The Secret Sauce Behind Optimizing Plan Design

Chris Anast, CFASVP, Senior Retirement StrategistCapital Group | American Funds

XYZ Balanced Fund XYZ Select Consumer Discretionary Portfolio XYZ Growth & Income Portfolio XYZ Value Strategies FundXYZ Global Growth Portfolio XYZ Select Consumer Finance Portfolio XYZ Growth Company K Fund XYZ Worldwide FundXYZ Growth and Income Portfolio XYZ Select Consumer Staples Fund XYZ Growth Discovery Fund XYZ Asset FundXYZ Growth Fund XYZ Select Defense & Aerospace Portfolio XYZ Growth Strategies Fund XYZ Value 25 FundXYZ International Growth & Income XYZ Select Energy Portfolio XYZ High Income Fund XYZ Capital Appreciation FundXYZ Appreciation Fund XYZ Select Energy Service Portfolio XYZ Independence Fund XYZ High-Yield Bond FundXYZ Sebastian Fund XYZ Select Environment & Alternative Energy Portfolio XYZ Inflation-Protected Bond Fund XYZ International Small Company FundXYZ Target Date Funds XYZ Select Financial Services Portfolio XYZ Intermediate Bond Fund XYZ Flexible Bond FundXYZ Diversified Income Fund XYZ Select Gold Portfolio XYZ Intermediate Government Income Fund XYZ Global Research FundXYZ High Yield Fund XYZ Select Health Care Portfolio XYZ International Capital Appreciation Fund XYZ Global Research FundXYZ REIT Fund XYZ Select Health Care Services Portfolio XYZ International Discovery Fund XYZ Overseas FundXYZ Small Cap Value Fund XYZ Select Industrial Equipment Portfolio XYZ International Enhanced Index Fund XYZ Disciplined Value FundXYZ SMID Cap Growth Series XYZ Select Industrials Portfolio XYZ International Growth Fund XYZ High Income Opportunities FundXYZ Emerging Market Value XYZ Select Insurance Portfolio XYZ International Index Fund XYZ Growth Opportunities FundXYZ International Small Company Fund XYZ Select IT Services Portfolio XYZ International Real Estate Fund XYZ Inflation-Protected Bond FundXYZ Stock Fund XYZ Select Leisure Portfolio XYZ International Small Cap Fund XYZ U.S. Equity FundXYZ Equity Income Fund II XYZ Select Materials Fund XYZ International Value Fund XYZ Global Conservative Allocation Managed Risk FundXYZ Mid Cap Value Fund XYZ Select Medical Technology & Devices Portfolio XYZ Investment Grade Bond Fund XYZ Global Moderate Allocation Managed Risk FundXYZ Stock Selected Small Cap Fund XYZ Select Multimedia Portfolio XYZ Japan Fund XYZ International Value FundXYZ Manager Funds XYZ Select Natural Gas Portfolio XYZ Japan Smaller Companies Fund XYZ Bond Index FundXYZ Blue Chip Growth Fund XYZ Select Natural Resources Portfolio XYZ Large Cap Growth Enhanced Index Fund XYZ Global Tactical AllocationXYZ Blue Chip Value Fund XYZ Select Pharmaceuticals Portfolio XYZ Large Cap Stock Fund XYZ S&P 500 Index FundXYZ Canada Fund XYZ Select Retailing Portfolio XYZ Large Cap Value Enhanced Index Fund XYZ Small Cap Index FundXYZ Capital & Income Fund XYZ Select Semiconductors Portfolio XYZ Latin America Fund XYZ Structured Mid-Cap Growth FundXYZ Capital Appreciation Fund XYZ Select Software & Computer Services Portfolio XYZ Leveraged Company Stock Fund XYZ Mid Cap Growth FundXYZ China Region Fund XYZ Select Technology Portfolio XYZ Long-Term Treasury Bond Index Fund XYZ Emerging Markets Equity FundXYZ Contrafund K XYZ Select Telecommunications Portfolio XYZ Low-Priced Stock K Fund XYZ Small/Mid Cap ValueXYZ Convertible Securities Fund XYZ Select Transportation Portfolio XYZ Magellan Fund XYZ Government Income FundXYZ Corporate Bond Fund XYZ Select Utilities Portfolio XYZ Mega Cap Stock Fund XYZ High Yield FundXYZ Disciplined Equity Fund XYZ Select Wireless Portfolio XYZ Mid Cap Enhanced Fund XYZ Blend FundXYZ Diversified International Fund XYZ Series Small Cap Opportunities Fund XYZ Mid Cap Index Fund XYZ Equity Income FundXYZ Dividend Growth Fund XYZ Series Stock Selector Large Cap Value Fund XYZ Mid-Cap Stock K Fund XYZ Growth FundXYZ Emerging Asia Fund XYZ Small Cap Discovery Fund XYZ Mortgage Securities Fund XYZ Total Return Bond FundXYZ Emerging Europe, Middle East, Africa (EMEA) Fund XYZ Small Cap Enhanced Index Fund XYZ Nasdaq Composite Index Fund XYZ International Large Cap Index FundXYZ Emerging Markets Fund XYZ Small Cap Growth Fund XYZ New Markets Income Fund XYZ Growth Multi-Manager FundXYZ Emerging Markets Index Fund XYZ Small Cap Index Fund XYZ New Millennium Fund XYZ International Stock FundXYZ Equity Dividend Income Fund XYZ Small Cap Stock Fund XYZ Nordic Fund XYZ Short-Term Bond FundXYZ Europe Fund XYZ Small Cap Value Fund XYZ OTC K Portfolio XYZ Core Fixed Income FundXYZ Export and Multinational Fund XYZ Strategic Dividend & Income Fund XYZ Overseas Fund XYZ Developing Markets TrustXYZ Extended Market Index Fund - Premium XYZ Strategic Income Fund XYZ Pacific Basin Fund XYZ Institutional Foreign Smaller Companies FundXYZ Focused High Income Fund XYZ Strategic Real Return Fund XYZ Real Estate Income Fund XYZ Institutional International Equity Series PrimaryXYZ Focused Stock Fund XYZ Telecom and Utilities Fund XYZ Real Estate Index Fund XYZ Balanced Index FundXYZ Fund K XYZ Total Bond Fund XYZ Real Estate Investment Portfolio XYZ Extended Market Index FundXYZ Global Balanced Fund XYZ Total International Index Fund XYZ Select Air Transportation Portfolio XYZ International Index FundXYZ Global Commodity Stock Fund XYZ Total Market Index Fund XYZ Select Automotive Portfolio XYZ Small Cap Growth IndexXYZ Global High Income Fund XYZ Treasury Only Money Market Fund XYZ Select Banking Fund XYZ Small-Cap Value Index FundXYZ Global Strategies Fund XYZ Trend Fund XYZ Select Biotechnology Portfolio XYZ Total Bond Market Index FundXYZ GNMA Trust (All Shares) XYZ Value Discovery Fund XYZ Select Brokerage & Investment Management Portfolio XYZ Total International Stock Index FundXYZ Government Income Fund XYZ Value K Fund XYZ Select Chemicals Portfolio XYZ Fund

