact is captured in a few sobering statistics: 47.2% of Early Baby Boomers (now ages 56-62) are at-risk of not having sufficient retirement resources to meet basic retirement expenses. 4 According to a recent LIMRA study, the average 401(k) account balance for plan participants now in their 50s and 60s is just $77,650. 5 Workers confidence in having enough money to live comfortably throughout retirement has declined sharply, with the number of workers who said they were not at all confident increasing from 10% in 2007 to 22% in 2010. 6 24% of workers say the age at which they plan to retire has increased in the past year. 70% of workers now say they plan to work after they retire. 7 In this era, the media generally wrote favorably about the trend toward 401(k)s. However, even in those years, concerns were being raised about the long-term implications of the mass-migration from DB to DC plans. 2
Proposals to strengthen retirement readiness Policymakers have responded to these realities by arguing that 401(k) plans, alone, are not enough to fill the gaps in retirement readiness and confidence. In its December 2008 cover article, Time magazine chronicled a long list of perceived 401(k) deficiencies, concluding: Pensions insure against the risk that you ll outlive your money, because they pay until you die; 401(k)s don t. In February of 2010, the Department of Labor issued a Request for Information (RFI) to judge public reaction to the concept of adding lifetime income options to 401(k) plans. The RFI indicates that U.S. government agencies are considering whether it would be appropriate for them to take future steps to facilitate access to, and use of, lifetime income or other arrangements designed to provide a stream of income after retirement. In summary, influential voices are questioning whether DC plans alone can adequately prepare Americans for retirement challenges of the future, especially in times of low interest rates, investment volatility, and an uncertain economy. Fortunately, MassMutual sees a solution that can be implemented by large numbers of DC plan participants. It begins with a realization that DC plans didn t falter in 2008 because they were inadequate, but because they were not effectively utilized to assure retirement readiness and income security. We believe most 401(k) plan participants have the potential to achieve adequate retirement security if they: 1) clearly understand the challenge and commit to save money with discipline; and 2) have access to effective plan funding choices. This solution also combines the most attractive benefits of a DC plan with the most advantageous features of a DB plan. (See Diagram #1.) We call it the Retiresmart Income Strategy. It is a strategy created within a DC plan during working years. Then, at the start of retirement, it provides a stream of guaranteed retirement income that enhances retirement security and can last for life. The message you can begin communicating is clear and simple. Retirement plan sponsors and participants don t have to wait for policymakers, Congress, or the DOL to authorize a Retiresmart Income Strategy. It s available now, using proven retirement building blocks, and it includes your holistic lifetime planning help and professional guidance. Also, the clock is ticking for today s working people to make plans and choices. The one fairly steady source of retirement income most retired Americans have counted on, Social Security, looks less reliable with each passing year, due to inadequate long-term funding. 3
Diagram #1: How a RetireSmart Income Strategy Combines DC and DB Plan Benefits *Subject to the claims paying ability of the plan. How the Retiresmart Income Strategy works To understand how a Retiresmart Income Strategy works, let s begin with a basic DB plan concept the funded ratio. In a traditional DB plan, the employer makes all contributions and investment decisions. The combination of contributions and investment performance must then be sufficient to fund plan participants promised retirement income payouts. The adequacy of DB plan funding is measured periodically using a funded ratio, which is calculated by dividing the market value of plan assets by the discounted future value of promised income payments (plan liabilities). The plan s goal is to maintain a funded ratio of 100% or greater, meaning it is fully funded. To take a simple example, John Jones is a DB plan participant who will retire at age 65. He will then have a life expectancy estimated at another 20 years. His DB plan promises a level annual income of $6,000 per month (equal to 72% of his final annual salary of $100,000). Under current law, DB plans must calculate funding adequacy using a blend of U.S. Treasury maturities and yields. So, we will assume a 4.5% discount rate for ratio calculation purposes. 4
