The Global Fixed Income Business of Prudential Financial, Inc. Prudential Financial, Inc. of the United States is not affiliated with Prudential plc, headquartered in the United Kingdom. Confidential – Not for further distribution. Please see Notice Page for important disclosures regarding the information contained herein.

SoYouThinkYouWantOutOfThePensionBusiness?Building a Liability-Aware Playbook

March 2017

Introduc9on

GaryKnap,CFAManagingDirector&HeadofLiabilityDrivenStrategiesPGIMFixedIncomeNewark,NJ

3

ShortDura9onandLongGrowthHasNotPerformedWellinRecessions

Key Risk Considerations

Source of chart data: Milliman 100 Pension Funding Index and Milliman 2015 Corporate Pension Funding Study, as of December 31, 2016. Source of S&{ and Treasury data: Bloomberg as of December 31, 2016.

70%

80%

90%

100%

110%

120%

130%

140%

Dec'99

Dec'00

Dec'01

Dec'02

Dec'03

Dec'04

Dec'05

Dec'06

Dec'07

Dec'08

Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

Dec'14

Dec'15

Dec'16

Mill

iman

100

Pens

ion

Fund

ing

Inde

x

Falling rates and falling growth asset values both hurt funded status during the last two recessions

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

S&P Total Return 21% -9% -12% -22% 29% 11% 5% 16% 5% -37% 26% 15% 2% 16% 32% 14% 1% 12%

30 Year Treasury Yield 6.5 5.5% 5.5% 4.8% 5.1% 4.8% 4.5% 4.8% 4.5% 2.7% 4.6% 4.3% 2.9% 3.0% 4.0% 2.8% 3.0% 3.1%

2001: -20%

2002: -20%

Recession Recession

2008: -27%

4

IRSHasAnnouncedANewMortalityBasisEffec9veJanuary1,2018

Mortality Table Updates

•  Table updated from RP-2000 with scale AA to RP-2014 with scale MP-2016, causing an increase in liabilities of approximately 3–5%

•  New tables will increase liability for three important calculations

•  Liability used to calculate funding requirements (Target Liability)

•  Liability used to calculate PBGC variable premium

•  Calculation of minimum lump sum values (the basis used by most plan sponsors)

Impact on PRT Market •  Mortality change will further increase PBGC variable premiums for sponsors not at the cap, increasing the value

of transferring risk.

•  The increase in lump sum amounts will likely slow down vested terminated lump sum programs, freeing up company and administration time to focus on PRT transactions as the next most logical risk transfer option.

Source: IRS. As of March 2017. The comments, opinions, and estimates contained herein are based on and/or derived from publicly available information from sources that PGIM Fixed Income believes to be reliable. We do not guarantee the accuracy of such sources or information. This outlook, which is for informational purposes only, sets forth our views as of this date. The underlying assumptions and our views are subject to change. Past performance is not a guarantee or a reliable indicator of future results.

5

SignificantPBGCPremiumIncreasesAreDrivingInterestInSmall-benefitRe9reeBuy-outs

PBGC Premium Increases

2013 2017 2019

PBGC Funded Status 95% 95% 90%

Flat Rate Premium (Number of employees) x (Per Person Premium)

$462,000 $759,000 $880,000

Variable Rate Premium (Unfunded Vested Liability) x (Variable Rate)

$450,000 $1,700,000 $4,410,000

Total PBGC Premium $912,000 $2,459,000 $5,290,000

Premium Per Participant $83 $224 $481

Increase Over 2013 n/a 270% 580%

PBGC premiums, for a plan with liability of $1B1 and 11,000 employees, will increase to 580% between 2013 and 2019.

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Flat Rate (Per participant)

Variable Rate (Per $1,000 underfunded)

PBGC Annual Premium

9

42

34 42

69

80

35

9

Source: PBGC (http://www.pbgc.gov/prac/prem/premium-rates.html) and internal calculations. There are no assurances that projections will be achieved. 1 Liabilities are $1B for 2013, 2017 and $1.05B for 2019. Assets are $950M for 2013, 2017, and 2019.

