Participant Preferences in Target Date Funds

Presenter Name, Title*Date, Presentation Location

*Broker / Dealer disclosure if presented by a registered representative

C12-0215-009 (2/2012)

C12-0104-058 (01/12)

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IMPORTANT INFORMATION

3

2011F 2015E

Other

Stable Value

Fixed Income

Equity

Balanced / Target Risk

Target Date

12%

16%

38%

10%

11%

13%5-7%

6-8%

20-25%

15-20%

35-40%

7-10%

Source: ICI, EBRI, PSCA, McKinsey; McKinsey projects traditional target-date funds will represent 35-40% of all DC assets by 2015, or 60% if balanced and target-risk suites are included.

$4.1T $5.4 - $6.0T

Defined Contribution Assets

PPA / QDIA: Targets become main dish on investment menus

4

Target Date Use

Intended Actual

5

Asset Allocation at “Target Date”

2020

2020

2020

6

Unique Look at a Unique Fund Option

Different Kind of Option

Participant View

7

Study Details

ING Investment Management and the ING Retirement Research Institute commissioned an online survey to better understand Defined Contribution (DC) plan participant preferences in and expectations of Target Date Funds

540 DC Plan Participants responded to the survey. • All respondents are currently contributing to an employer-sponsored retirement plan

(ESRP), age 25+ and are a primary/joint financial decision maker for their DC plan. • 212 use target-date funds within their ESRP (“Users”)• 328 do not use target-date funds (“Non-users”)

• Respondents who choose not to use a target-date fund within their plan (43)• Respondents who don’t have a target date available in their plan (285)

Data is weighted on household income and gender within the total sample.

The study was conducted in September, 2011, by Synovate

↑↓ Indicates significantly higher or lower Target Date-User vs. Non-user response at the 90% confidence level; at the 90% confidence level, the margin of error in the study was +/- 3%

Retirement - Insurance - Investments 8

Time, Comfort and Confidence

Many retirement plan participants – particularly those who do not use Target-date funds – indicate they lack the time, comfort and confidence to actively manage their retirement investment.

Target-date funds may provide a solution

9

TDF Users More Comfortable about Investment Allocation

TDF-users Non-users

13% 22%

49% 44%

19%9%

68%

53%

Agree Top Box Second Box

“I am comfortable deciding how much to invest in each investment option in my employer-sponsored retirement plan.”

↑

↓

↑

10

TDF Users Feel They Have Enough Time

TDF-users Non-users

27%38%

38% 28%

14%7%

52%

35%

Agree Top Box Second Box

↑

↓

↑

↑

“I have the time that’s required to keep an eye on my investment and to make changes as market conditions change”

11

TDF Users More Confident About Retirement

TDF-users Non-users

20%30%

41% 34%

12%7%

53%

41%

Agree Top Box Second Box

“I am confident that I will reach my retirement goals.” ↑

↓

↑

↑

↑↑

12

Investment Understanding vs. Action

Many participants report that they are not confident about their understanding of key investment terms; those who do not use Target Date Funds report lowest confidence for all key terms.

Increased confidence of Target Date-Users does not necessarily equate with appropriate Target Date use.

Diversification

Rebalancing

Time HorizonPotential opportunity to improve understanding of Target Date Funds, especially among Non-users

13

Understanding Key Target Date Concepts`

42%65%

14% 29% 28%48%

23% 39%64%

85%

58%35%

86% 71% 72%52%

77% 61%36%

15%

Confident Not very confident

Time Horizon

Diversification RebalancingRisk

ToleranceGlide Path

“How confident are you that you understand each of these investment terms?”

↓

↑

↓

↑

↓

↑

↓

↑

↓

↑

TDF Non--users users

TDF Non--users users TDF Non-

-users users

TDF Non--users users

TDF Non--users users

14

Rebalancing

1% 0%9%

3%

38%

34%

39%

37%

13%25%

Never

Less than once a year

Once or twice a year

Monthly

Weekly

TDF Users Non-users

49% rebalance 1+ x / yr

37% rebalance 1+ x / yr

“Intended” TDF Use; funds rebalance themselves… so investors shouldn’t need to

↓

↑

15

Diversification (Target Date-Users Only)

1-10%

11-20%

21-31%

31-40%

41-50%

51-60%

61-70%

71-80%

81-90%

91-100%

15%

16%

14%

7%

9%

6%

3%

9%

2%

20%

% of plan balance invested in a TDF

~2/3

Diversification

To be more aggressive

To further customize my portfolio

To be more conservative

Other

None of the above, only invested in TDF

47%

32%

20%

20%

2%

16%

Reasons Target Date users further diversify

16

Understanding of Target Date Funds

They have a diversified mix of stocks and bonds

Asset allocation becomes more conservative over time

The stock/bond mix is automatically adjusted

Offers all-in-one, hands-off investing

At the target date, the assets are converted into a guaranteed income'

All Target Date Fund managers use the same asset allocation (mix of stocks and bonds)

At the target date, the money is returned to you

None of the above

63%

55%

44%

38%

17%

13%

10%

2%

51%

43%

36%

27%

21%

8%

9%

18%

Non-users

TDF-users

↑

↑

↓

↑

↑

~1/3 TDF users

17

Why NOT Invest in a Target Date Fund?

Is a TDF Available (non-Target Date users)?

Yes; 13%

No; 50%

Not sure; 37%

I want to select and monitor my investment options myself/feel I can do a better job se-

lecting investments

Other options were recommended by an advisor

Do not understand Target Date Funds

Too expensive

Other options were recommended by friends/colleagues/family members

Other

50%

20%

17%

12%

4%

14%

Reasons for NOT investing in TDF

Reasons participants choosenot to invest in a target date fund

18

Design Preferences

There are a number of considerations for Employers who are considering Target Date funds … whether as a standard menu option, or as a QDIA…

… Participant preference and interest may help guide these decisions.

19

Glide Path: “To” vs. “Through”

Please note: This chart is for illustrative purposes only. Actual equity allocations can vary significantly between target date managers before and after the retirement dates.

20

Preferred Investment Approach at / Near Retirement

TDF-users Non-users2% 3%8%

12%9%

19%

47%

38%

33%28%

I strongly prefer an approach which provides stronger pro-tection against investment loss

I prefer an approach which provides stronger potential for investment gain

No preference

I prefer an approach which provides stronger potential for investment gain

I strongly prefer an approach which provides stronger po-tential for investment gain

80%66%

↑

21

TDF-user Interest: Diversification

Multiple Asset Classes

11%

57%

33%

Multiple Investment Managers

16%

49%

35%

89% 84%

↑

22

More Information

TDF-users Non-users

8% 13%

43% 44%

17% 13%

Strongly agreeAgreeDo not agree

“I would like to get more information and education about Target Date Funds from my employer and plan provider.”

(Excludes neutral.)

23

Insight and Opportunity

Target Date Fund investors, generally, are more confident of their decisions and their retirement potential …

… but there is opportunity to educate both users and non-Target Date-users, and improve understanding and, potentially, behavior.

24

A Target Date Fund will Increase my Confidence

TDF-users Non-users

3%

10%

51%37%

19%

7%

71%

45%

Series4Top BoxSecond BoxBottom 2 Box

That I am making good investment decisions…

TDF-users Non-users

3%12%

51%34%

16%

9%

67%

43%

That I will have a successful retirement…

25

More Information…

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