The present value of $6,000 per month, discounted at 4.5%, over 20 years, is $948,393. Having a retirement plan balance of $1 million at retirement would create a funded ratio of 105.4% of the benefit he is promised, which means it is fully funded. For example, the value of plan assets at retirement is $1,000,000. The present value of future liabilities is $948,393. This equals 105.4% funded ratio. Understanding this concept can help financial professionals see the first two building blocks of a Retiresmart Income Strategy. 1. Plan funding aimed at a retirement income goal Funding must be adequate to meet the income payout requirements of the plan. Since the Retiresmart Income Strategy targets a specific retirement income goal (like a DB plan), it takes disciplined plan funding, year after year, to achieve a targeted goal at the start of retirement. This funding can be provided by a combination of adequate employee deferrals and employer matching contributions. Beth can achieve approximately her goal by deferring 6.0% of her salary into her plan each year, with 50% of her deferral (3% of salary) matched by her employer, assuming a 6.5% annual investment return. Like most other Americans, Beth has the potential to achieve retirement goals in a DC plan structure, if she commits to save enough money systematically. 2. Stable value option Retiresmart Income Strategy investments should be driven by a balanced asset allocation that includes growth potential and preservation of capital. MassMutual advocates an age-appropriate allocation to a guaranteed stable value option as an integral part of each participant s asset allocation during working years. The percentage of plan assets allocated to this option can be gradually increased as retirement approaches. Example Beth currently is age 30 and just starting to save in a 401(k). She wants to accumulate $1 million by age 65 to fully fund a targeted amount of retirement income over a period of years. Her current salary is $60,000, and she expects her salary to increase by 3% per year. A financial professional analyzes her situation and produces these results. Beth s Age Now 30 Age Retirement Starts 65 Salary Now $60,000 Estimated Annual Salary Increase 3% 401(k) deferral % 6.0% Employer match 50% Investment return 6.5% 401(k) balance at age 65 $995,369 The plan sponsor may wish to offer professionally managed target date strategies within the plan s investment menu. This choice can automatically allocate an age-appropriate portion to the stable value option and other asset classes. As retirement approaches, the portion in the guaranteed 8 stable value option will be generally protected from principal loss and not subject to equity market volatility at a critical time for the pre-retiree. Stable value options also have shown the ability to produce attractive risk-adjusted returns (Sharpe Ratios) relative to many other asset classes, over multi-decade periods. This means they can be effective components of optimized asset allocation programs (see Using Stable Value to Create Optimized Asset Allocations). 5
How common are stable value options in participantdirected DC plans? Surveys indicate that these choices are offered by about half of all DC plans and accounted for about 27% of all 401(k) plan balances in 2009. 9 When guaranteed options are offered by a plan, they are about three times more likely to be chosen by the oldest employees (22%) than the youngest (7%). 10 Using Stable Value Options to Create Optimized Asset Allocations Historical studies have shown that stable value options can play a meaningful role in the design of age-appropriate asset allocations for retirement. Adding a stable value allocation to a portfolio of stocks and bonds can increase risk-adjusted portfolio returns over time and also moderate downside performance volatility. In essence, a guaranteed stable value allocation can provide a more efficient portfolio (more return per unit of risk) than a portfolio utilizing traditional non-guaranteed fixed income allocation. The table below summarizes historical performance, as evaluated by David Babbel, PhD, and Miguel Herce, PhD, over a 20-year period ending 12/31/08 for five asset classes. Stable value funds are the only asset class in this group that avoided any down years. The risk-adjusted return of stable value funds, measured by Sharpe Ratio, was 3 to 6 times higher than the other classes-due mainly to the consistency of returns. Historical fund performance Stable Value funds Large Cap Stocks Small Cap Stocks Long-Term Govt. Bonds Int. Govt. Credit Stable Value Options Mean annual return 8.80% 12.15% 9.16% 5.73% 6.26% Standard deviation 19.63% 22.90% 10.56% 4.31% 1.57% Minimum annual return -37.66% -36.72% -10.02% -3.38% 4.29% Sharpe Ratio 0.248 0.348 0.481 0.426 1.643 Source: David Babbel and Miguel Herce, March 2009 Analysis of Stable Value Funds from 1989 through 2008. 6
