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Presentation on theme: "Picture Placeholder For Institutional Investor Use Only. Not for Use With or Distribution to the Public."— Presentation transcript:

1 Picture Placeholder For Institutional Investor Use Only. Not for Use With or Distribution to the Public.

2 2 Meeting your fiduciary responsibilities – a seven-step process Provide effective ongoing participant education and advice. Understand your fiduciary and compliance responsibilities. Create or review your Investment Policy Statement. Update your investment menu. Monitor and review the investment options in your plan. Properly document your fiduciary activities. Understand your participants’ needs and demographics

3 3 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. > %$328,368$231,006, % %$168,567$167,302, % %$66,300$47,603, % %$30,947$18,150,4163.9% %$8,452$4,483,7861.0% < %$2,543$230,1420.0% 3,622$129,443$468,777, % Age Range Participant Count% Participant Balance Participant Dollars % Avg. Step 1 Understand your participant needs and plan demographics This data represents information from a single TIAA-CREF client. The dollar amounts and participant counts were changed by a constant proportion so as not to reveal the client identity, but the percentage figures did not change. 4.9% 85.0% Age Range Participant Count% Participant Balance Participant Dollars % Avg. Understand the plan’s “Dollar Demographics” 1

4 4 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Understand your participant needs and plan demographics. Understand the use of funds by retirees 1 One TIAA-CREF Wealth Manager’s General Observation:  For one-third of near-retirement participants, their sole retirement savings is what they have in the plan.  A second one-third of near-retirement participants, have outside assets up to $400,000 - $500,000  A final one-third have greater outside savings.

5 5 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Understand your participant needs and plan demographics. Consider the participants’ physical and mental abilities and limitations 1 Retirement Realities U.S. Life Expectancy at Birth PeriodHealthy LifeYears With Total Life ExpectancyDisability Expectancy 2010: 68.1 years10.1 years 78.2 years 1990: 65.8 years9.4 years 75.2 years The Wall Street Journal July 10, 2013 “Institute for Health Metrics and Evaluation ” “The prevalence of Alzheimer’s disease doubles every five years beyond age 65.” (National Institute on Aging. (1999). Progress Report on Alzheimer’s Disease, National Institutes of Health: Bethesda, MD.) “Recent research has found that 70 percent of people in their 80s have some degree of dementia or diminished mental capacity.” (Blake & Associates, Boston)

6 6 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. The Prudent Person Standard A fiduciary is obligated to act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use. Step 2 Understand your fiduciary and compliance responsibilities. Procedural Prudence Test  A fiduciary’s prudence is judged by the process used in reaching a decision.  The decision-making process is more important than the outcome of the decision. Prudent Process  Identify relevant information.  Use experts where appropriate.  Document decisions. Applicability  Private Institutions subject to ERISA. State statutes may govern Public Institutions. 2

7 7 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Step 3 Create or review your Investment Policy Statement. Investment Policy Statement  A fiduciary “best practice”  Not required by DOL The focus of ERISA is on the prudent process for choosing investment options, and does not require plan sponsors to guarantee investment performance. 3

8 8 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Step 4 Update your investment menu Is your plan menu…. Complete Does it offer a sufficient set of investment choices for plan participants? Complex Does the menu offer too many choices to the point of being confusing or underutilized? Competitive Is the menu built with appropriate offerings across all menu tiers? Cost-effective Are fees competitive with peers and is the plan taking advantage of its “buying power”? Compatible Is the menu aligned with participant needs for asset accumulation and retirement spending? 4

9 9 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Appendix The fine print – One client menu (168 choices) This is a menu from an actual TIAA-CREF client but the dollar amounts were changed proportionately for each option so as not to provide information that would reveal the client’s identity. 4

10 10 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Appendix The finer print – another client menu (348 choices) This is a menu from an actual TIAA-CREF client but the dollar amounts were changed proportionately for each option so as not to provide information that would reveal the client’s identity. 4

11 11 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. The bold reality Options Counted % of Options% of Assets% of Options% of Assets Top 5 Options 3.0%68.8%1.4%40.9% Top 10 Options 6.0%82.1%2.9%52.8% Top 20 Options 11.9%89.1%5.7%65.5% Top 50 Options 29.8%95.6%14.4%80.9% First 50% of Menu Options 50.0%98.5%50.0%97.7% Second 50% of Menu Options 50.0%1.5%50.0%2.3% 168 Option Menu348 Option Menu Summary Menu Statistics from the Prior Two Slides 4

