Retirement Income Solutions: Perspectives from … Agenda Market Landscape Regulatory Update...

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Retirement Income Solutions:

Perspectives from Three Plan Sponsors 2012 Retirement Webinar Series

June 14, 2012

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Our Speakers

Christopher L. Jones

Executive Vice President of Investment Management and Chief Investment Officer

Financial Engines

Jane Nerison

Director of Benefits

Kimberly-Clark Corporation

Alison Borland

Vice President, Retirement Strategy and Product Development

Aon Hewitt

Regina Zoetvelt

Senior Benefits Manager

Motorola Solutions

Jean Roma

Director of Retirement Plans

Citigroup

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Agenda

Market Landscape

Regulatory Update

Introduction to Income+

Participation Utilization Results

Case Studies

– Kimberly-Clark Corporation

– Citigroup

– Motorola Solutions

Questions and Answers

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Employer Confidence at an All Time Low

Employers who are very confident in their ability to manage the following:

Source: Aon Hewitt Hot `Topics in Retirement 2012 and 2011

10% down from

38%

Employees will take

accountability for their

retirement success

Employees will retire

with sufficient assets 4%

down from

30%

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Pre-retiree Concerns Significantly Higher

63%58%

54%

77% 74%

64%

Inflation Health Care Costs Maintain Standard of

Living

2001 2011

Percentage of Pre-retirees Somewhat or Very Concerned About the Following:

Source: Society of Actuaries, 2001-2011 Risks and Process of Retirement Surveys

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How Prevalent are Income Solutions?

6%

9%

10%

10%

11%

42%

71% 9%

3%

3%

5%

3%

5%

0%

0% 25% 50% 75% 100%

Leverage DB plan to

annuitize DC assets

Outside the plan; facilitation

of annuities

Within the plan; managed

payout funds

Within the plan; managed

accounts (drawdown)

Within the plan;

annuites/insurance products

Distributions from

plan/automatic pymts

Online drawdown modeling

tools

Already Offer in 2011 Very Likely to offer in 2012

Source: Aon Hewitt Hot Topics in Retirement 2012

Lots of

Room to

Grow!

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Regulatory Update

Proposed regulations

– Longevity annuities

– Partial annuities in DB plans

– Rolling DC balances into DB annuities

Forthcoming (??) regulations

– Lifetime income disclosure

– Advice versus guidance

– Other fiduciary protections

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Income+ How it works and early results

Christopher L. Jones

EVP and Chief Investment Officer

Financial Engines

Forward Looking Statements

The following plan sponsor briefing contains forward-looking statements. These forward-looking statements are based on the

Company’s current expectations and beliefs, as well as a number of assumptions. These forward-looking statements include, but

are not limited to, adoption of Income+, enrollment rates and related risk. These statements are subject to risks, uncertainties,

assumptions and other important factors, many of which are outside the Company’s control, that could cause actual results to differ

materially from the results discussed in the forward-looking statements. You are cautioned not to place undue reliance on such

forward-looking statements because actual results may vary materially from those expressed or implied. For more information on

the risks and uncertainties affecting the Company please see our most recent SEC filings, including our Form 10-K for the year

ending December 31, 2011 and our most recent Form 10-Q.

Proprietary & Confidential | Not for participant use.

Participants need help transitioning from saving to spending

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Managing your retirement fund

Building your retirement

portfolio

Spending your retirement portfolio

Income+ gives participants the

support they need to

transition to spending

Income+ early results presentation is for informational purposes only, and not necessarily indicative of future service usage or enrollment. Information should not be construed as

investment advice, testimonial, or as an offer of advisory services or any specific recommendation to buy, sell, or hold any investment. The report is based upon information and data we

believe to be reliable, but we do not guarantee its accuracy or completeness. Financial Engines undertakes no obligation to publicly revise and/or update such results going forward. As of

12/31/2011, eight plans, with over $19 billion in assets and nearly 300,000 participants had rolled out Income+. Early results data used in this presentation are based on five plans that had

completed full communications campaigns by 12/31/2011. Enrollment data were measured between 12/31/2011 and 3/31/2011. Two of the five plans used passive (opt-out) enrollment.

For plans already offering managed accounts, when Income+ was rolled out, current eligible managed account participants were transitioned. Reference to potential one-year loss is

based on the application of Financial Engines’ forecasting methodology. This methodology projects the likelihood of various investment outcomes that are hypothetical in nature, do not

reflect actual results or adjustment over time, and are not guaranties of future results.

Financial Engines provides advisory services through Financial Engines Advisors L.L.C., a federally registered investment adviser and wholly owned subsidiary of Financial Engines, Inc.