Product allocation choices at retirement As retirement approaches, plan participants face a series of questions-the answers to which are confusing or complex. They include: When can I afford to retire? How long in retirement can I expect my money to last? Can I rely on Social Security benefits for the duration of retirement? How could my planning be impacted by a bearish stock or bond market in the early years of retirement? With professional planning and guidance, the RetireSmart Income Strategy can help to replace these concerns with clarity and confidence and provide a long term plan. Like traditional DB plans, the RetireSmart Income Strategy aims to generate a guaranteed level of retirement income that are typically not impacted by fluctuating stock and bond markets, and that the plan participant can t outlive. As part of a product allocation process near the start of retirement, two additional building blocks are important. 3. Single Premium Immediate Annuity (SPIA) At retirement, part of the plan money can be transferred income tax-free to a qualified retirement single premium immediate annuity (SPIA) and distributions are taxed at time of withdrawal. Depending on the payout chosen, SPIA income will provide guaranteed income payments over a period certain, one lifetime, or the joint lifetimes of the plan participant and spouse. A cash refund feature can be added to the SPIA to protect heirs against the possibility of a premature death. Choosing fixed annual increases in annuity income can help to protect purchasing power against inflation, if retirement lasts several decades. 4. Systematic Withdrawal Plan (SWP) The rest of retirement assets are maintained in an asset allocation strategy within the plan, and systematic withdrawals are taken periodically as distributions. A Systematic Withdrawal Plan (SWP) can help to: 1) maintain growth potential in stock/bond markets, which may be helpful in offsetting the impact of inflation in retirement; 2) supplement immediate annuity income; 3) meet the plan s minimum distribution requirements after age 70½; and 4) provide participant additional liquidity for any unexpected expenses in retirement. Systematic withdrawal amounts may fluctuate (up or down) based on the performance of the underlying investments. MassMutual analysis, based on historical market results, indicates that the blend of a SPIA and an SWP can meet retirement income objectives with a high probability of success over retirements of up to 30 years, while also helping to maintain financial liquidity and flexibility throughout retirement. (A cash refund feature in the SPIA can protect heirs if retirement does not last as long.) The key to implementing these building blocks is to develop an effective allocation of the client s retirement assets among investment products, including immediate annuities and mutual funds, near the start of retirement. 7
The graphic below summarizes all four building blocks of the Retiresmart Income Strategy concept. The sum of all four blocks, working together, is more valuable than they are separately. For example, few DC plan participants currently have a clear goal for the target amount of money they want to accumulate in the plan at retirement. Even fewer are confident that an accumulation target will help them generate an adequate level of retirement income sustainable over their lifetimes with a high degree of confidence. The Retiresmart Income Strategy helps to create a clear long-term path for both working and retirement years, by focusing on the ultimate purpose of the plan s assets (retirement income), and by using building blocks designed to preserve and grow those assets and then convert them to income. Retiresmart Income Strategy concept 8
Retiresmart Income Strategy and Traditional DB Plans: A Comparison It s important for plan sponsors and participants to understand how the Retiresmart Income Strategy is similar to (and different than) traditional DB plans of the past. The chart below can be useful. The Retiresmart Income Strategy concept should be funded adequately to reach a retirement income goal, similar to traditional DB plans. However, the RetireSmart Income Strategy is implemented inside a 401(k), 403(b), or other types of participant-directed DC account, where participants make investment decisions and have the flexibility to create a customized asset allocation. For participants who enroll in DC plans during early work years and make systematic contributions, achieving historic market returns hypothetically can potentially produce enough long-term assets to fund most retirement scenarios. When the plan offers a stable value option, participants can allocate as much or as little to it as they wish within their define contribution plan. The Retiresmart Income Strategy is funded like other DC plans, which gives the participant more control in achieving a targeted funding goal at retirement. In traditional DB plans, promised income payments are funded by plan assets, which may or not be adequate to meet obligations to all future retirees i.e., the plan has a funded ratio below 100%. If plan assets run short, the participant must rely on the employer s promise. The Retiresmart Income Strategy gives each participant more control over the adequacy of long-term funding. Ultimately, traditional DB plan participants have no ability to choose the entity that stands behind their promised pensions. If their own plan fails to deliver, they must rely on the PBGC and its payout limits. Each participant in a Retiresmart Income Strategy can choose