12 12 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Focus on fees Expense ratio information is shown net of any applicable fee waivers as provided in each Account’s prospectus. Data was obtained from Morningstar. Please note expense comparison may mask important differences in performance, portfolio qualities, and access. Fund Count Duplicate Funds VendorFundAssets Prospectus Net Expense Ratio (bps) Mortality and Expense Charges (bps) Total Fee Paid (bps) Participant Cost of the M&E Charges 1AVANGUARD Vanguard LifeStrategy Cnsrv Gr Inv $3,021, BVANGUARD Vanguard LifeStrategy Growth Inv $15,233, CVANGUARD Vanguard LifeStrategy Moderate Gr Inv $9,338, DVANGUARD Vanguard Long-Term Investment-Grade Inv $5,060, EVANGUARD Vanguard Long-Term Treasury Inv $4,855, FVANGUARD Vanguard Wellington Inv $48,869, GVANGUARD Vanguard Windsor II Investor $22,897, AVALIC Vanguard LifeStrategy Cnsrv Gr Inv $237, $1, BVALIC Vanguard LifeStrategy Growth Inv $273, $2, CVALIC Vanguard LifeStrategy Moderate Gr Inv $168, $1, DVALIC Vanguard Long-Term Investment-Grade Inv $752, $6, EVALIC Vanguard Long-Term Treasury Inv $1,170, $9, FVALIC Vanguard Wellington Inv $8,340, $66, GVALIC Vanguard Windsor II Investor $9,623, $76, $164,

13 13 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Rethinking Retirement – Returning to our roots In 1894, American-born William Chaucer Hooker invented the mousetrap. Twenty four years later, TIAA introduced its first annuity. Some things just stand the test of time. 4 U.S. Patient Office

14 14 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Where we invest – the TIAA Traditional Annuity Current payout rate for a long-term TIAA Traditional participant: 8.00%** Current Payout Rates VintagePayout Rate Pre– % 1992– % 1998– % 2010– % 2012– % %  Fixed annuity payouts have historically been higher than mutual fund “rule of thumb” withdrawal rates of 4%  Payments are guaranteed* for life  Guaranteed* minimum periods such as 10,15, or 20 years are available * Subject to the claims paying ability of TIAA. ** As calculated by TIAA-CREF Product Actuarial Group. Rates do not reflect a payout guarantee term of 20 years that is used elsewhere in this presentation.

15 15 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Where we invest – CREF Variable Annuities Shared risk and shared rewards Accumulated balance Mutual Fund Monthly withdrawals 4% withdrawal rate Unused balance to estate Variable Annuity Accumulated balance Annuity pool Other participants Monthly payments Approximately 6.19%** payout rate ** The 6.19% payout rate is for a 20-year guarantee. A 6.8% rate applies to non-guaranteed payments. The 6.8% rate is calculated by using the current AIR rate, annualized.  Variable annuities and mutual funds both accumulate wealth to retirement  But, offer much higher payout rates through retirement  Minimum guaranteed* periods may provide for estate options at death * Subject to the claims-paying ability of TIAA-CREF. Payments to Estate ( if Guaranteed Period Selected)*

16 16 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. How we invest TIAA Traditional Fixed Annuity CREF Variable Annuities TIAA-CREF Lifecycle (Target Date) Funds Retirement Income to 2055 Fund Mutual Funds An attractive attribute: Lifetime Income An attractive attribute: Ease of Use * Subject to the claims-paying ability of TIAA-CREF. Mutual Funds

17 17 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. US Equity Fund XX% Non-US Equity Fund XX% US Bond Fund XX% Non-US Bond Fund XX% US Equity Annuity XX% Non-US Equity Annuity XX% Fixed Annuity XX% Non-US Bond Fund XX% Annuitized Target Date Structure (hypothetical) A question leading to a concept A Typical Target Date Structure (hypothetical)  Can we combine the convenient structure of target date funds with the attractive investment and retirement features of our annuity strategies?  What would it look like?  What could it do for participants? TIAA-CREF Fixed and Variable Annuities TIAA Fixed Annuity CREF Stock, CREF Money Market, CREF Bond Market, CREF Infl.-Linked Bond, CREF Social Choice, CREF Equity Index, CREF Growth, CREF Global, TIAA Real Estate Annuity += Fund 20XX

