What you need to know about the participants who depend on your DC plan Winter/Spring 2017 THE ISSUE How longer lives could impact retirement outcomes THANK YOU FOR LONGEVITY HAS NO BORDERS

The challenges and opportunities presented by humans’ increasingly long lives transcend national borders. Nowhere is this more true than in the defined contribution (DC) industry. All around the world, plan sponsors repeatedly say solving the retirement income challenge is their main priority. YEARS OF THE PARTICIPANT

At State Street Global Advisors, where I’ve led the European defined contribution team for almost five years, my colleagues and I are motivated by our desire to address participants’ very simple questions: When can I retire? How much money will I need? Will my current savings last? We are committed to answering these questions—and in doing so, helping to transform the DC plan from a savings plan to a true retirement plan that can support participants for Where to reach us 20, 30 or even 40 years in retirement. As part of that effort, we’re celebrating the fifth anniversary of The Participant with State Street Global Advisors The Longevity Issue—an entire issue devoted to the questions, opportunities and One Lincoln St. Boston, MA 02111-2900 difficulties related to our lengthening lives. The stories you’ll find inside may [email protected] challenge your assumptions about the impact of longevity on your plan’s participants. You’ll also discover tools and resources to help address that impact. As with each of the preceding 10 issues, we hope that the contents of this Subscribe to anniversary issue inspire and assist you as you strengthen your plan and improve outcomes for the people who depend on it. The Participant Thank you for coming along on this journey. We are eager to partner with DC Sign up for your free digital subscription stakeholders across the world to improve participants’ experiences in the next at ssga.com/theparticipant five years and beyond. Together, we really can make retirement work.

Nigel Aston Senior Managing Director and Interim Global Head of Defined Contribution The Participant Winter/Spring 2017

Cover Story 12 LONGER LIVES, NEW OPPORTUNITIES Three experts discuss the latest science on human longevity and explain what it means for employers BY MELISSA KAHN Departments 4 PORTFOLIO How people in five regions worldwide live well while living longer 6 DC DOWNLOAD SSGA President and CEO Ronald O’Hanley discusses how the DC industry can build a retirement savings system that truly serves all Americans BY MELISSA KAHN

Features 8 LIVE LONG AND PROSPER Help participants secure their financial, physical and emotional well-being in an age of longer retirements 18 SPOTLIGHTING RETIREMENT INCOME Retirement income projections may offer participants clarity—and motivation BY CATHERINE REILLY AND MEGAN YOST 22 THE LIABILITY-AWARE ADVANTAGE Rethinking an LDI approach for DC plans 30 PARTICIPANT VOICES Participants share their thoughts on managing BY ARIN BRATT, TOM KENNELLY AND CATHERINE REILLY their money for retirement 26 HOW TO BE BOLD 31 CONTRIBUTORS Leadership expert Peter Meyers explains how—and why— leaders should act decisively to inspire positive change

BY INGRID MALTRUD

See the promotional cover for a glossary of terms used throughout the issue.

ssga.com/theparticipant 3 PORTFOLIO REGULAR EXERCISE MODERATION Routine, low-intensity workouts Residents eat an early, light keep community members fi t. dinner; many are vegetarians. COMMUNITY REST DAY Residents share hobbies and One full day a week away long, intimate conversations. from normal stresses. LESSONS FROM

THE BLUE Loma Linda, Barbagia region, California Sardinia, Italy

ZONES Nicoya Peninsula, Costa Rica How residents of fi ve regions live well while living longer

eople in specifi c communities around the world live unusually long, unusually healthy lives. PTake Ikaria, Greece, where residents are more than twice as likely to reach age 90 than Americans, while experiencing only about a quarter the U.S. rate of dementia.1 Researchers have dubbed these areas Blue Zones. Writer, explorer and National Geographic Fellow Dan Buettner traveled to fi ve of SUNSHINE these communities to investigate the faith, Daily exposure boosts culture and daily lives of people there. His Nicoyans’ vitamin D. LIFE PLAN fi ndings, compiled inThe Blue Zones: 9 have a plan Lessons for Living Longer from the People de vida that inspires them to Who’ve Lived the Longest, off er insights COOKED CORN contribute to the greater good. into the ways we all might emulate some of our world’s oldest and most vital AND BEANS inhabitants. The map shows the fi ve The two plants are grown HARD WATER regions Buettner visited, as well as some together, with corn stalks Nicoyan water has high of the practices that contribute to providing support for calcium content, which residents’ exceptional longevity. climbing bean vines. strengthens bones.

4 The Participant Winter/Spring 2017 WALKING GOAT’S MILK GARDENING Sardinian shepherds A breakfast staple for many Engages Okinawans in daily walk 5 miles a day. local centenarians. physical activity involving a range of motion. PLANTS LAUGHTER Bean- and vegetable- Sardinians are famous for SOY Diet is heavy in tofu focused diet; meat is for their cutting humor. and miso soup. special occasions. FRIENDS Each person has a secure support network called a moai. PURPOSE Senior Okinawans identify their ikigai, or what motivates them every day. Ikaria, Greece Okinawa, Japan COMMON THREADS ACROSS THE BLUE ZONES WALKING Frequent walking DIET A plant-based diet featuring beans WINE Red wine in moderation PURPOSE NAPPING HERBAL TEA A clear life purpose Ikarians recharge with Shared frequently with FAMILY midafternoon breaks. family and friends. A family-centric social structure FASTING CONNECTION A common practice related Villagers catch up with

to the region’s Greek neighbors most evenings. 1 Buettner, D. “The Island Where People Forget to Die.” Orthodox background. The New York Times, October 24, 2012.

ssga.com/theparticipant 5 DC DOWNLOAD

AN APPEAL TO OUR NEWLY ELECTED LEADERS

SSGA President and Melissa Kahn:  Why isn’t the retirement What do CEO Ronald O’Hanley savings system working you propose? for many Americans? discusses how the DC We are calling for comprehensive, industry can build a Ronald O’Hanley: One key reason is straightforward, politically feasible that you can’t start saving if you can’t federal legislation to ensure that retirement savings easily access a retirement plan. More all working Americans have access than half of private employers don’t to a retirement savings plan in the system that truly offer a retirement savings plan to their workplace. The framework we propose serves all Americans employees.2 Combine this fact with has four key elements. It requires all significantly longer lifespans and an private employers to auto-enroll all workers into a defined contribution BY MELISSA KAHN expectation that we will have lower- for-longer investment returns, and (DC) plan. It uses auto-escalation, qualified default investment solutions e’re surrounded by we really need to act now. At State and other plan elements to help encouraging news within the Street, we believe that the time has employees maximize retirement retirement industry, such come to enact a plan that will quickly W and comprehensively expand access savings. It enacts tax credits for small as plan design innovations that help employers to cover the administrative workers save more for retirement. But to retirement savings programs for all costs of implementing these plans and there’s one area where our retirement American workers. to encourage matching contributions. savings system isn’t working: Currently Finally, it eliminates barriers to open more than a third of full-time, full-year multiple-employer plans (MEPs), so that private sector American workers don’t businesses can band together to offer have access to a workplace retirement We need legislation to affordable retirement savings accounts. plan.1 SSGA President and CEO Ronald O’Hanley has passionately advocated to ensure that all working lawmakers and retirement experts that closing this access gap will require Americans have access a large-scale national effort. I spoke to a retirement savings with Ron about what that effort might look like, and why it’s so necessary. plan in the workplace.

