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Target Date Fund Evaluation:What You Need to Know

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July 30, 2015

This material is solely for the private use of TEXpers and is not intended for public dissemination.

Case Study: Analyzing Participant Asset Allocations

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As of June 30, 2013.Source: SSGA Defined Contribution Team based on sample plan sponsor data set Allocations are as of the date indicated, are subject to change, and should not be relied upon as current thereafter.Assumptions and forecasts used by SSGA in developing the Portfolio’s asset allocation glide path may not be in line with future capital market returns and participant savings activities, which could result in losses near, at or after the target date year or could result in the Portfolio not providing adequate income at and through retirement.For illustrative purposes only.

Participant decisions are not always optimal

0%

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25 30 35 40 45 50 55 60 65 70 75

Equi

ty A

lloca

tion

AgeParticipants Target Date Glidepath

GLSTND-1976

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64% 60% 56%

40%29%

23% 20% 19% 17% 15%12% 14% 15%27%

15% 18%12% 11% 11% 10%

2% 4%16%

44%52%

62% 65% 68% 71%

0%10%20%30%40%50%60%70%80%90%

100%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Money market or stable value fund Balanced fund Target-date fund

Target Dates funds Increasingly Used as QDIA Default Options

1 Vanguard — “How America Saves 2014”The above estimates based on certain assumptions and analysis. There is no guarantee that the estimates will be achieved.

Target Date Funds are increasingly designated as the default fund option within DC plans (71% as of 2013)1

And more individuals are contributing to a single target date fund1

4%8%

13% 16%20%

24% 27%31%

48%

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30%

40%

50%

60%

2006 2007 2008 2009 2010 2011 2012 2013 Estimated 2018

% of Participants Holding a Single Target Date Fund Source: Vanguard 2014

Source: Vanguard 2014

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Target Date Funds: Tips for Fiduciaries

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How well TDF’s characteristics alignwith employees &plan characteristics

Establish a process for comparingand selecting

Review any significant changes in selected offering

Are plan’s objectives still aligned with selected offering

Establish a process for the periodic

review ofselected TDFs

Align objective and philosophy with product

design andexpected results

Understand TDF Selection

Effective Communications

Ensure participants understand basics of TDF offering

Disclosures required by law must be considered

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Case Study: Objective Setting

Objective: Achieve 85% income replacement at retirement, assuming a full career at Company X, retiring at age 65, and full benefits from DB and Social Security

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Source: SSGA Defined Contribution Team based on a single plan sponsor provided data set as of March 31, 2014.The above targets are estimates based on certain assumptions and analysis made by SSGA based on sponsor provided data. There is no guarantee that the estimates will be achieved. Assumptions and forecasts used by SSGA in developing the Portfolio’s asset allocation glide path may not be in line with future capital market returns and participant savings activities, which could result in losses near, at or after the target date year or could result in the Portfolio not providing adequate income at and through retirement.

Baseline Benefits versus Target

20%30%

36%

36%

85% 85%

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100%

Exempt (Age 65) Non-Exempt (Age 65)

Social Security DB Benefit 85% Target

29%19%

• What is the probability of ‘filling the replacement rate gap’ between target and baseline benefits?

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20 25 30 35 40 45 50 55 60 65 70 75 80 85

Age

Manager 1 Manager 2 Manager 3

Glidepaths Considered

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Case Study: 85% Replacement Rate at Age 65 Retirement

High level of confidence in achieving the stated replacement rate target for exempt and non-exempt employees

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As of March 31, 2014Source: SSGA Defined Contribution Team based on a single plan sponsor provided data set. Wealth accumulation scenarios are generated using asset class forecasted returns provided by plan sponsor and allocations using the proposed target date solutions. These results were generated using Monte Carlo simulation (100,000 simulations) and achieved by means of a mathematical formula and do not reflect the effect of unforeseen economic and market factors on decision-making. The Forecasted returns are not necessarily indicative of future performance, which could differ substantially. Returns are nominal and gross of fees. Each scenario assumes starting salary of $58,000 for exempt employees, $36,000 for non-exempt, starting age of 21 years old, 3% wage growth, 5% drawdown, 10% deferral rate and retirement occurring at the start of the retirement year (age 65). The information shown above is intended for illustrative purposes only. Actual returns and risks will vary.

