DEFINED CONTRIBUTION PLANS OF THE FUTURE

SEBCSpringAnnualEduca1on2014Conference

2016SEBCAnnualEduca1onConferenceMay1910:30-11:30

Introduc1ons

CynthiaO.ZaletaPrincipalBuckConsultants,AXeroxCompany

ChrisBurkhardVicePresidentCharlesSchwab

ModeratorBurkeLoflandVicePresident,ConsultantRelaFonsFidelityInsFtuFonalAssetManagement

AGENDA

•  PlanBenefitRewards–Timeforachange?

•  RoboAdvising–Thechangingfaceofinvestmentadvice

•  What’sNext?

Plan benefit rewards – Time for a change?

Cynthia O. Zaleta Principal Buck Consultants LLC, a Xerox Company

5

PlanBenefitRewardsPlanDesignandStudentLoanDebt

•  Studentloandebtisnowthelargestformofnon-mortgageconsumerdebtintheU.S.withapproximately43millionborrowersandanaveragebalanceofapproximately$26,7001

•  Recently,severallargeemployers–withaneyetoappealingtomillennials–haveannouncedanewbenefittohelpwithstudentloandebtrepayments

•  WhilemillennialsaresavingforreFrementatanearlierage,theirsavingratesarelow

Proprietary-ThispublicaFonisforinformaFononlyanddoesnotconsFtutelegaladvice;consultwithlegal,taxandotheradvisorsbeforeapplyingthis

informaFontoyourspecificsituaFon.1 “Student Loan Borrowing and Repayment Trends, 2015”, Federal Reserve Bank of New York

WithoutthesafetynetofaDBbenefitandSocialSecurityinjeopardy,will

millennialseversaveenoughtoreFre?

6

PlanBenefitRewardsPlanDesignandStudentLoanDebt

•  Whilestudentloanrepaymentprogramsmaybeappealing,savingforreFrementmustalsobeapriority

•  Cashpaymentsaretaxabletotheemployeeandtherealvalueoftheloanrepaymentisimmediatelydiminished

•  Withthis,manyDCsponsorsarereconsideringtheuseofmatchingcontribuFonsasapreferredmethodforawardingemployerbenefits

•  “Reward”dollarscanbeusedforstudentloanrepaymentsaswellasotherfinancialwellnessacFons•  Abendanceatfinancialseminars•  PreparaFonofwill

Proprietary-ThispublicaFonisforinformaFononlyanddoesnotconsFtutelegaladvice;consultwithlegal,taxandotheradvisorsbeforeapplyingthis

informaFontoyourspecificsituaFon.

•  Considerwhatbenefitsmightmakethebiggestimpact•  Studytheeffectonnondiscrimina1ontes1ng

•  Creditcarddebtrepayment•  Enrollingincertainplanfeatures

The changing face of investment advice Chris Burkhard Vice President, Sales & Consultant Relations Schwab Retirement Plan Services, Inc.

There’s a change sweeping all industries and all areas of our lives.

1.8 trillion www.statista.com/statistics/271450/monthly-unique-visitors-to-us-retail-websites as of August 2015

We make decisions differently now.

A personalized experience

Important trends are reshaping investment advice

Evolving

technology

Rapid

Industry Growth

Changing investor

demands

The emergence of robo-advisors

in exchange- traded funds*

$2 trillion Total assets in exchange-traded funds nearly equal assets in index mutual funds as of year-end 2014.*

Exchange-traded fund flows have exceeded actively managed mutual fund flows in five of the past seven years— 2008, 2011, 2012, 2013, and 2014.*

*Data as of December 31, 2014. 2015 Investment Company Institute Fact Book, Investment Company Institute, 2014. **Net flow percentages are calculated by adding purchases and sales amounts within each respective asset class and dividing by the total net flow over the period. Figures are based on all PCRA participants with a minimum balance of $5,000 in their PCRA account (approximately 125,000 accounts). All data is for informational purposes only. Schwab does not guarantee the accuracy, timeliness, or completeness of the information. SDBA Indicator Q4 2015 Report. For the full report, visit schwab.com/RetirementPlanServices.

<icon> <text> Exchange-traded fund flow in self-directed brokerage accounts (42%) exceeded equity and mutual fund flows in Q4 of 2015.**

Exchange Traded Funds

Digital advice is growing rapidly

Sources:. “The Coming Waves of Robo Adoption,” AT Kearney, June 8, 2015, and “KPMG Robo Advising,” 2016 CAGR: Compound Annual Growth Rate

16

Projected US Robo Advisors AUM

CAGR: 68%

0.1 0.1 0.4

0.8 1.1

0.2 0.4

0.5

0.7

1.1

0

0.5

1

1.5

2

2.5

2016 2017 2018 2019 2020

$ in

trill

ions

From Non Invested Assets From Invested Assets

Underpinning the projected growth of digital advice is a broad appeal Consumer likelihood to use robo-advice

Sources: A.T .Kearney 2015 Robo-Advisory Services Study of 4000 banked consumers. Likely+ is Likely, Very Likely or Extremely Likely.

