Retirement Income Solutions Overview March 2012

 Focusing on retirement income solutions is the next frontier for many plan sponsors, investment managers, recordkeepers and other providers. While a number of solutions have existed for some time, the current pace of innovation is quite high.  Why has the focus turned to retirement income solutions? DC plans are becoming the primary retirement vehicle – 70 companies within the Fortune 100 offer DC plans only today vs. 10 in 1998 (1) There is an increasing focus on the “decumulation” phase and investors want a steady stream of income in retirement (2) Adoption of solutions is slow, but growing: 29% of plans in a recent survey provide at least one type of income solution, with 18% offering out-of-plan annuities and 15% offering some sort of an in-plan solution (3) Increased regulatory interest in and apparent support for lifetime income and annuities in DC plans While many smaller plans have been embracing these solutions, large plans are beginning to adopt solutions, which should lead to broader adoption among other mid and large plans Sources: 1)Towers Watson 2011 study, July )AlllianceBernstein Research Survey, March )Aon Hewitt’s 2011 Trends & Experience in Defined Contribution Plans Retirement Income Solutions – Overview

Retirement Income Solutions – Landscape A simplistic view of the rapidly evolving marketplace: Out-of-Plan Uses Annuities/GuaranteesDoes Not Use Annuities/Guarantees In – Plan Solutions Made Available by Plan Sponsor Annuity Window Access to Institutionally Priced (typically Fixed) Annuities at Retirement Managed Payout Funds Mutual funds with goal of periodic distributions Education/ Advice/ Guidance/ Managed Account Services Comprehensive Asset Allocation/Target Date Solutions with Insurance Guarantees or other Annuity Features Traditional In- Plan Annuities May Involve Annuities/Guarantees

Retirement Income Solutions – Modeling Results  Rocaton built a proprietary evaluation model that incorporates long-term capital markets assumptions in a Monte Carlo scenario analysis framework to help evaluate the potential range of outcomes for a participant investing over a full life-cycle.  Recently, we have also expanded the model to be able to compare target date funds, balanced accounts, managed accounts and retirement income solutions with insurance guarantees all in one framework  We have found that a representative target date fund runs out of money 15% of the time by age 85  Even with careful “financial engineering”, a product without the use of an insurance guarantee tends to run out of money 8% of the time by age 85 Note: Outputs are based on a number of underlying assumptions, which are meant to be illustrative examples not pertaining to any specific product available in the marketplace, nor indicative of future results.

Retirement Income Solutions – Next Steps  Is providing plan participants with a retirement income solution answering a real need?  Are participants ready for income options?  What are the risks and rewards of being an early adopter vs. taking a “wait and see” approach?  Is it worthwhile to add an option near-term that is administratively less complex while continuing to monitor the market and potentially adding a more complex product in future years?