Estimated DC Income Replacement Rates

Manager 1 Manager 2 Manager 3

Exempt 89% 89% 89%

Non-Exempt 99% 99% 99%

Estimated Probability of SuccessProbability of Replacement Rate ‘Above the Line’

77%71% 68%

53% 50% 49%

136%

118%110%

24% 24% 25%

37% 37% 36%

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Manager 1 Manager 2 Manager 3

95%50% 75%25%5%Legend (Probabilities):

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ate

DC Replacement Rate Target for Non-Exempt Employees (19%)

DC Replacement Rate Target for Exempt Employees (29%)

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Case Study: 85% Replacement Rate at Age 65 Retirement

Excluding Social Security and DB benefits reduced the probability of success and accentuates differences in glidepath design

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As of March 31, 2014Source: SSGA Defined Contribution Team based a single plan sponsor provided data set.Wealth accumulation scenarios are generated using asset class forecasted returns provided by plan sponsor and allocations using the proposed target date solutions. These results were generated using Monte Carlo simulation (100,000 simulations) and achieved by means of a mathematical formula and do not reflect the effect of unforeseen economic and market factors on decision-making. The Forecasted returns are not necessarily indicative of future performance, which could differ substantially. Returns are nominal and gross of fees. Each scenario assumes starting salary of $58,000 for exempt employees, $36,000 for non-exempt, starting age of 21 years old, 3% wage growth, 5% drawdown, 10% deferral rate and retirement occurring at the start of the retirement year (age 65). The information shown above is intended for illustrative purposes only. Actual returns and risks will vary.

Estimated DC Income Replacement Rates

95%50% 75%25%5%Legend (Probabilities):

Manager 1 Manager 2 Manager 3

All 20% 15% 13%

77%71% 68%

53% 50% 49%

136%

118%110%

24% 24% 25%

37% 37% 36%

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Manager 1 Manager 2 Manager 3

DC R

epla

cem

ent R

ate

DC Replacement Rate Target for Exempt Employees and Non-Exempt (85%)

Estimated Probability of SuccessProbability of Replacement Rate ‘Above the Line’

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Case Study: Shock Test: Adjusting Assumptions

There are several inputs that may differ by manager and impact the analysis

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As of March 31, 2014Source: SSGA Defined Contribution Team based on a single plan sponsor provided data set. Wealth accumulation scenarios are generated using asset class forecasted returns provided by plan sponsor and allocations using the proposed target date solutions. These results were generated using Monte Carlo simulation (100,000 simulations) and achieved by means of a mathematical formula and do not reflect the effect of unforeseen economic and market factors on decision-making. The Forecasted returns are not necessarily indicative of future performance, which could differ substantially. Returns are nominal and gross of fees. Each scenario assumes starting salary of $58,000 for exempt employees, $36,000 for non-exempt, starting age of 21 years old, 3% wage growth, 5% drawdown, 10% deferral rate and retirement occurring at the start of the retirement year (age 65). The information shown above is intended for illustrative purposes only. Actual returns and risks will vary.

AssumptionPrimary

AssumptionAlternativeAssumption

Impact of AlternativeAssumption

Employment Start Age 21 25 Reduces the median DC replacementrate by 17%.

Risk and CorrelationAssumptions

SSGA’s long term capital market assumptions

All assets are Uncorrelated DC replacement rates at the median increasesby 11%

Retirement Beginningat Start or End of Retirement Age

Assumedretirement occurs

at the start of retirement

Assumed retirement occurs at the end of retirement

Increases the median DC replacementrate by 3%

Timing of Contributions

Contributions are made monthly after

the realizationof returns

Contributions are made annually before the

realization of returns

Increases the median DC replacementrate by 3%

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Appendix A: Important Disclosures

9IBG-15852

Important Disclosures

Investing involves risk including the risk of loss of principal.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent.

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 offer to sell a security.It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.

Assumptions and forecasts used by SSGA in developing.

the Portfolio’s asset allocation glide path may not be in line with future capital market returns and participant savings activities, which could result in losses near, at or after the target date year or could result in the Portfolio.

not providing adequate income at and through retirement.

Risk associated with equity investing include stock values which may fluctuate in response to the activities of individual companies and general market and economic conditions.

SSGA Target Date Fund are designed for investors expecting to retire around the year indicated in each fund’s name. When choosing a Fund, investors should consider whether they anticipate retiring significantly earlier or later than age 65 even if such investors retire on or near a fund’s approximate target date. There may be other considerations relevant to fund selection and investors should select the fund that best meets their individual circumstances and investment goals. The funds' asset allocation strategy becomes increasingly conservative as it approaches the target date and beyond. The investment risks of each Fund change over time as its asset allocation changes.

Web: www.ssga.com

© 2015 State Street Corporation — All Rights Reserved.

State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900

Tracking Number: DC-2347

Expiration Date: 07/31/2015

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