a financially strong insurance company to: 1) guarantee 11 the stable value option during working years; 2) guarantee 12 SPIA payments in retirement years; and 3) not set an arbitrary limit on retirement income payouts. Comparison chart Traditional DB Plan RetireSmart Income Strategy How is the plan funded during working years? A combination of stocks and bonds A combination of stocks, bonds and a stable value option Who makes investment decisions? Employers Participants Who funds the plan? Employers only Participant deferrals, plus any employer matching What funds retirement income? Plan assets and employer promises The combination of an SPIA and a Systematic Withdrawal Plan What stands behind income guarantees? Pension Benefit Guaranty Corp* Insurance companies that issue SPIAs * For private defined benefit plans; public plans are not covered by PBGC; Subject to any restrictions or limitation of the PBGC 9
Planning flexibility in the Retiresmart Income Strategy As a conceptual planning framework, The Retiresmart Income Strategy can span decades of a participant s lifetime. With guidance from a qualified financial professional, each person can make choices and adjustments along the way, including: How to allocate plan assets Plan assets allocated to the stable value option are guaranteed 13 as to principal and the current interest rate. These assets can accumulate steadily toward a retirement income goal, regardless of stock/bond market fluctuations. Financial professionals may wish to use the stable value option as an alternative to bonds or other fixed income investments. In a customized target date strategy, the allocation to stable value can be automatically increased and the allocation to equities reduced at periodic intervals, as the participant moves closer to retirement. As an alternative, financial professionals can create for each participant a customized asset allocation and glide path. When to start retirement The retirement start-date decision is critical for purposes of funding sustainable lifetime income. Starting too soon can deplete retirement funds, and it also may leave a gap between the end of work years and the start of Medicare health insurance coverage and full Social Security benefits. The longer working people wait to start retirement, the higher the immediate annuity payout can be (due to mortality credit). Also, the probability rises that the SWP will not be depleted in old age. By creating clear targets for plan accumulation and retirement income, the Retiresmart Income Strategy helps to make start-date decisions simpler. When and how to choose SPIAs Immediate annuity payouts are determined by current interest rates and mortality credits. When interest rates are rising, waiting a year or two to start SPIAs can result in a permanent increase in guaranteed retirement income due to the combination of higher rates and more favorable mortality. Systematic withdrawal plan (SWP) methods One common SWP method takes a fixed rate of annual withdrawals, based on the plan s balance at the start of retirement. An alternative method, somewhat more conservative, is to take variable annual withdrawals based on a fixed percentage of the end-of-year account balance, recalculated annually. Integration with Social Security Most individuals choose to start Social Security benefits between the ages of 62 and 66. Under current law, benefits are adjusted annually for a Cost of Living Adjustment, which tracks the Consumer Price Index (CPI-W). Most recipients have their Medicare Part B premiums automatically deducted from Social Security benefits, which leaves a net monthly amount for covering other retirement expenses. To achieve a Retiresmart Income Strategy income target, financial professionals may wish to integrate net Social Security benefits with SPIA income and SWP withdrawals. Protecting a surviving spouse The Retiresmart Income Strategy concept offers two choices for protecting a spouse who may survive the plan participant, after retirement income begins. The first choice is to select a joint & survivor 10
SPIA payout, which will continue to pay income as long as either spouse lives. The second choice is to choose the higher single life payout and use part of the SPIA income to pay life insurance premiums, with the plan participant as the insured and the spouse as beneficiary. Successful investment results in the SWP portion of the plan also can provide assets for a survivor or heirs. Inflation protection Over long retirements, the purchasing power of a fixed income is eroded by inflation. However, the future rate of inflation is unknown and can have a major impact on financial security, especially in old age. Financial professionals who monitor the RetireSmart Income Strategy may consider techniques to increase income and offset purchasing power erosion. For example: Immediate annuity payouts can include a fixed annual increase (cost of living adjustment), such as 3% per year. SWP assets can be invested for growth potential, and successful results may help to sustain annually increasing withdrawals. Integration with