XYZ Select Communications Equipment Portfolio XYZ FundXYZ Select Computers Portfolio XYZ Small Cap Growth FundXYZ Select Construction & Housing Portfolio XYZ Small-Mid Cap Growth Fund

Sample retirement investment lineup

For illustrative purposes only.© 2019 Capital Group. All rights reserved. For use with institutional investors only. Not for use with the public.

Building blocks for a better DC menu

QDIA Core menu

Target-date funds

U.S equity: Three to four funds with style and market cap flexibility

International equity: One pure international and one global fund

Fixed income: Two funds to cover the waterfront

For use with institutional investors only. Not for use with the public.

An investment structure through retirement

Non-guaranteed income: Target-date series

Systematic withdrawal optionsIn

plan

Tier 1QDIA

Tier 2Core options

Tier 3In-retirement options

Target-date series Capital preservation Fixed income Equity

Guaranteed income: Annuity bidding

platform Others

Out

of p

lan

Target date series Capital preservation Fixed income Global equities

For use with institutional investors only. Not for use with the public.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation. This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice. All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies. American Funds Distributors, Inc., member FINRA.

© 2019 Capital Group. All rights reserved.

Reuben EscobedoManager Financial BenefitsValero Energy Corporation

Plan Demographics

• Two DC Plans (Non-Union & Union)

• Over $2.6 Billion in assets

• Over 10,000 Participants (Active and Term’d)

• Offer Target-Date Series Fund as QDIA

Some secret ingredients for our Plan:

• Offer Actively Managed Account options

• Offer Systematic Withdrawals, Partial Distributions, Lump Sum Distributions

• Retirement Income Projection on employee login page

• Offer on site One-on-Ones for our employees

• Planning for Retirement Sessions: Offered to employees age 50 and above

Marco Merz, CFAManaging Director, Head of Defined Contribution

The Regents of the University of California

UC Retirement Savings Program at a Glance

Facts– Established in 1967– Over 300,000 Participants– $25.6 Billion in Assets– 3 Plans: 403(b), 457(b), DC Plan– 2nd largest public DC plan in the US– Largest 403(b) plan in the US– Target-Date Fund (Pathway) default since 2014– $9.8 Billion in Target-Date Funds

MissionDeliver the best in class DC plan focused on participant outcomes through superior performance and cost management