Financial Engines is a registered trademark of Financial Engines, Inc. Neither Aon Hewitt nor Financial Engines guarantees future results, and a diversified risk-adjusted portfolio is not a

guarantee against loss.

.


Income+

Feature of Professional Management

– No additional fee for participants or sponsors

– Uses plan’s existing investment options—no in-plan annuity required

Helps prepare for retirement payouts

– Income Checkup with an advisor to develop an income plan

– Gets portfolio income-ready via higher fixed income allocation

– Maintains equity exposure for growth

Generates retirement payouts directly from a 401(k) account*

– Steady with limited downside

– Last for life**

– Can go up with the market

– Flexible

As extension of Professional Management, qualifies as QDIA

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*Account balance minimums may apply.

**Requires purchase of an out-of-plan annuity. Issuer minimum purchase requirements may apply.


Safe and easy for sponsors

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Income+ is getting strong traction with plan sponsors*

Plans with over $19 billion in plan assets and nearly 300,000 participants have implemented Income+

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* Financial Engines Data Warehouse as of 3/31/12.

Income+ highlights

Large TX-based health

care system live

FORTUNE 20

financial services

co. 1st live

FORTUNE 200 tech.

co. 1st live with opt-

out Income+

2nd sponsor live with

opt-out Income+

FORTUNE 300

energy co. live


Early Results - What we’re seeing

1. Strong enrollment uptake

2. Passive (opt-out) enrollment has biggest impact

3. Income+ enrollees likely to be taking too much risk

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Strong enrollment uptake

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*TDFs= 60+ participants with 95% or more invested in TDFs.

Financial Engines does not sell or distribute target date funds. Enrollment rates for “All

Professional Management plans” and “TDFs” represent usage by participants 60 and older

across all plans offering Financial Engines’ managed account services.


Passive (opt-out) enrollment makes big impact

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Figures represent averaged enrollment rates into Professional

Management by participants age 60 and older in plans offering Income+.


Many taking too much risk

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1.7

0.7

1.1

0.6

S&P 500

Risk level

90th percentile

10th percentile

Legend

Risk levels, before and after enrollment

Potential 1-year loss reduction: 31%


Summary

Early in adoption cycle

Gaining more traction than other in-plan retirement income solutions

Strong interest from near-retirees and retirees

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Kimberly-Clark Corporation:

The Retirement Income Decision Jane Nerison

Kimberly-Clark Corporation

Director of Benefits

Kimberly-Clark Corporation – 401(k) Plans

Number of Participants 20,400

Plan Assets $2.3 B

Near-retirees ( participants over age 60) 3,060

Actives / Inactives (% of those over age 60) 58% / 42%

Other employer plans DB (frozen for salaried

and non-union)

Retirement income solution Income+ to be offered

(October 2012)

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KC’s Retirement Plans and Benefits Philosophy

• DB pension plan frozen as of December 31, 2009 • Today, 57% of population has only DC account

• 35% of population has some form of frozen pension

• As of January 1, 2010, KC rolled out new 401(k) and profit

plan • Added several new plan features

• 401(k) and profit sharing plan needs to work for all • From those who are not interested in investing to those that are very actively

engaged

• From CEO to cafeteria worker

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KC 401(k) and Profit Sharing Plan

• Plan features – substantial changes in recent years • Auto-enrollment for new hires, defaulted into a managed account

• Auto-deferral increases 1% per year up to 10%

– For participants that max out on pre-tax contributions, automatically flipped to

after-tax contributions

• Roth 401(k)

• Self-directed brokerage window

– About 12% of participants utilize

• Advise services:

– Online advice and professional management

– Integrated forecasts and stoplights with Aon Hewitt

• Coming in 2012 – retirement income solution

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Why offer an in-plan retirement income solution?

• Offering an in-plan 401(k) retirement income solution helps

address a growing need • Majority of employees only have a DC plan

• Responsibility for retirement savings is much more firmly on employees today

• Income+ fills out a gap for near-retirees and retirees on how to draw income from

401(k)

• Needed a way to help provide stream of payments from 401(k)

with flexibility to take a larger amount • Help participants answer the question: “How can I take money out and make it last?”

• Quotes for out-of-plan annuities available, but unused

• Income+ an in-plan solution • Income+ is an extension of managed account

• Roll out later in 2012

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The Citigroup Perspective

Jean Roma

Director, Retirement Plans

Citigroup

Citi – US 401(k) Plan


Plan Assets $8 B


Actives / Inactives (% of those over age 60) 31% / 69%

Other employer plans DB (frozen),

Cash Balance (frozen)

Retirement income solution Offering Income+

(effective 12/2010)

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US 401(k) Plan: The retirement plan for US employees

• Plan features • Auto-enrollment and Auto-deferral increase

• Financial Education and advisory services

– Lipper Fund Profiles

– Personal Finance Center

– Online advice and managed accounts

• Annuities

– Offered outside the Plan at institutional pricing

• New plan feature – retirement income • December 2010, first plan sponsor to roll out Financial Engines’ Income+

• Opt-in enrollment approach, eligible employees can choose to utilize

• Phased communications

– Feb 2011, soft launch to eligible participants already using Financial Engines

– May 2011, all eligible participants

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Why offer an in-plan retirement income solution?

