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Manage. Address. Pursue

Retirement Readiness: Evaluating plan health to define success Ed Gimenez, CFP ®, AIF®, Raffa Retirement1 Kerry Perl, TIAA-CREF June 9, 2015

1 - Securities offered through LPL Financial, Member FINRA/SIPC. LPL Financial and TIAA-CREF are not affiliated.

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For Institutional Investor Use Only

Four steps to successful plan management.

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Today’s presenter

Kerry Perl Director Kerry Perl is Director, Intermediary Distribution for TIAA-CREF Asset Management. He is responsible for marketing the group’s investment management services and providing client service to financial intermediaries in the southeast and mid-Atlantic regions of the United States. Mr. Perl joined the TIAA-CREF organization in 2011. Mr. Perl has more than 18 years of financial services experience. Prior to joining TIAA-CREF, he was Southeastern Regional Vice President for the Registered Investment Advisor Division marketing Real Estate Investment Trusts & Alternative Investments in the southeast at American Realty Capital. Previously, Mr. Perl has held various sales positions at BNY Mellon Wealth Management and Bank of America, including Columbia Management Group and Nations Bank. In addition, he founded Renaissance Consulting , LLC, providing the delivery of wealth management services and consultation to advisors. Mr. Perl holds a B.A. in English and Psychology from Georgetown University. He also holds the Chartered Mutual Funds Counselor (CMFC) designation.

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Agenda

Tax-exempt market overview

Top challenges for plan sponsors

Four steps to successful plan management

Key action steps

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Top plan sponsor concerns

Compliance is a top concern for plan sponsors.

Source: Cogent Research Retirement Planscape® April 2013

Ensuring plan is in compliance

Reducing plan costs

Enhancing participant education

Increasing enrollment/deferral rates

Adequately prepare participants for retirement

Re-evaluating investment menu

Re-evaluating plan recordkeeper

Changes to plan design

57%

46%

44%

43%

34%

33%

16%

11%

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Key differences between plans

Briefly, here are some key differences between types of plans.

401(k) 403(b) 457

What it is A qualified retirement plan A qualified retirement plan Non-qualified deferred compensation plan (not subject to ERISA)

Provider arrangement

Single provider May have multiple providers May have multiple providers

Who is eligible Typically available to private sector employees

Employees of nonprofits such as schools, hospitals and charitable organizations

Typically state and local government employees May also be available to highly compensated at private employers

Permitted Investments

Generally, no restrictions with regard to investments.

Mutual funds, fixed annuities, variable annuities, life insurance in annuity contracts only.

Generally, no restrictions with regard to investments. However, governments may be subject to state law restrictions.

Distributions while still employed

Only on hardship if under age 59½

Only on hardship if under age 59½

Only for unforeseen emergencies

Tax penalty Withdrawals before age 59-1/2 subject to 10% federal tax penalty

Withdrawals before age 59-1/2 subject to 10% federal tax penalty

Withdrawals can be made without penalty and regardless of age at termination or retirement

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Four critical steps for successful plan management

1. Build a strong foundation with purposeful plan design.

2. Deliver outcomes-based education and advice.

3. Maximize value for fees.

4. Follow fiduciary and compliance best practices.

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Step 1: Build a strong foundation with purposeful plan design.

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Proven plan features.

Automatic enrollment to expand participation - Participation can reach between 86 and 91%.1

Automatic escalation increase to improve savings levels - Many plans use a low default of 2-3%, but

research shows employees are not likely to opt out at a higher default rate of 5-6%.2

These features may increase retirement income savings between 2 to 9 times final earnings.3

1 Save more Tomorrow, Practical Behavioral Finance Solutions to Improve 401(k) Plans, Shlomo Benartzi, 2012 2 Ibid 3 Automatic Retirement Savings – Paving the Path to Personal Financial Security, David John, The Heritage Foundation, 2010 and EBRI Issue Brief, The impact of auto-enrollment and automatic contribution escalation on retirement income adequacy, VanDerhei, 2010

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Proven plan features. (continued)

Employer match to maximize participation - A match nearly triples the odds of participation.1

- “Stretch” the match as a no-cost way to optimize contributions, i.e. match 50% of the first 6% of pay versus 100% of the first 3% of pay.

- A combination of employer and employee contributions in the 10-14% range may improve chances of a 70% income replacement ratio.2

Implement guardrails to prevent asset depletion - Limiting or eliminating loans reinforces

commitment to long-term planning.

- Multivendor relationships can make this challenging.

1 The Plan Participation Puzzle: Comparison of Not-for-Profit Employees and For-Profit Employees, LIMRA, December 2010. 2 Redesigning Retirement Plans with R21 Principles, TIAA-CREF Institute, November 2011.

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Carefully built, organized menu - Basic building blocks with simplicity and

variety

- Tiered menu with core and additional options

Avoid investment option overload - Complexity leads to participant inertia and

indecision and requires greater fiduciary rigor.

