Target Date Funds – The Strategy for 2013 Jim Mattera, Regional Director of Sales, Tegrit Group Bill Rodenbeck, Investment and Cash Manager, Gwinnett County, Lawrenceville, GA Harold Bjornson, Executive Director, Global Multi-Asset Group, J. P. Morgan Mark McCoy, President, Retirement Fund Management,

The evolution of defined contribution After 30 years, participant behavior suggests that the majority remains “accidental investors” in the “do-it- yourself” core menu The core menu has not evolved at the pace of programmatic QDIA solutions such as target date funds Core menu investors can be better served with fewer, yet more sophisticated, investment choices that leverage the diversification benefits consistent with target date funds 1980s: 401(k) popularized as supplemental savings plan 1 Three-legged stool of defined benefit, Social Security and personal savings fully intact 401(k) emerges as efficient supplemental savings plan Defined contribution plans offer limited investment choice 1990s: Adoption of “do-it-yourself” model 2 DB plans less meaningful Mutual fund industry becomes the dominant DC solutions provider Participants demand investment control and choice 2000–2009: “Do-it-for-me” model introduced, gains popularity 3 DC plans become the primary retirement savings vehicle Unprecedented market volatility drives call for “do-it-for-me” solutions Target date funds and “auto” features introduced

Are DC plans structured to deliver the best outcomes for participants1? Standardized2 three year returns: Highs, lows and medians by investment strategy 1 Source: J.P. Morgan Retirement Plan Services proprietary research. Analysis measurement period is December 31, 2009 through December 31, 2012. The above data represents a sampling of participant data. It does not represent the returns of any individual product or portfolio. Exclusive reliance on the above is not advised. This information is not intended as a recommendation to invest in any particular manner. Rate of return for the measurement period is aggregated by investment strategy. Historical rate of return is not a guarantee of and may not be indicative of future results. 2 Returns are standardized using the Interquartile Methodology. See the following slide, “Important Disclosures for Personal Rate of Return Methodology,” for additional information.

Investment Strategies by Age Are DC plans structured to deliver the best outcomes for participants1? (cont’d) Standardized2 three year returns: Highs, lows and medians by investment strategy, by age Investment Strategies by Age 1 Source: J.P. Morgan Retirement Plan Services proprietary research. Analysis measurement period is December 31, 2009 through December 31, 2012. The above data represents a sampling of participant data. It does not represent the returns of any individual product or portfolio. Exclusive reliance on the above is not advised. This information is not intended as a recommendation to invest in any particular manner. Rate of return for the measurement period is aggregated by investment strategy. Historical rate of return is not a guarantee of and may not be indicative of future results. 2 Returns are standardized using the Interquartile Methodology. See the following slide, “Important Disclosures for Personal Rate of Return Methodology,” for additional information.

Participant Investment Strategies For 450,386 participants at J.P. Morgan with five years of personal rate of return

Important disclosures for personal rate of return methodology Rate of return for the measurement period is aggregated by investment strategy. Historical rate of return is not a guarantee of and may not be indicative of future results. Rate of return is calculated for active participants by investment strategy using the Modified Dietz method and is based upon volatility between the highest rate of return and lowest rate of return associated with each investment strategy among such participants.   Services associated with the identified investment strategies were available as of the last day of the measurement period but may not have been available throughout the measurement period. Target date fund users are participants with at least 70% of their account balance invested in target date funds as of the first and last day of the measurement period. Do-it-yourselfers are participants with less than 70% of their account balance invested in one of the other investment strategies as of the first and last day of the measurement period and includes participants using online advice services, if applicable. Brokerage users are participants with at least $1,000 in a brokerage account as of the last day of the measurement period. The benchmark for each investment strategy or age group in the standardized returns graphs correlates to the target date fund’s glidepath for each age group presented.

Simplifying core menu choices The defined contribution plan disconnect Percent of total Retirement Plan Services population Level of engagement (Less) (More) Participant investor “types” How participants see themselves (“type”)1 Participant assets in each menu segment1 Delegators 69% Asset allocation funds: 18% Doers 30% Core menu: 80% Self-directed sophisticates 1% Brokerage: 2% For illustration and discussion purposes only. 1 Source: J.P. Morgan Retirement Plan Services; as of December 31, 2010.

