out of crisis comes opportunity

Copyright © 2015 by The Rock Creek Group, L.P. All rights reserved.The information set forth above is not intended as, nor should it be interpreted to be, an offer to buy or sell any security or to participate in any investment or trading strategy. The business described in this Presentation may not be suitable for all investors, and may not be suitable for some investors who qualify to purchase interests.

1THE ROCK CREEK GROUP

Kathleen Kennedy Townsend

Founder, Center for Retirement Initiatives Managing Director, The Rock Creek Group



Out of Crisis Comes Opportunity

How States Are Stepping Into The Breach



Source: Reuters

• 77 percent worried more about outliving their money in retirement than death itself, (according to a survey by financial-services company Allianz of people in their late 40s found)

• Those who are married with dependents are even more terrified, with 82 percent saying that running out of cash is a more chilling prospect than death. (according to a survey by financial-services company Allianz of people in their late 40s found)

Is Outliving Your Savings a Fate Worse than Death?



Fear and Loathing

• From 2001 to 2014, retirement has remained Americans’ top financial concern. (Source: Gallup Poll)

• 86% of Americans believe that the United States faces a retirement crisis (Source: National Institute on Retirement Security)



Do Not Go Gently into That Good Night

36%have $0-$1,000

16% have $1,000-$9,999

8% have $10,000-$24,999

9%have $25,000-$49,999

9%have $50,000-$99,999

11%have $100,000-$249,999

11%have $250,000

or more

Source: Employee Benefit Research Institute

52% have less than $10,000



• If you give Americans the opportunity to save they believe they could do it, if employers made it easy

• 70% of Americans believe they could save $25 more per week by giving up:• Eating out / ordering in (46%)• Soft drinks or snacks (13%)• Movies, videos, DVDs or streaming (12%)• Coffee from specialty shops (11%)• Lottery tickets (8%) (Source: Retirement Confidence Survey, EBRI, Greenwald and Associates)

• But, half of all Americans can’t raise $2,000 in 30 Days … Because it’s not easy! (Source: Time Magazine)

• $120,000 needed for a worker making $30,000 to reach 78% of pre retirement income

Meager Savings



1. Americans are living longer

2. Quantity and Quality of Employer Based Retirement

3. Individuals Don’t Invest Well

Why Is There a Crisis?



• Americans are living longer

• Less Smoking• More exercise• Better healthcare

Why?



• Reduction of the Quantity of Employer Based Plans

• Half of working Americans were not offered a retirement account by their employer —the result of a longer trend in which, from 1999 to 2013, the percentage of workers being offered such plans declined from 61% to 51%

• In 1978, 2/3 of dedicated retirement assets were held in traditional pensions; by contrast, only 1/3 are today

(Source: The Hamilton Project, Brookings Institute)

Why?



• Reduction of the Quality of Employer Based Plans

• Workers with DB plans have a far greater chance of not being in poverty

Why?

Source: Authors’ projections based on SIPP 2008 panel data; data from 2009. See chapter Appendix for income projection methodology. Universe is California residents age 25-64 who worked in the reference period (the past four months), had positive earnings, were not unpaid family workers, and were and are not in the Armed Forces.



• Most American workers are not filling the retirement void created by their employers

• Among employees earning between $30,000-$50,000 a year, only 1 in 20 participate in a non-employer based IRA

(Source: Unpublished estimates from the Employee Benefit Research Institute)

• When they do, they lose

• Only 1% of all active traders beat the market

• Why? Overconfident – overtrade, buy high/sell low, portfolios lack diversification, pressure to chase ‘hot’ stocks.

• Investors’ equity fund returns lagged the S&P 500 index by 4.2 percentage points annually over 20-year periods (Source: Dalbar).

The House Always Wins

(Source: Marketwatch, Howard Gold)



Who has Pensions? • Unions: 82%

• Large Employers: 74%

• Government: 82%

Who Doesn’t?• At employers with fewer than 10 workers, just 17 percent of workers have access to a

retirement plan (Source: John Friedman, The Hamilton Project, June 2015)

Current Retirement Landscape: Employer Based Savings

Economies of Scale

Adam Smith: The Wealth of Nations



Access Is Not Available For Employees In Small Firms

Source: The Hamilton Project

Employer Sponsored Retirement Plan by Firm Size2007-09

25.1%

49.9%

63.5%70.7%

76.6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Less than 25 25 to 99 100 to 499 500 to 999 1000 or more

United States

Firm Size (number of employees)

Shar

e of

wor

kers



81% - 84% Participation if offered!!

AllAccessTake-upParticipation

Firm SizeFirm Size <25

AccessTake-upParticipation

Firm Size 25-99AccessTake-upParticipation



Firm Size 1,000+AccessTake-upParticipation

*Each three-year span represents appended data for those three years; figures reported are three year averages.

Source: Authors' analysis of March CPS, 1988-90,1998-2000, and 2008-10. Data are from 1987-89, 1997-99, and 2007-09, respectively.

Figures are three-year averagers.

