Designing Successful Target-Date Strategies for Defined Contribution Plans Putting Participants on the Optimal Glide Path

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Edition: 1st
Format: Hardcover
Pub. Date: 2010-03-29
Publisher(s): Wiley
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Summary

The ultimate guidebook for navigating the new world of pensions and retirement plansIn the wake of the explosive growth of defined contribution (DC) plans invested with target date strategies, and the understanding of how important these strategies can be in effectively meeting retirement income goals, plan sponsors are seeking more optimal target date approaches. This timely book provides you with in-depth answers from the nation's most qualified and experienced experts to pressing questions about DC plan design. Presents the views of individuals from all across the market Includes a broad range of plan sponsors both in the corporate world and in the public/government sectors Offers views from consultants and advisors from the most respected firms, academics who teach at leading universities, and other innovative leadersWith a broad range of knowledge and insight, Designing Successful Target Date Strategies in Defined Contribution Plans helps you understand the evolution of DC plans, pulls together all angles of what it takes to develop custom target date strategies, and provides you with a look ahead to the future.

Author Biography

STACY L. SCHAUS, CFP, is a senior vice president and the defined contribution practice leader at PIMCO, which manages over $130 billion in DC assets. Prior to joining PIMCO in 2006, she was a founder and president of Hewitt Financial Services LLC, where she created the Hewitt 401(k) Index. Ms. Schaus has nearly thirty years of investment experience. She has written extensively on defined contribution issues, including PIMCO DC Dialogue, and has been named by 401kWire as one of the fifty most influential leaders in defined contribution for 2010. Stacy is the Founding Chairperson of the Defined Contribution Institutional Investment Association, as well as a board and research committee member for the Employee Benefit Research Institute. She also is a former board member of the Financial Planning Association.