5% increase in liabilities for mortality

change in 2018

2019 Premium Impact of Mortality Change

Pre-Change $271

Post-Change $481

•  In 2019, PBGC schedule of increases will be fully phased in.

•  Variable rate premium cap scheduled to be $517 per person in 2019.

•  The variable rate premium and per person cap are both subject to adjustment for inflation.

6

Evalua9ngaRe9reeSmallBenefitPensionBuy-outSmall Benefit Cost Transactions

GAAP and economic liabilities reflect RP-2014 mortality table with MP-2016. GAAP liability is calculated by discounting projected cash flows using spot rates along the Citi pension discount curve. Economic liability is calculated by discounting projected cash flows using spot rates along the Citigroup yield curve adjusted for investment management fees and the risk of credit defaults and migrations. These are estimated at 30 and 24 basis points, respectively. Economic liability is calculated assuming per person administrative expenses of $40 per year and PBGC expenses per person of $69 in 2017, $74 in 2018, $80 in 2019, and indexed thereafter, plus PBGC variable rate premiums of 3.40% of unfunded vested benefits in 2017, 3.80% in 2018 and 4.20% in 2019, and indexed with inflation thereafter, capped at $517 per person in 2017 and indexed with inflation thereafter. Funded Status for variable rate premium assumed to be 85%. Values are indicative and provided for discussion purposes only. Results are subject to change per market conditions and specific client demographic information.

124.7%

116.2%111.9% 109.7% 107.0%

10.0%

26.1%

50.6%

75.6%100.0%

1.0%

4.8%

16.4%39.3%

0%

20%

40%

60%

80%

100%

120%

140%

<$1,250 <$2,500 <$5,000 <$10,000 Total

Economic Liability as a % of GAAP PBOHeadcount as a % of Retiree TotalGAAP PBO as a % of Retiree Total

Annual Benefit Size

Monthly Pension Amount

Gross Return Neededto Maintain Funded Status (PBGC Flat

Premium Only)

Gross Return Neededto Maintain Funded Status (PBGC Flat +

Variable Cap)

100% Funded (GAAP) 70% Funded (GAAP)

$250 5.1% 9.9%

$500 4.9% 8.2%

$750 4.8% 7.7%

$1,000 4.8% 7.4%

• PBGC and administrative costs are significantly larger for smaller benefits relative to PBO.

• The limited size of a small benefit transaction may avoid settlement accounting.

• Pricing may be more attractive for the small benefit group due to poorer expected longevity associated with lower pension benefits.

• PBGC premiums greatly increase the returns needed to maintain funded status:

7

SmallBenefitTransac9onsSmall Benefit Cost Transactions

•  Increasing PBGC premiums provide a compelling case to transfer retirees with small benefits. •  Small benefit retirees are the most efficient group to transfer.

•  Retirees are the most economical category of participants to transact.

•  Small benefit retirees may offer an additional efficiency of poorer life expectancy.

•  Similar to vested terminated lump sum programs, the economics make sense for a targeted transaction, even for sponsors who would otherwise not pursue a PRT transaction.

•  Given the typical retiree population represents 50% or more of total liabilities, a small benefit transaction offers sponsors an opportunity to transfer a more substantial portion of plan liability.

Source: Prudential Retirement. As of March 2017. The comments, opinions, and estimates contained herein are based on and/or derived from publicly available information from sources that PGIM Fixed Income believes to be reliable. We do not guarantee the accuracy of such sources or information. This outlook, which is for informational purposes only, sets forth our views as of this date. The underlying assumptions and our views are subject to change. Past performance is not a guarantee or a reliable indicator of future results.

