MARKET POISED FOR ACCELERATED RISKTRANSFER ACTIVITYFebruary 24, 2015

Sean BrennanNew YorkMatt McDanielPhiladelphiaRichard McEvoyNew York

MERCER WEBCAST

MERCER WEBCAST 1

TODAY’S SPEAKERS

Sean BrennanNew York

Richard McEvoyNew York

February 24, 2015

Matt McDanielPhiladelphia

MERCER WEBCAST

RECAP ON 2014 — ANOTHER ROLLERCOASTER YEAR

2February 24, 2015

BANNER YEAR FOR RISK TRANSFERS

• $8.4 billion in estimated annuity buyout activityin 2014 — more than double the 2013 level.

- Over half were retiree-only transactions.

• Roughly half of pension plans have done a cashoutin last two years or are under way in 2015.

Interest Rates & Market Volatility

S&P 1500 Funded Status Volatility

Impact of Changes to Mortality Tables

Funded ratios reach five-year high (94%) in late 2013

3.0

3.5

4.0

4.5

5.0

5.5

90%

100%

110%

120%

130%

140%

150%

160%

12/31/12 12/31/13 12/31/14

Yiel

d

Equi

tyLe

vel

S&P 500Long AA Yield

12/31/12 12/31/13 12/31/14

100%

95%

90%

85%

80%

75%

70%

Funded ratios downto 74% in early 2015

Funded ratios reachfive-year high (94%)

in late 2013

MERCER WEBCAST 3

SEVERAL COMPANIES HAVE ANNOUNCED LARGE PENSION BUYOUTS

Year 2015 2014 2014 2012 2012

Action taken Annuity purchase(retirees)

Annuity purchase(retirees) and

lump sums (TVs)

Annuitypurchase(retirees)

Lump sums andannuity purchase

(retirees)

Annuitypurchase(retirees)

Participants 21,000 30,000 8,000 118,000 41,000

Liability settled byannuity purchase $2.5B $3.1B $1.4B $26B $7.5B

% liability settled Not disclosed 37% Not disclosed 20% 25%

Plan size to marketcap pre-transaction 15% 50% 10% 441% 27%

Credit rating A BBB A+ BB+ A-

Deal structure Multiple insurers Single insurer Single insurer Single insurer Single insurer

Contributions (C)/Debt issuance (D) $0.4B $0.8B (C)/ $1.1B

(D) None $3.5B–4.5B (C) $2.5B (C)

This does not reflect all of the buyouts that may have occurred over the period. The information herein has been obtained from a variety of publicly available sources,including company filings. Mercer has not sought to verify the accuracy of the information.

MERCER WEBCAST

LOOKING AHEAD

4February 24, 2015

Mortality rates

PBGCpremiums

Participantsecurity

Higheraccounting

costs

Low growth

Lowinterest rates

Retain orTransfer?

MERCER WEBCAST

RISK MANAGEMENT TOOLKIT

Retain the risk

Improve hedge ratio

Growth portfolio

Refined LDI products

Dynamic investment policy

Hibernation portfolio

5February 24, 2015

DE-RISKING TOOLKIT

Transfer the risk

Terminated vested lump sums

Retiree buyout

Retiree buy-in

Retiree lump sums

Active spinoff/termination

MERCER WEBCAST

CHARTING A COURSEAN INTEGRATED JOURNEY

HIGH LOW

NONE

ALL

Asset management

Liab

ility

man

agem

ent

ASSETMANAGEMENT

TRIGGER:FUNDED STATUS

< 75%

70 / 30 mix

75%–85% 85%–95% 95%–105% 105%–110% >110%

60 / 40 mix 50 / 50 mix 35 / 65 mix 20 / 80 mix 5 / 95 mix

LIABILITYMANAGEMENT

TRIGGER:Offer lump sums toterminated vested

group under $25,000Administrativehurdles cleared

Annuity pricingattractive forsubset of retirees

Purchase annuities forsubset of retirees

Plantermination

Funded statusimproves topoint noadditional cashrequired

February 24, 2015 6

FOR ILLUSTRATIVE PURPOSES

DEEPER DIVE — KEY TOPICS• Changing risk transfer economics.• Common barriers.• Effective execution.• Participant security.• The hibernation alternative.

MERCER WEBCAST 8

1. CHANGING RISK TRANSFER ECONOMICSRELATIVE BUYOUT PRICES COMING DOWN

February 24, 2015

MERCER US PENSION BUYOUT INDEX 2011–2014

Buyout costs will fluctuate significantly with time and between insurers. These fluctuations may offer opportunities to settle atmore attractive prices while maintaining necessary participant security.Source: Mercer Buyout IndexFor full disclosure of method and assumptions see http://www.mercer.com/articles/US-pension-buyout-index

MERCER WEBCAST

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

2014 2015 2016flat rates

2016rates up 100 bps

Potential mortality update

Lump Sum Amount (currentmortality assumption)

9

1. CHANGING RISK TRANSFER ECONOMICSCASHOUT TIMING — IMPETUS TO EXECUTE IN 2015

FOR ILLUSTRATIVE PURPOSESExample based on a terminated vested participant age 45 in 2014 with a $1,000 per month benefit.

Source: Mercer calculations

February 24, 2015

Interest rates wouldhave to risesignificantly for lumpsums to reducebelow 2015 levels

MERCER WEBCAST

1. CHANGING RISK TRANSFER ECONOMICSTERMINATION OPPORTUNITY FOR FROZEN PLANS

10February 24, 2015

Projected PTL vs PBO, 2014–2018UNPRECEDENTED OPPORTUNITY TO TERMINATE BELOW PBO

FOR ILLUSTRATIVE PURPOSES

MERCER WEBCAST 11

2. COMMON BARRIERS

Interest rates andmarkets

• View that interest rates will rise.• Desire and to outperform liabilities with investment returns.