6 The Participant Winter/Spring 2017 State Street Global Advisors What’s already being Would a requirement done to address the to provide workplace SSGA’S FOUR-POINT PLAN coverage issue? plans impose a burden 1 The White House, Congress and many on small employers? AUTO-ENROLL … all workers into a defi ned states have tried to expand workplace Our plan would enable small businesses contribution (DC) plan. retirement savings opportunities by to set up retirement savings plans cost- leveraging IRAs. We applaud those eff ectively. Small businesses are among eff orts, but we don’t think they go far the most important job creators in our 2 IMPLEMENT enough. One reason is their reliance economy. Yet of the 30 million full- on IRAs, which are far less eff ective time American workers who don’t have PLAN DESIGN than workplace savings vehicles like access to a workplace retirement plan, … elements such as auto- 401(k)s. That’s because employees have a disproportionate number work escalation to maximize lower contribution limits—$5,500 for at small businesses. Our national retirement savings. a traditional IRA versus $18,000 for framework would make off ering a plan a 401(k)—and there is no ability to easier for small businesses by off ering receive an employer match. Although targeted tax credits and by eliminating 3 ENACT TAX CREDITS we commend states’ eff orts, we are barriers to MEPs, which will reduce the … for small employers to deeply concerned about the web of costs and administrative complexities cover administrative costs regulations that could result from of sponsoring a plan. and encourage matching 50 diff erent retirement programs. contributions. Given their drawbacks, we think current initiatives could end up exacerbating the savings challenge. What impact would 4 ELIMINATE BARRIERS this plan have? … to open multi-employer plans so businesses can band The Employee Benefi ts Research together to off er aff ordable Why should we focus Institute (EBRI) estimates that the retirement savings accounts. on workplace plans? SSGA proposal could reduce the current $4.1 trillion retirement savings shortfall Workplace savings plans work. by 17.7%, or $740 billion, assuming no Retirement savings levels are higher opt-outs. If opt-outs were assumed to in workplace-based plans than be 25%, the reduction would be 13.6%. elsewhere, in part because well-built When EBRI simulated the impact of What steps can the DC plans help overcome the inertia and a national auto-IRA proposal that industry take to help procrastination that often get in the assumed no opt-outs, the reduction was push this plan forward? way of making the right choices. only 6.5%.3 The potential results are The fastest and most eff ective way even more striking at the individual We have been talking to members of to get people saving quickly, at more level: For someone earning $40,000 Congress and peers in the fi nancial appropriate levels, is to enroll them a year who can now start saving in a services industry about our proposal. in workplace retirement plans. workplace plan, our proposal could If we can work together toward this mean an additional $335,000 in critical goal of universal access, we can retirement savings. make retirement work for all Americans.

1 The Pew Charitable Trusts, “Who’s In, Who’s Out: A Look at Access to Employer- based Retirement Plans and Participation in the States,” January 2016. TIME FOR ACTION 2 Bureau of Labor Statistics, “National Compensation Survey,” 2014. 3 VanDerhei, Jack. “Auto-IRAs: How Much Would They Increase the Probability of We encourage you to support this eff ort by connecting with us at ‘Successful’ Retirements and Decrease Retirement Defi cits? Preliminary Evidence [email protected] or reaching out to your members of Congress. from EBRI’s Retirement Security Projection Model®.” EBRI Notes, June 2015.

ssga.com/theparticipant 7 LIVE LONG ANDPROSPER

Help participants secure their fi nancial, physical and emotional well-being in an age of longer retirements

ive long and prosper is the famous blessing invoked by Mr. Spock, the half-human, half-Vulcan science Longer lives in retirement offi cer on the 1960s TV seriesStar Trek. It’s a fi tting Average for 65 year olds sentiment coming from Spock, considering that the has increased over the last 50 years Laverage Vulcan lifespan is more than 200 years. Figure 1

Living to age 200 might still seem like science fi ction, but Age Men aged 65 Women aged 65 human life expectancy has increased signifi cantly in the last 86 century. Some researchers even predict that many of the 84 babies born in recent years will live well past age 100.1 82 Whether we will actually achieve such extended lifespans remains open to debate, but the projections are based on 80

trends that plan sponsors and participants can’t ignore: 78 Workers today are likely to experience much longer retirements than previous generations. The average life 76 expectancy for a 65-year-old man or woman is now in the 1960 1970 1980 1990 2000 2016 mid-80s, and many individuals will live well beyond the Total life expectancy averages and into their 90s. (See Figure 1.) Sources: U.S. Centers for Disease Control (2010), Social Security Administration (2016).

8 The Participant Winter/Spring 2017 State Street Global Advisors This potential for longer lifespans has both positive and The Stanford Center on Longevity’s Sightlines Project negative implications. More workers will have decades to examined scientifi c data to identify the three key pillars enjoy their retirement dreams. At the same time, longer lives that infl uence living longer and living well2: can lead to increased fi nancial stress, greater health 1 Building financial security challenges and potential isolation. 2 Maintaining social engagement In response, defi ned contribution (DC) plans must evolve to 3 Adopting healthy living habits better prepare participants for this phase of life. That’s why State Street Global Advisors collaborated with the Stanford SSGA and Stanford then performed additional analysis Center on Longevity to examine factors that infl uence on these factors to discover how individuals are doing longevity and well-being, and to identify ways plan sponsors in these three areas—and how those trends might aff ect can help participants increase their odds of enjoying longer, their retirements. more prosperous lives.

Three critical components BEYOND SAVINGS for longer, better retirements

To measure progress or decline in the three pillars of longevity and well-being, the Sightlines Project analyzed data from several studies to create three multifactor indexes. This research found across-the- board improvements in healthy living during the past 20 years but also widespread declines in fi nancial security and social engagement. These trends inspired us to highlight key weaknesses in current retirement planning—and to identify ways employers can strengthen their participants’ chances of future prosperity.

1 FINANCIAL SECURITY • Ability to grow wealth through investments Lower incomes translate to higher debt, lower emergency and home ownership savings reserves and fewer investments. These trends are particularly painful for lower-income workers, who have Assessments of individuals’ cash flow, • suff ered the largest declines in fi nancial security. such as income and debt (See Figure 2.) Ability to preserve wealth through access • These results are further evidence that many participants to products are struggling to balance day-to-day fi nancial needs with long-term goals like saving for retirement. The long-term Indicators of fi nancial security are down since 2000 across consequences of persistent income erosion and debt overload demographic groups, driven primarily by erosion of income. could be especially detrimental to future generations.

Lower incomes erode fi nancial security

Change in fi nancial security index by income, 2000 to 2014 Figure 2

Quartile 1 income (lowest) Quartile 3 income Quartile 2 income Quartile 4 income (highest) 5%

0%

-5%

-10%

-15% 25 to 34 35 to 44 45 to 54 55 to 65 65 to 74 75+ Age ssga.com/theparticipant 9 2 SOCIAL ENGAGEMENT Baby Boomers have become more isolated Measurements of meaningful relationships •  Percent considered socially engaged with friends, family members and neighbors Figure 3

• Participation in activities such as volunteering, 1995 2012 membership in religious or social organizations, and working for pay 58%

New research regularly highlights the impact that human connections have on our overall well-being—from abating depression to improving heart disease rates.3 Unfortunately, 56% nearly all age groups have suffered declines in social engagement since 1995.

