Webinar

Forces of Change in an Evolving Retirement Market Transformative Trends Create Retirement Market Opportunities

SPEAKERS:

Alison Cooke Mintzer Editor-in-Chief PLANSPONSOR

John Alshefski Senior Vice President SEI—Investment Manager Services

Bridget Bearden Director of Retirement Research Strategic Insight

Robert G. Muse Senior Vice President SEI Trust Company

ALISON COOKE MINTZER: Good afternoon or good morning everyone. This is Alison Cooke Mintzer. I'm Editor and Chief of Plan Sponsor, and I'm pleased to moderate today's webcast titled "Forces of Change in an Evolving Retirement Market. Transformative trends expanding possibilities for managers and plan sponsors." I want to thank SEI for bringing us today's webcast. And before I introduce my esteemed panel, I'd like to take a moment, if I may, and go over some brief housekeeping. First, I want to let all of you know that you will be receiving a follow-up email after the webcast that will contain both a link to a recording of today's events, if there's something you'd like to listen to or revisit or pass along to a colleague. It will also include a copy of today's slides. So please be on the lookout for that email. Also, although we have a great presentation for you, and a lot of information to present, we would very much love to take your questions, and have left time aside at the end to do that. So if you have a question at any point in the session, please feel free to write that in using the Q&A box you see at the lower right-hand side of your screen. As I mentioned, we'll be queueing those up and have set time aside at the end to take them. And now, if I can, I'd love to introduce today's panelists. I am joined by three specialists in the industry. First, John Alshefski is Senior Vice President and Managing Director of

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SEI's Investment Manager Services Division. John leads business development, client service, and investment operations for the traditional business of SEI. Bridget Bearden is Director of Retirement Research at Strategic Insight, specializing in define contribution and target-date funds. She's also on the Retirement Research Board for the Defined Contribution Institutional Investment Association also known as DCIIA. And last but not least, Robert Muse is Senior Vice President of SEI Trust Company and oversees all operations of the Trust company and the SEI Institutional Transfer Agent, which is exclusively focused on managing the people, processes, and technology for SEI's retirement investment solutions. Welcome everybody and thanks so much for being here. John, if I can, I'd love to turn it over to you and ask you to tell us a little bit about what we're going to be talking about today. JOHN ALSHEFSKI: Sure. Thanks, Alison. So we've laid out today's session into three main buckets. We are going to take you quickly through some of the retirement trends and statistics that we're seeing in the marketplace, and I'll be doing that for us. We'll then be looking at some forces of change. Clearly, we are seeing the retirement market, while it may be maturing, we're seeing that there are some transformational stages that are going on. This has to do with new structures, new approaches to delivering retirement services that have been developing, and then what their implications are for plan sponsors and plan promoters. And then, lastly, we'll take you through a few case studies because we are seeing some unique trends and situations in the industry among our client base that we thought might be helpful for everybody to see.

Marketing Trends So getting started with what we've seen regarding the trend in growth and assets in the retirement space, this marketplace is approaching $25 trillion, so we've seen a significant growth over the last 40 years, 10% compounded growth rates. And while we might think this is significant, some of the other trends we're noticing are that maybe this retirement savings is not enough for all of the participants in the market and, clearly, we all need to be looking at other ways to save for our retirement. You can begin seeing this in the next slide where now 60% of those assets in the $25 trillion market are now individually directed where, back in the 70s, most of these were institutionally directed plans, defined benefit plans. Clearly the individual and plan sponsors are doing a lot more directing through defined contribution and IRAs, roughly increasing three times from what they were 40 years ago. And that trend continues to develop into the individually directed retirement savings plans. We also looked into the defined contribution market by plan size. And, as you can see in this slide, 77% of all DC assets are in what we deem as the largest plans. So over $50 million plans have 77% of the total assets. What's interesting, as you look at that, it represents only 2% of the number of plans. So there are still large opportunities out there for other segments that don't include the large plans. And if you look at participants, participants are pretty much equally spread across the under $10 million plans, under $50 million plans, under $500 and then over $500 million plans. So while the participants might