3 Plans

Tax Deferred 403(b) Plan: $17.9B 71%

457(b) Deferred Compensation Plan: $3.1B 11%

Defined Contribution Plan: $4.6B 18%

$25.6Billion

UC Retirement Savings Program Evolution

Bespoke Default OptionImplemented Custom Target-Date Fund

Adequate Investment ChoiceCreated streamlined intuitive investment lineup

Cost CompetitivenessReduced fees by 60% saving $40 million over the last 5 years

Assets

Investment Choices

Management Fee (%)

Management Fee ($)

Default Option

2014 2019

$18.9B $25.6B

75 14

0.14% 0.05%

$25.9M $12.8M

Savings Fund Pathway

UC Retirement Savings Program Future State

Guaranteed Income

Alternatives

ESG Solution

Add a deferred annuity (QLAC) to our Target-Date Fund Pathway

Add Private Equity, Private Real Estate and Absolute Return to Pathway

ESG Platform allows participants to customize ESG funds through a FinTech solution

Cindy R. Rehmeier, CFP®Manager of Defined Contribution Plans

Missouri State Employees’ Retirement System (MOSERS)

Investment Menu“Retirement Savings Simplified” -celebrating a 10 year anniversary

Stable Value

Self-Directed Brokerage

Custom Target-Date Funds

1% Automatic Enrollment (since July 2012) –

6.5% Opt-out

Supplemental Governmental 457(b)

plan for state employees

Assets:$2.3 Billion

67,000 participants (41,000 active/26,000

separated)

Avg. contribution = 4%

2.5% 6%Years employed

History…2009 2019

• 11 Large Cap• 2 Mid Cap• 5 Small Cap• 3 International• 4 Fixed Income• 5 Asset Allocation• Stable Value

Equity Funds, 32%

Fixed Income Funds, 3%

Asset Allocation Funds, 4%

Stable Value, 60%

Self-Directed Brokerage, 1%

Default Stable Value

Average Inv.Option Expense 0.90%

Participation rate 62%

Custom Target Date Funds,

58.3%Stable Value, 18.7%

Self-Directed Brokerage, 3.3%

Closed Funds, 19.7%

Custom Target Date Funds,

65.0%

Stable Value, 25.5%

Self-Directed Brokerage,

0.4% Closed Funds, 9.1%

Asset Allocation Future Allocation

Ten Years Later

QDIA Target Date

Average Inv.Option Expense 0.16%

Participation rate 79%

Menu Menu

Custom Target-Date Funds

Stable Value

Self-Directed Brokerage

31 Options

And Beyond…Focus on Education and Income Replacement

LUMP-SUM

PARTIAL WITHDRAWALS

INSTALLMENT PAYMENTS

ROLLOVERS

Retention: 60% -5 years after separation

Tools Messaging Flexible Withdrawal

Katie SelenskiExecutive Director

CalSavers

CalSavers Design• History:

• 2008-2016: legislative study and passage (SB 1234, Kevin de Leon) • 2016-2018: design, stakeholders, & regulatory development• November 2018: Pilot launch• October 2019: Notices to Employers + “Gig” launch

• Employer Requirement: All CA employers with at least 5 employees must either: • Offer a qualified retirement plan or savings arrangement

Or • Register for CalSavers (no fees, contributions, or liability; easy to facilitate)

• Automatic Enrollment for Employees (plus a “re-nudge” of previous opt-outs every two years)

• Public Private Partnership: Professionally managed & advised by financial services companies with oversight by a public board chaired by State Treasurer.

• Zero Cost to the State, Taxpayer, Employer: self-sustaining on saver fees.

2

Savers can contribute from 1%-100% of salary, subject to IRS limits.Savers can turn off/on auto-

escalation feature.

*First $1,000 of contributions will be invested into the CalSavers Money Market Fund. Subsequent contributions will be invested in a Target Retirement Fund.

Re-characterize to a Traditional IRA.

(Starting in early 2020)

Roth IRA (post-tax; withdrawal of contribstax- and penalty free)

5% with Automatic escalation of 1% annually until 8%.

Money Market Fund (1st $1,000)& Target Retirement Fund (subsequent contribs)

Standard

Customize

Contribution rate Investment optionsAccount type

Money Market Fund

Target Retirement Date Funds

Core Bond Fund

Global Equity Fund

Sustainable Balanced Fund (ESG)

Liquidity Set it and forget it

Affordability

CalSavers Participation Snapshot: EARLY DAYSUncovered Pop. in CA: 7.5 million workers (excl. approx. 1 million “gig” workers)

As of October 15, 2019:• Total Assets: $829,452• Funded Accounts: 2,476• Opt out Rate: 32%• Average contribution rate: 4.96%• Average monthly contribution: $114• Investment Behavior: Less than 2% choosing non-default investments