Designing Successful Target-Date Strategies for Defined Contribution Plans: Putting Participants on the Optimal Glide Path (Wiley Finance)

The ultimate guidebook for navigating the new world of pensions and retirement plans In 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 leaders With 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. Designing Successful Target-Date Strategies for Defined Contribution Plans: Putting Participants on the Optimal Glide Path 1 Contents 9 Foreword 15 Introduction 17 Acknowledgments 23 Part One: DC Plan Evolution and Design Trends 27 Chapter 1: DC Plans in the American Retirement System 29 EVOLUTION OF DB AND DC PLANS 30 MAKING THE MOVE FROM A DB PLAN TO A DC PLAN 32 HOW DO WE MEASURE DC PLAN SUCCESS? 34 WHAT IS A QUALIFIED DEFAULT INVESTMENT ALTERNATIVE? 36 IS AUTOMATIC ENROLLMENT ENOUGH? 41 AUTO-ESCALATION: HOW MUCH IS ENOUGH? 43 HOW MUCH SHOULD WE SAVE TO BEAT INFLATION? 43 PREPARING FOR RETIREMENT IN AN ECONOMIC DOWNTURN 45 WHAT THE FUTURE MAY HOLD FOR DC PLANS 47 IN CLOSING 48 Chapter 2: Evolving DC Plan Design 49 INVESTMENT STRUCTURE OF DEFINED CONTRIBUTION PLANS 53 FUTURE OF DC PLAN INVESTMENT DESIGN 54 TIER I: QUALIFIED DEFAULT INVESTMENT ALTERNATIVES—ASSET-ALLOCATION STRATEGIES 54 TIER II: CORE INVESTMENT OFFERINGS IN DC PLANS 56 TIER III: BROKERAGE OR MUTUAL FUND WINDOW 62 TIER IV: PASSIVE INVESTMENT STRATEGIES? 65 EVOLVING STRUCTURES AND ALTERNATIVE INVESTMENT STRATEGIES 66 BRINGING IT ALL TOGETHER: DC INVESTMENT STRUCTURE AND GUARANTEES 70 IN CLOSING 72 Chapter 3: Target-Date Strategies: Packaged versus Custom 73 WHY PLAN SPONSORS CREATE CUSTOM TARGET RETIREMENT-DATE STRATEGIES 75 INTEL: BUILDING IS BETTER THAN BUYING 82 VERIZON: WELL WORTH THE EFFORT 87 IN CLOSING 90 Part Two: Development of Custom Target-Date Retirement Strategies 91 Chapter 4: Legal and Fiduciary Considerations 93 COMMON LEGAL QUESTIONS REGARDING DC PLANS 94 INVESTMENT POLICY STATEMENTS AND GOVERNANCE 98 TARGET-DATE STRATEGIES ON THE HOT SEAT 100 WHAT MAY LIE AHEAD IN LEGISLATION OF TARGET STRATEGIES 105 IN CLOSING 109 Chapter 5: Record Keeping and Trust 110 TWO BASIC APPROACHES TO SETTING UP RECORD KEEPING 111 CUSTOM TARGET STRATEGIES LEAD TO NEW RECORD-KEEPING APPROACHES 111 PROS AND CONS OF ALTERNATIVE OPERATIONAL APPROACHES 113 QUESTIONS TO POSE TO YOUR RECORD KEEPER 113 KEY CONSIDERATIONS TO DETERMINE WHICH APPROACH TO CHOOSE 117 ESTABLISHING AND MAINTAINING OPERATIONS 118 CONVERSION OF TARGET RISK TO TARGET DATE 118 FEE ALLOCATIONS AND DISCLOSURES 118 REBALANCING THE TARGET-DATE STRATEGIES 122 DELUXE CORPORATION: SEAMLESS OPERATIONAL SETUP AND ROLLOUT COMMUNICATION 122 HOW RECORD KEEPERS AND TRUSTEES SUPPORT OPERATIONS 123 IN CLOSING 124 Chapter 6: Communication Challenges and How to Meet Them 126 COMMON MYTHS SURROUNDING CUSTOM TARGET-STRATEGY COMMUNICATION 127 COMMUNICATING THE BENEFITS OF TARGET-DATE STRATEGIES 128 COMMUNICATION: STRATEGIES TO KEEP IT SIMPLE 129 COMMUNICATION TOOLS 131 HELPING PLAN PARTICIPANTS TO VISUALIZE THEIR POSTRETIREMENT FUTURE 136 COMMUNICATIONS AND THE SWITCH TO DC CUSTOM STRATEGIES 141 COMMUNICATION CHALLENGES DURING AN ECONOMIC DOWNTURN 144 IN CLOSING 146 Chapter 7: Evaluating Costs in Custom Strategies 147 WHY COSTS MATTER 148 HAVE YOU CALCULATED AND REDUCED TOTAL PLAN COST? 148 KEEPING FEES REASONABLE 150 UNBUNDLING CAN KEEP DOWN COSTS 152 CUSTOM STRATEGIES AND THE VALUE OF UNITIZING 153 EXPERTS DISCUSS FEE TRANSPARENCY 154 ERISA SECTION 404(C) AND FEE DISCLOSURE 156 COSTS OF IMPLEMENTING AND RUNNING CUSTOM TARGET STRATEGIES 158 IN CLOSING 160 Part Three: Designing and Benchmarking Custom Target-Date Strategies 161 Chapter 8: Glide-Path Design 163 AN ACADEMIC LOOK AT CREATING OPTIMAL ASSET-ALLOCATION STRATEGIES 165 A PRACTITIONER’S LOOK AT CREATING OPTIMAL ASSET-ALLOCATION STRATEGIES 167 DC PLAN SUCCESS REQUIRES A NEW APPROACH 169 EVALUATING THE PROBABILITY OF MEETING DC RETIREMENT-INCOME GOALS 170 EVALUATING RISK-FACTOR EXPOSURES IN TARGET-DATE GLIDE PATHS 182 PLAN SPONSOR APPROACHES TO CUSTOM TARGET-DATE STRATEGIES 184 IN CLOSING 191 Chapter 9: Asset Classes and Alternatives 193 CLEARING THE DECKS: OFFERING A BROKERAGE WINDOW TO PARTICIPANTS 195 TYPICAL DC CORE INVESTMENT OFFERINGS 196 SIMPLIFY, SIMPLIFY, SIMPLIFY 199 SIMPLIFY YET DIVERSIFY 200 SUGGESTED CORE INVESTMENT LINEUP 202 ADDING ALTERNATIVES TO TARGET-DATE STRATEGIES 217 IN CLOSING 220 Chapter 10: Helping Protect DC Assets from Risk 221 HOW DO WE EXPERIENCE RISK? 222 2008 MARKET IMPACT ON DC PARTICIPANT ACCOUNTS 224 NO PLACE TO HIDE 227 WHAT ARE THE MAIN TYPES OF RISK? 229 HELPING PROTECT DC PARTICIPANT ASSETS FROM RISKS 246 IMPORTANCE OF TAIL-RISK HEDGING 246 IN CLOSING 247 Chapter 11: Approaches to Benchmarking 249 INTRODUCTION TO TARGET DATE BENCHMARKING AND THE MEASURE OF SUCCESS 250 COMMON APPROACHES TO BENCHMARKING TARGET-DATE STRATEGIES 252 BENCHMARKING MANAGED ACCOUNTS 260 IN CLOSING 261 Part Four: Looking to the Future 263 Chapter 12: Financial Education, Advice, and Retirement Planning 265 WHY PLAN SPONSORS PROVIDE EDUCATION AND ADVICE 267 IS ADVICE NEEDED WHEN A PLAN HAS AUTO-ENROLLMENT AND TARGET-DATE STRATEGIES? 267 EDUCATION AND ADVICE OFFERED BY PLAN SPONSORS 268 EVOLUTION FROM EDUCATION TO MANAGED ACCOUNTS 269 COMPARISON OF MANAGED ACCOUNTS AND CUSTOM TARGET-DATE STRATEGIES 272 ADVICE BEYOND ASSET ALLOCATION 273 ADVICE BEYOND ADVICE MODELS 274 WHAT IS FINANCIAL PLANNING? 275 FINANCIAL PLANNING PROCESS 276 FINANCIAL PLANNING FEES 277 IN CLOSING 280 Chapter 13: Retirement Income and Guarantees 282 ENCOURAGE PARTICIPANTS TO STAY IN THE PLAN OR GO? 286 IN-PLAN GUARANTEED INCOME SOLUTIONS 302 PLAN SPONSORS EXPLORING GUARANTEES 304 ALLOWING CONSOLIDATION OF OUTSIDE ASSETS INTO THE PLAN 306 IN CLOSING 307 Conclusion 309 Notes 313 Index 323 0470596317,9780470596319