18 18 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Illustration #1 35-year-old Initial monthly contribution $575 (15.0% of salary) Accumulations at age 65 $1,000,000 Initial annual payouts in retirement Payout: 4% Drawdown $40,000 Detailed calculations in APPENDIX SCHEDULE 1 A hypothetical mutual fund-based target-date strategy for the 35-year-old participant Case study:  A 35-year-old participant finds that she will need a $40,000 annual income in retirement to reach her retirement goals  To meet her goals, it is expected that she will need to accumulate $1,000,000 by age 65  But, this will require her to save 15% of salary or $575 per month, starting today  Saving that much may be difficult in this stage of her career. She will need to save much more than anticipated This illustration is purely hypothetical and is not intended to predict or project returns.

19 19 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Illustration #2Mutual Fund Structure“Fully Annuitized” Structure Initial monthly contribution $575 (15.0% of salary) $397 (10.4% of salary) Accumulations at age 65 $1,000,000 $655,490 Initial annual payouts in retirement Payout: 4% Drawdown Payout: Variable and Fixed Annuities $40,000$40,000* 31% less in monthly contributions Detailed calculations in APPENDIX SCHEDULE 1 *Priced to payout for a minimum of 20 years subject to claims-paying ability of the issuing company. Fixed Annuity assumes “new money” at 6.5% payout rate. Detailed calculations in APPENDIX SCHEDULE 2 Hypothetical mutual fund-based and “live more” annuity-based target-date strategies for the 35-year-old This illustration is purely hypothetical and is not intended to predict or project returns.

20 20 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Illustration #4Mutual Fund Target Date Structure Fully Annuitized “Live More” Target- Date Solution “Savings Surplus” Initial monthly contribution $575$397$178 Accumulations at age 65 $1,000,000$655,490 Initial annual payouts In retirement Payout: 4% Drawdown Payout: Variable and Fixed Annuities $40,000$40,000* Detailed calculations in APPENDIX SCHEDULE 1 Detailed calculations in APPENDIX SCHEDULE 2 A hypothetical retirement strategy with targeted, purpose-driven savings An “in-place” retirement plan… * Priced to payout for a minimum of 20 years subject to claims-paying ability of the issuing company. Fixed Annuity assumes “new money” at 6.5% payout rate. This illustration is purely hypothetical and is not intended to predict or project returns.

21 21 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. An “in-place” retirement plan… Illustration #5Mutual Fund Structure Fully Annuitized “Live More” Target- Date Solution Purpose-Driven Savings (Diversified Equity Variable Annuity) Initial monthly contribution $575$397$178 Accumulations at age 65 $1,000,000$655,490$406,078 Initial payouts in retirement Payout: 4% Drawdown Payout: Variable and Fixed Annuities $40,000$40,000* A hypothetical retirement strategy with targeted, purpose-driven savings...with additional assets Detailed calculations in APPENDIX SCHEDULE 1 Detailed calculations in APPENDIX SCHEDULE 2 *Priced to payout for a minimum of 20 years subject to claims-paying ability of the issuing company. Fixed Annuity assumes “new money” at 6.5% payout rate. Detailed calculations in APPENDIX SCHEDULE 3 This illustration is purely hypothetical and is not intended to predict or project returns.

22 22 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Rethinking Retirement – Menu design principles We believe a tiered investment menu offers choice, serves all employees’ needs, and ultimately seeks to deliver favorable outcomes for financial security in retirement. Customization and Choice Extended Choice Foundational Open Architecture Active and Indexed mutual funds “One Decision” Target Date or Asset Allocation funds Retirement Readiness Brokerage Window Participant access to nearly 15,000 mutual funds** (optional) * Guarantees are subject to the issuer’s claims-paying ability. Payments from the variable accounts will rise or fall based on investment performance. ** Rarely used by clients and their participants. 4

23 23 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Step 5 Monitor and review investment options in your plan. Investment reviews  Industry-standard monitoring  Objective measurement metrics Quarterly webinars Website tools and resources 5