71.2% 65.5%

83.7% 76.6%85.1% 85.4%

84.0% 84.9%65.7% 60.0%

57.3% 52.8%

78.2% 70.7%

69.9% 63.5%82.3% 83.1%

80.0% 81.8%43.4% 40.8%

21.7% 20.8%

54.2% 49.9%

27.3% 25.1%79.6% 82.8%

53.9% 49.0%

64.5% 58.1%83.5% 84.4%

1997-99* 2007-09*

Participation Rate Does Not Depend On Firm Size

Employer Sponsored Retirement Plan Coverage, United States

United States United States



• Employees who work in primarily small firms that don’t offer a retirement plan

• Employees in middle income brackets who have the money to save if it was easy

• Employees who frequently change jobs

• Self-employed

• Financially not sophisticated

• Social security will not be sufficient to support them in retirement years

• If employees don’t save taxpayers will pick up the tab• Increasing net worth among the bottom one-third of retirees by just 10 percent over

the worker’s career would decrease government outlays by more than $194 million over the next 15 years

(Source: AARP)

Who Needs Help?



• Reasonable monthly retirement benefits• Automatic payroll deduction• Affordable• Portable• Professionally managed• Low fees• Pooled risk • Choice: ability to make changes

What Should Be Features of Savings Plan



Savings in Individual Retirement Accounts are Inadequate



• Multi generational risk allocation

• Multi generational pooling means that individual does not have to decrease risk close to retirement. The younger generations in the pool can absorb the risk and the older individual can enjoy the higher returns associated with greater risk

• Professionally Managed

• More easily resists the buy high, sell low phenomena

• Access to More Asset Classes

• More balanced portfolio because asset classes that don’t require “daily liquidity” can be included

• Fees• Lower fees because spread over thousands of people

The Benefits Of Pooled Investments



With Individual Accounts, Retirement Income Fluctuates Depending on When People Retire. That makes them less secure, not more

Pooling Assets will enhance investment returns and increase the probability of individuals meeting their retirement targets.

Source: RCG

Only 17% of cohorts will meet retirement income target of 78% with a 60% equity,

40% fixed income portfolio (blue)

Only 7% of cohorts will meet retirement income target with a 100% Fixed Income Strategy

(green)

The percentage of cohorts meeting the retirement income of 78% replacement rate doubles to 33%

with a pooled investment strategy (orange)


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Individual Characteristics

Retirement Age:Age:

Salary:

Annual Contribution Rate:

2565

$30,0003%

Post-Retirement Income from Personal Savings:

$677 Monthly

(27% of salary) Total Post Retirement Income:

$1950 Monthly

(78% of salary, ie., replacement ratio*)Post-Retirement Income

from Social Security:

$1273 Monthly(51% of salary)

Market AssumptionsInflation: 2.5%Fixed Income Returns: 5.5%Equity Returns: 9.5%60% Equity, 40% Fixed Income Return (nominal): 7.9% * According to Aon consulting a total

replacement ratio target of 77%-78% is required to maintain a person’s pre-retirement standard of living

Life Expectancy: 85*

* Life expectancy of a person reaching 65 is 84.5 for men and 86.6 year for women



25 States Have Considered or Enacted Private Sector Retirement Initiatives



Bill Element California SB 1234 Illinois SB 2758 Oregon 8B 2960

Type of retirement plan Automatic traditional IRA Automatic ROTH IRA Defined Contribution

Required participation Employers with 5 or more employees with no retirement

plan

Employers with 25 or more employees with no retirement

plan.

Size of business not yet determined; there is also auto escalation and auto enrollment

Exceptions None 2 year delay for new businesses or businesses with retirement

plans within last 2 years

Investment Management Pooled fund with professional management – no individual

choice

Pooled and professionally managed

Pooled and professionally managed

Insurance Board to procure private insurance to provide guaranteed

return

Board has option to create a “secure return” principal

preservation option with private insurance

Insurance is an option

Fees No more than 1% No more than .75%

Payout Stated interest in providing lifetime retirement income, but

no specific requirement

Stated interest in providing lifetime retirement income, but

no specific requirement

Implementation The board must conduct market analysis and feasibility study

before returning to legislature for authorization vote before opening plan to enrollment.

The board shall open the plan to enrollment within 1 year of

effective date of bill.

The board has enormous power and it does not have to go back

to the legislature

Secure Choice Plans



Massachusetts Retirement Plan for Non-Profits

Washington Small Business Retirement Marketplace

Implement if ERISA Applies Yes Yes

Administrative Entity Treasurer’s Office Agency

Employers Affected Nonprofits of 20 or fewer employees 100 or fewer employees

Employer Participation Voluntary Voluntary

Automatic Enrollment Yes6%

Business owners may auto enroll as IRS rules allow – no state requirement

Investment of Assets 17 options:13 custom target-date funds

4 objective funds• 1Growth • 1 Income

• 1 Capital Preservation• 1Inflation Protected

Depends on Type of Plan

Fees 22-86 bps custom date fundsGrowth: 60 bpsIncome: 40 bps

Capital Preservation: 40 bpsInflation Protected: 86 bps

No more than 1%



• It would create a pooled and professionally managed trust• The multi-employer retirement plan allows for employer contributions• It would create a lifetime annuity

Massachusetts Legislation



• President Directed DOL to Issue Rules to "Provide a Clear Path for States to Create Retirement Savings Programs” on July 31st, 2015.

