9 18 web presentation

Ready, Set, Retire: How Plan Sponsors and HR Can Facilitate Retirement ReadinessAlan Spierer, UBS Institutional Consulting GroupCarol Buckmann, Osler, Hoskin & Harcourt LLP

A generation lostOver 32 million late bloomers may never be able to retire, a population the size of that in the state of California.

Boomers• Working longer and working in retirement likely• Younger boomers more anxious• A projected 32 million will not be ready for retirement1

In 2011,41 million workers

were retirement age

This will increase to72 million by 2020

1 All sources below:http://www.plansponsor.com/Downturn_Remakes_Americans_Retirement_Expectations.aspx http://www.fidelity.com/inside-fidelity/employer-services/fidelity-investments-study-finds-shift-in-generation-y-attitudes http://www.lifeinsuranceselling.com/Issues/2010/October-2010/Pages/MDRT-study-sheds-light-on-connecting-with-Generation-X.aspx?page=1 http://www.plansponsor.com/Younger_Boomers_Worry_More_about_Retirement_than_Older_Boomers.aspx http://www.metlife.com/assets/cao/mmi/publications/studies/2010/mmi-early-boomers.pdf

National NewsGood news?

The average 401(k) account balance increased a compound annual average growth rate of 5.4% over the 2007 – 2011 period, to $94,482 at year-end 2011.

October 2013 – No. 391401(k) Participants in the Wake of the Financial Crisis: Changes inAccount Balances, 2007 – 2011 By Jack VanDerhei, EBRI; Sarah Holden, ICI; Luis Alonso, EBRI; and Steven Bass, ICI

Bad news?

23rd 2013 Retirement Confidence Survey:Number of workers confident of having enough money for a comfortable retirement still at 2011 record lows.

March 2013 – No. 384Ruth Helman, Nevin Adams, Craig Copeland, and Jack VanDerhei, “2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many,” EBRI Issue Brief,

Retirement will be delayedPercentage of population by age group planning to delay retirementdue to the 2008 financial crisis*

Age 25 – 34 Age 35 – 44 Age 45 – 54 Age 55 – 64

11% 23% 42% 44%

*Source: The Conference Board Consumer Confidence Survey (March 2010).

2013 Mercer Workplace Survey

Saving enough for retirement Keeping up with monthly expenses Retirement healthcare expenses

What’s causing sleepless nights?

Do I save for

healthcare costs today

?

Do I save for

retirement for

tomorrow?

As health savings accounts become more prevalent, there will be competition for savings in the 401(k)

Coping with Medical Expenses Traditional retiree medical programs are being

terminated, but consider the following:

Health Savings Accounts can accumulate income for future medical expenses.

The Affordable Care Act now makes coverage that was previously unavailable or unaffordable available to early retirees

But note Medicare as secondary payer rules

8

Use HSAs to Boost Retirement Savings

9

Triple tax free accounts are available until you enroll in Medicare

Must be used with high deductible health plans-annual deductible limit of at least $1250 for individuals and $2500 for families in 2014

Unlike an FSA health reimbursement account, amounts not used for qualifying medical expenses can be carried over to future years

Employees can make 2014 pre-tax contributions of $4300 (individual) or $7350 (family) if over 55

Employers may also contribute No tax if amounts are withdrawn to pay qualified

medical expenses No 20% penalty if used for non-qualifying

purposes once you are 65

Bad news?

“And we’ll never retire. We can’t. The mortgage is underwater. We’re in debt up to the Rogaine for the kids college education. And it serves us right—we’re the generation who insisted that a passion for living should replace working for one.”