The biggest drop came in the 55 to 64 age group. (See Figure 3.) 54% Many factors are down for this group, including marriage rates, interaction with family members and neighbors, and participation in community or religious organizations. 52% Declining social engagement is particularly troubling for the pre- and early retirement populations. It’s the opposite of a typical image of retirement—recreation with friends, vacations with a spouse, and more time with the 50% grandchildren. Considering how many social bonds are created at work, it’s noteworthy that the transition away from this social outlet goes unaddressed during retirement 48% discussions. Our industry focuses intensely on financial 25 to 34 35 to 44 45 to 54 55 to 64 65 to 74 outcomes, with less regard for emotional and psychological outcomes. We believe employers could help their participants Source: Stanford Center on Longevity, “The Sightlines Project,” February 2016. develop detailed plans for how to cultivate feelings of well- being and purpose that may be lost after their careers end.

3 HEALTHY LIVING

• Rates of positive choices, such as eating right and exercising regularly • Rates of risky behaviors, such as smoking and excessive drinking

The good news is that all demographic categories generally improved on the healthy living index, thanks primarily to declines in smoking rates and increases in exercise levels. Yet there are still areas of concern that must be addressed: E-cigarette usage is on the rise, obesity rates continue to grow and sedentary behavior is the norm.

10 The Participant Winter/Spring 2017 State Street Global Advisors Addressing longevity risk in DC plans How plan sponsors can help The research, the anecdotes, the financial modelling—all participants live longer and well signal a strong need to face the reality of our aging population. While the industry has been slow to build and adopt longevity risk solutions, we are seeing a shift in plan sponsor priorities resulting from recognition that it is time to start moving. FINANCIAL SECURITY

We believe the first wave of solutions will focus on longevity Emphasize a holistic financial wellness program. tail risk—running out of money after 80 years old. We hope Survey your employees to get a snapshot of their to see more guidance from policymakers in order to perceptions and feelings about their financial lives. If debt incorporate annuities and other longevity risk mitigators or emergency savings are dominant issues across your into the default investment. population, focus on tools and tips that can help them take action. Consistently emphasize the value of taking Age 80 also appears to be a natural mental inflection point advantage of all employee financial benefits, such as for participants. During a series of focus groups in 2015, we insurance offerings and employee assistance programs. asked participants in their 50s and 60s to describe what they expected their lives to be like in their later 60s and 70s. When we got to the 80s, the room turned quiet, then filled with nervous laughter and some joking: “I’ll be six feet under!” SOCIAL ENGAGEMENT

But then the reality of the question set in, and people became Include retirement lifestyle planning for more thoughtful, offering sentiments like, “Retirement funds near-retirement employees. Host “Retirement Life” will be running pretty low by then … I think age 85 is workshops where employees talk about their goals something people should be planning for, because people and concerns—both financial and personal. Invite a are living longer.” psychologist who specializes in aging to discuss the transition to retirement or semiretirement. Encourage Helping participants prepare financially for longer lifespans employees to create peer groups to begin preparing is why SSGA is committed to bringing longevity risk solutions for retirement. into DC plans. By combining these tools with efforts to engage participants in planning for their physical and emotional Start or strengthen a company volunteer program. health needs in retirement, our industry can ensure that Find creative ways to engage your 40-plus population more retirees achieve a long, prosperous life. in community volunteerism. You can create specific programs or encourage them with paid time off to volunteer. Consider extending volunteer opportunities to your retired employees as well. HEALTHY LIVING

Expand wellness programs to address emerging risks such as sedentary behavior. Simple changes, such as encouraging employees to stand during short meetings or investing in technology such as sit-to-stand desks, could help create healthy habits.

1 Christensen, Kaare, G. Doblhammer, R. Rau, J. W. Vaupel, “ Populations: the challenges ahead,” Lancet. October 2009. 2 SSGA /Stanford Center on Longevity Analysis of Sightlines Project Data, 2016. The Sightlines Project gathered data from seven nationally representative, high-quality, large-scale, multiyear surveys, with sample sizes ranging from 3,000 to 350,000, to measure individuals’ progress on 27 actions in the categories of financial security, EXTENDING THE CONVERSATION healthy living and social engagement. The Center then conducted additional analysis on these data sets on behalf of SSGA to measure results according to five If you are interested in being part of the movement to address longevity demographic categories: ethnicity, gender, income, education and marital status. risk in DC plans, contact [email protected]. 3 Stanford Center on Longevity, “The Sightlines Project,” February 2016.

ssga.com/theparticipant 11 LONGER LIVES, NEW OPPORTUNITIES Three experts discuss the latest science on human longevity and explain what it means for employers

BY MELISSA KAHN

12 The Participant Winter/Spring 2017 State Street Global Advisors OUR PANEL OF EXPERTS

Olivia S. Mitchell or the last few years, I’ve been Professor of economics, The Wharton meditating daily. This practice School of the University of Pennsylvania helps me maintain a healthy • Executive director, Research Council lifestyle—and, as research • Director, Boettner Center on and Findicates, it may even help stave off Retirement Research 1 dementia later in life. Recent research: “We set out to see if people would be more likely to That’s just one insight from an array of delay taking Social Security if they received the additional payout as a lump sum at the time they claimed benefi ts, rather than as part of a new research on our increasingly lengthy monthly payment,” she says. “It would be the same expected lifetime lives: just how long they’ll be, what our later benefi t, but delivered in a diff erent package—and we found that, on years will look like and how we will pay average, people will delay claiming in this scenario.” for them. At State Street Global Advisors, my colleagues and I often examine these studies as we focus on solving one piece of the longevity riddle: How can we build S. Jay Olshansky defi ned contribution (DC) plans that truly Professor of epidemiology, School of Public support retirement readiness? Health at the University of Illinois at Chicago • Research associate, Center on Aging at the Recently, I had the pleasure of moderating University of Chicago and the London School a roundtable discussion with three leaders of Hygiene and Tropical Medicine in longevity science. Economist Olivia S. • Chief scientist and co-founder, Lapetus Solutions Mitchell, biodemographer S. Jay Olshansky Recent research: For the last decade, Olshansky has worked on the and lifespan psychologist Ursula Staudinger Longevity Dividend Initiative, an eff ort to dramatically accelerate shared the latest fi ndings on this complex scientifi c research devoted to slowing the biological basis of aging. “The current medical model is designed to attack one disease at a topic and pinpointed ways employers can time as if they’re all independent of one another. We think that will put the research into action. The following eventually lead to increases in frailty and disability among future is an edited transcript of our conversation. cohorts of older people. The argument we’re making is that the way to address this is to attack the seeds of aging itself,” he says.