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be equally spread, the number of plans and the assets in those larger plans certainly have the lion's share of what's out there in the marketplace at this time. Again, these slides will be available for you after our presentation so I don't want to spend a whole lot of time going through the specifics, but just highlight some key trends. We also looked at what the sentiments are about people who are saving for retirement and there are two scary numbers on this slide. So while you can see who's got over $50,000 in savings and under $50,000 in savings, when you look at confidence levels, 24% of people with under $50,000 savings are confident that they are saving appropriately for retirement which, if you take back to the growth in assets, the number of participants out there, that still looks like a pretty low number for a retirement savings if your DC plan is your only vehicle available to you. Again, the same thing is on the deferral rate, those who are saving less than 6%, 47% are confident. So there's still a long way to go in education of our participants, but there's lots of opportunity for us as an industry. In our last slide we looked at the average retirement savings and they have recovered steadily since 2008. So, generally, when people are opening their quarterly statements, they've got to be feeling a little bit better. We haven't been able to update those through 2014 because these stats come through the investment company institute but would imagine that those 2014 numbers are increasing over the $72,383 that we're seeing in 2013. So, certainly, we all took a hit back in 2008, but now we've been steadily increasing our retirement savings as time goes by. That's all we have in the prepared statistics for the presentation, so I'm going to kick it back to Bridget who's going to then take us through some other forces of change.

Forces of Change BRIDGET BEARDEN: Hi. Thank you, John. My name is Bridget Bearden and I oversee retirement research at Strategic Insight. It will be my pleasure to walk us through the key forces that will ultimately deliver better retirement outcomes for Americans. As we look at this illustration on the screen, it is apparent that the same historical drivers of retirement market growth will be the same drivers of growth tomorrow. The main sources converging on the overarching goal of improving retirement outcomes are regulations, demographics, and innovation of both investment strategies and investment packaging. First, aging demographics so far has had a favorable impact on DC asset growth. High deferrals from base salaries and the ability to take advantage of catch-up contributions have contributed to steady growth of DC prime assets, particularly from the Boomer population. For year-end 2013, more than half of 401(k) assets were held by participants in their 50s and 60s. Despite where this favorable aging trend has gotten us in terms of asset growth, we are at an inflection point with regards to actual behavior. Many Boomers are extending their working years. According to

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a recent Transamerica survey, 59% of workers in their 50s and 82% of those in their 60s or older, expected to work past the age of 65. And about half of all workers expect to work in some capacity after they retire. And other researchers have found similar findings. In 2015, the Insured Retirement Institute found that 36% of Boomers plan to retire either at or beyond the age of 70, which is twice the number of Boomers that reported the same projected retirement age back in 2011. The reluctance to retire may be driven by many factors, but as the Transamerica study highlights, lack of adequate savings and the need for income are the two largest drivers. And, ultimately, this reluctance to retire will result in prolonged contributions to retirement accounts and preservation of assets already saved. Now let's talk about the second major force driving participant outcomes, regulations. So a lot of us on today's call know at least some of the history of DC but I'll recap some of the basics. The shift towards individual responsibility originated with ERISA in 1974 and the subsequent creation of the 401(k) plan. And, initially, DC plans were envisioned to be supplemental, joining the employer sponsored pensions and Social Security to create a traditional three pillar retirement savings program. But we all know the environment changed. Costs and risks associated with maintaining a DB plan rose through the 90s and 2000s, and many plan sponsors have moved to a DC plan structure. Not only have companies closed or frozen their plans but new companies of the emerging economy also only offer DC plans and an increasing number of employees, it is the only type of employer sponsored savings plan they will ever be exposed to. The PPA in 2006 increased the use of automatic plan features and specifically fueled the growth of auto enrollment in assets in qualified default investment alternatives, QDIAs, specifically target-date funds. And fast forward to 2015, we have 7 trillion in DC plan assets. Moving forward, there are three notable areas of regulatory focus that together can improve the retirement outcomes of Americans: Lifetime income illustrations, lifetime annuities, and the fiduciary rule. And these regulatory efforts create opportunities for asset managers and plan sponsors alike to be creative with annuities and investment strategies within DC plans. First we have lifetime income illustrations. The DOL requirements, the lifetime income on certain statements; these may alter purchase and savings behavior by creating awareness on retirement income needs. Academic research has shown that better information and understanding of income needs could impact behavior when immediate action is available. Behavioral changes could include increasing deferral rates, signing up for auto escalations, or deferring retirement. Second, there is the guidance on lifetime annuities and QDIAs. This safe harbor creates protection for plans that default participants into products of lifetime income streams. And while the immediate impact may be nominal for Boomers, beats the grow adoption rate thus far, lifetime annuities may drastically improve the retirement outlook for Generation X and Generation Y.

