1. In-Plan Retirement Income Solutions: Offering a Defined Benefit solution in your 401(k) Plan Moderator: Rick Unser, AIF, QPFC, CRPS, Lockton Investment Advisors, LLC Panelists: James Lyday, Prudential Retirement Steve Smith, Diversified Investment Advisors Derek McDougal, John Hancock Retirement Services Chip Castille, BlackRock

2. What are the challenges? Longevity Risk of Baby BoomersShift away from traditional pension plans For over 63% of Americans, their 401(k) will be the only source of income, apart from Social Security InflationEconomic and Market Risk 38% of workers over age 62 have had to delay their retirement due to the current recession A participant who planned to retire in 2008, would have to delay 5 years, assuming 7% investment returns, to get to the 2007 balance. 36% chance that at least one of a couple of healthy 65- year-olds will live to 95 The inflation rate is assumed at 4% per annum. Example is hypothetical and for illustrative purposes only.

3. Where is participant awareness? Generally aware that: – 401(k) plans will play a major role in their retirement – Social Security is only a building block – They are principally responsible for their retirement Still working on: – Retirement Readiness – Understanding economic and market risks – Ways to generate a stream of income they will not outlive

4. What is a Retirement Income Solution? Basic Definition: A voluntary option offered within the core investment line-up of a qualified retirement plan which offers plan participants: – Protection from market losses – Potential to participate in market gains – Guaranteed stream of income at retirement – Institutional pricing

5. How did these programs evolve? Individual Annuities Individual Variable Annuities In-Plan Retirement Income

6. Out of Plan vs. In Plan Reducing “Sequence of Returns” risk was the innovation Mr. Smith Retired with $100,000 Withdraws $5,000 per year Began drawing income when markets were falling Ms. Jones Retired with $100,000 Withdraws $5,000 per year Began drawing income when markets were rising Hypothetical example for illustrative purposes only.

7. Case Study Results Reducing risk in retirement When withdrawals are being taken, the order of return matters. The bad luck of retiring at the wrong time The good luck of retiring at the right time

8. What is the response in the market? Estimated Assets - $1.4 Billion Percentage of new plans adopting? >50% Percentage of participants utilizing? 5-10%

9. What should a plan sponsor consider? ConsiderationsQuestions Is there a need? Age of workforce, exiting defined benefit plan, etc. Fees Are they necessary and reasonable? Market Exposure What is the strategy for participants to experience potential market appreciation? Financial Ratings Look at claims paying ability and credit ratings Portability What happens if you change providers?

10. Questions????

11. ILLUSTRATIONS AND EXAMPLES 11

12. What are some key features of the programs? Market Value Step Up Down Side Protection Guaranteed Minimum Withdrawal Benefit

13. Market Step Up Example – Declining Market Hypothetical example for illustrative purposes only.

14. Market Step Up Example – Rising Market Hypothetical example for illustrative purposes only.

15. Guaranteed Minimum Withdrawal Benefit Even if investment performance and guaranteed withdrawals bring Market Value to $0, checks will continue and never decrease!

16. Target Date Retirement Income Target Date Retirement Income combines two familiar and accepted concepts: – Target-Date Funds — ensure automatic and age appropriate asset allocation – Annuities — Fixed deferred annuities replace traditional fixed income investments, providing participants with a hedge for longevity risk in retirement Low-cost, transparent, and institutional collective trust fund Target Date Retirement Income can be a QDIA, allowing plan sponsors to make income accumulation the default Time horizon Short Long Risk % US Large Cap Equities Deferred Fixed Income Annuities Global Real Estate US Small/Mid Cap Equities International Equities Annuity component provides increased access to income as the participant nears retirement Return %

17. New Concepts for In-plan Retirement Income Jake, 22 years old, works for XYZ Corp. – His starting salary is $42,500 – His contribution to the Target Date Income fund is 4.0% As Jake saves over the years, his Target Date Income fund could look like the following: Monthly income to begin at age 65 from Jake’s pro-rata portion of annuities Total cash value of the Target Date Income investment (investment portfolio + annuities) Age 25 $12 (monthly income) $6,085 (value of total portfolio) Age 45 $306 $120,880 Age 65 $1,706 $562,485 Hypothetical example for illustrative purposes only.

18. What Service Providers are offering these programs? Platform ProvidersInvestment Only Providers PrudentialBlackRock John HancockAllianceBernstein Diversified Investment AdvisorsPrudential Great West