Ursula Staudinger Lifespan psychologist, Mailman School of Public Health at Columbia University • Founding director, Robert N. Butler Columbia Aging Center

Recent research: Staudinger compared full-time workers in a private company’s production department who had very limited changes in their work tasks during a 17-year period with peers who had more task changes. “The group of workers that had four or more task changes had higher levels of cognitive functioning after 17 years—and specifi cally in the domains of cognitive functioning that show strong age-related declines,” she says. “This research indicates that even at low levels of job complexity, employers can make a diff erence in employees’ cognitive productivity.”

ssga.com/theparticipant 13 Why is there such a “We need to think quite difference between the United States and differently about the Europe in terms of nature of financial healthy life expectancy? advice, and about how Staudinger: I’m neither a demographer nor an epidemiologist, but my view from well people make the outside is that it’s a multifactor issue. Part of it is the ethnic composition of financial decisions populations. For instance, in America, later in life.” different ethnic groups have very different rates of morbidity—that is, the Olivia S. Mitchell incidence of disease—and longevity. In The Wharton School of the University addition, the United States has both a of Pennsylvania wider spread of socioeconomic levels than Europe and different lifestyles. Some healthy behaviors, like walking, are more normal and necessary in Melissa Kahn: everyday life in Europe than in the Humans are living longer. United States. What does the research S. Jay Olshansky: Unhealthy life tell us about the quality expectancy is increasing faster than of those additional years? healthy life expectancy in many parts of the world, which tells you that Ursula Staudinger: There are developed countries besides the United tremendous differences between States are also not doing well. This is not countries. Epidemiological studies entirely unexpected: When you push show that a disproportionate number out the envelope of survival, people are of the added years in Europe are active, exposed to an elevated risk of a broad independent years. The United States range of fatal and disabling diseases. has not done as well at increasing the proportion of healthy added years. Staudinger: I was expecting that we’d disagree on that! Since longevity has The variation suggests that additional been increasing, it’s not a surprise that healthy years—what we refer to as it gets harder and harder to push healthy healthy life expectancy—don’t happen life expectancy further. Also, we find automatically. As a society, as individuals, great differences in subpopulations. as employers, we must make sure that So when we look at wealthy Caucasians we encourage people to take preventive in the United States, we see a continued efforts to stay healthy and that we expansion in healthy life expectancy. emphasize lifelong learning, which That suggests that further expansion contributes to healthy years in later life. is possible, in principle.

14 The Participant Winter/Spring 2017 State Street Global Advisors Elsewhere in this issue, So much for my plan to we explore the concept become a shepherd in of Blue Zones—specific Sardinia and live to 120! regions where people I’m curious, though— have extraordinarily how does cognitive healthy longevity. (See health fit into the “Lessons from the Blue picture of our evolving Zones” on page 4.) There later years? are conflicting views Olivia S. Mitchell: I’ve been involved about whether adopting for a number of years with the Health lifestyles can and Retirement Study (HRS), which affect longevity if you follows people over the age of 50 until they die. HRS data shows that 15% of Olshansky: It’s also worth emphasizing live elsewhere. What’s people in their 70s, and almost one- that there are great differences in your take? quarter of those in their early 80s, suffer cognitive functioning among people some cognitive impairment.2 At the surviving to older ages. It’s possible for Olshansky: I’d be cautious about same time, many older people have subgroups of the overall population extrapolating too much from Blue Zones. assets and wealth to manage. So we to make it past age 85 while doing Some people have interpreted the fact need to think quite differently about exceptionally well in terms of mind and that some subgroups have extremely the nature of financial advice, and body. But there is also a lot of variation, long lifespans as meaning that this about how well people make financial and I don’t think we have nearly as much potential for longevity is available to decisions later in life. Ideally they control over that as a lot of people would us all, if we would just adopt the same shouldn’t have to be making day-in and like to believe. lifestyles. However, there is a strong day-out decisions about how to draw genetic component to longevity, so down their assets. What’s more, there are virtually zero even if the rest of the world adopts a efforts in the world of financial planning Blue Zone lifestyle, it does not mean Staudinger: Our brains do undergo to assess a specific individual’s risk of we’re capable of living as long as they age-related declines that affect our levels a very long life. The science is there to do. While it’s unlikely that Americans of functioning. At the same time, from provide that information. For example, will ever live as long as Okinawans, it generation to generation our overall a colleague and I have combined my is certainly possible to learn what level of cognitive functioning has been work in biodemography with his work factors might be contributing to their increasing. Recent studies here at the in facial analytics, which can assess exceptional longevity. Columbia Aging Center have shown that health risk factors from a single image this improvement has been expanding of an individual’s face. This work into midlife and late life. As a result, the allows us to estimate an individual’s dysfunctional points get reached later longevity risk in just minutes, using and later from generation to generation. well-validated scientific methods that Those generational improvements are have come together only recently. We’re slowing down, but it’s unclear whether in the process of commercializing our that has to do with biological limits or research through a company we founded social factors. called Lapetus Solutions.

ssga.com/theparticipant 15 Annuities are one way to Mitchell: Annuities in the market Department’s guidance on qualified make sure longevity today have many bells and whistles; longevity annuity contracts. Deferred they can get very complicated very annuities can be particularly useful in doesn’t cause poverty for quickly. Another impediment to their managing longevity risk: A deferred people in their elder years. spread is plan sponsors’ reluctance annuity you buy at age 65 to start Why haven’t they become to include payout annuities in their paying out when you’re 85 can be quite more mainstream in the investment menus, due to concerns inexpensive, and it provides some about fiduciary responsibility. That’s protection against cognitive decline United States? changing thanks to the Treasury at older ages.

“As an employer, you want to create a set of conditions that will enhance the prospects for a healthy lifespan as much as possible.”

S. Jay Olshansky School of Public Health at the University of Illinois at Chicago

16 The Participant Winter/Spring 2017 State Street Global Advisors Thank you for this Olshansky: As an employer, you want tells people they can take their pension rich and interesting to create a set of conditions that will without a penalty starting at age 59 ½. enhance the prospects for a healthy (For more on public policy approaches discussion. Before we lifespan as much as possible. It’s not to improving retirement outcomes, close, I’d like to ask a secret how to do this: You encourage see DC Download on page 6.) how employers and people to exercise as much as possible, These are age-biased statements that policymakers might even during the work day, and to control their diet. encourage people to stop working and respond to longevity take benefits. Instead, we must make trends. What’s one Staudinger: Employers can start to the guidelines more flexible and more piece of advice you’d think about new work biographies for conducive to later retirement and employees from the moment they join later withdrawal. give them? the company. How can you develop this person from age 20 to 30 to 40 to Mitchell: Employers traditionally 50 to 60 across different positions and design their retirement and health support their joy in work, productivity insurance programs to be the second and cognitive health? and third pillars alongside Social Security and Medicare. Yet both of Mitchell: I’d like to add one thought those government programs face quite about public policy. I believe we must serious solvency problems. This erosion revisit the age bias that is implicit and of support will render employers’ endemic in many U.S. government assumptions about their employees’ programs, particularly the tax system. 1 Sullivan, M. “To Reduce Pre-Alzheimer’s post-retirement needs inaccurate. In For instance, the fact that Social Cognitive Impairment, Get to the Yoga Mat.” particular, employers should start Security focuses people’s attention on UCLA Newsroom, May 10, 2016. 2 investing in their older and middle-aged taking benefits at age 62 is completely Hurd, M., P. Martorell, A. Delavande, K. Mullen, and K. Langa. “Monetary Costs of Dementia in workers now, because those workers are out of touch with the extension in the United States.” The New England Journal going to be with them longer. longevity. Likewise, the tax system of Medicine, April 4, 2013.

ssga.com/theparticipant 17 SPOTLIGHTING RETIREMENT INCOME

Retirement income projections may off er participants more clarity—and motivation % BY CATHERINE REILLY AND MEGAN YOST 29 of participants took action after receiving a monthly income estimate

hen trying to understand the value of money, context is key. Think about traveling in a foreign country: It can be hard to know whether something isW expensive. Is 94 Mexican pesos too much to pay for an ice cream? Is 35 Chinese yuan a fair price for a cab ride? To answer those questions, you need the exchange rate. % Knowing how many pesos or yuan are in a dollar 12 increased their translates the unfamiliar into useful information. contribution levels The same issues arise around retirement savings. For plan participants, simply knowing how much they’ve saved for retirement doesn’t provide useful 10% information about the power of those dollars. They changed their need context to gain clarity and make decisions. In investments particular, they need help understanding how their savings translate into monthly retirement income, THE POWER and whether they’re on track to save enough to cover their retirement expenses. OF A PROJECTION Some forward-thinking plan sponsors are providing Results from the federal that context by including retirement income projections government’s Thrift on participants’ plan statements. These projections can help participants understand the true value of their Savings Plan savings. Even better: This information may spur people to save more.