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And last, but certainly not least, we have fiduciary rule which has gained enormous criticism and praise. The impact of the DOL's efforts to apply fiduciary standard to IRAs can only be assumed right now, so it is likely that assets in employer-sponsored plans may remain there just a little bit longer, slowing the rate of rollovers into IRAs. Now the reasoning behind this projection is tied to the incentives and costs associated with the rollover process. As a participant in a 401(k) plan, an individual has access to lower costs, vetted investments that may not be available for direct investments outside the plan. A distribution recommendation such as a rollover would be viewed as fiduciary advice under the proposed rule. Therefore, an advisor bound by the standards places clients' interests ahead of its own, could be committing a prohibited transaction if he were to recommend a rollover resulting in higher commissions or fees. Next we move into the territory where plan sponsors and asset managers play the biggest role in improving retirement outcomes, investment strategy and packaging innovation. There are several threads of innovation that have emerged in DC over the recent years. And while each thread plays a role individually, only when woven together they create a strong fabric. The innovations that can vastly improve outcomes when interwoven include asset allocation solutions, alternatives, open architecture, retirement income, and annuities. In the following slides, I'll highlight some of these investment strategy innovations. But as we go through these innovations, keep in mind some of these ideas can yield immediate positive results but other ideas require a longer term outlook for their full benefits to be realized. The strategies standing to benefit the most from the regulatory focus on improved outcomes are solutions-oriented strategies. Target-date approaches are a clear favorite of regulatory agencies as identified by their spotlight as the strategy for lifetime annuities. Today target-date mutual funds account for over 700 billion in assets. And we estimate that target-date mutual funds' assets will nearly double by 2020 to 1.4 trillion. And that's just in the mutual fund vehicle. Demand for target-date objectives with longer horizon days, meaning those for younger investors, help to justify our strong growth outlook. Funds with horizon dates of 2020 and beyond they drive the majority of target data inflows. And mirror dated funds, on the other hand, that are in retirement or retiring in the next five years, are demonstrating slower demand. EBRI data further supports the use of target-date funds among younger cohorts. In 2012, participants in their 20s held the highest allocations in target-date funds. And the distinction in investor age of target date funds reiterates a point made earlier; some innovations, such as income, may be more impactful on younger generational cohorts. On the other hand, target-risk funds, as we see in the chart, they've seen stagnant demand. Accounting for about 270 billion assets, demands for target-risk funds is relatively muted. And this is because there's kind of an overwhelming preference for target-date funds. However, smaller plans, maybe those under 10 million, may be more likely to use target-risk funds as the QDIA because the static allocation provides a touch point for the advisor to go back and connect with the participant.