traditional retirement strategies In a separate study*, MassMutual has suggested the advantages of combining SPIAs with other retirement income strategies to address clients time horizons, market outlooks and other needs such as liquidity and a legacy. The study outlines the long-term effects of a strategy such as a RetireSmart Income Strategy compared to traditional strategies used today. For this special report, we highlight the outcomes of an SPIA and Mutual Fund SWP strategy (RetireSmart Income Strategy) compared to a Variable Annuity with a Guaranteed Minimum Withdrawal Benefit (GMWB): Liquidity: Over a 20-year to 30-year time period, the Retiresmart Income Strategy provides for a higher liquidation value over the GMWB. The higher liquidity values hold true in a Bull, Bear, or Flat Market. Even after liquidation, the RetireSmart Income Strategy will continue to provide a guaranteed lifetime income stream through the SPIA. Accessibility: Over a 10-year, 20-year or 30-year time period, the Retiresmart Income Strategy can provide access to withdrawing assets from the portfolio without impacting the guaranteed income floor. The accessibility advantage increases with age. The GMWB in most instances provided a reduced guaranteed income benefit because the side fund had no account value and the withdrawal of any amount affects the guaranteed income benefit. This point is very important as retirement is sometimes unpredictable. Unplanned expenses, rising health care costs, and long-term care expenses can affect the level of income needed from year to year. Legacy: Over a 20-year to 30-year period, the Retiresmart Income Strategy provides for a higher legacy value over the GMWB. Again, the higher legacy values hold true in a Bull, Bear, or Flat Market. * The MassMutual Single Premium Immediate Annuity (SPIA) Synergy Study: A Research Report for Financial Professionals, 2010. 11
Three steps to implementing the Retiresmart Income Strategy How can you take the Retiresmart Income Strategy concept off the drawing board and put it to work for plan participants today and retirees tomorrow? Follow these three steps: 1. Explain to plan sponsors that they can meet changing needs with small adjustments. For plan sponsors, making major changes in a DC plan can be time-consuming and expensive. The good news is that the Retiresmart Income Strategy requires little to no changes to the plan. At minimum, it requires only: 1) the addition of a stable value option to the plan s investment menu, if one does not exist; and 2) investment education to let participants know how the RetireSmart Income Strategy concept works. You can make these adjustments even easier for sponsors and participants by suggesting that the plan add a target date 14 asset allocation strategy that includes a stable value option as its Qualified Default Investment Alternative (QDIA). 2. Motivate plan participants to fully fund their DC plans. The Retiresmart Income Strategy creates a structure for helping participants set a clear plan accumulation target. You can leverage powerful tools offered by your retirement provider to help each participant determine the required salary deferral percentage for achieving an accumulation target. Then, you can meet with each participant periodically to review progress toward the goal. Emphasize that staying on track toward the goal depends more on systematic deferrals and contributions to the plan over time than on investment performance in fluctuating stock/bond markets. 3. Anticipate retirement decisions before they are required. During working years, the Retiresmart Income Strategy constantly aims toward key decisions and actions the participant will make at retirement. You can begin evaluating plan distributions and SPIA purchases before retirement occurs, to help each participant choose the optimum retirement start-date, identify windows of opportunity in interest rates and annuity quotes, and minimize the tax impact of distributions. For higher-income clients or larger plan balances, you may want to coordinate RetireSmart Income Strategy strategies at retirement with the client s tax advisor. 12
In summary The Retiresmart Income Strategy is right for these times. It will help you connect with participant-directed DC plan sponsors in your market and offer a proven, low-cost, easy-to-implement strategy. You also can help to assure plan sponsors that the money they are spending on the plan works to help employees achieve secure retirements, regardless of market fluctuations. Also, this strategy will help you demonstrate to hundreds of plan participants that their plan sponsor is committed to long-term holistic planning, and it will increase their chances of success in retirement. The Retiresmart Income Strategy isn t a product or a transaction, and it isn t even another choice in the DC investment menu. By creating a clear goal for retirement income and plan accumulation in the early years, it gives workers the motivation and confidence to set and reach critical long-term goals. Stable value options and SPIAs can be valuable additions in the