Table of Contents
Foreword xiii
Introduction xv
Acknowledgments xxi
Part 1 DC Plan Evolution and Design Trends 1
Chapter 1 DC Plans in the American Retirement System 3
Evolution of DB and DC Plans 4
Making the Move from a DB Plan to a DC Plan 6
How Do We Measure DC, Plan Success? 8
What Is a Qualified Default Investment Alternative? 10
Is Automatic Enrollment Enough? 15
Auto-Escalation: How Much Is Enough? 17
How Much Should We Save to Beat Inflation? 17
Preparing for Retirement in an Economic Downturn 19
What the Future May Hold for DC Plans 21
In Closing 22
Chapter 2 Evolving DC Plan Design 23
Investment Structure of Defined Contribution Plans 27
Future of DC Plan Investment Design 28
Tier I Qualified Default Investment Alternatives-Asset-Allocation Strategies 28
Tier II Core Investment Offerings in DC Plans 30
Tier III Brokerage or Mutual Fund Window 36
Tier IV Passive Investment Strategies? 39
Evolving Structures and Alternative Investment Strategies 40
Bringing It All Together: DC Investment Structure and Guarantees 44
In Closing 46
Chapter 3 Target-Date Strategies: Packaged versus Custom 47
Why Plan Sponsors Create Custom Target Retirement-Date Strategies 49
Intel: Building Is Better than Buying 56
Verizon: Well Worth the Effort 61
In Closing 64
Part 2 Development of Custom Target-Date Retirement Strategies 65
Chapter 4 Legal and Fiduciary Considerations 67
Common Legal Questions Regarding DC Plans 68
Investment Policy Statements and Governance 72
Target-Date Strategies on the Hot Seat 74
What May Lie Ahead in Legislation of Target Strategies 79
In Closing 83
Chapters Record Keeping and Trust 84
Two Basic Approaches to Setting Up Record Keeping 85
Custom Target Strategies Lead to New Record-Keeping Approaches 85
Pros and Cons of Alternative Operational Approaches 87
Questions to Pose to Your Record Keeper 87
Key Considerations to Determine Which Approach to Choose 91
Establishing and Maintaining Operations 92
Conversion of Target Risk to Target Date 92
Fee Allocations and Disclosures 92
Rebalancing the Target-Date Strategies 96
Deluxe Corporation: Seamless Operational Setup and Rollout Communication 96
How Record Keepers and Trustees Support Operations 97
In Closing 98
Chapter 6 Communication Challenges and How to Meet Them 100
Common Myths Surrounding Custom Target-Strategy Communication 101
Communicating the Benefits of Target-Date Strategies 102
Communication: Strategies to Keep It Simple 103
Communication Tools 105
Helping Plan Participants to Visualize Their Postretirement Future 110
Communications and the Switch to DC Custom Strategies 115
Communication Challenges during an Economic Downturn 118
In Closing 120
Chapter 7 Evaluating Costs m Custom Strategies 121
Why Costs Matter 122
Have You Calculated and Reduced Total Plan Cost? 122
Keeping Fees Reasonable 124
Unbundling Can Keep Down Costs 126
Custom Strategies and the Value of Unitizing 127
Experts Discuss Fee Transparency 128
ERISA Section 404(c) and Fee Disclosure 130
Costs of Implementing and Running Custom Target Strategies 132
In Closing 134
Part 3 Designing and Benchmarking custom Target-Date Strategies 135
Chapters 8 Glide-Path Design 137
An Academic Look at Creating Optimal Asset-Allocation Strategies 139
A Practitioner's look at Creating Optimal Asset-Allocation Strategies 141
DC Plan Success Requires a New Approach 143
Evaluating the Probability of Meeting DC Retirement-Income Goals 144
Evaluating Risk-Factor Exposures in Target-Date Glide Paths 156
Plan Sponsor Approaches to Custom Target-Date Strategies 158
In Closing 165
Chapter 9 Asset Classes and Alternatives 167
Clearing the Decks: Offering a Brokerage Window to Participants 169
Typical DC Core Investment Offerings 170
Simplify, Simplify, Simplify 173
Simplify yet Diversify 174
Suggested Core Investment Lineup 176
Adding Alternatives to Target-Date Strategies 191
In Closing 194
Chapter 10 Helping Protect DC Assets from Risk 135
How Do We Experience Risk? 196
2008 Market Impact on DC Participant Accounts 198
No Place to Hide 201
What Are the Main Types of Risk? 203
Helping Protect DC Participant Assets from Risks 220
Importance of Tail-Risk Hedging 220
In Closing 221
Chapter 11 Approaches to Benchmarking 223
Introduction to Target Date Benchmarking and the Measure of Success 224
Common Approaches to Benchmarking Target-Date Strategies 226
Benchmarking Managed Accounts 234
In Closing 235
Part 4 Looking to the Future 237
Chapter 12 Financial Education, Advice, and Retirement Planning 239
Why Plan Sponsors Provide Education and Advice 241
Is Advice Needed When a Plan Has Auto-Enrollment and Target-Date Strategies? 241
Education and Advice Offered by Plan Sponsors 242
Evolution from Education to Managed Accounts 243
Comparison of Managed Accounts and Custom Target-Date Strategies 246
Advice beyond Asset Allocation 247
Advice beyond Advice Models 248
What Is Financial Planning? 249
Financial Planning Process 250
Financial Planning Fees 251
In Closing 254
Chapter 13 Retirement Income and Guarantees 256
Encourage Participants to Stay in the Plan or Go? 260
In-Plan Guaranteed Income Solutions 276
Plan Sponsors Exploring Guarantees 278
Allowing Consolidation of Outside Assets into the Plan 280
In Closing 281
Conclusion 283
Notes 287
Index 297