Over the last decade, there has been a revolution in the way that retirement plans have been conceptualized and set up in America. Defined contribution (DC) retirement savings plans have rapidly become many organizations' sole sponsored retirement vehicle, providing participants a primary source of retirement savings beyond Social Security. With the amount of money going into these plans—over $3 trillion in assets—increasingly being invested in target-date retirement strategies, investment managers, consultants, advisors, record keepers, and many others are wisely clamoring to capture these assets and generate other significant business from these game-changing entrants.

Taking a closer look at target-date strategies from all angles, Designing Successful Target-Date Strategies for Defined Contribution Plans provides you with the support you need to design best-in-class target-date strategies for DC plans. Practical and detailed, this thorough book considers the current relevant trends in plan design with coverage of:

• The expertise of many of the nation's leading consultants, legal experts, plan sponsors, academics, and others

• Various perspectives and innovative approaches to designing optimal DC plans

• The history of the development and restructuring of retirement plans in America, especially in light of the Pension Protection Act and recent regulations

Written by Stacy Schaus, a renowned defined contribution business leader who deals with these issues on a daily basis, this book explains it all, from the evolution of DC plans and design trends, including the development of target-date strategies, to the benefits of building rather than buying an off-the-shelf product, as well as all you need to know to set up your own custom strategies. This nuts-and-bolts book is designed to help you build a successful retirement program that will help manage risk and ultimately foster a dignified and secure financial future for employees of corporations, not-for-profits, governments, and for yourself as well.

* This book is particularly valuable, especially in this challenging financial climate, because it gives in-depth answers to these questions about DC plan design from the nation's most qualified and experienced experts.