retirement planning tool kit for financial professionals. We hope this report has suggested creative ideas for integrating more choices to help DC plans and their participants increase retirement readiness. Retirement can be a long journey, and clients need a professional guide to navigate unfamiliar territory and obstacles. Despite some criticism, the misguided notion of the insurmountable challenges in DC plans can often be overcome by adequate savings, age-appropriate asset allocations, and strategies for moderating market risk and maximizing risk-adjusted returns. At retirement, the challenge shifts to planning a product allocation that can generate guaranteed lifetime income, protect purchasing power against inflation, and fulfill other personal goals such as liquidity and legacies. Ultimately, the Retiresmart Income Strategy creates a clear path from the early years of plan participation to the start of retirement, with the flexibility to then make choices that can produce enough income and financial security to last a lifetime. MassMutual believes this path is not one that most people will take alone. It should be guided, monitored and adjusted by a professional. Your knowledge and skills are necessary to communicate and implement the Retiresmart Income Strategy. For more information about the Retiresmart Income Strategy, please contact your local MassMutual representative. 13
Founded in 1851, MassMutual is a mutually owned financial protection, accumulation and income management company headquartered in Springfield, Mass. MassMutual s major affiliates include: OppenheimerFunds, Inc.; Babson Capital Management LLC; Baring Asset Management Limited; Cornerstone Real Estate Advisers LLC; The First Mercantile Trust Company; MML Investors Services., member FINRA and SIPC (www.finra.org and www.sipc.org); MassMutual International LLC and The MassMutual Trust Company, fsb. 1 Should the 401(k) Be Killed? by Justin Fox, Time magazine, December 4, 2008. 2 History of 401(k) Plans: An Update, Employee Benefit Research Institute, February 2005. 2010 participants and assets are estimates made by the Investment Company Institute. 3 The Decline of Private-Sector Defined Benefit Promises and Annuity Payments: What Will It Mean, Employee Benefits Research Institute, July 2004. 4 The EBRI Retirement Readiness Rating, Employee Benefits Research Institute, EBRI Brief July 2010. 5 Scaling the Pre-Retiree Market, LIMRA, 2010. 6 2010 Retirement Confidence Survey, Employee Benefits Research Institute, 2010 RCS Fact Sheet #1. 7 2010 Retirement Confidence Survey, Employee Benefits Research Institute, 2010 RCS Fact Sheet #2. 8 Guarantee subject to the claims paying ability of the insurance company and not insured by the FDIC. 9 MetLife Stable Value Study, April 2010, and SVIA 14th Annual Investment Policy, as of year-end 2009. 10 EBIR/ICI Participant-Directed Retirement Plan Data Collection Project for Year-End 2005, August 2006. 11 Guarantee subject to the claims paying ability of the issuing insurance company. 12 Guarantee subject to the claims paying ability of the issuing insurance company. 13 Guarantee subject to the claims paying ability of the issuing insurance company. 14 Generally target retirement date (lifecycle) investment options are designed to be held beyond the presumed retirement date to offer a continuing investment option for the investor in retirement. The year in the investment option name refers to the approximate year an investor in the option would plan to retire and likely would stop making new contributions to the investment option. However, investors may choose a date other than their presumed retirement date to be more conservative or aggressive depending on their own risk tolerance. Target retirement date (lifecycle) investment options are designed for participants who plan to withdraw the value of their accounts gradually after retirement. Each of these options follows its own asset allocation path ( glide path ) to progressively reduce its equity exposure and become more conservative over time. Options may not reach their most conservative allocation until after their target date. Others may reach their most conservative allocation in their target date year. Investors should consider their own personal risk tolerance, circumstances and financial situation. These options should not be selected solely on a single factor such as age or retirement date. Please consult the prospectus (if applicable) pertaining to the options to determine if their glide path is consistent with your long-term financial plan. Target retirement date investment options stated asset allocation may be subject to change. Investments in these options are not guaranteed and you may experience losses, including losses near, at, or after the target date. Additionally, there is no guarantee that the options will provide adequate income at and through retirement. 2011 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) [of which Retirement Services is a division] and its affiliated companies and sales representatives. RS4774 211 C:20209-00 Exp 12/01/1012