Contractual Savings Conference Larry Zimpleman Executive Vice President Principal Financial Group April 30, 2002

16% CAGR 11% CAGR

Estimated Distributions from DC Plans Source: CA Research, EBRI, ICI ($ billions)

Baby Boomers Approach Retirement Source: Investment Company Institute (ICI), Cerulli Associates 401(k) Participants by Age Group

20,000 30,000 40,000 50,000 60,000 70,000 80,000 90, , E2004E2008E2020E2040E 2050E Population in Thousands 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90, , to 6465 and over Industry Perspective ProtectionAccumulationPayoutTransfer Life Insurance, Disability Insurance IRAs, 401(k)s, Mutual Funds, Annuities, Life Insurance Annuities, Periodic Withdrawals Life Insurance, Long- Term Care Insurance Sources: U.S. Census Bureau and Credit Suisse First Boston Corporation.

Changing Retirement Landscape Increased lifespan and earlier retirements resulting in 20 to 30 year retirements versus historical 10 to 15 years. Maximum monthly social security pension payment around $1, % of current retirees’ have no DB plan Guaranteed portion of retirement income is declining: E Federal Inc. (SS):42%19% Pension (DB Plan):14%5% 56%24%

Changing Needs Pre-retirement Needs: –Manage income and expenses so individual can actually save for retirement. –Manage investments to maximize growth. In-retirement Needs: –Need to manage funds, so individual doesn’t outlive assets. –Need to manage the investment risk carefully. –Need to withdraw money periodically for living expenses. –Need to maximize funds to take care of a spouse after death. –Need to manage funds to afford to pay possible health care or nursing home needs.

Mutual Funds Strengths –Grow nest egg –Choose funds –Access assets Weaknesses –No income guarantee –No protection against long-term illness –Market fluctuations Annuities Strengths Never outlive income Avoid equity market fluctuations Weaknesses No penalty-free access to money No protection against long- term illness No growth potential Typically, no inflation protection Lifetime Income IRA Capitalizes on Strengths and minimizes Weaknesses of the alternative products Time to grow nest egg Maximizes flexibility Attach other benefits Benefit cost averaging Income Management Solutions

Accumulation Mutual Funds Security Annuities Transition Market Investments Secure Retirement Benefits Secure Retirement Date Income Start Date Core Concept & Vision: Integrating Two Industries

Lifetime Income IRA Program Market Investments Stock Mutual Funds Bond Mutual Funds Money Market Funds Money is transferred periodically to fund these benefits Pension Benefits Survivor Caregiver Legacy Guaranteed lifetime income Increase in income benefit if criteria met Guaranteed lifetime income to either survivor Guaranteed benefit for heirs Unneeded income can be reinvested without tax consequences Income IRA Payment to Client (Optional Benefits)

How Lifetime Income IRA Program’s Moving Parts Work Together Pension Benefit Survivor Benefit Legacy Benefit Caregiver Benefit Changes with investment performance until Secure Retirement Date; may be increased automatically to offset inflation May be set at % of Pension; may be reduced at any time May be set at 0-100% of Pension; may be reduced at any time If elected, will provide an increase in income; set at % of Pension and covers both spouses if Survivor Benefit is elected Benefit How It Works

Value of Lifetime Income IRA: Can’t outlive Lifetime Income IRA Program. Won’t have to guess at how much he/she can afford to spend to support lifestyle. Retirement income can increase when either/both spouse is disabled or sick. Can support spouse or provide for the next generation. Can continue to participate in the market while building up secure lifetime income. Not locked in—individual can adjust plan.

Conclusions Payout phase natural extension of accumulation phase. Product/Service solutions not identical; payout phase may provide: –Income security –Life event recognition, such as benefits for: Legacy and/or Survivor Health care Companies working on creative solutions

Thank you!