24 24 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Step 6 Properly document your fiduciary activities. Investment Documentation:  Investment Policy Statement  Investment Policy Questionnaire  Menu Analysis  Plan Performance Monitoring  Committee Meeting Minutes Investment services and resources:  Webinars  White papers  Participant communications  Website tools Recently released:  TIAA-CREF “Fiduciary Toolkit” 6

25 25 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Step 7 Provide effective ongoing participant education and advice. Enrollment Kits / Investment Menus Investment Communications QDIA NoticesFee DisclosuresAccount Statements Financial Education, Workshops and One-on-One Counseling using Ibbotson Third-Party Advice myRetirement.org Retirement Income Planner Retirement Advisor (Online Advice) Enhanced Digital Experience and Online Tools Targeted Communications In-Person and Online Seminars Individual Counseling 2012 Core Campaign: Participation, Diversification & Financial Education Know How Now Financial Series Customized Website Secure Participant Website 7

26 26 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Appendix For Institutional Investor Use Only. Not for Use With or Distribution to the Public.

27 27 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Appendix – Schedule 1 Hypothetical Target Date Fund Weightings YearAge Fund Sleeve R3000 BARCAP AGG EAFE CITI WGBI TOTAL Hypothetical Mutual Fund Target Date Series $ $575 Asset 20-yr returns 1/94 to 12/ Begin Balance ContributionAvailableR3000BARCAP AGGEAFECITI WGBIEnd BalanceAvg Fee $0$6,895 $4,741$597$1,950$145$7, $45, 064$7,613$52,677$36,220$4,560$14,894$1,109$56, $115,339$8,405$123,745$80,493$15,806$33,029$3,908$133, $221,636$9,280$230,916$136,861$44,368$56,037$10, 941$248, $378, 120$10,246$388,366$206,864$99,630$85,231$24,944$416, $603, 487$11,313$614,800$292,606$196,679$120,016$49,201$658, $923, 206$12,490$935,696$378,941$371,453$156,988$92,617$1,000, % Withdrawal $15, 158$14,858$6,280$3,705$40,000 For all illustrations, analysis begins at age 35 and ends at age 65. Market Indexes and returns used in this and other examples are from Morningstar except TIAA Traditional Annuity, from TIAA-CREF and represent the annualized historic return of each strategy or index for 20 years ended Components and returns used are: Russell 3000: 9.32%, Barclays Aggregate Bond Index: 5.74%, TIAA Traditional Annuity 5.98%, MSCI EAFE Index: 5.68%, Citigroup World Govt. Bond Index: 5.46%. In each example, the hypothetical weights are applied to strategies and rebalanced annually. Fees vary by example. For mutual fund-based examples, a flat fee is applied to each strategy and this fee declines slightly over time. For annuity-based examples, the current fees for CREF Stock, TA Traditional, CREF Global, and DFA World ex US Fixed Income fund are applied against the respective returns of the Russell 3000, TA Traditional, MSCI EAFE, and Citigroup World Government Bond Index. All models assume a beginning participant salary of $ annually with a 2% annual escalation. Hypothetical Mutual Fund TD Fees All fees are the Target Date Sleeve fees. R3000 BARCAP AGG EAFECITI WGBI Past performance is no guarantee of future results. You cannot direct invest in an index.

