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Robert L. ReynoldsPresident and CEOPutnam Investments and Great-West Financial

The U.S. Retirement System: Challenges and Solutions

The International PensionConference of Montreal

June 9, 2014

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Over the past 50 years, U.S. legislation has created a host of tax-advantaged vehicles for retirement savings…

Source: ICI (excluding annuities, except those in other retirement plans).

Selected major U.S. retirement legislation

1962 Self-Employed Individuals Tax Retirement Act — Keogh plans

1974 The Employee Retirement Income Security Act (ERISA) — IRAs

1978 The Revenue Act of 1978 — 401(k) plans and SEPs

1997 The Taxpayer Relief Act — Roth IRA

2006 Pension Protection Act (PPA) — Auto-features and QDIAs in DC plans

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…creating a “hybrid” system that combines revenue from Social Security payroll taxes plus earnings from investments in workplace savings plans

Sources: S&P 500 data from Yahoo Finance; and OASI and DI data from the Annual Statistical Supplement, 2013.

($50,000)

$100,000

$250,000

$400,000

$550,000

$700,000

$850,000

$1,000,000

0

400

800

1200

1600

2000

OASI and DI S&P 500 Index

Combined OASI and DI contributions vs. S&P 500 (1970–2014)

($ M

illio

ns) Index value

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1975 1985 1995 2005 20120%

20%

40%

60%

80%

100%

78%

65%

53%

47%42%22%

35% 47%

53% 58%

Public/Private defined benefit Defined contribution/IRA

In private workplace savings, the rise of defined contribution plans has shifted responsibilityfrom institutions to individuals…

Source: ICI (excluding annuities, except those in other retirement plans).

Percent of retirement assets, 1975–2012

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…and with the passage of the Pension Protection Act of 2006, workplace plan design has come to the forefront…

•Enabled auto-enrollment and savings escalation

•Endorsed defined lifecycle/balanced default options

•Provided legal safe harbor for employers

Source: Profit Sharing/401k Council of America.

2004 20120%

20%

40%

60%

80%

100%

11%

47%

12%

81%

Auto-enrollTarget date funds

Usage of key PPA-endorsed features

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…and will help total U.S. retirement assets grow from $19T to $25T by 2018 — with IRAs and DC outpacing DB

Sources: Department of Labor, ICI, U.S. Census Bureau, Federal Reserve, PBGC, EBRI, Cerulli Associates, Empirical Research Partners, Putnam Analysis.

Private DC includes 401(k)s, money purchase plans, profit sharing plans, Keoghs, and Taft-Hartley DC plans. Public DC includes Federal Thrift Savings plans, 403(b) and 457 plans.

2013E 2018E0

5,000

10,000

15,000

20,000

25,000

30,000

5,9078,916

4,134

5,3894,512

5,4122,774

3,3791,587

2,099

IRA Private DC* Public DB Private DB Public DC*

U.S. retirement market assets($B)

8.6%

5.4%

3.7%

4.0%5.8%

CAGR

$10,041$14,297

$18.9T

$25.2T

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Real solutions in workplace savings are right at hand

Replacement percentages of pre-retirement income

Sources: Putnam’s Lifetime Income Study, 2014; and U.S. Census data estimates (2012 Statistical Abstract, Table 690: Money Income of Households).

Series1

42%

82% 85%98%

111%

Average household replacement score

61%

No access to workplace plan

Activein DC plan

Automatically enrolled in plan

Has auto escalation

Deferring10%+

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What we believe

•The DC system will be the primary source of retirement income for most U.S. families

•We must also find ways to secure access to workplace savings for all

•Better outcomes can be achieved — indeed, are being achieved — through automatic plan design and income-oriented guidance for participants

•Apart from participation, the most powerful driver of success is raising savings rates — to 10%+ of their earnings