• DB plan – frozen as of 12/31/2007

• 401(k) is now main retirement vehicle for US employees

• 17,700 participants over age 60

• Mortality risk increasing

• Natural extension of advisory services • No new fees for sponsor or participants

• Fiduciary protections - As a part of managed accounts, QDIA safe harbor

• Trade-off of flexibility vs. true insurance

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Results: Strong uptake among near-retirees

• Managed account and Income+ usage highest with near-

retirees1

• 15% enrollment active participants age 60-64

• 11% enrollment active participants age 65 and older

• 14% average enrollment all active participants age 60 and above

• Inactives harder to reach • 5% average enrollment among inactives1

– Retirees likely to already have in place income sources outside of 401(k)

• Getting help to those that need it most • Median account balance of Citi Income+ participants is $47,000

– Advisory help in retail marketplace hard to get for accounts under $250,000

• Help with appropriate risk level to protect against losses right before retirement

– Average potential one-year loss for Citi Income+ users reduced by nearly 30%2

1 As of February 2012 2 Average potential one-year loss represents 5th percentile downside possible portfolio loss for following 12 months.

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Conclusion

• Important help for near-retirees and retirees • Offering an in-plan retirement income solution helps address growing mortality risk

• Flexibility – changes to strategy easily enacted

• Regardless of size of account, retirement income help is now available

• Help with risk level provides portfolio protection

• Payouts can be turned on when participant is ready

• Next steps • 2012 communications campaign in progress

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The Motorola Solutions Perspective

Regina Zoetvelt

Senior Benefits Manager

Motorola Solutions

Motorola Solutions


Plan Assets $4.2B


Actives/Inactives (% of those over 60) 22% / 78%

Other employer plans DB (frozen)

Retirement income solution Offering Income+

(effective 8/1/11)

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Motorola Solutions 401(k) Plan: A best practices plan

• Plan features • Auto enrollment and optional Auto-deferral increase

• Advisory services

– Online advice since 2000

– Managed accounts has been plan’s default since 2006

• Newest plan feature – retirement income • Why offer a retirement income solution?

– Participants >60 years old large segment of population

– Near-retirees and retirees most vulnerable to a market downturn

• Rolled out Financial Engines Income+ in August 2011

– Does not require an annuity purchase

– No additional cost to participant or Motorola Solutions

– QDIA safe harbor protection

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Re-enrollment for maximum impact

• Income+ implemented through opt-out enrollment • September 2011, all 60+ participants not using managed accounts were re-enrolled

into managed accounts with Income+

• Going forward, when a participant turns 60, they will be defaulted into Income+

• Consistent with current and past practice – Auto-enrollment of new hires

– Re-enrollment of all participants into managed accounts with acquisition

• Participants can opt out at any time via the Web, a VRU or a

representative

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1-on-1 engagement with 60+ participants

• Outbound calls from an advisor helped ensure “no surprises” • For 60+ participants not using managed accounts: awareness and understanding of

Income+ and re-enrollment process

• For 60+ participants already using managed accounts: awareness of option to use

Income+ at no additional charge

• Communication campaign • Robust print materials

• Personalized retirement evaluation

• 6-week campaign, with clear deadline, ensured sufficient evaluation period

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Results: dramatic improvement in help for 60+ participants

• With Income+ re-enrollment, usage increased from 19% to 48% • Achieved equal usage among actives and inactives

– 59% of each group “stayed in”

• New managed account usage highest among pre-retirement age*

*Source: Financial Engines Data Warehouse, as of 12/25/2011

Those who “stayed in,” by age cohort

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Conclusion

• Dramatic improvements in 60+ reach by breaking through

inertia • With Income+, managed account usage more than doubled

• Usage among new members highest for near-retirees

• Critical impact on new 60+ users • Users of Income+ have 50% lower average balances than those that opted-out

• Help for those taking on excessive risk

• 1-on-1 help from objective investment advisor representatives helped reached

inactives as well as actives

– Ensured “no surprises” and helped personalize

• Delivered on Motorola Solutions’ strategic objectives • Got help to those that need it most

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Questions and Answer Session

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Contact Information

Alison Borland

Vice President, Retirement Strategy and Product Development

Aon Hewitt

[email protected]

Financial Engines

[email protected]

mailto:[email protected]

mailto:[email protected]

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