28 28 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Appendix – Schedule 2 Hypothetical Target Date Fund Weightings YearAge Fund Sleeve R3000 TA TRADITIONAL EAFECITI WGBITOTAL Hypothetical Mutual Fund Target Date Series $ $397 Asset 20-yr returns 1/94 to 12/ Begin Balance ContributionAvailableR3000 TA TRADITIONAL ANNUITY EAFE CITI WGBI End Balance Avg Fee $0$4,760 $3,264$597$1,950$145$7, $30,840$5,2563$36,096$24,748$4,560$14,894$1,109$56, $78,311$5,803$84,113$54,558$15,806$33,029$3,908$133, $149,266$6,406$155,672$91,994$44,368$56,037$10, 941$248, $252,500$7,073$259,574$137,857$99,630$85,231$24,944$416, $399,648$7,809$407,458$193,338$196,679$120, 016$49,201$658, $606,127$8,622$614,750$248,211$243,674$102,779$60,826$655, Current AIR: VAFXD ANN.VAMF % To Annualize AIR:12 Annualized AIR: % Current New Money Rate for TAT:6.50% 20-Year Guarantee Factor:0.911 $15,412$14,429$6,382$3,777$40,000 Hypothetical Mutual Fund TD Fees CREF STOCK FEE TA TRADITIONAL FEE EAFE CITI WGBI For all illustrations, analysis begins at age 35 and ends at age 65. Market Indexes and returns used in this and other examples are from Morningstar except TIAA Traditional Annuity, from TIAA-CREF and represent the annualized historic return of each strategy or index for 20 years ended Components and returns used are: Russell 3000: 9.32%, Barclays Aggregate Bond Index: 5.74%, TIAA Traditional Annuity 5.98%, MSCI EAFE Index: 5.68%, Citigroup World Govt. Bond Index: 5.46%. In each example, the hypothetical weights are applied to strategies and rebalanced annually. Fees vary by example. For mutual fund-based examples, a flat fee is applied to each strategy and this fee declines slightly over time. For annuity-based examples, the current fees for CREF Stock, TA Traditional, CREF Global, and DFA World ex US Fixed Income fund are applied against the respective returns of the Russell 3000, TA Traditional, MSCI EAFE, and Citigroup World Government Bond Index. All models assume a beginning participant salary of $ annually with a 2% annual escalation. Past performance is no guarantee of future results. You cannot direct invest in an index.

29 29 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Appendix – Schedule 3 Hypothetical Equity Investment YearAge Fund Sleeve R3000TOTAL Hypothetical Equity Investment $2,136$178 Asset 20-yr returns 1/94 to 12/ Begin BalanceContributionASSETR3000End BalanceAvg Fee $0$2,136 $2, $14,383$2,358$16,741$18, $37,837$2,604$40,441$44, $75,297$2,875$78,172$85, $134,310$3,174$137,484$149, $226,419$3,504$229,923$250, $369,261$3,869$373,130$406,078$406, Current AIR from BENNY: % To Annualize AIR:12 Annualized AIR: % Current New Money Rate for TAT: 20-Year Guarantee Factor:0.911 Annuitized:$25,214 4% Withdrawal$16,243 Hypothetical Fees CREF STOCK FEE 0.49 For all illustrations, analysis begins at age 35 and ends at age 65. Market Indexes and returns used in this and other examples are from Morningstar except TIAA Traditional Annuity, from TIAA-CREF and represent the annualized historic return of each strategy or index for 20 years ended Components and returns used are: Russell 3000: 9.32%, Barclays Aggregate Bond Index: 5.74%, TIAA Traditional Annuity 5.98%, MSCI EAFE Index: 5.68%, Citigroup World Govt. Bond Index: 5.46%. In each example, the hypothetical weights are applied to strategies and rebalanced annually. Fees vary by example. For mutual fund-based examples, a flat fee is applied to each strategy and this fee declines slightly over time. For annuity-based examples, the current fees for CREF Stock, TA Traditional, CREF Global, and DFA World ex US Fixed Income fund are applied against the respective returns of the Russell 3000, TA Traditional, MSCI EAFE, and Citigroup World Government Bond Index. All models assume a beginning participant salary of $ annually with a 2% annual escalation. Past performance is no guarantee of future results. You cannot direct invest in an index.

30 30 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. Disclosures This material is approved for a private presentation by authorized individuals only and, accordingly, this material is not to be reproduced in whole or in part or used for any purpose except as authorized by TIAA- CREF Institutional Sales and Services. This material is to be treated as strictly confidential and not disclosed directly or indirectly to any party other than the recipient. This material is not approved for public use or distribution. The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value. TIAA-CREF products may be subject to market and other risk factors. See the applicable product literature, or visit tiaa-cref.org. for details. Past performance is not indicative of future results. You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call , or go to tiaa-cref.org for a current prospectus that contains this and other information. Please read the prospectus carefully before investing. TIAA-CREF cannot and does not provide legal advice and recommends that plan sponsors consult their own legal advisors for such advice. TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association (TIAA) and College Retirement Equities Fund (CREF), New York, NY.

31 31 For Institutional Investor Use Only. Not for Use With or Distribution to the Public. © 2012 Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF), 730 Third Avenue, New York, NY For Institutional Investor Use Only. Not for Use With or Distribution to the Public. C6130 | TW _ (9/12)


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