8

SignificantPBGCPremiumIncreasesAreDrivingInterestInSmall-benefitRe9reeBuy-outs

PBGC Premium Increases

2013 2017 2019

PBGC Funded Status 95% 95% 90%

Flat Rate Premium (Number of employees) x (Per Person Premium)

$462,000 $759,000 $880,000

Variable Rate Premium (Unfunded Vested Liability) x (Variable Rate)

$450,000 $1,700,000 $4,410,000

Total PBGC Premium $912,000 $2,459,000 $5,290,000

Premium Per Participant $83 $224 $481

Increase Over 2013 n/a 270% 580%

PBGC premiums, for a plan with liability of $1B1 and 11,000 employees, will increase to 580% between 2013 and 2019.

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Flat Rate (Per participant)

Variable Rate (Per $1,000 underfunded)

PBGC Annual Premium

9

42

34 42

69

80

35

9 2019 Premium Impact of Mortality Change

Pre-Change $271

Post-Change $481

•  In 2019, PBGC schedule of increases will be fully phased in.

•  Variable rate premium cap scheduled to be $517 per person in 2019.

•  The variable rate premium and per person cap are both subject to adjustment for inflation.

Source: PBGC (http://www.pbgc.gov/prac/prem/premium-rates.html) and internal calculations. There are no assurances that projections will be achieved. 1 Liabilities are $1B for 2013, 2017 and $1.05B for 2019. Assets are $950M for 2013, 2017, and 2019.

9

BorrowingtoFundCon9nuestobeaViableStrategyUndertheCurrentInterestRateEnvironment

Borrow to Fund Transactions

In USD millions; As of March 2017; Does not constitute a recommendation regarding the merits of any investments. Does not constitute investment advice and should not be used as the basis for any investment decision. (1) Source: Company filings. (2) Debt issued to fund pension contributions and / or for general corporate purposes. (3) Prospectus indicates debt issuance amount and use of proceeds for plan contributions. Company filing showing pension contribution amount has not yet been released. (4) Private company that does not issue public financial statements. Intended use of proceeds from Fitch rating report dated 8/10/16 and 9/8/16 for Premier Health Partners and Cox Communications (5) 4Q14 includes $34M required pension contributions and $600M discretionary pension contributions.

Company Debt Issuance(1),(2) Related Plan

Contribution(1) Amount Date FedEx Corp. $1,200 1/6/2017 $1,000 Northrop Grumman Corp. $750 12/1/2016 TBD(3)

CSX Corp. $2,200 10/18/2016 $220 Altria Group, Inc. $2,000 9/16/2016 $500 Cox Communications, Inc. $1,000 9/13/2016 Not disclosed(4)

Premier Health Partners $300 8/31/2016 Not disclosed(4)

International Paper Co. $2,300 8/11/2016 $500 General Motors Company $2,000 2/23/2016 $2,000 International Paper Co. $2,000 5/26/2015 $750 Kimberly-Clark Corporation $500 2/27/2015 $410 Northrop Grumman Corp. $600 2/6/2015 $500 Raytheon Company $600 12/2/2014 $634(5)

Motorola Solutions, Inc. $1,400 8/19/2014 $1,100 Ford Motor Co. $2,000 1/8/2013 $1,200 CSX Corp. $300 2/28/2012 $275 The Kroger Co. $450 1/19/2012 $450 Raytheon Company $1,000 12/6/2011 $425 NiSource Finance Corp $250 11/23/2011 $250

10

PhasesofRiskTransfer

•  Conduct illustrative pricing exercise

•  Analyze results to determine whether to move forward

•  Gain internal commitment

•  Define goals, objectives, constraints

•  Select advisors

•  Receive indicative pricing, capital commitments from several insurers

•  Refine goals, objectives

•  Confirm internal commitment

•  Finalize structure and terms

•  Position portfolio

•  Fiduciary review

•  Select insurer

•  Finalize price and documents

•  Obtain regulatory approval, as needed

•  Execute group annuity contract and transfer assets

•  Communicate to participants/investors

•  Transfer administration

•  Post-closing data true-ups

Feasibility

1

Approach Market

2

Structure and Select Insurer

3

Execution

4

11

WorkstreamsThroughoutEachPhase

Feasibility Approach Market

Structure and Select Insurer Execution

12

•  Includes investment bank and/or actuarial consulting firm to provide advice on deal structure and pricing