• DOL to issue proposed policy changes by end of 2015 with goal to finalize by end of 2016.

• Rulemaking will address 2 approaches: • ERISA exempt - Mandatory, auto-enroll IRAs

Will provide updated guidance on safe harbors that avoid ERISA preemption.

• ERISA covered – 401(k) defined contribution plans Will look at the use of the Multiple Employer Plan (MEP) arrangement by

the state to facilitate plan formation and take burden off of employers, but maintain ERISA protections.

DOL ERISA RULEMAKING



To foster state innovation by serving as a trusted public policy center that offers rigorous research, technical assistance, and effective advocacy for state-based retirement solutions by:• Connecting state policymakers, scholars and industry experts• Sharing research, best practices and success stories with state policymakers• Analyzing legislative and regulatory developments and assisting with program design• Serving as a resource to all states and stakeholders in addressing the challenge of

achieving retirement security for more Americans and promoting policies that will strengthen the economy

Center For Retirement Initiative's ROLE RESOURCE FOR STATES


John Chiang (D-CA)Janet Cowell (D-NC)Ron Crane (R-ID)Tom P. DiNapoli (D-NY)Ron Estes (R-KS)Mike Frerichs (D-IL)Mark Gordon (R-WY)Nancy Kopp (D-MD)Ken Miller (R-OK)Kelly Mitchell (R-IN)Beth Pearce (D-VT)Kelly Schmidt (R-ND)Scott Stringer (D-NYC) Ted Wheeler (D-OR)Clint Zweifel (D-MO)

Council of State Treasurers (15)


• Launched in February 2015 with 13 states and NYC as members

• Host monthly meetings for states to discuss their legislative initiatives, share experiences, lessons learned, best practices, etc.

• CRI’s opportunity to build deep relationships with the state staff and identify areas of research and advocacy where we can support states’ efforts

• Participating states currently include WA, OR, CA, IL, MD, ND, KS, KY, NY, NYC, VA, VT, CT, UT with others to be added.

• Host and/or facilitate meetings with federal policymakers to discuss issues of concern to states

CRI Leads State Legislative Working Group



• Crisis: People are Scared• Three words: Retirement, elderly, planning

• Hope and Opportunity• States are laboratories of Democracy

• Involvement• Pooled and professional management

Conclusion

States Are Stepping Into The Breach


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Impo r tan t D i s c l o su res & R i sk Cons id e ra t i ons

The information contained herein is for the recipient’s exclusive use only, and may contain information that is proprietary, constitutes a trade secret, and/or is subject to copyright. This information is confidential and may not be reproduced, distributed, copied or used for any other purpose. It cannot be disclosed to any third party or used for any purpose unrelated to the investor’s investment portfolio. By accepting such information, the recipient agrees that it will, and it will cause its directors, partners, officers, employees and representatives, to use such information only to evaluate its potential interest in the securities or services described herein and for no other purposes. By accepting such information, recipient agrees not to divulge any such information to any other party. It may not be reproduced, distributed, copied or used for any other purpose unless specifically authorized in advance by The Rock Creek Group, LP. This Presentation is intended only to facilitate your discussions with Rock Creek as to the opportunities available to our clients, is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. Notes and discussions concerning general economic conditions and political developments are not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and Rock Creek makes no implied or express recommendations or warranties concerning the manner in which any account should or would be handled, as appropriate investment strategies depend upon the investor’s unique investment objectives. As such, the information contained herein has been prepared solely for general informational and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or to participate in any strategy. If any offer of securities is made, it shall be made pursuant to a definitive offering memorandum (the “Offering Memorandum”) in accordance with the terms set forth in the Offering Memorandum, prepared by or on behalf of the relevant fund, which would contain material information not contained herein and which would supersede this information in its entirety. Neither Rock Creek nor any of its affiliates or employees makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and nothing contained herein shall be relied upon as a promise or representation as to past or future performance. Past performance is not indicative of future performance. The volatility of any indices represented herein may be materially different from that of an investor’s account’s portfolio. In addition, an account’s holdings may differ significantly from the securities that comprise the indices. The indices have not been selected to represent appropriate benchmarks to compare an account’s performance, but rather are disclosed to allow for comparison of the performance of accounts and managers in general to that of well-known and widely recognized indices. Information contained herein regarding performance of any index or security is based on information obtained from the indicated sources as of the specified dates, but there is no guarantee as to the accuracy of such information. Discussions and calculations regarding potential future events and their impact on the account are based solely on historic information and estimates and/or opinions, are provide for illustrative purposes only, and are subject to further limitations as specified elsewhere in this report. No guarantee can be made of the occurrence of such events or the actual impact such events would have on the account’s future performance. Any opinions, forecasts, assumptions, estimates and commentary herein are made only as of the dates indicated, are subject to change at any time without prior notice, and cannot be guaranteed as accurate. Rock Creek has no obligation to provide any updates or changes to any such opinions, forecasts, assumptions, estimates, and commentary or to any data or information contained herein.

out of crisis comes opportunity

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