18 The Participant Winter/Spring 2017 Sources: Aon Hewitt and the Federal Retirement Thrift Investment Board, 2013. A series of small targets The state of Florida experienced similar results after it introduced an in-plan annuity in 2002. By 2010, just As an industry, we are well aware that preparing for eight employees actually had purchased the annuity. That retirement is a huge undertaking for most individuals. The year, the state began to distribute letters to terminated danger is that the enormity of the task can overwhelm people members that showed the monthly income stream the and keep them from saving at all. However, researchers have participant’s savings could provide if annuitized. Since noted that narrowing the goal from trying to save one large then, 70 employees have opted to annuitize some or all figure over a lifetime into smaller, incremental savings targets of their defined contribution (DC) retirement savings. can make saving for retirement seem more achievable.1 Though that figure represents a small portion of the plan’s nearly 108,000 retired members, state officials see it as This is where income projections can play a key role. They a step in the right direction. show participants how additional contributions translate into greater monthly income. Income projections also allow “Our goal is to have members avoid outliving their retirement participants to reframe what can seem like overwhelming savings and annuitize at least part of their savings,” says savings goals into smaller ones, such as trying to achieve Daniel Beard, director of administration for the Florida State a certain amount of monthly income. Board of Administration’s Office of Defined Contribution Programs. “The letters have had a dramatic impact on the The concept doesn’t just make logical sense; it works in number of annuities purchased. It’s a simple and inexpensive practice. Individuals who receive income projections along way to reach out to members who will benefit the most.” with their annual enrollment information are more likely to increase their contributions, according to the National Bureau of Economic Research.2

Plan sponsors that provide income projections report similar Retirement income projections can results. A survey of participants in the federal government’s Thrift Savings Plan found that 29% of active participants took help participants understand the true some action after receiving a monthly income estimate, with value of their savings—and may spur 12% increasing their contribution levels and 10% changing their investments.3 people to save more.

ssga.com/theparticipant 19 Showing the numbers participants’ plan statements. If not, discuss which method makes the most sense for your plan and participants. Plan sponsors and record keepers have taken two Once you’ve settled on a method, pay special attention to the approaches to calculating projections: • language you’ll use to explain the projections to participants. • A projection based on a static balance, which shows the Make it straightforward and engaging. income a participant could have based on his or her current When you redesign participants’ statements, be sure to place savings balance • their account balance and projected income near each other, • A forecasted income projection, which relies on assumptions so the connection between them is clear. (See the sample about the future returns a participant will receive based on statement on the facing page.) his or her current savings rate • Also encourage participants to make use of online calculators, Either approach can help make participants’ lump-sum available on many record keepers’ websites, to determine how balances more meaningful, and both may motivate people much they should save to meet their needs. to increase their contributions. However, the approaches Most important, work with your record keeper to make differ considerably in complexity and may lead participants • realistic, consistent assumptions, so that participants get a to interpret the provided information in distinct ways. Since real sense of their progress over time. If applicable, determine the DC industry has yet to settle on one model, plan sponsors the level of support the record keeper’s call center should should consider the advantages and disadvantages of each to provide for participants who have questions. determine what works best for their organization. Context is everything. By providing participants with future Working with record keepers income projections, you can make saving for retirement less of a mystery and give your participants real information that You’ll want to work closely with your record keeper as you explore helps them plan and save. the best way to provide retirement income projections. Here’s how: • First, determine if your record keeper already provides some sort of income projection that it could simply add to

Two methods of projecting income Static balance projection Forecasted income projection

Advantages Advantages Straightforward to implement. Many record keepers already More realistic. This approach can provide a truer estimate offer static balance projections. If your record keeper already of a participant’s income after a lifetime of saving—and posts projections on its website, discuss ways to make these one that is more comparable to his or her salary. estimates more accessible to participants and connected Flexible. Plan sponsors can provide a calculator showing to statement balances. participants how changing their savings rate would affect Simple. A static balance calculation requires only one their projected income in retirement. assumption: the annuity conversion rate.

Disadvantages Disadvantages Less useful for young participants. Static balance projections Assumptions must be accurate. Projections rely heavily don’t mean much to employees who have smaller balances on assumptions; if they are inaccurate, the projections and are further from retirement, unless plan sponsors provide may lead participants to save too much or too little. some context—helping people understand that if you save Not comparable to current salary. Projected income may X amount, you’ll have Y in annual income once you retire. not account for inflation, which impacts participants’ future Limited in scope. It doesn’t demonstrate the effect of future purchasing power. Income could be converted into current saving and investing. For example, a static balance projection dollars to solve this problem, but plan sponsors need to be wouldn’t include future returns earned on current savings. mindful either way. System limitations may make implementation challenging. Consult your record keeper to determine if its systems are able to handle the necessary calculations.

20 The Participant Winter/Spring 2017 State Street Global Advisors Translate participants’ savings into projected monthly income

This sample statement, inspired by the federal Thrift Savings retirement income their current savings would produce. Plan’s annual participant statement, shows a static balance An accompanying graphic demonstrates how an individual’s projection based on participants’ current balances. The account balance has changed over the last fi ve years— projection draws participants’ attention to the monthly data that helps contextualize the income fi gure.

Place the projected monthly XYZ SAVINGS PLAN Name income and account balance Address near each other, so that the City, State 12345 connection between them Account Number is clear. 1234 5678 91011

YOUR 2016 ANNUAL STATEMENT Provide a monthly income amount based on current savings rate to encourage

How Your Account Value Changed in 2016 Will you have enough money to live participants to keep saving. comfortably in retirement? 401(K) BALANCE Based on your balance on Dec. 31, 2016, you would Value on Jan. 1, 2016 $174,743 receive this much monthly income for the rest of your life*: Change in value this year $14,257 Explain the assumptions used to Value on Dec. 31, 2016 $189,000 $976.25 calculate the monthly projected income in clear, concise terms.

Estimated Monthly Income in Retirement *These estimates assume the following:

For both monthly estimates … Accrued Monthly Income If you continue ~ You would begin receiving annuity payments at age 65. Projected Monthly Income saving at your Refer plan participants to a ~ You purchased a single-life annuity on Sept. 30, 2016 retirement calculator so they current rate for the (annuity prices fluctuate). rest of your career, can determine how much they 3.5 you are on track to need to save to meet their 3 For the projected monthly estimate … receive $3,252.76 retirement needs. 2.5 ~ You continue saving 12% of your salary each year until in monthly income your retirement at age 65. 2 in retirement.* ~ Your salary continues to rise by 2.5% per year. 1.5 ~ You are invested in an age-appropriate target retirement 1 fund that delivers investment returns in line with our (thousands of $) 0.5 long-term asset class forecasts. Include the account balance 0 history so participants can Note: The above annuity estimates are not guaranteed. These illustrations are intended to help you understand see their savings progress how much income your savings could provide you in over time. retirement. For more information about how your savings Remember, you may also have Social Security income will impact your life in retirement, check out the calculator ! available to you. Visit AARP.org to estimate this figure. on [XYZ Company website name].