•  Law firm(s) familiar with M&A transactions, ERISA and group annuity contracts

•  Includes IF and the IF’s insurance and legal advisors

•  Represents interests of plan participants to ensure “safest available annuity” is selected

•  Advises plan fiduciary on asset-in-kind element of transaction

KeyTransac9onAdvisors

Financial Advisors to the Plan Sponsor

Legal Advisors to the Plan Sponsor

Independent Fiduciary (IF)

Asset Manager

13

Company Debt Issuance(1),(2) Related Plan

Contribution(1) Amount Date FedEx Corp. $1,200 1/6/2017 $1,000 Northrop Grumman Corp. $750 12/1/2016 TBD(3)

CSX Corp. $2,200 10/18/2016 $220 Altria Group, Inc. $2,000 9/16/2016 $500 Cox Communications, Inc. $1,000 9/13/2016 Not disclosed(4)

Premier Health Partners $300 8/31/2016 Not disclosed(4)

International Paper Co. $2,300 8/11/2016 $500 General Motors Company $2,000 2/23/2016 $2,000 International Paper Co. $2,000 5/26/2015 $750 Kimberly-Clark Corporation $500 2/27/2015 $410 Northrop Grumman Corp. $600 2/6/2015 $500 Raytheon Company $600 12/2/2014 $634(5)

Motorola Solutions, Inc. $1,400 8/19/2014 $1,100 Ford Motor Co. $2,000 1/8/2013 $1,200 CSX Corp. $300 2/28/2012 $275 The Kroger Co. $450 1/19/2012 $450 Raytheon Company $1,000 12/6/2011 $425 NiSource Finance Corp $250 11/23/2011 $250

BorrowingtoFundCon9nuestobeaViableStrategyUndertheCurrentInterestRateEnvironment

Borrow to Fund Transactions

More than $3.2 billion of contributions were made in 2016 using a borrow-to-fund strategy

In USD millions; As of March 2017; Does not constitute a recommendation regarding the merits of any investments. Does not constitute investment advice and should not be used as the basis for any investment decision. (1) Source: Company filings. (2) Debt issued to fund pension contributions and / or for general corporate purposes. (3) Prospectus indicates debt issuance amount and use of proceeds for plan contributions. Company filing showing pension contribution amount has not yet been released. (4) Private company that does not issue public financial statements. Intended use of proceeds from Fitch rating report dated 8/10/16 and 9/8/16 for Premier Health Partners and Cox Communications (5) 4Q14 includes $34M required pension contributions and $600M discretionary pension contributions.

14

SomeCashflowsCannotBeAcquiredInTheBondMarket

Retirees Can Transfer Efficiently

Chart represents the liability of a sample plan closed to new members. Source of data: PGIM’s affiliated retirement business, PGIM Fixed Income. Liability is measured as the projected benefit obligation as of December 31, 2014. For informational purposes only. There can be no assurance that the projections will be achieved.

2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60PresentValue Mix

Most Retiree Liabilities Fall Within The Bond

Market Investment Window of 30 Years

Bond Market Window

91%LDI

9% Growth

Years

Retirees

Actives

Deferreds

15

Hibernation is Not an End StateBuilding a Pension Risk Playbook

As The Plan Ages, Percent of Cashflows Inside The Bond Market Window Grows

Chart represents the evolution of the liability of a sample plan following a buyout of the retiree population. Source of data: Prudential Retirement, PGIM Fixed Income. Liability is measured as the projected benefit obligation as of December 31, 2014. For informational purposes only. There can be no assurance that the projections will be achieved.