The Baby Boom: How it got that way…And it wasn’t my fault… and I’ll never do it again—P.J. O’Rourke, WSJ December 1, 2013

Plan sponsors

2011 press release

MetLife whitepaper finds that employee financial wellness is a growing global concern for employers

Key findings

Financial difficulties can have a negative effect on worker productivity

Carried out correctly, financial education can have a beneficial effect on employee wellness

Consumers are generally poorly prepared to make good investment choices

Employee financial distress and work outcomes

DecreasedProductivityHealth qualityJob satisfactionPay satisfaction

Increased

Absenteeism

Work time spent on personal financial matters

Healthcare costs

Turnover

&

References noted can be found on PFEEF website at www.personalfinancefoundation.org

Fidelity plan sponsor attitude survey results—2013

Retirement Readiness: Impact of an aging workforce Health premiums for seniors can be up to 5x higher than for younger workers1

Workers in their 60s are twice as likely as workers under 40 to miss work due to a disability claim2

40% of the labor force is over age 50

1 America’s Health Insurance Plans (AHIP.org), January 20132 Cornell University, Employment and Disability Institute, Absence and Disability Management Practices for an Aging Workforce, 2012 data3 U.S. Census Bureau, 2010 Census

Workman’s compensation claims are longer with higher costs as workers age1

AGE OF CLAIMANT AVERAGE DURATION OF CLAIM AVERAGE COST OF BENEFIT PAYMENTS

AGES 45 – 64

66 DAYS $3,485

AGES 20 – 34

53 DAYS $2,227

1 NCCI Holdings—Workers compensation and an Aging Workforce, 2012 based on claims closed within 24 months

Workman’s compensation claims are longer with higher costs as workers age1

AGE OF CLAIMANT AVERAGE COST OF MEDICAL PAYMENTS

AGES 45 – 64

$7,649

AGES 20 – 34

$5,073

1 NCCI Holdings—Workers compensation and an Aging Workforce, 2012 based on claims closed within 24 months

Employer insurance premiums increase drastically with age

Source: CIGNA (healthcare premium), www.lanl.gov (Voluntary LTD rates); AHIP (national average – available at http://www.google.com/url?sa=t&rct=j&q=ahip%20assurant%20national%20std%20and%20ltd%20average%20cost&source=web&cd=1&ved=0CDQQFjAA&url=http%3A%2F%2Fwww.ahip.org%2FIssues%2FDocuments%2F2007%2FAn-Employer%25E2%2580%2599s-Guide-to-Disability-Income-Insurance.aspx&ei=a3HTUNilMavV0gG7hIHoBA&usg=AFQjCNECKp6m-zsa5Xi4GU6pbS58eU9VXg&bvm=bv.1355534169,d.dmQ ); CIGNA, www.lanl.gov, MassMutual Analysis; CIGNA, www.lanl.gov, Social Security Administration, Department of Treasury, MassMutual Analysis

Note: Assumes 50% male, 50% female

20 – 30 60+

Annual employerdisability incomepremiums

Annual employerhealthcare premiums

20 – 30 year old 60+ year old

$532

$32

$2,500

$9,000

Employer insurance premiums and other shorterm cost considerations from financially stressed workers increase drastically with ageDr. E. Thomas Garman

Note: HR Management Issue 7—”Financial Distress for Employees Means Lower Profits for Employers.”

Source: http://www.pfeef.org/press/press-releases/Employers-Waste-Money.html

Productivity

Lawsuits

Increased

healthcare

costs

Bad financialdecisions

Total cost of $2,024 a year for each financially distressed employee

Fidelity plan sponsor attitude survey results—2013

What matters most to today’s plan sponsor Includes responses from 937 plan sponsors who use a wide variety

of record keepers—not just Fidelity Responses from plans with 25 to 10,000 participants Focused on plan sponsors using a financial advisor Respondents managing organization’s 401(k) plan

It is important to understand plan sponsors and what kind of plan they want

Bas

icp

rote

ctio

n Healthp

lan

Basic tools

Retirement readiness

Participant

Sponsor strategy

Participant as priority Plan as differentiator

Plan basics Fiduciary as priority

Service plan sponsors look for

Top 3-ranked advisor services

75% 49% 32%

Providing performance information on investment options and guidance on potential changes1

Providing employee education on investment selection

Analyzing participation rates, deferral rates, investment allocations, and strategies for improving plan performance

Plans with 25 to 2,500 participants1 Investment professionals should consult with their firm's legal and/or compliance professionals before recommending investment option changes to a plan or plan participant, as certain restrictions may apply.