Accountingconcerns

• View that investors will punish de-risking activity.• Corporate performance metrics tied to earnings.• No evidence that de-risking activity is punished by investors.

Availability of cash• Increasing deficits result in higher cash costs for risk transfer.• However, cheaper borrowing and 3% PBGC tax make pre-

funding economics compelling.

Available resources• Sponsors executing opportunities in sequence.• Execution activities outsourced.

February 24, 2015

MERCER WEBCAST 12

3. EFFECTIVE EXECUTION

February 24, 2015

SUCCESS FACTORS FOR RISK TRANSFER EXECUTION

Create astrategic plan

Be readyto execute

Monitormetrics inreal time

Evaluateparticipant

security

MERCER WEBCAST

3. EFFECTIVE EXECUTIONADDING LIQUIDITY AND TRANSPARENCY TO BUYOUT MARKET

13February 24, 2015

Solution provides:• Data readiness upfront rather than back-end scrambling.• Real-time annuity price monitoring to capture opportunities.• Pre-agreed triggers integrated with other metrics.• Effective execution process to minimize costs.• Robust insurer due diligence.• Investment advice to coordinate with de-risking strategy.

FINANCIAL ADVICE, STAKEHOLDER EDUCATION AND STRATEGY SETTING

PROJECT MANAGEMENT, ADMINISTRATION AND COMPLIANCE READINESS

ONBOARDING• INITIAL PRICE DISCOVERY• DATA PREPARATION• DOCUMENTATION

EXECUTION• INSURER CHOICE• ANNUITY PLACEMENT• POST DEAL TRANSITION• ASSET TRANSITION

INSURER ENGAGEMENT ENABLED BY MERCER PENSION EXCHANGE

MONITORING• ANNUITY PRICING• PLAN METRICS• PLAN TRIGGERS

MERCER PENSION RISK EXCHANGE

MERCER WEBCAST

4. FOCUS ON PARTICIPANT SECURITYEVOLVING INSURANCE STRUCTURES

1. The ability of insurers to insulate separate account assets is addressed by state insurancestatutes — see e.g., N.J. Rev. Stat. § 17B:28-9 and N.Y. Ins. Law § 4240.

2. See e.g., N.J. Rev. Stat. § 17B:32-31 et seq. and § 17B:32A-1 et seq.; N.Y. Ins. Law § 7401et seq. and § 7701 et seq

February 24, 2015 14

GENERALACCOUNT

SEPARATEACCOUNT

MULTI-INSURER

• The annuity is backed bythe insurer’s generalaccount.

• The annuity is backed bya pool of assetsdedicated to obligationsin the separate account.1

• If the separate accountassets are insufficient,benefits are ultimatelybacked by the generalaccount.2

• An annuity can be splitbetween two or moreinsurers.

• Liabilities could be splitby group or participantscan have multipleannuities.

This structure hasbeen most commonhistorically.

This structure isbecoming morepopular, particularlyfor large transactions.

This structure hasbeen least commonin recent years in theUS, but is used morein Canada.

MERCER WEBCAST

5. THE HIBERNATION ALTERNATIVE

15February 24, 2015

MERCER WEBCAST 16

QUESTIONS

Sean BrennanNew York

Matt McDanielPhiladelphia

Richard McEvoyNew York

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February 24, 2015

MERCER WEBCAST 17February 24, 2015

To Find Out More

Visit www.mercer.com/retirement

Mercer’s Longevity Insights: The Benefits of Industry-specificMortality Assumptions

Mercer US Pension Buyout Index

SCENE

MERCER WEBCAST

Important Notices

References to Mercer shall be construed to include Mercer LLC and/or its associated companies.

© 2015 Mercer LLC. All rights reserved.

This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whomit was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any otherperson or entity, without Mercer’s prior written permission.

The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to changewithout notice. They are not intended to convey any guarantees as to the future performance of the investment products,asset classes or capital markets discussed. Past performance does not guarantee future results. Mercer’s ratings do notconstitute individualized investment advice.

Information contained herein has been obtained from a range of third party sources. While the information is believed to bereliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to theaccuracy of the information presented and takes no responsibility or liability (including for indirect, consequential orincidental damages), for any error, omission or inaccuracy in the data supplied by any third party.

This does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financialinstruments or products or constitute a solicitation on behalf of any of the investment managers, their affiliates, products orstrategies that Mercer may evaluate or recommend.

For the most recent approved ratings of an investment strategy, and a fuller explanation of their meanings, contact yourMercer representative.

18February 24, 2015

MERCER WEBCAST

Important Notices

The Mercer US Pension Buyout Index and any related commentary has been created for illustrative purposes, is presentedat a particular point in time and should not be viewed as a prediction of the hypothetical plan or a specific plan's futurefinancial condition. The Index and commentary may not be used or relied upon by any other party or for any other purpose;Mercer is not responsible for the consequences of any unauthorized use.

The future is uncertain, and a plan's actual experience will likely differ from assumptions utilized and these differences maybe significant or material. Decisions about benefit changes, investment policy, funding amounts, benefit security and/orbenefit-related issues should be made only after careful consideration of alternative future financial conditions andscenarios and not solely on the bases of the index.

We have not included an estimate of actuarial and other professional or administrative fees that are incurred during a plantermination in estimating the relative cost of purchasing annuities. Due to the large number of regulatory filings and the highlevel of scrutiny on plan census data and benefit calculations, professional fees for a termination or annuity buyout can besignificant.

For Mercer’s conflict of interest disclosures, contact your Mercer representative or see www.mercer.com/conflictsofinterest

19February 24, 2015