NICSA's 2016 Strategic Leadership Forum Breakout Session | Sponsored by SEI

1. Forces of Change in an
Evolving Retirement Market

2. Agenda
1. Retirement Market Trends
2. Forces of Change
3. Successful Strategies
Page 2

3. After 40 Years of 10%+ Compound Annual Growth,
the US Retirement Market is Now Worth $25 Trillion
0
5
10
15
20
25
1975 1980 1985 1990 1995 2000 2005 2010 2015*
$ Trillions
Total US Retirement Assets
12/31/1975 – 6/30/2015
*As of June 30, 2015
Source: Investment Company Institute Page 3

4. Nearly 60% of the $25 Trillion Retirement Market
Now Sits in Individually Directed Accounts
18%
31%
18%
25%
28%
38%
22%
12%
22%
19% 15%
9%
7% 6%
12% 8% 9%
1975 1995 2015*
IRAs
DC
Private DB
Gov't DB
Federal DB
Annuities
*As of June 30, 2015
Source: Investment Company Institute
Historical Share of US Retirement Market by Plan Type
12/31/1975 – 6/30/2015
Page 4

5. Defined Contribution Market by Plan Size
Plan Size Assets Plans Participants
< $10MM 13% 95% 25%
$10MM - $49MM 11% 4% 16%
$50MM - $499MM 24% 1% 27%
$500MM+ 53% 0.2% 33%
Total $6.8 trillion 843 thousand 95 million
Source: PLANSPONSOR 2015 Recordkeeping Survey, Investment Company Institute Page 5

6. Forces of Change
REGULATION
Lifetime income illustrations
Lifetime annuities as QDIA
Fiduciary standard
STRATEGIES
Open architecture
Income, annuities & alts
Asset allocation solutions
DEMOGRAPHICS
Increased contributions
Delayed retirement
VEHICLES
Flexible pricing
CITs and ETFs
Custom solutions
Better
Retirement
Outcomes
Page 6

7. Demographics Favor Asset Accumulation
DC plans have benefited from:
• Huge numbers of baby boomers living through their peak earning years
• High deferrals from base salaries
• The ability to take advantage of catch-up contributions
Plan participants are nevertheless aware of their lack of preparedness
• Retirement plans are being pushed back
• Asset accumulation will continue longer than previously predicted
Page 7

8. The Power of Regulation
1975 1980 1990 2000 20101985 1995 2005 2015
DC plans were originally
meant to provide
supplemental savings
alongside employer-
sponsored pensions and
Social Security
Rising costs and risks in the
1990s and 2000s cause
some firms to close or freeze
DB plans while many newer
companies to only offer DC
plans
By 2015, DC plans
account for $7 trillion
of retirement assets
2006
The Pension Protection Act fuels
growth of automatic enrollment
and use of target-date strategies
1974
ERISA begins shift toward
individual responsibility and lays
the groundwork for 401(k) plans
Page 8

9. Regulatory Focus on Improving Retirement Outcomes
Creates Challenges as Well as Opportunities
Lifetime income illustrations
• DOL requirements for lifetime income illustrations on statements may alter behavior
• Potentially higher deferral rates, signing up for auto-escalation, or deferring retirement
Lifetime annuities in QDIAs
• DOL and Treasury guidance on lifetime annuities in QDIAs
• Lifetime annuities may drastically improve the retirement outlook of Generations X and Y
Fiduciary rule
• DOL’s efforts to apply fiduciary standard to IRAs may slow rollovers out of DC plans
• Further innovations and product trends may create more disincentives to move assets from DC plans to
IRAs
Page 9

10. Ongoing Product Innovation by Managers
Outcome
Oriented
Solutions
Asset
Allocation
Solutions
Liquid
Alternatives
Open
Architecture
Annuities
Retirement
Income
Page 10

11. Target-Date Funds Grow Steadily, while
Target-Risk Funds Continue to Face Headwinds
Target Date & Target Risk Fund Assets and Net Flows
12/31/2005 – 9/30/2015
-10
0
10
20
30
40
50
60
70
0
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD
Net Flows
($B)
Assets
($B)
Target Date Assets Target Risk Assets
Target Date Net Flows Target Risk Net Flows
*As of 9/30/2015
Source: Strategic Insight
Page 11

12. Target-Date Fund Innovation
Open-architecture
• More than half of “off-the shelf” target-date products (including MF and CIT) feature unaffiliated managers
• However, only 16% of such funds’ assets are managed by unaffiliated managers
Tactical management
• Half of “off-the-shelf” products have the ability to make tactical adjustments.
• Tactical flexibility ranges from 2% to no limit across the products, with a median of 10%.
Alternatives
• There are 11 target-date mutual fund series identified as having distinct allocations to underlying funds that
are deemed “alternative”
• These series in total account for 8% of total target-date mutual fund assets 7% of year-to-date through net
flows
• Among these series, the average exposure to alternative underlying funds (across all vintages) was 6.2%
Blending active and passive
• 40% of off-the-shelf target-date products use a hybrid method of portfolio construction
Page 12