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And another important asset allocation solution that's not seen on the slide are managed accounts. Managed accounts provide sophisticated drawdown strategies and they can even take into account specific guaranteed income products and individual riders. Managed accounts oversee about 200 billion in participant assets. Both target-date funds and managed accounts are growth areas. They're benefited by their acceptance of the default options, the adoption of automatic features, and their potential to incorporate income. Current areas of innovation within the 1.3 trillion target-date market, and this is 1.3 trillion across all vehicles – mutual funds, collective investment trusts, custom target-date funds – the areas of innovation are open architecture, tactical flexibility, use of alternative strategies, and blending active and passive management. And I'm going to go through some of these innovation points and keep in mind you might see some gaps between availability and implementation or actual adoption. For example, with open architecture, in our 2015 plan sponsor buyer's guide, the target-date fund buyer's guide, we found that more than half of off-the-shelf target-date products, including mutual funds and CITs, featured unaffiliated managers. And although over 50% of these funds featured unaffiliated managers, only 16% of the funds' assets were managed by unaffiliated managers. In regards to tactical management, there aren't too many gaps here between availability and implementation. Just know that about half of the products, again, have the ability to make tactical adjustments. And for those tactical adjustment, this means tactically deviating away from the strategic glide path or the strategic asset allocation. And the products, the ranges might be from 2% plus/minus 2% away from the glide path to actually no limits. Actually, there are a couple of products that have no limit on their ability to deviate tactically. But the median deviation is about 10% as its state of use prospectus. Alternatives are another very hot and interesting area right now. So we did an analysis earlier this year on the alternatives exposure of target-date mutual funds. And we found that there are 11 target-date mutual fund series that have distinct allocations to underlying funds that are deemed alternative. And these series in total account for 8% of total target-date mutual funds' assets, so 8% of that over $700 billion market, and 7% of year-to-date net inflows. And year to date, we have about 50 billion of new cash flowing into target-date mutual fund assets so far. So when we see 8% and 7% that means there's 92% of target-date mutual fund assets that don't have exposure to underlying alternative strategies and 93% of flows are going into strategies that don't have exposure. The average exposure among these 11 target-date series is 6.2%. So that's a 6.2 average allocation across all of the years, all vintages, across all of these 11 funds. Another major trend that we're seeing, especially in new product development for target-date strategies, is the blending of active and passive. So about 40% of target-date products use a hybrid method of portfolio construction. And the last area of investment strategy innovation that I'm going to highlight today is liquid alternatives. Alternative mutual funds and exchange-traded products have surpassed $200 billion. And when you look at this chart, you're going to see some relative discouraging net flows, net outflows potentially, or

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at least declining demand in 2014 and year to date. And that may be discouraging, but please note that these net outflows are concentrated among a handful of the largest alternative funds. Another thing about liquid alternatives is that there has been a lot of product development and new product launches within this area. In the third quarter alone, there were 29 product launches. Year to date through September, 63 products in total have been launched. What are the benefits of alternatives? The institutional DC community is a significant proponent of alternatives in DC. The Defined Contribution Institutional Investor Association, DCIIA, highlights five benefits of incorporating alternatives with the DC plan. One, they have the potential for improved total return performance; two, they provide reduced reliance on traditional equities and bonds; three, they provide incremental portfolio diversification; four, they can lower portfolio volatility; and, five, they can provide increased consistency of returns. With trends towards automation and the rise of the default investment, the most effective method of bringing alternatives into DC is likely through the qualified default investment alternative which is increasingly going to be the target-date funds. In summary, there are several investment strategy innovations taking place that, when combined, they can significantly improve the retirement outlook for American savers. At this point, I will hand the presentation over to Robb Muse who will cover Vehicle Trends and Packaging Innovation.

Vehicle Trends and Packaging Innovation ROBERT G. MUSE: Thank you Bridget, appreciate it. Looking here at slide 17, we see a projection of how the composition of the DC market has the potential to change in the next ten years. Most notably you'll see that there is a projected 50% increase in assets from $7 trillion to some $11 plus trillion in the next ten years and a heavier reliance than ever on those pooled vehicles that we've started to talk about – mutual funds, separate accounts, and collectives. You'll also notice that there is a decreased reliance on company stock and brokerage. You'll see those slices at the top of the 2025 graph getting smaller and smaller. Keep in mind that the growth that Bridget previously talked about in target-date funds can be spread across all the pooled fund vehicles, which is no doubt driving some of this growth. On this slide, we're noticing the pros and cons are really features of each of these vehicles. Some things to note looking at mutual funds versus collective funds, for example, you'll see there's a lot of comparison with respect to the liquidity. Most mutual funds and collective funds are daily priced and have easy accessibility of funds on a daily basis. Transparency to the plan sponsor, what they're able to see are very comparable. In terms of participant, since collective funds are differently regulated, the collective funds don't have those large prospectus documents that might be listing all holdings. Instead, they're going to get fund fact sheet comparable to a mutual fund as well where they might be listing the top ten. So that's the distinction there for the participant level.

