The investment vehicle, SponsorMatch, is a way for employers to “get more mileage out of their match” while addressing concerns about securing post-retirement income and dealing with longevity risk, said Kristi Mitchem, head of the U.S. defined contribution group at BGI, speaking at a press briefing this morning in New York.
Traditionally, the company match either has been allocated to company stock, cash, or directed into the investment products selected by the plan participant, all of which have shortcomings, she said. The new product combines a deferred fixed annuity, exposure to global investments, and advanced alpha strategies.
“We believe SponsorMatch can provide plan sponsors with superior investment results from their match dollars than what is typically achievable from the investment products solely offered on the 401(k) platform,” said Mitchem. Mitchem said she believes the firm will soon be finalizing the insurance companies providing the underlying annuities and that the product will be available during the second half of 2008.
She told PLANSPONSOR the investment will initially be geared towards 401(k) plans in the large space ($500 million in assets).
Furthermore, SponsorMatch is designed to meet the criteria outlined in the proposed Department of Labor (DoL) regulations concerning qualified default investment alternatives (QDIA), Mitchem explained. BGI anticipates that SponsorMatch will be used as the employer-match default, alongside a target-date solution for the participant deferrals.
The SponsorMatch investment will have daily liquidity, so that employees can transfer out of the investment after being defaulted in, and can take the funds with them if they leave the plan.
How it Works
According to the company, each SponsorMatch commingled trust fund is composed of: an annuity portfolio to provide an income stream (the percentage of the portfolio dedicated to the annuity is increased as an employee ages); a beta portfolio invested in a range of asset classes and strategies to capture market returns; and an institutional alpha portfolio that provides diversification benefits as well as enhanced return potential. The segments outside the annuity allow sponsors access to BGI’s institutional alpha and beta strategies.
There will be multiple SponsorMatch funds, so the plan sponsor will contribute to the SponsorMatch target maturity date fund that matches the participant’s birth year. BGI then manages the fund with the goal of securing a certain level of income for retirement, while participating in market gains.
Further, the fund seeks to control exposure to market risk by increasing the level of the annuity as the participant ages (up to 53% at the retirement date). Once the participant reaches retirement, he or she will receive their annuity plus the account value from the equity investments.
“To the participant, it looks very much like a target-maturity date fund; however, the investment technology underlying the fund is much more sophisticated and provides results that are more like a traditional pension plan,” Mitchem said.
For further information about Barclays Global Investors, visit www.barclaysglobal.com .
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