Choosing the right target date implementation option for your plan

Four quadrants: target date funds seek to produce different outcomes 12 11 10 9 8 7 6 5 Asset class diversification 5% 15% 25% 35% 40% 45% 55% 65% 75% Data as of June 30, 2011 Percent of equity at retirement Powered by Lipper, a Thomson Reuters Company. Powered by Lipper, a Thomson Reuters Company. Of the mutual funds available in Lipper’s databases, as of 6/30/11, 47 fund suites were identified by Lipper as open end target date funds and are available for purchase by qualified retirement plans. Old Mutual is excluded from the above chart as Lipper is currently unable to accurately assess their percentage of equity at retirement based upon publicly available data. Due to restructuring of their investment vehicle, Lipper is unable to assess the glide path and equity exposure of AIM and as a result the fund family is no longer plotted. The ETFs — iShares and TDX Independence Funds — are also excluded. Percentage of equity exposure at age 65: Strategic allocation to non-fixed income asset classes at target date, typically age 65. Asset class diversification: Determined by exposure, across each company’s suite of target date funds, to 12 separate asset classes as reported to Lipper through asset allocation, capitalization, credit quality, sector, region and country data as well as underlying fund categorization. The 12 asset classes include: Large Cap Equity, Mid Cap Equity, Small Cap Equity, Developed International Equity, Emerging Markets Equity, REITs, Commodities, U.S. Fixed Income, High Yield, TIPS/Inflation, International Fixed Income and Emerging Markets Debt. Please see the Target Date Compass Methodology booklet for additional information.

Available 5 years ago with 3-year track record data as of December 31, 2012 Powered by Lipper, a Thomson Reuters Company. Percentage of equity exposure at age 65: Strategic allocation to non-fixed income asset classes at target date, typically age 65. Asset class diversification: Determined by exposure, across each company’s suite of target date funds, to 12 separate asset classes as reported to Lipper through asset allocation, capitalization, credit quality, sector, region and country data as well as underlying fund categorization. The 12 asset classes include: Large Cap Equity, Mid Cap Equity, Small Cap Equity, Developed International Equity, Emerging Markets Equity, REITs, Commodities, U.S. Fixed Income, High Yield, TIPS/Inflation, International Fixed Income and Emerging Markets Debt. Please see the Target Date Compass Methodology booklet for additional information. 14 9

Available 3 years ago with 3-year track record data as of December 31, 2012 Powered by Lipper, a Thomson Reuters Company. Percentage of equity exposure at age 65: Strategic allocation to non-fixed income asset classes at target date, typically age 65. Asset class diversification: Determined by exposure, across each company’s suite of target date funds, to 12 separate asset classes as reported to Lipper through asset allocation, capitalization, credit quality, sector, region and country data as well as underlying fund categorization. The 12 asset classes include: Large Cap Equity, Mid Cap Equity, Small Cap Equity, Developed International Equity, Emerging Markets Equity, REITs, Commodities, U.S. Fixed Income, High Yield, TIPS/Inflation, International Fixed Income and Emerging Markets Debt. Please see the Target Date Compass Methodology booklet for additional information. 15 10

How do plan fiduciaries navigate the universe of TDF solutions? Post-retirement withdrawals: Participants over 65 who stopped working in 2006 and remained invested in their plan Challenges faced by plan sponsors today: How to prevent participants from being exposed to too much risk at/near retirement How to define a plan’s “goal”, or the desired outcomes for participants in the target date fund (TDF): - Identify participants’ risk tolerance How to identify TDFs that seek to produce outcomes that align with your plan’s goals - Determine the right level of diversification - Decide on a “to” versus “through” objective - Align target date design with real participant behavior Fred Reish is an ERISA attorney, Partner, and Managing Director at Reish, Luftman, Reicher & Cohen, Attorneys at Law. He has been compensated by J.P. Morgan Asset Management to provide advice and to give an opinion regarding the Target Date Compass. 6 11

Evaluating and selecting a target date fund involves a rigorous process The fiduciary process for selecting target date funds involves*: The traditional qualitative and quantitative analysis utilized for mutual funds at large, including the reasonableness of expenses An analysis of the asset allocation An analysis of the glide path An analysis of the knowledge and interest of the fiduciaries An analysis of the needs of the plan and the needs and abilities of the participants *Analysis of the J.P. Morgan Target Date Compass — A White Paper by C. Frederick Reish and Joseph C. Faucher (2008), pp. 9–11, C. Frederick Reish and Joseph C. Faucher, Reish, Luftman Reicher & Cohen, Attorneys at Law 10 12