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Availability in the retail market, we're going to talk about the distribution of collective versus mutual funds in upcoming slides, but generally with the slight exception of a stable value product, CITs are not generally on the retail side of things. In terms of customizability, across the board, there is, obviously, in a separate account program, high level ability to customize that product. The plan investor has a high level of say with respect to what that vehicle looks like. Larger investors on the mutual fund and collective fund side will have says with respect to the composition of investments, fees to a degree, possibly even a naming convention of the vehicle. So in terms of ability to customize, there is some ability to customize especially with respect to the larger plan sponsors. Looking at the right side, no surprises here with respect to the composition of separate accounts. They can be designed in a variety of ways which is why we have variables. They are in liquidity, transparency for plan sponsor they can certainly see. They have some level of sight in there. Not so available on the retail market. ETFs on the far right are certainly more and more available in DC lineups. On this slide, we're focused on vehicle use as broken out by plan size. And you'll see a predominant increase in the use of collective funds in separate accounts in the mega plan sponsors. And mega for the purpose of this slide, you'll notice there, is a billion plus. So certainly the largest plan sponsors are using collective funds, are using separate accounts for reasons of lots of times fees, to get those decreased fees. You'll also notice, on the far right side of the slide, the continued dominance of mutual funds across all slices of the retirement defined contribution marketplace. Let's just focus for a minute on collective investment trusts. Collective investment trusts have been around for a long time, but the resurgence in the last 10 or 20 years has been notable. They look a lot like mutual funds but, in fact, they're very differently regulated and it gives them the ability to pass along lower fees than mutual fund products. I use this term an awful lot when I talk to clients and investors focused on that middle section. They're not unregulated as some media articles point out. They're actually regulated differently. And because of their regulatory structure, we have the ability to pass along lower costs to the collective fund structure, which is important. They're available in the DC market, the DB market. They also have special appeal to Taft Hartley plans, to governmental plans that are very focused on the fiduciary oversight. So you're not only getting the fiduciary oversight of an investment manager. You're further getting that investment oversight of a trustee at the top level of the CIT structure, which is very important to some plan sponsors. That last bullet point is important because although it's heavily available in the qualified market, they're not available in IRAs. So that portability that some providers might tout that you can rollover from your

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DC plan immediately into IRAs of the exact same funds is not available in CITs. But oftentimes quality investment managers are setting up vehicles both in a mutual fund structure as well as a collective fund structure thus creating the comparable investment experience. Here we highlight the benefits of CITs in an easy graph. That lower cost definitely important, big driver for a lot of investors. The fact that they're differently regulated gets us to a very different cost model. Speed to market in the bottom left, collective funds can be set up very quickly. You don't have the registration documents and filings that you would have on the mutual fund side. And you can set up some collective funds in 30 day time period with a lot of cooperation from all parties involved. Flexibility is very important, in the top right, focusing here on the ability to create share classes, share classes that may be suited for like investors or investors seeking comparable levels of service. So that ability to easily create share classes that have custom fee experiences is important. And, lastly, NSCC trading. From an operational perspective, collective funds really are fully comparable to mutual funds. And you'll often find collective funds in the same lineup, in the plan participant lineup as mutual funds.

Case Studies I'm going to walk you through four case studies of where CITs have worked particularly well in our experience. We work with one large investment firm. It's actually a boutique firm that has a number of affiliates that really cross the range of investment products. They came to us to set up a CIT structure, which we did. Within that CIT structure, they set up a number of underlying funds. Those underlying funds were directly aligned with their affiliate investment practices. So we have one collective trust, a number of underlying collective fund vehicles each named for the underlying affiliates. So, in fact, when they go to market these strategies, they can do so at the parent level by displaying a full list of collective funds and their diverse strategies and also at the affiliate level. The affiliate can also focus on distributing their specific collective funds which, again, are aligned with their specific specialties. This, in turn, is actually a real complement to their mutual fund offering. And they were actually able to expand distribution to the institutional marketplace in a different way. In case study 2, we had a large international asset management firm come to us. They had just won a large mandate from a large US qualified retirement plan. It was a $500 plus million mandate. And in this case, the mandate was conditional on them establishing a collective fund to house the assets that they had gotten through this mandate. So we were able to quickly establish an international equity collective investment trust to house these assets to meet both the plan investors' needs as well as the investment managers' needs. Now this vehicle is available for them to further distribute to other prospective investors in the US. JOHN ALSHEFSKI: Rob, when you say quickly, how quickly would it take us to take one of these products to market?