YOUR 5-YEAR ACCOUNT BALANCE HISTORY 1 Knoll, Melissa A.Z. “The Role of Behavioral Economics and Portfolio balance (in thousands of $) Behavioral Decision Making in Americans’ Retirement Savings 0 20 40 60 80 100 120 160 180 Decisions.” Social Security Bulletin, 2010. 2012 2 Goda, Gopi Shah. “What Will 2013 My Account Really Be Worth? An Experiment on Exponential 2014 Growth Bias and Retirement 2015 Saving.”The National Bureau of Economic Research, March 2012. 2016 3 Aon Hewitt and the Federal Retirement Thrift Investment Board, “2013 Thrift Savings Plan Survey Results,” 2013.

ssga.com/theparticipant 21 THE LIABILITY- AWARE any defi ned contribution (DC) plan sponsors would like to employ a strategy that takes some of the guesswork and uncertainty out of meeting participants’ retirement needs. MAfter all, individuals often say one of the biggest challenges ADVANTAGE in saving for retirement is the uncertainty of knowing whether their savings will actually last their whole lives.

For decades, defi ned benefi t (DB) plans have employed tools Rethinking an LDI to help ensure their assets can meet their liabilities. One approach for DC plans often-used strategy is liability-driven investment (LDI), which guides a plan’s investment strategy to cover payouts BY ARIN BRATT, TOM KENNELLY while also taking into account its future obligations. AND CATHERINE REILLY Can the LDI approach used in the DB environment work for DC plans? To answer that question, we must fi rst examine the diff erences between DB plans and DC plans.

22 The Participant Winter/Spring 2017 State Street Global Advisors Comparing DB and DC

In a DB plan, retirement payouts are linked to factors such as salary and years of service. As a result, the plan’s liabilities can be measured and projected by actuaries using sophisticated modeling tools, even when the actual needs of each individual in the plan are distinct and unpredictable. DB plans have the added benefi t of a large population of participants, so they can focus on average levels of mortality. These are relatively easy to predict, unlike individual mortality, which is extraordinarily diffi cult to predict with any accuracy.

Liabilities in a DC setting are more dynamic, because there is no formula that defi nes an individual’s actual liabilities. Liabilities vary from person to person, and they can even shift from year to year during a participant’s life. Circumstances such as the purchase of a home, marriage or divorce, health events and even an individual’s changing expectations for retirement can cause liabilities to go up or down. As a result, forecasting an individual’s liabilities in retirement is extremely diffi cult, if not impossible: Future spending needs are a moving target.

Another challenge: Success is more transparent in a DB plan, where assets and liabilities are frequently and carefully measured and follow a prescribed formula. Either the DB plan succeeds by meeting its required stream of payments to participants through investment returns and planned contributions, or it fails to meet those payments.

For individual participants in a DC plan, however, there can be many degrees of success. Investment returns are a widely used measure of success in both DB and DC plans. But while

Forecasting an individual’s liabilities in retirement is extremely diffi cult, if not impossible: Future spending needs are a moving target.

ssga.com/theparticipant 23 DB plans focus on performance versus their carefully guaranteed income through the individual’s lifetime and estimated liabilities, individuals have a more diffi cult eff ectively allows the participant to pool mortality risk with challenge: making sure their savings can generate enough others. Annuitizing at least a portion of their assets may enable future income to support their spending needs in retirement. participants to draw down the rest of their savings at a faster An individual with less money saved may have a less fi nancially rate and more securely, because they don’t need to protect comfortable retirement than someone with more savings, but against the risk of outliving their money. (See Figure 1.) he can still retire.

Lessons for DC The benefi t of mortality pooling Monthly income from $500,000 in retirement savings. For these reasons, the LDI approaches used in DB plans aren’t Annuity purchase allows income to increase by $340 a month. always ideal fi ts in a DC environment. However, lessons from the use of LDI in the DB environment can be applied to DC Figure 1 plans. For instance, a DB plan can estimate longevity and pool risk for its plan population as a whole. The plan sponsor knows that as participants get older, the amount the plan will pay out will decrease over time. DC participants don’t have the luxury of protecting against longevity risk by pooling their mortality risk with hundreds or thousands of other participants. As a $1,540 result, they are exposed to the potential that they may outlive $1,880 their assets. SELF-MANAGED USING AN DRAWDOWN ANNUITY One solution: Individuals can take advantage of the benefi ts of mortality pooling through the use of an annuity. A product such Both scenarios assume a 2% annual cost-of-living adjustment and are based as a qualifi ed longevity annuity contract, which can be funded on SSGA’s DC Research Dynamic Drawdown Model. by a qualifi ed retirement account such as a 401(k), provides Source: SSGA Defi ned Contribution Team 2016.

24 The Participant Winter/Spring 2017 State Street Global Advisors DC plans can also follow the lead of DB plans with respect Plan sponsors can play a critical role in helping to move LDI to asset allocation strategies. For instance, a DB plan with concepts into a DC framework. However, the liability-aware younger participants may take a relatively aggressive approach must also be embraced by participants: To truly investment approach because the plan’s liabilities come due benefit from a liability-aware approach, they need to shift their further in the future. That long time horizon allows the plan thinking about savings goals away from a lump sum target and to more easily recover from any short-term downturns in toward the amount of income those savings can produce in the riskier investments. As the plan’s participants age and future. Individuals should consider investment performance payouts approach, the investment strategy can become not just as a force that changes their account balances but also more conservative. as something that can increase or decrease the purchasing power of each dollar of savings. In a DC environment, target date funds enable participants to follow a similar asset allocation strategy—one that grows more conservative as participants approach retirement and their retirement liabilities come into view. The DC industry’s continued adoption of target date funds and a glidepath To truly benefit from a liability- approach to asset allocation means more participants are aware approach, participants taking advantage of a key feature of DB plans’ LDI strategy. need to shift their thinking about savings goals away from a lump A liability-aware approach sum target and toward the The use of target date funds in the DC environment neatly amount of income those savings illustrates how participants can alter the LDI approach to fit into their individual retirement savings plans. A traditional can produce in the future. LDI strategy builds efficient portfolios that manage investment risk and future liabilities. Plan sponsors can take steps to help them manage their investments in a way that focuses on their own potential future liabilities. This is a liability-aware Fortunately, plan sponsors can help participants shift to approach. It acknowledges the challenge of hedging against a more liability-aware approach by targeting communications a liability set to come due decades in the future, and it focuses and adding income information to participants’ plan instead on helping individuals become aware of it and statements to clearly illustrate how a participant’s savings arrange their investments accordingly. will translate into future income during retirement. (See “Spotlighting Retirement Income” on page 18.) By working Looking at liabilities allows investors to refine their notions together, plan sponsors and participants can bring some of risk in a way that recognizes the interaction between the of the key benefits of an LDI approach to the DC universe. risks of their investments and the volatility of their liabilities. Consider the example of Joe, a hypothetical 30-year-old who is weighing the investment options in his 401(k). Investing his savings in money market funds appeals to Joe because of what he perceives to be their safety: Investing in money markets all but guarantees that his savings will be available in retirement.