A Checklist Review QDIA default (TDF) selection Ensure your QDIA (TDF) is aligned with your plan’s goals, participant behaviors and needs, if: - your selection was more than three years ago, you may want to re-evaluate your choice using a process that ensures you meet your fiduciary responsibilities, factoring in the broader selection of TDFs currently available, and: - your selection was more recent, then: Update IPS Ensure your Investment Policy Statement includes language supporting the inclusion and choice of target date fund in your plan — if no, update it (see J.P. Morgan’s QDIA IPS Template) Document and file Ensure you have a documented process supporting your choice of QDIA (TDF) Professional advice Work with your advisor to help you with the evaluation and final selection process 32

Target Date Funds: An Investment Consultant’s Perspective April 23, 2013 Mark McCoy, MBA, AIFA® Founder & President Retirement Fund Management 770.399.8803 mark.mccoy@rfm401k.com

Target Date Fund (TDF) Current Environment Dec. 2012, 71% of TDF assets are held by participants that are in the “Transition Phase” (i.e. from today to 2030 or close to retirement date) TDFs will continue increase their allocation of DC assets TDFs are well-suited for “delegators”, who account for up to 80% of plan participants. 90% + of participants who are defaulted into target date funds tend to stay. The “To” or “Through” glide path approach has become accepted but only 21% of TDF prospectuses list a target date benchmark index Morningstar recently created new conservative, moderate & aggressive TDF indexes Concerns about the use of proprietary funds may encourage custom target date options Some support for one-time re-enrollment or annual re-enrollment to TDF

Target Date Funds (TDF) Fact Sheet Dec. 2012, $485 billion in target date mutual funds with annual cash flows of $55 billion Dec. 2012, 46 fund families with 403 funds Top three are: Fidelity, Vanguard & T Rowe Price have 75% of total TDF assets Dec. 2012, 75% of fund families are experiencing inflows Notable firms with outflows: Alliance Bernstein, Principal & ING TDFs that closed: Goldman Sachs, Columbia, Oppenheimer and American Independent TDFs that lack a proprietary recordkeeping system are generally at a disadvantage when gathering assets Most TDFs are moving to fill the 5 year increment gaps

Available today with 3-year track record data as of December 31, 2012 Powered by Lipper, a Thomson Reuters Company. Percentage of equity exposure at age 65: Strategic allocation to non-fixed income asset classes at target date, typically age 65. Asset class diversification: Determined by exposure, across each company’s suite of target date funds, to 12 separate asset classes as reported to Lipper through asset allocation, capitalization, credit quality, sector, region and country data as well as underlying fund categorization. The 12 asset classes include: Large Cap Equity, Mid Cap Equity, Small Cap Equity, Developed International Equity, Emerging Markets Equity, REITs, Commodities, U.S. Fixed Income, High Yield, TIPS/Inflation, International Fixed Income and Emerging Markets Debt. Please see the Target Date Compass Methodology booklet for additional information. 16 17

GLIDE PATHS & RISK “TO” or Conservative LONGEVITY RISK M O R E MARKET RISK “To/Through Hybrid” or Moderate MARKET RISK LONGEVITY RISK “THROUGH” or Aggressive M O R E MARKET RISK L E S LONGEVITY RISK

Resources Available Target Date IPS Allianz Plan Sponsor Questionnaires to Assess Possible Target Date Options JP Morgan Transamerica/Diversified Target Date Suite Analysis Morningstar BrightScope/Target Date Analytics (TDA) – Popping the Hood study JP Morgan – Compass PIMCO American Century

Target Date Funds IS ONLY ONE TYPE OF DB-ization Bill Rodenbeck, Investment & Cash Manager Gwinnett County, Georgia April 23, 2013 Good Afternoon, and thanks for the Introduction. I would like to make a few introductory points from a Plan Sponsors viewpoint about how this low yield environment is affecting our Asset Allocation decisions!

Gwinnett County “DB-ization” Goals Goals of DB-ization Improve Participant Savings Rates and Contributions; Improve Participant Returns while Managing Risk. Bond yields remain at a 45-year low according to ING. Current Asset allocation should favor Stocks because they are out of favor and offer attractive valuation to Bonds. Money flow has been greater into bonds than stocks. Stock s have been shun by individual investors. But Tail Risks in this Uncertain World requires us To Manage Both. Tail Risk is defined as those events that have a small probability of happening but have great impact on the markets. They are Fiscal Cliff, Election, Europe, Global Recession or Slowdown. But Bonds provide diversification and are not strongly correlated to Equities. So having both stocks and bonds make sense.

Returns & Contribution Rates Drive Balances Speaker Notes: We are all expected to work until we drop to fund our retirement But those that are responsible for DB Plans will have to maximize returns will managing risks.