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ROBERT G. MUSE: In this case, we were able to open this fund within less than 60 days. Based on the international exposure, we had some market openings to handle and it took about 60 days to get this fully operational and going. Let's look at case study 3. This was actually a new development for us. In this case, a large corporation who was thinking forward to the time where their company was going to be split in two, they were very focused within their 401(k) plan on customized separate accounts. They have heavy investment experience inside the firm and they had spent a lot of time developing unitized separate accounts for their particular plan. Appreciating that the company was about to split in two, they decided to set up a CIT structure. And within a few months, we set up a CIT structure. We transitioned their assets into that collective investment trust so that, ultimately, when their company split and thus their plan split, it actually only took moments, literally moments for us to split those assets into the two separate plans. So a forward-thinking corporation set up the CIT structure for their plan specifically. And, again, continued to maintain the customized investment elections, the customized target-date fund family that they had developed, and there was zero blackouts to any participants. Participants never missed a day of trading and it was largely, although they certainly received communications with respect to the collective investment trust creation, from an investment experience, it was largely a complete nonevent for the participants. The last case study is actually very similar, a large employer with heavy assets on the qualified plan side. In this case, they decided to use a mutual fund structure. The limitation here was the fact that they had both a 401(k) plan and a 403(b) plan which was ineligible for CIT investments, and they wanted to have a comparable experience for all of their participants. So in this case, the smarter solution for them was using SEI's Advisors' Inner Circle Series Trust to set up a customized mutual fund platform, again, solely for their plans. I will now turn the presentation back over to Alison.

Q&A ALISON COOKE MINTZER: Thank you, Rob. How much information we've just covered and I want to remind everybody that you can ask questions in that Q&A box you see in the lower right-hand side of your screen. Let me get started with some of the questions that we've got coming in so far. First, you know, "What should a plan or an investment manager look for in a CIT partner?" Who wants to start with that? ROBERT G. MUSE: Alison, I can take that. This is Rob. So I think it's very important when anyone, whether it's an investment manager or whether it's a plan sponsor directly, I think it's very important that they look for CIT expertise. The value of that CIT proposition is the fiduciary model. And if you're working with a company that has proven themselves to be a good fiduciary, that also has the operational components that you'd be seeking – solid relationships with custodial partners,

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administration partners, fund accountants, etc. – so that they bring the entire operational model and fiduciary structure to the table. I think that's extraordinarily valuable. So I think the biggest thing that anyone should be looking for is experience, certainly speed to market, and then just, obviously, looking at all the details of what that partner has to offer. ALISON COOKE MINTZER: Great. There have been some discussion about whether plan participants are going to remain in their plan after retirement or whether they rollover to an IRA. And this, obviously, has a lot of implications for plan sponsors and for investment managers. So I wonder what your take is on that. If anyone on the panel is seeing a trend in one direction or the other. What are your thoughts about the retirement discussion or decision? BRIDGET BEARDEN: Hi, this is Bridget. I'll provide some statistics around rollovers into IRAs. So about 200 billion, between 200 and really 300 billion every year is rolling into IRA funds, or at least those were the net flows into IRA products. And most of these flows are coming from rollovers. We don't project rollovers to cease, to drop off. They might be slowed a little bit, but any kind of dip in rollover activity is really only a temporary event because while the fiduciary role, it might make advisors pause for a little bit on whether they should execute a rollover of a particular participant, that pause will not be a long-term effect. There will be improved compliance procedures and there will be a better understanding on how to provide this very valuable advice on asset drawdown whether or not they are subject to the fiduciary standards or they are not. And I think there are some statistics out there that say retired plan participants generally do end up leaving the plan. And our forecasts aren't saying that participants are going to stay in the plan forever, at least the current Boomer population. They're certainly on their way to moving their assets out. Any kind of retention issues are going to be relatively short lived and within really a five-year period. What we're looking at is long term what's going to be happening to generations X and Y, and those are really transformational shifts on bringing outcome solutions within defined contribution. ALISON COOKE MINTZER: All right, we've got a lot of questions coming in about CITs. So I guess, Rob, I'm going to direct some of the CIT questions back to you. First, "Have you seen a trend in plan sponsors wanting net of fee CIT classes? And do you have a sense of at what plan asset level it makes sense for a plan sponsor to start using CITs?" ROBERT G. MUSE: Yeah, that's two great questions, Alison, so I'll take the net of fee questions first. We are seeing an increase in interest in net of fee classes. And just to level set to ensure we're all talking about the same thing, this is where aspects of the fee would be collected outside of the CIT structure. And that might be the entire fee, meaning operational trustee and investment oversight, or it might be components of that fee being collected outside of the structure. Typically, this is done at investor request if they want a comparable to experience to what they might have had in the past or if they just want that level of transparency. In a typical unitized pooled fund, the investor wouldn't have a level of transparency to literally see the fees leave their piece of the fund. So for those reasons, we are seeing some increase, again, largely with respect to large or mega sized plan sponsors. Was there a follow-up to that Alison, right, on the plan size?