Table of Contents

Forewordp. xiii
Introductionp. xv
Acknowledgmentsp. xxi
DC Plan Evolution and Design Trendsp. 1
DC Plans in the American Retirement Systemp. 3
Evolution of DB and DC Plansp. 4
Making the Move from a DB Plan to a DC Planp. 6
How Do We Measure DC, Plan Success?p. 8
What Is a Qualified Default Investment Alternative?p. 10
Is Automatic Enrollment Enough?p. 15
Auto-Escalation: How Much Is Enough?p. 17
How Much Should We Save to Beat Inflation?p. 17
Preparing for Retirement in an Economic Downturnp. 19
What the Future May Hold for DC Plansp. 21
In Closingp. 22
Evolving DC Plan Designp. 23
Investment Structure of Defined Contribution Plansp. 27
Future of DC Plan Investment Designp. 28
Qualified Default Investment Alternatives-Asset-Allocation Strategiesp. 28
Core Investment Offerings in DC Plansp. 30
Brokerage or Mutual Fund Windowp. 36
Passive Investment Strategies?p. 39
Evolving Structures and Alternative Investment Strategiesp. 40
Bringing It All Together: DC Investment Structure and Guaranteesp. 44
In Closingp. 46
Target-Date Strategies: Packaged versus Customp. 47
Why Plan Sponsors Create Custom Target Retirement-Date Strategiesp. 49
Intel: Building Is Better than Buyingp. 56
Verizon: Well Worth the Effortp. 61
In Closingp. 64
Development of Custom Target-Date Retirement Strategiesp. 65
Legal and Fiduciary Considerationsp. 67
Common Legal Questions Regarding DC Plansp. 68
Investment Policy Statements and Governancep. 72
Target-Date Strategies on the Hot Seatp. 74
What May Lie Ahead in Legislation of Target Strategiesp. 79
In Closingp. 83
Record Keeping and Trustp. 84
Two Basic Approaches to Setting Up Record Keepingp. 85
Custom Target Strategies Lead to New Record-Keeping Approachesp. 85
Pros and Cons of Alternative Operational Approachesp. 87
Questions to Pose to Your Record Keeperp. 87
Key Considerations to Determine Which Approach to Choosep. 91
Establishing and Maintaining Operationsp. 92
Conversion of Target Risk to Target Datep. 92
Fee Allocations and Disclosuresp. 92
Rebalancing the Target-Date Strategiesp. 96
Deluxe Corporation: Seamless Operational Setup and Rollout Communicationp. 96
How Record Keepers and Trustees Support Operationsp. 97
In Closingp. 98
Communication Challenges and How to Meet Themp. 100
Common Myths Surrounding Custom Target-Strategy Communicationp. 101
Communicating the Benefits of Target-Date Strategiesp. 102
Communication: Strategies to Keep It Simplep. 103
Communication Toolsp. 105
Helping Plan Participants to Visualize Their Postretirement Futurep. 110
Communications and the Switch to DC Custom Strategiesp. 115
Communication Challenges during an Economic Downturnp. 118
In Closingp. 120
Evaluating Costs m Custom Strategiesp. 121
Why Costs Matterp. 122
Have You Calculated and Reduced Total Plan Cost?p. 122
Keeping Fees Reasonablep. 124
Unbundling Can Keep Down Costsp. 126
Custom Strategies and the Value of Unitizingp. 127
Experts Discuss Fee Transparencyp. 128
ERISA Section 404(c) and Fee Disclosurep. 130
Costs of Implementing and Running Custom Target Strategiesp. 132
In Closingp. 134
Designing and Benchmarking custom Target-Date Strategiesp. 135
Glide-Path Designp. 137
An Academic Look at Creating Optimal Asset-Allocation Strategiesp. 139
A Practitioner's look at Creating Optimal Asset-Allocation Strategiesp. 141
DC Plan Success Requires a New Approachp. 143
Evaluating the Probability of Meeting DC Retirement-Income Goalsp. 144
Evaluating Risk-Factor Exposures in Target-Date Glide Pathsp. 156
Plan Sponsor Approaches to Custom Target-Date Strategiesp. 158
In Closingp. 165
Asset Classes and Alternativesp. 167
Clearing the Decks: Offering a Brokerage Window to Participantsp. 169
Typical DC Core Investment Offeringsp. 170
Simplify, Simplify, Simplifyp. 173
Simplify yet Diversifyp. 174
Suggested Core Investment Lineupp. 176
Adding Alternatives to Target-Date Strategiesp. 191
In Closingp. 194
Helping Protect DC Assets from Riskp. 135
How Do We Experience Risk?p. 196
2008 Market Impact on DC Participant Accountsp. 198
No Place to Hidep. 201
What Are the Main Types of Risk?p. 203
Helping Protect DC Participant Assets from Risksp. 220
Importance of Tail-Risk Hedgingp. 220
In Closingp. 221
Approaches to Benchmarkingp. 223
Introduction to Target Date Benchmarking and the Measure of Successp. 224
Common Approaches to Benchmarking Target-Date Strategiesp. 226
Benchmarking Managed Accountsp. 234
In Closingp. 235
Looking to the Futurep. 237
Financial Education, Advice, and Retirement Planningp. 239
Why Plan Sponsors Provide Education and Advicep. 241
Is Advice Needed When a Plan Has Auto-Enrollment and Target-Date Strategies?p. 241
Education and Advice Offered by Plan Sponsorsp. 242
Evolution from Education to Managed Accountsp. 243
Comparison of Managed Accounts and Custom Target-Date Strategiesp. 246
Advice beyond Asset Allocationp. 247
Advice beyond Advice Modelsp. 248
What Is Financial Planning?p. 249
Financial Planning Processp. 250
Financial Planning Feesp. 251
In Closingp. 254
Retirement Income and Guaranteesp. 256
Encourage Participants to Stay in the Plan or Go?p. 260
In-Plan Guaranteed Income Solutionsp. 276
Plan Sponsors Exploring Guaranteesp. 278
Allowing Consolidation of Outside Assets into the Planp. 280
In Closingp. 281
Conclusionp. 283
Notesp. 287
Indexp. 297
Table of Contents provided by Ingram. All Rights Reserved.

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