Gwinnett County Approach is Trivector THREE PRONG APPROACH Managed Accounts for New Hires; Lifestyle funds For Those Directing Asset Allocation; Target Date Funds Tied to Guaranteed Lifetime Withdrawal Benefit. Bond yields remain at a 45-year low according to ING. Current Asset allocation should favor Stocks because they are out of favor and offer attractive valuation to Bonds. Money flow has been greater into bonds than stocks. Stock s have been shun by individual investors. But Tail Risks in this Uncertain World requires us To Manage Both. Tail Risk is defined as those events that have a small probability of happening but have great impact on the markets. They are Fiscal Cliff, Election, Europe, Global Recession or Slowdown. But Bonds provide diversification and are not strongly correlated to Equities. So having both stocks and bonds make sense.

Managed Accounts Work for New Hires Professionally managed by Ibbotson. Fees are low on a relative and absolute basis: Range between .20%-.50%; $5,000 balance incurs an annual fee $25; $50,000 balance incurs an annual fee $250. Returns beat group returns not enrolled in Advisory Services by over 3.0% over a 3-year period (Q1 2008 thru Q1 2011). Selected by new hires 90% of the time. Represents 11% of Assets and 20% of accounts. But Bond Yields are so low that having a large allocation to bonds will not provide expected returns needed by most Plans. If your Plan is 50% in Bonds and you get 2% or even a 4% return you have to 12% to 14% in Equities to make an overall 8%. Both Nominal and Real Yields on 10-year Treasuries are far below long term averages. ING determines duration and asset mix so they will discuss some of their investments strategies in this low interest environment. But for the money I invest in Gwinnett County’s Operating Funds which is about $1 Billion that is received annually thru Tax Digest and Sales Taxes my Strategy is to Buy Bonds with Shorter Maturities and Call Dates. I favor Higher coupon Bonds with a maturity of five years or less with a Coupon Rate or Cushion of 25-50 basis points above market with a call date of three to nine months. A cushion also exists because at the call date they have a shorter maturity. So an original 5 year bond becomes 4 and 4 becomes 3. I am getting Yields to Call of 35-45 basis points with a short duration and high probability of being called. If not called they have a higher yield to maturity than current new issues. I also invest in C.D.’s are paying me from 30 to 70 basis points with maturities from 90 days to 2 years.

Target Date Funds TARGET DATE FUNDS Introduced Fall 2012. Tied to Guaranteed Lifetime Withdrawal Benefit. Invest in only index funds. Guaranteed Lifetime Withdrawal Benefit costs .90% annually + index fund expenses. Benefits of Guaranteed Lifetime Benefit: Lifetime income regardless of market performance; Benefits increase with investment performance; Benefits ratchet up with an income floor; Removes non-participation risk with equity exposure; Removes longevity risk; Balances remaining in the account after death go to Spouse or to beneficiary. According to ING, Equities look cheap when compared to earnings yield and dividend yield. The Third Quarter ING Global Perspective provides reports that show this. In fact most of my comments today were derived from the 80 or charts from the Global Market Perspective. Tail risks provide volatility and corrections to markets. You can use those opportunities to add to Equities. Fiscal Cliff is defined as those 2012 year end events where tax breaks expire and spending cuts take place. I favor Mid-Cap And Small-Cap stocks because when the World Recovery starts the US may lead world economy due to abundant and cheap energy. This will spur growth and manufacturing. This will produce new employment in energy , manufacturing and transportation. This should also provide long term relief to the consumer in lower energy prices. So the consumer can save and spend on other goods and services. Also, this may expedite the long term bottoming in housing which has been a drag. Large Cap is currently getting hit because of the Global Slowdown and Dollar Appreciation. So if you buy Large Cap I favor those stocks with good dividends . But that party may end when interest rates go up.

Lifestyle Funds LIFESTYLE FUNDS Offered since 2000. Represents about 19% of Assets. Allows participant to choose their Asset Allocation. Works well with Stable Value Products (can avoid bonds). Adjusts to changes in economic conditions. May have low or high risks and not be balanced. Asset Allocation drives returns. My risk reward ratio would favor Stocks and should provide the bulk of the returns. Negative real interest rates and accommodative Fed create long term opportunities with stocks and more risk with Long Bonds. Chasing yields or trends never pays off.

Conclusions Fear and Greed create bubbles. Asset Allocation Drives Return. Diversify to manage risk. Participants need autopilot. Avoid procrastination. Fear and Greed create bubbles. Retirement Plans are more than savings vehicles. Asset Allocation drives returns. My risk reward ratio would favor Stocks and should provide the bulk of the returns. Negative real interest rates and accommodative Fed create long term opportunities with stocks and more risk with Long Bonds. Chasing yields or trends never pays off.