32 34 36 38 40 42 44 46 48 50 52 54 56 58 600 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Sample Plan Cashflows

Cashflows Today (Post Retiree Buyout)

Cashflows 10 Years Later

Cashflows 25 Years Later

Years

Bond Market Window

16

Pa9entlyWaitonFutureRe9rees(10YearsLater)Building a Pension Risk Playbook

Chart represents the liability of the sample plan 10 years after a buyout of the retiree population. Source of data: PGIM affiliated retirement business, PGIM Fixed Income. Liability is measured as the projected benefit obligation as of December 31, 2014. For informational purposes only. There can be no assurance that the projections will be achieved.

2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60PresentValue Mix Years

Over Time, The Retiree Segment Grows Again

27% Actives

Deferreds

Retirees

7%

66%

17

ConsiderBothInvestmentandRiskTransferStrategiesBuilding a Pension Risk Playbook

The comments, opinions and estimates contained herein are based on and/or derived from publicly available information from sources that PGIM Fixed Income believes to be reliable. We do not guarantee the accuracy of such sources or information. This outlook, which is for informational purposes only, sets forth our views as of this date. The underlying assumptions and our views are subject to change. Past performance is not a guarantee or a reliable indicator of future results. Please see the Reference section for important disclosures regarding information contained herein.

Sponsors should consider both investment strategy and different risk transfer strategies •  Consider using bonds to hedge the cashflows which are both relatively certain and near term

(within the first 30 years)

•  Consider using derivatives to hedge the remaining duration from the cashflows beyond 30 years

•  Consider investing in risk premia for the cashflows which are both uncertain and far-away (beyond 30 years)

•  Anticipate the use of risk transfer strategies

Hibernation should not be a passive strategy

•  Plans should evaluate retiree risk transfer as part of a complete pension risk playbook

•  Over time, the risk profile of the plan can change

•  A dynamic approach to hibernation is needed to manage this evolution

Making The Plan Liability Cashflows The LDI Benchmark Can Result In A More Efficient Hibernation Strategy

18

ARecommendedPlaybookBuilding a Pension Risk Playbook

1)  Assess Your Risks: Where are you starting from?

2)  Be Aware of PBGC Premium Increases

3)  Know Your Tools: Small Benefit Transfers

4)  Know Your Tools: Borrow To Fund

5)  Plan Ahead For Complex Transactions

6)  Assess Your Risks: Where will you be at the endgame?

7)  Patient Waiting Can Be Less Expensive

19

Principal Market Risks to Funded StatusKey Risk Considerations

Source: PGIM Fixed Income as of December 31, 2015. Please see Notice for important disclosures regarding the information contained herein. 1Sample plan has a liability duration of 12 years, is 80% funded, with 60% growth assets and 40% hedging assets.

Decomposition of Funded Status Risk—Sample Plan1

8.0%

5.5%

4.2%

7.2% -8.9%

0

2

4

6

8

10

12

14

16

18

InterestRates

CreditSpreads

GrowthAssets

DiversificationOffset

FundedStatus Volatility

as %

of L

iabi

lity

PV

• Interest Rates: Funded status risk due to any mismatch in dollar duration or curve of assets and liabilities

• Credit Spreads: Funded status risk due to any mismatch of the liability valuation spread

• Growth Assets: Funded status risk due to volatility of growth assets

• Diversification lowers total funded status volatility due to correlations between risk factors not being equal to one

20

Questions

ContactInforma9on

F.GaryKnapp,CFAManagingDirector&HeadofLiabilityDrivenStrategiesPGIMFixedIncomeNewark,NJEmail:Gary.Knapp@pgim.comPhone:973-802-8669

