workplace savings 3.0
DESCRIPTION
Strengthening today’s defined contribution plan to meet the retirement income needs of tomorrowTRANSCRIPT
Solving America’sRetirement SavingsChallenge
Robert L. ReynoldsPresident andChief Executive OfficerPutnam Investments
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What is driving America’sretirement savings challenge?
• We live longer
• While programmed lifetimeincome sources decline
• Responsibility for investmentand lifetime income has shiftedto individuals
2
0
5
10
15
20
2005 2015 2025 2035 2045
Medicare
Medicaid
Social Security
Entitlements as percent of GDP
Sources: GAO’s Sept. 2004 baseline extended analysis; Bruce Bartlett, Tax Reform Agenda for the 109th Congress 15 (2004).
Average tax revenueas percent of GDP
Absent reform, entitlements will dominatefederal budgets
18%
3
2004 2030
Social Security replacement rates will decline
For earners retiring at age 65. After Medicare Part B deduction (2030 includes higher normal retirement age).Sources: Alicia H. Munnell; 2004. “A Bird’s Eye View of the Social Security Debate;” Center for Retirement Research at Boston College.
Average replacement rate of pre-retirement incomefrom Social Security
38.7%29.4%
4
The first generation:Workplace Savings 1.0
• Purely voluntary for sponsorsand participants
• Multiple choices
• Heavily dependent oncommunication and education
• Continuous improvement infeatures and service
1982–2006:401(k) becomes America’splan of choice
5
Workplace Savings 1.0While competition kept workplacefund fees down
The industry average expense ratio is a simple average of all mutual funds, and is not asset-weighted.Source: “The Economics of Providing 401(k) Plans: Services, Fees, Expenses, 2007,” ICI Research Fundamentals, December 2008.
Stock funds Bond funds Money market funds
Mutual fund expense ratios
Industry average(asset weighted)
401(k) average(asset weighted)
Industry average0.90
0.670.72
0.60
1.13 1.09
1997 2007
0.51
0.390.47
0.40
0.64 0.62
1997 2007
0.980.86
0.78 0.74
1.54 1.46
1997 2007
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Workplace Savings 1.0As Defined Contribution becameAmerica’s plan of choice
30
43
56
2926 24 22 20
75
19
33 36
1980 1985 1990 1995 2000 2008
American workers covered(Millions)
DB plansDC plans
Sources: EBRI, ICI, Bernstein Research, Empirical Research Partners, Bureau of Labor Statistics, 2008; and American Benefits Council, 2/24/2009.
7
6.6
7.1
7.47.5 7.5
1988 1993 1998 2003 2006
Workplace Savings 1.0But hit a ceiling on participationand savings rates
Sources: Standard & Poor’s, DALBAR, Bureau of Labor Statistics, EBRI, National Center for Health Statistics, FMR, 2007, 2008.
Participation rates(% of eligible workers) 69.9
63.1
56.9
64.763.4
1988 1993 1998 2003 2006
Deferral rates(% of salary)
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Workplace Savings 1.0The key lesson: Inertia, defaults, and designdetermine results
Source: sciencemag.org, Vol. 302, November 21, 2003.
Organ donor consent rates 99.98%
12.0%
Germany
Austria
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Workplace Savings 2.0:The PPA “nudge”
2006:The PensionProtection Actoffers a “nudge”
10
Workplace Savings 2.0The Pension Protection Act passes in 2006
• Enabled auto enrollment andsavings escalation
• Endorsed defined lifecycle/balanced default options
• Provided legal safe harborfor employers
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Workplace Savings 2.0And PPA drove rapid change
11%
36%
2004 2007
Sources: Investment Company Institute, Center for Retirement Research, Profit Sharing/401k Council of America, 2008.
DC plans adoptingauto enrollment
DC plans offeringtarget date funds
12%
58%2004 2007
Auto-enrolledemployees whostayed in plan
2008
90%
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Workplace Savings 2.0But 2008 brought a once-in-a-lifetime shock
Sources: Putnam, 2008.
1-year stock market declinesgreater than 25%
-43%
-35%
-26%
-37%
1931 1937 1974 2008
Source: S&P 500 Index, 12/31/08.
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Workplace Savings 2.0Many near-term lifecycle funds now appear risky
63.1%59.2% 58.1% 57.0% 55.7% 55.0% 53.8% 53.0%
38.2%
28.0%
A B C D E F G H I
Source: Strategic Insight Simfund, February2009.
Equity allocation for the top 2010 lifecycle funds
Fund families
Industryaverage
47.2%
Putnam
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WorkplaceSavings
Strengthening today’sdefined contribution planto meet the retirement incomeneeds of tomorrow
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Workplace Savings 3.0Next generation plan design
• Build on PPA’s base of auto-enrollment, escalation,and defaults
• Include much stronger protection against volatility
• Built-in options for guaranteed lifetime income
• Provide advice and guidance for all participants
• Full, transparent disclosure of fees, risks, and responsibilities
• Provide legal safe harbor for employers who do theright thing
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Workplace Savings 3.0Consistent returns vs. market volatility
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
$100,000initialinvestment12/31/98
This example of hypothetically consistent returns is for illustrative purposes only. It does not reflect the performance of any Putnam fund, which will fluctuate. The returns above Treasury bills areachieved over consecutive three-year periods starting December 31, 1998, and rolling monthly. Treasury bills are represented by the Merrill Lynch U.S.Treasury Bill Index. Stocks are representedby the S&P 500 Index.You cannot invest directly in an index. Past performance is not indicative of future results.
Treasurybills + 5%$163,125
Stocks$87,004
It can take years to recoverfrom a market setback.
It took stock investorsabout 3.5 years to recoverfrom the last bear market.
-38%
-37%
How long will ittake this time?
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Workplace Savings 3.0The growing programmed income “gap”
Today
Workincome
Traditionalpension
SocialSecurity
In 20 years
Investmentincome
Other retirement incomeGuaranteed income
Workincome
Traditionalpension
SocialSecurity
Investmentincome
The“Gap”
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Workplace Savings 3.0Guaranteed income could protect againstcatastrophic losses
30 years of withdrawals from a $1M retirement portfolio$2,378,771 $2,378,771
$640,390$524,889
$238,186
$1,352,090
No guarantee 50% guaranteed
Best-caseincome
Worst-caseincome
Median finalaccount value
Based on 5% annual withdrawals inflated each year by 3%.
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Workplace Savings 3.0We need industry innovationbacked by public policy
WorkplaceWorkplaceSavingsSavings3.03.0
Industryinnovation
Policysupport
20
Extend workplace savings to all Americans
75 million Americans haveno workplace retirement plan
Office of Management and Budget, “A New Era of Responsibility:Renewing America’s Promise,” 2009.
Solving America’sRetirement SavingsChallenge
Robert L. ReynoldsPresident andChief Executive OfficerPutnam Investments
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The opinions expressed today are those of Robert L. Reynolds, President andChief Executive Officer, Putnam Investments. Mr. Reynolds is affiliated withPutnam Retail Management.
Investors should carefully consider the investment objectives, risks, charges,and expenses of a fund before investing. For a prospectus containing thisand other information for any Putnam fund or product, call your financialrepresentative or call Putnam at 1-800-225-1581. Please read the prospectuscarefully before investing.