- For every 10 new options offered, enrollment drops by between 1.5% and 2%.1

1 How Much Choice is Too Much: Contributions to 401(k) Retirement Plans, Pension Research Council Working Paper, Iyengar, Jian, Huberman, 2004.

Prudent investment menu design.

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Review of service model.

A sole recordkeeping model helps simplify plan administration, better manage fiduciary obligations and control cost.

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Step 2: Deliver outcomes-based education and advice.

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Plan sponsor’s engagement approach.

How plan sponsors engage (or don’t engage) their employees has a major effect on their plan outcomes.

Programs should support both accumulation and distribution strategies.

Plan sponsors should consider providers that offer advice and the strength of the advice offering.

1 403(b) benchmarking: 3 essential steps to hit the deadline, BenefitsPro, June 27, 2012 2 National Consumer Survey on Financial Advice and Education, KRC Research, August 2012

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Plan sponsor’s engagement approach. (cont.)

Recommend best practices such as: - Targeted communication by audience - Easy to understand and access, brief, relevant - Personalized projections - Multimedia approach for greatest penetration - Embracing technology such as express enrollment,

mobile apps and robust calculation tools

Ask providers for measures of effectiveness beyond participation, deferral and asset allocation. - Plan sponsors should ask for income replacement

calculations.

1 What Will My Account Really Be Worth? Experimental Evidence on How Retirement Income Projections Affect Saving, TIAA-CREF Institute, August 2013

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Step 3: Maximize value for fees.

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Plan sponsors should take a comprehensive view of fees.

The desire to pay a fair and competitive price should always be a guide, yet the urgency to improve retirement outcomes requires a more nuanced view.

A focus solely on efficiency or lowest cost may sacrifice important employee outcomes or overlook sources of value.

Fees for plan sponsors.

Balancing Fees and Value

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The ultimate test of the plan is employees’ ability to retire with security.

Logical for a significant portion of the total fee to pay for services that support retirement readiness.

Encourage an evaluation of fees against outcomes — providers should demonstrate that services and strategies actually promote positive participant outcomes.

Fees. (continued)

Source: Deloitte/ICI 2011 Defined Contribution/401(k) Fee Study

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Advisors can suggest areas where operational efficiencies may help control costs.

Recommend that plan sponsors interact with their providers electronically whenever possible.

Propose placing limits on transactions that are expensive or may not be in the best interest of the plan or participant goals.

Suggest that plan sponsors provide census data to providers to speed transactions.

Recommend they eliminate paper wherever possible.

Achieving cost control through efficiencies

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Step 4: Follow fiduciary and compliance best practices. Picture

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Even non-ERISA plan may want to satisfy ERISA fiduciary requirements as a best practice.

A fiduciary of an ERISA must meet standards in five key areas:

1. “Exclusive Benefit” rule - Fiduciary obligations must be performed solely in the interests of plan participants and beneficiaries with the exclusive purpose of providing benefits.

2. Compliance with terms of the plan documents - Fiduciaries must act in accordance with the terms of the plan document at all times.

3. Diversification of plan investments - ERISA generally requires the fiduciary to diversify investments to help minimize the risk of large investment losses.

4. Selection of service providers – Fiduciaries must exercise prudence in selecting and monitoring service providers for the plan.

5. “Prudent Person” standard – Fiduciaries must act with the care, skill, prudence and diligence that a prudent person in a similar capacity would use under like circumstances.

Compliance issues are a top concern of plan sponsors.

Source: In pursuit of retirement readiness: assessing value, driving outcomes, TIAA-CREF, 2013

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Disciplined fiduciary process.

Governance best practices checklist for plan sponsors

Establish a plan governance process with written policies defining all roles and procedures—including investment selection and review—and a clear understanding of responsibilities of all individuals designated as plan fiduciaries.

Establish a disciplined process for creating, maintaining and updating the written plan document required by ERISA and the IRS.

Create a well thought-out investment policy statement with strategic direction for a menu of carefully screened and suitable investment choices and defines guidelines for selecting and monitoring plan menu options and service providers.

Conduct frequent investment reviews to track the performance of investment options in the plan against the investment policy—at least twice a year or more.

When documenting plan meetings, have members both review and sign meeting minutes to reflect accuracy and shared consensus on decisions.

Source: TIAA-CREF

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Four steps to successful plan management

1. Build a strong foundation with purposeful plan design.

Proven plan features and guardrails

Carefully built, simplified investment menu with income options

Sole recordkeeper model for lowest cost and highest value

2. Deliver outcomes-based education and advice.

Targeted, action-oriented communications to optimize engagement

Advice programs focused on accumulation and income generation

Technology to enhance employee experience and participation

3. Maximize value for fees paid. Assess reasonableness of plan fees relative to the value, services that focus positive plan outcomes

Help plan sponsors benchmark an “all-in” plan fee for more informed comparison

Better cost control through improved operational efficiencies

4. Follow fiduciary and compliance best practices.

Recommend a best-practices approach to help reduce plan sponsor liability and risk and increase likelihood of desired outcomes

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