Relationships are important

How plan sponsors initially found their advisor:

36% 31% 28%

Referral from a related company

Existing relationship with survey respondent

Existing relationship with an executive of the company

Totals may not add up to 100% due to multiple answer options. Across all plan sizes.

Followed by

18% 12%

Professional relationship Marketing or advertising

The sea of sameness

Margin pressureFee transparency

Flight to quality

Busy decision making

I solve problems and can

SHOW you proof I like golf

I can find you a cheaper plan

I’m a 3(21) fiduciary

I’m a 3(38) fiduciary

I pick investments

Retirement Advisor Council studyfinding October 2013

Retirement Advisor Council study finding October 2013

Participants of nearly all clients of Advisors who work exclusively with retirement plan advisors receive an indicator of retirement readiness.

1

Retirement Advisor Council study finding October 2013

Retirement readiness; reports bring about change: 88% of all plans advised by retirement plan advisors have received a plan level report of retirement readiness, the majority of which have taken action to enhance outcomes.

2

Retirement Advisor Council study finding October 2013

Four plans in five that partner with Advisors who work exclusively with retirement plans experience a deferral rate increase fewer than half of plans with no advisors have experienced a deferral increase.

3

Retirement Advisor Council study finding October 2013

Retirement Readiness: More than three in four clients of retirement plan advisors say more participants are on track to achieve a successful retirement.

4

Retirement Advisor Council study finding October 2013

Outcomes: Deferral increases—among the 80% of clients of professional retirement plan advisors who have experienced a participant deferral rate increase in the last two years, one third have enjoyed an increase of at least 6%.

5

Investment Education Safe Harbor

31

To address concerns about fiduciary liability, the DOL issued a safe harbor for:

1. plan and investment information, including required information under 404(c)

2. general financial and investment information3. asset allocation models for hypothetical

individuals based on generally accepted investment theories

4. interactive investment materials such as questionnaires or worksheets

Investment Education Safe Harbor

32

So long as specific investments are not recommended to as appropriate for individual participants—

1. Educator and plan sponsor are not fiduciaries under Section 3(21)(A) of ERISA (not giving “investment advice”)

2. The SEC says that the Investment Advisers’ Act of 1940 does not apply.

Note that supervising fiduciaries have a duty to prudently select and monitor the educators

TIP: Sit in on sessions and monitor what they are saying

TIP: SEC and DOL are concerned about recommending affiliated IRAs

Investment Advice Pension Protection Act Exemption

33

Individual Investment advice may be given to participants by a fiduciary adviser under 2 permissible scenarios:

1. Level Fee Arrangementa)Advice is based on generally accepted investment

theories and takes fees into accountb)The fiduciary adviser does not receive direct or

indirect compensation that varies depending on the investments selected by the participant (does not apply to affiliates)

Pension Protection Act Exemption

34

2. Computer Modelsa)Use appropriate objective criteria to provide asset

allocation portfolios composed of investment options available under the plan

b)Can request participant information on risk tolerance, other assets and sources of income, etc.

c)May not favor affiliated investments d)Must have written certificate from an eligible

investment expert that it satisfies applicable requirements before used

• Expert is not fiduciary

Other Conditions of Exemption

35

If either method is used:1. An independent plan fiduciary must

authorize the arrangement2. An annual audit by an independent auditor is

required3. Participants must be given required

disclosures

Plan fiduciaries retain responsibility for prudent selection and retention of adviser

Note that pre-PPA guidance from the DOL is not superseded by the exemption. See Advisory Opinions 97-15A, 2005-10A and 2001-09A

What’s next?Employer investment in quality workplace financial programs rescues employees “and” employers

Employee benefitsDecreases in personal financial distressIncreases in personal financial wellness

Employer benefits

Decreases in costs

Increases in profits

The retirement plan as a financial wellness plan

Physical wellnessHealth insuranceHealth wellness program

Financial wellness in retirement

Social Security

Defined contribution balance

Final QLAC Regulations Permit New Payment Forms-Should You Add Them to your Plan?