13. Liquid Alternatives Account for Roughly $230B across 20+
Classifications as well as Global Unconstrained Funds
0
10
20
30
40
50
60
0
50
100
150
200
250
300
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD
Net Flows
($B)
Assets
($B) Assets Net Flows
Alternative Fund Assets and Net Flows
12/31/2005 – 9/30/2015
Source: Strategic Insight Page 13

14. Continuous Improvement Means Mutual Funds and
Collectives Increasingly Dominate the Market
0
2
4
6
8
10
12
2011 2015* 2020* 2025*
$ Trillions
Mutual Funds
Separate Accounts
Collectives
Company Stock
Brokerage, ETF & Other
Defined Contribution Plan Assets by Vehicle Structure
12/31/2011 – 12/31/2025 (Projected)
*Projections
Source: Strategic Insight Page 14

15. Comparison of Investment Vehicles Used in DC Plans
MF CIT Sep. Acct. ETF
Daily Liquidity Yes Yes Variable Yes
Transparency for Participant High Low Low High
Transparency for Plan Sponsor High High Moderate High
Availability in Retail Market Yes No No Yes
Customizability Limited Limited High No
Source: Strategic Insight Page 15

16. Vehicle Use Varies with Plan Size
0%
20%
40%
60%
80%
100%
MFsSep. Accts.CITsETFs**Other
% of Plans
OVERALL
MEGA
LARGE
MID
SMALL
MICRO
Investment Vehicles Used by Size* of Defined Contribution Plan As of 2014
* Micro=<$5MM; Small=$5MM –$50MM; Mid=>$50MM –$200MM; Large=>$200MM –$1B; Mega=>$1B
** Outside of brokerage window
Source: PLANSPONSOR
Page 16

17. Collective Investment Trusts: The Basics
• What are they?
– Pooled investment vehicles for qualified retirement plans only
– Not publicly available
– Established by banks or trust companies that act as fiduciaries
• Who governs them?
– Regulated by the OCC or state banking entities
– Exempt from SEC regulation and not subject to the Securities Act of 1933 or
the Investment Company Act of 1940
• Where are they available?
– Used by both defined contribution and defined benefit plans
– Cannot currently be distributed in the 403(b), section 457(f) or IRA markets
Page 17

18. The Benefits of CITs
FLEXIBILITY
Multiple fee classes allow
sliding fee schedule based on
invested assets
PRICING
Low costs vs. mutual funds
due to different regulatory
burden and other factors
SPEED TO MARKET
30% to 50% less time than
launching comparable mutual
fund
NSCC TRADING
Trading through the NSCC
provides same operational
efficiencies as mutual funds
Page 18

19. Case Study #1: Large MF Firm Creating a CIT
as a Component of their Offering
SITUATION
•To attract U.S. retirement plan assets, a firm offering a wide range of
solutions across many asset classes needed to create collective investment
fund share classes that would complement existing MF classes
SOLUTION
•SEI created affiliate branded, multi-share, multi-fund collective
investment trust vehicles that enabled the firm’s affiliates to attract U.S.
retirement plan assets
BENEFITS
•With the CITs in place, the firm successfully attracted institutional
investors and significantly increased assets under management
Page 19

20. Case Study #2: Non-U.S. Manager Establishing CIT
to Enter U.S. Retirement Market
SITUATION
•A leading international asset management firm acquired a U.S. mandate
for $500+ MM on the condition that the vehicle they use to establish
themselves in the U.S. institutional market be a CIT
SOLUTION
•SEI retained the firm as a sub-advisor for an international equity
collective investment trust implemented through the SEI Trust Company
BENEFITS
•Firm was able to take advantage of the efficiency and flexibility of CITs
to offer a customized, cost-effective solution for retirement investors
Page 20

21. Case Study #3: Large Corporation Needing
a Pooled Vehicle Solution
SITUATION
•A major global enterprise planning to restructure their operations wanted
their 401(k) plan to be in a pooled vehicle, so that assets could be easily
separated when the firm split into multiple entities
SOLUTION
•SEI established a CIT structure with:
•21 underlying funds, including 11 target-date funds
•Up to six manager sub-funds in each direct strategy
•Over 20 underlying managers and $15 B in assets
BENEFITS
•Easy allocation of interests post-restructuring
•Cost efficiencies
•No disruption to plan participants
•Leverage when negotiating fees with managers
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22. Case Study #4: A Large Integrated Managed Care
Consortium that Required a Turnkey Mutual Fund Trust
SITUATION
•An integrated managed care consortium that wanted to enhance their
employees’ retirement program by offering low-cost, custom target-date
mutual funds in an open-architecture structure.
•Firm needed to use mutual funds because they not only had a 401(k)
plan but also a 403(b) plan.
SOLUTION
•SEI created a proprietary mutual fund infrastructure leveraging their
Advisors’ Inner Circle Series Trust platform.
•Advisor enabled to build custom target date funds using multi-
manager structure to execute investment strategy for each target date
fund.
BENEFITS
•Turnkey structure that addressed all facets of custom target date
mutual funds.
•Infrastructure built in a very short time frame
•Cost-effective; scalable
Page 22

23. Conclusion
1. Robust but maturing market
2. Public policy & regulation continues to shape the retirement
market
3. Unbundling continues
4. Product evolution to more outcome orientation
5. Multi vehicle usage expands
Page 23