However, Joe learns that while investing in a money market product may be a great way to preserve assets, it is quite risky from a liability-aware perspective: These investments don’t offer the growth potential he needs to adequately cover his retirement liabilities, and their relatively low returns run the very real risk of being outpaced by inflation or being SPREADING AWARENESS undermined by falling interest rates. Focusing on his ability At State Street Global Advisors, we believe that a liability-aware to meet liabilities leads Joe to realize that he needs growth approach can play a crucial role in helping your participants reach a better retirement. Email us at [email protected] to discuss now; conservative investments like money markets are what our liability-aware approach to target date funds may mean for more appropriate as he nears retirement. your participants.

ssga.com/theparticipant 25 BOLDHOW TO BE

Leadership expert Peter Meyers explains how—and why—leaders should act decisively to inspire positive change

BY INGRID MALTRUD

26 The Participant Winter/Spring 2017 State Street Global Advisors ithin the retirement industry, we see a strong desire for change in many of our clients and defined contribution (DC) stakeholders, yet we often see a hesitation to act. Fintech is on ourW heels, Washington is trying to help but is sometimes hindering, and the threat of litigation is always lurking. In this environment, it can be tough to summon the courage to act boldly and decisively, or to inspire others to do the same.

Peter Meyers, founder and president of the Mill Valley, Calif.-based Stand & Deliver Group, has built his career on coaching leaders through periods of brave and deliberate change. I asked him how leaders can build teams and cultures that celebrate boldness and risk-taking. The following are excerpts from our conversation.

Ingrid Maltrud: Why are people often reluctant to make Q changes within their organizations—for instance, around financial wellness or retirement income?

Peter Meyers: Organizations are, by their nature, consensus- driven. There’s not enough bold risk-taking, partially because organizations tend to have a long memory, and no one wants to be responsible for a bad decision. Generally in corporate life we spread responsibility as wide and far as possible, so if things go awry, no single person will be blamed.

Are there situations in which leaders tend to act more Q decisively and boldly? People are often willing to make a change in the first 90 days on the job or when there is a bigger change already in motion at an organization. When they’ve done so successfully, they’ve almost always started with an understanding of where people are now and a willingness to take them to a new place.

People who lead change successfully typically combine an effective presentation of the logical rationale for the change with a persuasive appeal to people’s emotional and intuitive sides. That combination can truly inspire people to make the leap required to get behind the change.

ssga.com/theparticipant 27 It seems that to be bold—to propose and institute major change—you have Q to be willing to fail. How can leaders and organizations create an environment where doing so is not only acceptable but also encouraged?

In Silicon Valley, we hear a lot that failure is good. But failure isn’t good. Mistakes are good. Failure is bad. We get those two words mixed up. We need to make small and even medium- sized mistakes in order to succeed, but we don’t need to fail completely. If you’ve been given responsibility for something and you fail, your credibility is compromised, for good reason. But you’ve got to be willing to make some mistakes. Every company, and every team within the company, likely has an appetite for the occasional stumble. That’s not only important—it’s necessary.

How does corporate culture influence greater boldness, Q or the lack thereof? There are two extremes out there, and the contrast, to me, has never been starker. A lot of companies still operate like it’s the 1950s. You’ve been hired; you get a paycheck, and that should be enough. Most people are reporting through a hierarchical chain and waiting for somebody else to tell them what to do, and as a result there’s a lack of innovation.

These companies pay lip service to culture, training and coaching. They’ll say, “We’ve got a great culture. We’ve put out fresh fruit in the kitchen for you.” In this environment, I don’t see engagement; I see compliance. I don’t see loyalty; I see opportunism. I don’t see teams; I see committees. I don’t see boldness and risk-taking; I see people hiding behind policy.

How can an organization or leader call out mistakes and also celebrate “ Mistakes are good. Failure is bad. Q those acts of boldness? We get those two words mixed up. We The virtue of any mistake is the insight gained from the error. Leaders can focus on what we’re learning in the face need to make small and even medium- of adversity. Fostering a culture of innovation requires genuinely championing moments of courage when people sized mistakes in order to succeed, venture into new territory and try something different. but we don’t need to fail completely.” The new idea may not have worked yet, but we need to hold up those moments of ingenuity as heroic efforts Peter Meyers dedicated to the pursuit of a better solution. Stand & Deliver Group

28 The Participant Winter/Spring 2017 State Street Global Advisors On the positive side, what I’m seeing more and more is a strong dedication to creating a culture where people really BUILDING BLOCKS FOR BOLDNESS feel recognized, where there’s a sense of autonomy, where Peter Meyers recommends the following books—and one there’s a feeling that we’re participating in something larger podcast—for leaders looking for inspiration than ourselves. When there’s that level of buy-in, purpose and trust, it’s a lot easier to institute change.

At these companies, leaders have rewritten their job Presence: Human Purpose and the Field of the Future descriptions. In the past, they’ve focused on executing on Developed from a series of conversations between Peter the strategy. That isn’t going away: You’ve got to get the job Senge, C. Otto Scharmer, Joseph Jaworski and Betty Sue done. But where I’ve seen success—and it’s not uncommon Flowers, this 2008 release challenges leaders to transform anymore—is in situations where they’ve written another job their organizations into agents of change. description, which is chief talent officer. You’ll find CTOs at Theory U: Leading from the Future As It Emerges every level of this kind of company. They’re spending a lot C. Otto Scharmer outlines a process for identifying— more time asking, “How do we create uncommonly fertile and moving past—the blind spots that keep leaders conditions to bring out the best in this team?” stuck in old patterns. Hostage at the Table: How Leaders Can Overcome Conflict, Influence Others and Raise Performance Veteran hostage negotiator and leadership consultant George Kohlrieser advocates meeting the most difficult business challenges by facing conflict openly. Re-Imagine!: Business Excellence in a Disruptive Age A manifesto from management guru Tom Peters, Re-Imagine! challenges readers to look closely at themselves and their organizations to determine what needs to change—and then to make that change happen. Drive: The Surprising Truth About What Motivates Us Daniel H. Pink argues that external rewards are meaningless. Instead, he says, people are motivated by “the deeply human need to direct our own lives, to learn and create new things, and to do better by ourselves and our world.” Hidden Brain This podcast, from National Public Radio social science correspondent Shankar Vedantam, looks at “the unconscious patterns that drive human behavior, the biases that shape our This isn’t just giving people a choices and the triggers that direct the course of our Ping-Pong table and a bowl of relationships.” Daniel Pink is a frequent guest. Q M&M’s, right? Absolutely. That said, the M&M’s and Ping-Pong tables do reflect a deeper way of thinking, which is, “How do we create a really great place to work where people are happy and having fun, and they can eat good food, and they don’t have to worry about their kids because there’s a day care on the campus so they can really focus on the work? We are showing that we care about you. We trust you. Your needs are going to be met. You still have to work your ass off, but you’ll feel a sense of purpose in your work. And we know you’re going to make a lot of mistakes here. But this is a big studio for doing that.”