38

The IRS has finalized regulations permitting on a limited basis the purchase of life annuities outside the minimum distribution rules generally requiring distributions to begin at age 70 ½

QLACs can begin at any time up to age 85 QLACs may be purchased with only a portion of

the account-limited to lesser of $125,000 or 25% of account balance

The contract or certificate must state that the annuity is intended to be a QLAC

Return of premium feature permitted $100,000 applied at age 70 to purchase an annuity

beginning at age 85 will provide $26,000 to $42,000 in annual income

Special J&S rules

Restrictions

39

Not available for defined benefit plans or ROTH IRAs

Defined benefit plan that pays lump sums could permit rollover into defined contribution plan or IRA to purchase a QLAC

Even if ROTH IRA contract satisfies QLAC requirements, may not be treated as a QLAC

Can’t have cash surrender value or similar features Variable or equity-indexed annuities not permitted Payments can begin no earlier than age 70 ½ or

the calendar year in which employee retires

Open Issues and Concerns

Fiduciary responsibilities and obligation to investigate financial condition of insurer

Concern about future changes in insurer’s financial condition, but note existence of state guaranty funds

Existing DOL authority as starting point re: fulfilling fiduciary responsibility

Portability Need for plan amendments Plan complexity Plan communications Reluctance of plans not serviced by insurance

companies to add annuities Uncertain market, although non-pension longevity

annuity sales are increasing in an otherwise flat annuity market

Recommendations

1. Select a high quality financial advisor2. Benchmark plan fees as 1st step in fiduciary best practices3. Benchmark employee financial wellness with the help of quality vendors

Employer action through plan design

Service plan sponsors look for

Employee action

Hello every one!

Legislative and Regulatory Proposals

43

Automatic IRAs MyRAs Limit on DOL’s ability to define “fiduciary”. Lower caps on plan contributions

Incentive to maximize now.

New Obama budget proposal to exempt retirement accounts that do not exceed $100,000 in the aggregate from RMD rules.

Pending Regulatory Action DOL proposals to show participants the annuity

value of account balances

Questions? [email protected] 800-557-7031

[email protected] 212-991-2581

44

This presentation has been prepared by UBS Securities LLC (“UBS”) for the exclusive use of the party to whom UBS delivers this presentation (together with its subsidiaries and affiliates, the “Client”) using information provided by the Client and other publicly available information. UBS has not independently verified the information contained herein, nor does UBS make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in this presentation. Any estimates or projections as to events that may occur in the future (including projections of revenue, expense, net income and stock performance) are based upon the best judgment of UBS from the information provided by the Client and other publicly available information as of the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. Actual results will vary from the projections and such variations may be material. Nothing contained herein is, or shall be relied upon as, a promise or representation as to the past or future. UBS expressly disclaims any and all liability relating or resulting from the use of this presentation.This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The Client should not construe the contents of this presentation as legal, tax, accounting or investment advice or a recommendation. The Client should consult its own counsel, tax and financial advisors as to legal and related matters concerning any transaction described herein. This presentation does not purport to be all-inclusive or to contain all of the information that the Client may require. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation.This presentation has been prepared on a confidential basis solely for the use and benefit of the Client; provided that the Client and any of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the Client relating to such tax treatment and tax structure. Distribution of this presentation to any person other than the Client and those persons retained to advise the Client, who agree to maintain the confidentiality of this material and be bound by the limitations outlined herein, is unauthorized. This material must not be copied, reproduced, distributed or passed to others at any time without the prior written consent of UBS.

Disclosures

©UBS 2014. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC. SPE_Pres_WD0321_SpiA

U.S. Tax (IRS Circular 230):

Any U.S. tax or other legal advice in this communication (including in any attachment) is not intended and is not written to be used, and it cannot be used, by any person to (i) avoid penalties under U.S. federal, state or local tax law, or (ii) promote, market or recommend to any person any transaction or matter addressed herein.

© 2014 Osler, Hoskin & Harcourt LLP. All rights reserved.