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ALISON COOKE MINTZER: The plan asset size. Yes, yeah. ROBERT G. MUSE: So at what size does it make sense to start using CITs? We work with a number of investment managers that come to us. Oftentimes they have a particular mandate in mind and then a strong desire to start distributing collective funds across the institutional marketplace. Generally, with respect to that initial mandate to kick off the CIT, $100 or $200 or more million would be a meaningful way to kick off a collective investment trust, whether that's coming from one investor or a small number of investors just to get that CIT rolling, and then certainly that door is then opened for larger investors and smaller investors to continue to contribute to that. ALISON COOKE MINTZER: Excellent. Thank you. We have, again, a lot of questions coming in so I want to thank everybody who's writing in about those. Is there any sense of the types of products being sought inside a CIT structure by DC plans? Any specific trends in what people are looking for? ROBERT G. MUSE: Yeah, I can start to answer and then maybe we can supplement that answer, but we are seeing really a broad range of interest from an investment product perspective. Where years ago it might have been very common to simply have stable value and domestic equity collective investment trust, now there's a broad range including, to some of Bridget's points, some exposure to the liquid alt side, also keeping in mind that just target-date complexes can be set up either in the mutual fund or collective investment trust fund vehicles. So in terms of products, we see a broad range of products across the entire spectrum of the investment universe. And it really increases every day as investment managers bring some niche products to the marketplace but products that have enough demand within the larger plan sponsor front to be able to justify a pooled fund structure. ALISON COOKE MINTZER: So really some changes happening there. ROBERT G. MUSE: There is. Yeah, definitely the diversity of investment products being used within the CIT structure is increasing. Without a doubt, we're seeing more complexity, we're seeing more niche products that investment managers are willing to wrap into a pooled-fund vehicle and market in a CIT structure. ALISON COOKE MINTZER: Thanks, Rob. Bridget, I'm not sure if this is for you or not, and I don't know if you have this information, so, Rob, or John, you might be able to jump in as well with anecdotal evidence. But do you have any insight about the growth and performance of non-target-date retirement income funds? I know on our editorial side, most of the information we have is kind of anecdotal or not a lot of hard data about their usage quite yet. So, as I said, Bridget, maybe we don't, but just thought I would ask. BRIDGET BEARDEN: So I think it depends on what is being referred to by non-target-date retirement income funds. We've seen some product development in what's called managed payout funds, which

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are mutual funds that seek to provide a stated distribution rate or return or a percent for a return even a stated percent of the capital invested. There was kind of a swap in product development probably around those managed payout funds in, I would say, probably 2008, and they never really gained much traction. And then recently there have been a couple, more fund firms that have launched not quite managed payout but managed payout-like funds and some bigger names. If say our registered 40 Act funds we do track them in our proprietary database and we can see the returns and the asset growth and all of the risk and performance statistics. Those would be also categorized and tracked by Morningstar or Lipper or really any mutual fund data tracking center. So I don't have the statistics on how well they have performed. Historically, prior to the most recent product innovation, they did not see significant demand. And that's only with the managed payout fund structure, managed payout fund kind of strategy. And then there are also retirement income funds of any target-date areas. So if you're keeping those separate. And the managed payout legacy type hasn't really grown significantly, but there are some new innovative ideas coming out that could change the dynamic going forward. ALISON COOKE MINTZER: Yeah, I mean, I think that's kind of a good point. We don't really know what could be in development. And, obviously, there are a lot of potential opportunities to try to create good solutions for those who are retiring and trying to manage their money as they retire. We have just a couple questions left, so we're going to try to get to those. Rob, do you have any information about the specific attributes that CITs have for Taft Hartley participants? Rob, did I lose you? ROBERT G. MUSE: Thank you. Sorry. ALISON COOKE MINTZER: No problem. ROBERT G. MUSE: That's actually a great question, and I made a quick reference to Taft Hartley's in one of my slides. But we're seeing a strong interest in Taft Hartley plans to be CIT investors, and really the interest goes back to that fiduciary oversight. In the Taft Hartley structure, you know, we typically see that board of trustees, and that board of trustees is comprised of both professional trustees as well as members of the union that may have different levels of expertise and comfort level with respect to investment issues. And from that perspective, they value - the more expertise at the table the better in their opinion. And the fact that there is a CIT fiduciary that's owning that collective fund product, if you will, as well as an investment manager is very appealing to Taft Hartley investors. That board of trustees can get behind the thought of having lots of fiduciaries at the table assisting them to fulfill their plan sponsor responsibilities. So we see a strong interest from the Taft Hartley market in this type of a structure. ALISON COOKE MINTZER: Excellent. Are there any other markets that it's specifically effective for?