From that place of trust, you can much more easily engage READY FOR ACTION? them about retirement or their financial lives. The “one- Megan Yost, SSGA’s head of DC experience, shares Peter’s passion career” life is being replaced by a much more dynamic and for bold action. If you’re curious about how to move the needle exciting workplace relationship between employer and on employee engagement and financial wellness, contact her employee. That is even more reason to be bold. at [email protected].

ssga.com/theparticipant 29 PARTICIPANT VOICES

It’s well known that participants find it challenging to transition from saving for retirement to drawing income FOR from those savings. Behind that general truth are millions SAVING of individual stories, attitudes and approaches. State Street Global Advisors invited a diverse group of professionals to share their own perceptions on retirement income during AND a series of focus groups held in May 2015 in Boston. SPENDING The upshot: When it comes to spending down a large balance over time, no one discounted the importance of planning ahead and spending wisely. Yet respondents reported varying levels of preparedness, and shared their unique ideas about IN RETIREMENT living off their savings. Participants share their thoughts on managing their money for retirement

“When the time comes, I’ll want to have the conversation about retirement income with my employer, with the company that manages my plan—I’ll want to have that conversation with everybody.” A 55-year-old female executive assistant “My nest egg will be sufficient, but I have to at a university be frugal because I don’t know what costs will be once I retire. Through the years, you’ve just got to be more frugal, and budget your money more.” A 59-year-old male IT sales professional

“I haven’t gotten very far in my planning. I’m going year by year right now.” A 45-year-old mother of three who works for a hospital radiologist

“I have a plan. When I retire I’ll look at my life expectancy and withdraw a regular amount each month based on that figure. I hope it’ll balance out. But if your nest egg “Longevity runs in my family. One thing isn’t enough to cover your life expectancy, my parents did that’s worked great for you’ve got to front-load the withdrawals them is set up a fixed annuity. So they and hope you die early. That’s the truth.” know if they live to 100, they’re going A 57-year-old father and real estate professional to get the same payment they got at 66.” A 48-year-old male internal auditor at a property and casualty insurer

30 The Participant Winter/Spring 2017 State Street Global Advisors CONTRIBUTORS INSIDE Members of State Street Global Advisors’ DC team share forward-looking ideas and THIS ISSUE innovations that intrigue them

Nigel Aston Ingrid Maltrud

Nigel is a senior managing director and interim Ingrid is an independent marketing and global head of defined contribution (DC) at State communications strategy expert whose Street Global Advisors. He recently read the passion is helping people prepare for Netflix "culture deck" that went viral a while back. retirement. “I was recently reminded that "As a practical guide for recruiting, developing and multitasking is a loser’s game in David Rock’s rewarding talent, it is invaluable," he says. "It book Your Brain at Work,” she says. “It makes turns out that we in SSGA's global DC team share the case that by clearing out our frontal many similar values. We try to help our clients and cortex, we can work smarter. It’s a great read their participants by being collaborative, bold and if you want to learn about neuroscience in tenacious, intellectually curious and innovative, plain English.” precise, transparent and trustworthy. Please tell us if we don't live up to these aspirations." “How to Be Bold,” page 26

“Longevity Has No Borders,” inside front cover Catherine Reilly Arin Bratt As a vice president and investment strategist at SSGA, Catherine advances product Arin is a vice president of research and product development, strategy and research. She is development at SSGA. Among future innovations particularly interested in studying global he’d like to see are space elevators: “Devices in best practices to fi nd new ways to improve orbit that could lift other objects into orbit or retirement outcomes. The innovation she’d lower them. like to see: “A self-cleaning house,” she jokes. I think the biggest advantage is that they would enable mining of asteroids—there “Spotlighting Retirement Income,” page 18 is some very cool stuff in asteroids.” “The Liability-Aware Advantage,” page 22 “The Liability-Aware Advantage,” page 22

Megan Yost

Melissa Kahn As a vice president and head of DC experience at SSGA, Megan helps plan sponsors increase As a managing director and retirement policy employee engagement with workplace strategist, Melissa guides SSGA’s advocacy around retirement plans. “I’m really inspired by the retirement and pension-related issues. “Reading changing way brands are interacting with about Blue Zones and longevity has helped me consumers,” she says. “I recently read a white frame the opportunities and challenges that public paper called ‘Welcome to the Human Era,’ policymakers face in terms of lifetime income,” by John Marshall and Graham Ritchie of she says. “Already, someone has been born who the agencies Lippincott and Hill Holliday, will live to be 150—yikes! How do we ensure they about how innovative companies are growing can retire with dignity?” business—and brand loyalty—by taking a “DC Download,” page 6 more human and less institutional approach to engaging individuals.” “Longer Lives, New Opportunities,” page 12 “Spotlighting Retirement Income,” page 18

Tom Kennelly Tom is a managing director and the head of SUBSCRIBE TO THE PARTICIPANT Americas investment strategy at SSGA. One future innovation he’d be interested to see: Visit ssga.com/theparticipant. “Interplanetary travel—assuming Elon Musk can Suggest possible topics for future issues of The Participant get us there.” by emailing [email protected].

“The Liability-Aware Advantage,”page 22

ssga.com/theparticipant 31 Winter/Spring 2017

About Us For nearly four decades, State Street Global Advisors has With trillions* in assets, SSGA has the scale and global reach been committed to helping our clients, and those who rely on to offer clients unparalleled access to markets, geographies them, achieve financial security. We partner with many of the and asset classes, while delivering thoughtful insights and world’s largest, most sophisticated investors and financial innovative solutions. intermediaries to help them reach their goals through a rigorous, State Street Global Advisors is the arm research-driven investment process spanning both indexing of State Street Corporation. and active disciplines.

*Assets under management were $2.4 trillion as of September 30, 2016. AUM reflects approx. $40.3 billion (as of September 30, 2016) with respect to which State Street Global Markets, LLC (SSGM) serves as marketing agent; SSGM and State Street Global Advisors are affiliated.

For Public Use ssga.com/definedcontribution

State Street Global Advisors One Lincoln St., Boston, MA 02111-2900. as to the accuracy of the information, and State Street shall have no liability T: +1 617 664 7727. for decisions based on such information. The views expressed in this material are the views of SSGA Defined Investing involves risk, including the risk of loss of principal. The whole or any Contribution through the period ended January 31, 2017, and are subject to part of this work may not be reproduced, copied or transmitted or any of its change based on market and other conditions. This document contains contents disclosed to third parties without SSGA’s express written consent. certain statements that may be deemed forward-looking statements. Please SSGA Target Date Funds are designed for investors expecting to retire around note that any such statements are not guarantees of any future performance, the year indicated in each fund’s name. When choosing a Fund, investors should and actual results or developments may differ materially from those projected. consider whether they anticipate retiring significantly earlier or later than age 65 The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an even if such investors retire on or near a fund’s approximate target date. There offer to sell a security. It does not take into account any investor’s particular may be other considerations relevant to fund selection and investors should investment objectives, strategies, tax status or investment horizon. select the fund that best meets their individual circumstances and investment goals. The funds' asset allocation strategy becomes increasingly conservative Unless otherwise noted, the opinions of the authors provided are not necessarily as it approaches the target date and beyond. The investment risks of each Fund those of State Street. The experts are not employed by State Street but may change over time as its asset allocation changes. receive compensation from State Street for their services. Views and opinions are subject to change at any time based on market and other conditions. Diversification does not ensure a profit or guarantee against loss. You should consult your tax and financial advisor. All material has been obtained © 2017 State Street Corporation. All Rights Reserved. from sources believed to be reliable. There is no representation or warranty ID8303-DC-3731 Exp. Date: 3/31/2020