2. What is driving America’s
retirement savings challenge?
• We live longer
• While programmed lifetime
income sources decline
• Responsibility for investment
and lifetime income has shifted
to individuals
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3. Absent reform, entitlements will dominate
federal budgets
Entitlements as percent of GDP
20
Average tax revenue
15 18% as percent of GDP
Medicare
10
Medicaid
5 Social Security
0
2005 2015 2025 2035 2045
Sources: GAO’s Sept. 2004 baseline extended analysis; Bruce Bartlett, Tax Reform Agenda for the 109th Congress 15 (2004).
2
4. Social Security replacement rates will decline
Average replacement rate of pre-retirement income
from Social Security
38.7%
29.4%
2004 2030
For earners retiring at age 65. After Medicare Part B deduction (2030 includes higher normal retirement age).
Sources: Alicia H. Munnell; 2004. “A Bird’s Eye View of the Social Security Debate;” Center for Retirement Research at Boston College.
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5. The first generation:
Workplace Savings 1.0
1982–2006:
401(k) becomes America’s
plan of choice
• Purely voluntary for sponsors
and participants
• Multiple choices
• Heavily dependent on
communication and education
• Continuous improvement in
features and service
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6. Workplace Savings 1.0
While competition kept workplace
fund fees down
Mutual fund expense ratios
Stock funds Bond funds Money market funds
1.54 1.46 1.13 1.09 0.64 0.62
Industry average
0.90 0.51
0.98 0.47
0.72
0.86 0.67 0.39 0.40
0.78 0.74 0.60
Industry average
(asset weighted)
401(k) average
(asset weighted)
1997 2007 1997 2007 1997 2007
The industry average expense ratio is a simple average of all mutual funds, and is not asset-weighted.
Source: “The Economics of Providing 401(k) Plans: Services, Fees, Expenses, 2007,” ICI Research Fundamentals, December 2008.
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7. Workplace Savings 1.0
As Defined Contribution became
America’s plan of choice
American workers covered
(Millions)
75
DC plans 56
DB plans
43
33 36
30
29
19 26
24 22
20
1980 1985 1990 1995 2000 2008
Sources: EBRI, ICI, Bernstein Research, Empirical Research Partners, Bureau of Labor Statistics, 2008; and American Benefits Council, 2/24/2009.
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8. Workplace Savings 1.0
But hit a ceiling on participation
and savings rates
Participation rates Deferral rates
(% of eligible workers) (% of salary)
69.9
64.7 7.5 7.5
63.4 63.1 7.4
7.1
6.6
56.9
1988 1993 1998 2003 2006 1988 1993 1998 2003 2006
Sources: Standard & Poor’s, DALBAR, Bureau of Labor Statistics, EBRI, National Center for Health Statistics, FMR, 2007, 2008.
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9. Workplace Savings 1.0
The key lesson: Inertia, defaults, and design
determine results
99.98%
Organ donor consent rates
12.0%
Germany
Austria
Source: sciencemag.org, Vol. 302, November 21, 2003.
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11. Workplace Savings 2.0
The Pension Protection Act passes in 2006
• Enabled auto enrollment and
savings escalation
• Endorsed defined lifecycle/
balanced default options
• Provided legal safe harbor
for employers
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12. Workplace Savings 2.0
And PPA drove rapid change
DC plans adopting DC plans offering Auto-enrolled
auto enrollment target date funds employees who
stayed in plan
2004 2007 2004 2007 2008
58%
36%
90%
11% 12%
Sources: Investment Company Institute, Center for Retirement Research, Profit Sharing/401k Council of America, 2008.
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14. Workplace Savings 2.0
Many near-term lifecycle funds now appear risky
Equity allocation for the top 2010 lifecycle funds
63.1%
59.2% 58.1% 57.0% 55.7% 55.0% 53.8% 53.0%
Industry
average
47.2%
38.2%
28.0%
A B C D E F G H I Putnam
Fund families
Source: Strategic Insight Simfund, February
2009.
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15. Workplace
Savings
Strengthening today’s
defined contribution plan
to meet the retirement income
needs of tomorrow
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16. Workplace Savings 3.0
Next generation plan design
• Build on PPA’s base of auto-enrollment, escalation,
and defaults
• Include much stronger protection against volatility
• Built-in options for guaranteed lifetime income
• Provide advice and guidance for all participants
• Full, transparent disclosure of fees, risks, and responsibilities
• Provide legal safe harbor for employers who do the
right thing
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17. Workplace Savings 3.0
Consistent returns vs. market volatility
Treasury
$100,000 bills + 5%
initial
investment $163,125
12/31/98
-37%
Stocks
$87,004
-38%
It can take years to recover It took stock investors How long will it
from a market setback. about 3.5 years to recover take this time?
from the last bear market.
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
This example of hypothetically consistent returns is for illustrative purposes only. It does not reflect the performance of any Putnam fund, which will fluctuate. The returns above Treasury bills are
achieved over consecutive three-year periods starting December 31, 1998, and rolling monthly. Treasury bills are represented by the Merrill Lynch U.S.Treasury Bill Index. Stocks are represented
by the S&P 500 Index.
You cannot invest directly in an index. Past performance is not indicative of future results.
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18. Workplace Savings 3.0
The growing programmed income “gap”
Today In 20 years
Investment Investment
income income
The
Work “Gap”
Work income
income
Social
Security
Traditional Social
Traditional pension Security
pension
Guaranteed income
Other retirement income
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19. Workplace Savings 3.0
Guaranteed income could protect against
catastrophic losses
30 years of withdrawals from a $1M retirement portfolio
$2,378,771 $2,378,771
Best-case
income
$1,352,090
Worst-case
income
$640,390
$524,889 Median final
$238,186 account value
No guarantee 50% guaranteed
Based on 5% annual withdrawals inflated each year by 3%.
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20. Workplace Savings 3.0
We need industry innovation
backed by public policy
Industry
innovation Workplace
Savings
3.0
Policy
support
19
21. Extend workplace savings to all Americans
75 million Americans have
no workplace retirement plan
Office of Management and Budget, “A New Era of Responsibility:
Renewing America’s Promise,” 2009.
20
23. The opinions expressed today are those of Robert L. Reynolds, President and
Chief Executive Officer, Putnam Investments. Mr. Reynolds is affiliated with
Putnam Retail Management.
Investors should carefully consider the investment objectives, risks, charges,
and expenses of a fund before investing. For a prospectus containing this
and other information for any Putnam fund or product, call your financial
representative or call Putnam at 1-800-225-1581. Please read the prospectus
carefully before investing.
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