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ROBERT G. MUSE: Yeah, that's a great question. I mean, by extension of that, in a similar vein, state government plans are also, for similar reasons, you know, again, that extra level of fiduciary protection which is appealing to, certainly, a corporate American investor as well that simply needs a vehicle for their own qualified retirement plan. But on the governmental side, municipal side, we see strong interest in collective investment fund products as well when they're looking for pooled fund vehicles. ALISON COOKE MINTZER: Interesting. Yeah, we've definitely heard so much and written quite a bit on our end about the interest in CITs among various market segments. And even among smaller market segments, they've been of interest too in the past. So, Bridget, I guess I'm going to end with you, briefly, a little bit about custom target-date funds. Custom target-date funds have, of course, been of interest for a while and a growing part of the markets for a while. This week, especially, they were in the news because of the lawsuit brought against Intel specifically about the allocation of their custom target-date funds. So I guess what I'd love to ask you are what trends are you seeing in the custom target-date fund market and where do you see that segment of the market going? BRIDGET BEARDEN: Thanks, Ali. Custom target-date funds are always a hot topic. There are probably between, I think, last time we measured about 100 to 200 billion in custom target-date fund assets and custom target-date funds can be provided by asset managers. The glide path can be constructed by record keepers or investment consultants or very sophisticated plan sponsors could even do it themselves. The same design trends that I noted earlier in mutual fund target-date innovation are the same trends that we've seen in custom target-date funds. And, actually, this is sort of where mutual funds or the retail version are borrowing best practices of the institutional community. So, for instance, open architecture, that's a major part of any custom target-date fund usually. Blending of active versus passive, so anchoring the portfolio around passive strategies and using the active sleeve to enhance the alpha. Use of alternatives, those are also a very common theme in custom target-date fund creation. And also these custom target-date funds, as I just mentioned, are unbundled. They're not always provided by the record keeper who is also the asset manager, who is the glide path manager, who is the custodian. So you'll have different parties doing different roles so that unbundling of the product is also very important. With regards to alternatives, the statistic that 90% of mutual fund assets do not include alternatives is interesting. And I think any plan sponsor really has to weigh the cost and benefits of adding alternatives and whether it's appropriate for their participant population, just as with any other investment menu decision.

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So, you know, we will see a lot of media attention around alternatives, and this is going to be a very telling year for liquid alternative strategies. If alternatives do well in 2015 because all of the market volatility that we have seen, then you can expect to see increasing allocations to these strategies going forward. If not, then there will likely be some hesitation. ALISON COOKE MINTZER: Thank you, Bridget. And thank you, everyone, for your time today. We are really coming up at the end of our session. So I'm going to direct everybody to the slide that you see on the screen. For more information about SEI and if you've got any follow-up questions, feel free to reach out to Nick Capone. You can see his information there. SEI is working on a white paper, and that will be out just next month, so stay tuned for that. And, of course, feel free to look for the email coming out from us letting you access a recording of today's event, as well as a copy of today's slides, a PDF of today's presentation. So with that, thank you so much, Rob, Bridget, and John, for your time today; thank you, SEI, for sponsoring today's webcast; and, of course, thank all of the participants who joined us for an hour this afternoon or this morning. ROBERT G. MUSE: And thank you, Alison. ALISON COOKE MINTZER: Have a wonderful afternoon everyone. Thank you.

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