17

31% 31%

36%

33% Not Likely Somewhat Likely Likely +

Most consumers will demand both digital and human advice

75% Millennials interested in talking with a professional advisor when their financial situation gets more complicated Source: Schwab Man vs. Machine survey, May 2015.,

http://www.economist.com/news/special-report/21650292-human-wealth-advisers-are-going-out-fashion-ask-algorithm

What does this mean for company sponsored retirement plans?

Employees expect technology to help

Intelligent use of readily available individual data*

*Related plan information included if the plan is record-kept by Schwab Retirement Plan Services, Inc.

Age

Account balance Salary Savings rate Estimated Social Security benefits

Employer contribution formulas Related retirement plans State of residence Marital status Gender

Multi-data point advice

Target-date fund

Personalization for portfolio construction

Morningstar Associates LLC, Better Expected Outcomes with Managed Accounts, David Blanchett, January 13, 2013.

40

30

50

60

70

80

90

100

25 30 35 40 45 50 55 60 65

Equi

ty a

lloca

tion

(%)

Age

Average target-date mutual fund Participant managed accounts allocationsParticipant average

87% Increased

contribution rates* Better

diversification* Staying the course*

Source: Blanchett, David. August 2014. “The Impact of Expert Guidance on Participant Savings and Investment Behaviors,” Working Paper.

40% more income in retirement

*

Up to

Source: Blanchett, David. August 2014. “The Impact of Expert Guidance on Participant Savings and Investment Behaviors,” Working Paper.

What’s Next?

Questions?

Sources and disclosures Slide 7: * You refers to the conference attendees (plan sponsors and consultants) in this instance.

Slide 8: * “Our” and “us” refer to the collective body of the presenter and conference attendees (plan sponsors and consultants) in this instance.

Slide 9: http://www.statista.com/statistics/271450/monthly-unique-visitors-to-us-retail-websites as of August 2015.

Amazon is not affiliated with Schwab Retirement Plan Services, Inc.

Slide 10: * “We” refers to the collective body of the presenter and conference attendees (plan sponsors and consultants) in this instance.

Slide 11: * “We” and “our” refer to the collective body of the presenter and conference attendees (plan sponsors and consultants) in this instance.

Slide 12: * “Our” and “us” refer to the collective body of the presenter and conference attendees (plan sponsors and consultants) in this instance.

Slide 14: *“You” and “your” refer to the collective body of the presenter and conference attendees (plan sponsors and consultants) in this instance. **”They” and “their” refers to the retailers discussed on this slide. ***”We” refers to Schwab Retirement Plan Services, Inc. in this instance.

Slide 15: 2015 Investment Company Institute Fact Book. Data as of December 31, 2014.

Schwab Personal Choice Retirement Account® (PCRA) is offered through Charles Schwab & Co., Inc. (Member SIPC), a registered broker-dealer, as part of the Plan, with Plan recordkeeping services provided by Schwab Retirement Plan Services, Inc.

Slide 16: “The Coming Waves of Robo Adoption,” AT Kearney, June 8, 2015, and “KPMG Robo Advising,” 2016

Slide 17: Sources: A.T .Kearney 2015 Robo-Advisory Services Study of 4000 banked consumers. Likely+ is Likely, Very Likely or Extremely Likely.

Slide 18: Source: Schwab Man vs. Machine survey. The survey was conducted by Charles Schwab, one of the largest full-service investment services firms in the country with $2.53 trillion in total client assets, and Koski Research. The online survey was fielded between February 18 and 26 among 1,808 consumers. The margin of error for the total survey sample is 2.3 percentage points.

Slide 19: http://www.economist.com/news/special-report/21650292-human-wealth-advisers-are-going-out-fashion-ask-algorithm, The Economist, May 9, 2015.

Source: Schwab Man vs. Machine survey. The survey was conducted by Charles Schwab, one of the largest full-service investment services firms in the country with $2.53 trillion in total client assets, and Koski Research. The online survey was fielded between February 18 and 26 among 1,808 consumers. The margin of error for the total survey sample is 2.3 percentage points.

Slide 20-22: *”We” refers to Schwab Retirement Plan Services, Inc. in this instance

Side 23: Source: Morningstar Associates LLC, Better Expected Outcomes with Managed Accounts, David Blanchett, January 13, 2013.

Slide 24: 1. David Blanchett. 2014. “The Impact of Expert Guidance on Participant Savings and Investment Behaviors,” Working Paper (August). The percentage of participants who increased their savings deferral rates is determined by comparing each participant’s savings deferral rate prior to and after using the Morningstar Retirement Manager service. Participants who increased their savings deferral rate after using Morningstar Retirement Manager are included in this data point.