22

Notice: Important Information

PGIM Fixed Income operates primarily through PGIM, Inc., a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended, and a Prudential Financial, Inc. (“PFI”) company. PGIM Fixed Income is headquartered in Newark, New Jersey and also includes the following businesses globally: (i) the public fixed income unit within PGIM Limited, located in London; (ii) Prudential Investment Management Japan Co., Ltd (“PIMJ”), located in Tokyo; and (iii) the public fixed income unit within PGIM (Singapore) Pte. Ltd., located in Singapore (“PGIM Singapore”). PFI of the United States is not affiliated with Prudential plc, which is headquartered in the United Kingdom. Prudential, PGIM, their respective logos and the Rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide. In the United Kingdom, information is presented by PGIM Limited, an indirect subsidiary of PGIM, Inc. PGIM Limited is authorised and regulated by the Financial Conduct Authority of the United Kingdom (registration number 193418) and duly passported in various jurisdictions in the European Economic Area. These materials are issued by PGIM Limited to persons who are professional clients or eligible counterparties for the purposes of the Financial Conduct Authority’s Conduct of Business Sourcebook. In certain countries in Asia, information is presented by PGIM Singapore, a Singapore investment manager registered with and licensed by the Monetary Authority of Singapore. In Japan, information is presented by PIMJ, registered investment adviser with the Japanese Financial Services Agency. In South Korea, information is presented by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean investors. In Hong Kong, information is presented by representatives of PGIM (Hong Kong) Limited, a regulated entity with the Securities and Futures Commission in Hong Kong to professional investors as defined in Part 1 of Schedule 1 of the Securities and Futures Ordinance. It is anticipated that certain investment management services would be delegated to PGIM, Inc. the above-listed entities’ U.S. registered investment advisory affiliate. This document may contain confidential information and the recipient hereof agrees to maintain the confidentiality of such information. Distribution of this information to any person other than the person to whom it was originally delivered and to such person’s advisers is unauthorized, and any reproduction of this document, in whole or in part, or the divulgence of any of its contents, without PGIM Fixed Income’s prior written consent, is prohibited. This document contains the current opinions of the manager and such opinions are subject to change. Certain information in this document has been obtained from sources that PGIM Fixed Income believes to be reliable as of the date presented; however, PGIM Fixed Income cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. PGIM Fixed Income has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to its completeness or accuracy. Any information presented regarding the affiliates of PGIM Fixed Income is presented purely to facilitate an organizational overview and is not a solicitation on behalf of any affiliate. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services. These materials do not constitute investment advice and should not be used as the basis for any investment decision. These materials do not take into account individual client circumstances, objectives or needs. No determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects. The information contained herein is provided on the basis and subject to the explanations, caveats and warnings set out in this notice and elsewhere herein. Any discussion of risk management is intended to describe PGIM Fixed Income’s efforts to monitor and manage risk but does not imply low risk. No risk management technique can guarantee the mitigation or elimination of risk in any market environment. These materials do not purport to provide any legal, tax or accounting advice. These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. Any references to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Any securities referenced may or may not be held in portfolios managed by PGIM Fixed Income and, if such securities are held, no representation is being made that such securities will continue to be held. Any financial indices referenced herein as benchmarks are provided for informational purposes only. The use of benchmarks has limitations because portfolio holdings and characteristics will differ from those of the benchmark(s), and such differences may be material. You cannot make a direct investment in an index. Factors affecting portfolio performance that do not affect benchmark performance may include portfolio rebalancing, the timing of cash flows, credit quality, diversification and differences in volatility. In addition, financial indices do not reflect the impact of fees, applicable taxes or trading costs which reduce returns. Unless otherwise noted, financial indices assume reinvestment of dividends. Any projections or forecasts presented herein are as of the date of this presentation and are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. PGIM Fixed Income has no obligation to provide updates or changes to any projections or forecasts. Any performance targets contained herein are subject to revision by PGIM Fixed Income and are provided solely as a guide to current expectations. There can be no assurance that any product or strategy described herein will achieve any targets or that there will be any return of capital. Past performance is not a guarantee or a reliable indicator of future results and an investment could lose value.