2. David Blanchett. 2014. “The Impact of Expert Guidance on Participant Savings and Investment Behaviors,” Working Paper (August). For purposes of this study, “do-it-yourself” participants (those mentioned as not previously using Morningstar’s advice and managed account service) are defined as those who have an allocation of 20% or less to an investment classified as an “allocation” (such as a target-date) fund by Morningstar, Inc. prior to using Morningstar Retirement Manager. The portfolio asset allocations held by participants prior to using Morningstar Retirement Manager were classified by investment type, and those meeting the definition of a do-it-yourself investor’s portfolio were analyzed to determine number of funds held in the portfolio.

3. David Blanchett. 2014. “The Impact of Expert Guidance on Participant Savings and Investment Behaviors,” Working Paper (August). Average equity allocations of participants prior to using Morningstar Retirement Manager were analyzed from May 2007 to February 2014 and compared to the value of the S&P 500 Index.

Slide 19: This figure represents the potential wealth increase an average 25-year-old could have at retirement when using a managed accounts service versus an average 25-year-old that did not use a managed accounts service. The analysis is based on 58,444 participants who used the Morningstar® Retirement ManagerSM service between the dates of January 2006 and February 2014. Participants are grouped by the age when they first implemented or received advice from Morningstar Retirement Manager and are assumed to have an initial retirement account value of $0 and a retirement age of 65. The results show that the average participant who first uses Morningstar Retirement Manager as a 25-year-old with a 0.4% annual fee could have 38.9% more retirement income at retirement than an average 25-year-old participant who did not use Morningstar Retirement Manager. Similarly, the average 45-year-old using Morningstar Retirement Manager with a 0.4% annual fee could have 23.3% more and the average 55-year-old could have 13.8% more retirement income at retirement. The amount of additional retirement income attributed to the use of Morningstar Retirement Manager at retirement varies by age, and tends to decrease with the age the participant first uses the Morningstar Retirement Manager service. Additionally, the potential amount of additional retirement income increases as the management fee decreases; conversely, decreases as the management fee increases. The average difference in the saving rate before and after using Morningstar Retirement Manager is calculated for each age group. The savings rate was applied to an assumed median income value for each age group. In a similar manner, the average difference in portfolio investment return before and after using Morningstar Retirement Manager was calculated for each age group. Six different annual fee levels (0.0%, 0.2%, 0.4%, 0.6%, 0.8%, and 1.0%) for the Morningstar Retirement Manager advice service were analyzed and the fee was applied to the average portfolio balance for each age group on an annual basis. The final account value for each age group at retirement age was then compared for each annual fee level. This analysis does not account for all portfolio costs such as fees, taxes, or expenses other than the annual account fee. If included, they would lower the potential amount of additional retirement income at retirement shown in this analysis. In no way should the results of this analysis be considered indicative or a guarantee of the future performance of an actual client using Morningstar Retirement Manager or considered indicative of the actual performance achieved by actual participants that have used Morningstar Retirement Manager. Actual results of participants that use Morningstar Retirement Manager may differ substantially from the results shown here and may include an individual participant incurring a loss. Morningstar Associates, LLC does not guarantee that the results of their advice, recommendations, or the objectives of Morningstar Retirement Manager will be achieved. The Morningstar name and logo are registered marks of Morningstar, Inc.

Slide 25: *”We” refers to Schwab Retirement Plan Services, Inc. in this instance

Disclosures

Schwab Retirement Plan Services, Inc. created this communication for retirement plan sponsors and retirement plan consultants, advisors and other retirement plan service providers and fiduciaries only. Schwab Retirement Plan Services, Inc. is not a fiduciary to retirement plans or participants and only provides recordkeeping and related services.

The material contained herein is proprietary to Schwab Retirement Plan Services, Inc. (SRPS) and is for informational purposes only. None of the information constitutes a recommendation by SRPS. The information is not intended to provide tax, legal, or investment advice. SRPS does not guarantee the suitability or potential value of any particular investment or information source. Certain information presented herein may be subject to change. Neither the presentation nor any information or material contained in it may be copied, assigned, transferred, disclosed, or utilized without the express written approval of SRPS.

©2016 Schwab Retirement Plan Services, Inc. All rights reserved. (0516-FJPY)

Sources and disclosures

ContactInforma1on

CynthiaO.ZaletaPrincipal,WealthBuckConsultants,AXeroxCompanyAtlantaGAEmail:cynthia.zaleta@xerox.comPhone:770.857.4046

ChrisBurkhardVicePresidentSales&ConsultantRelaFonsCentralRegionManagerSchwabReFrementServicesAusFn,TXEmail:christopher.burkhard@schwab.comPhone:877.783.4372