Mutual Fund Alternatives Emerging

July 5, 2006 (PLANSPONSOR.com) - CHICAGO - It is certainly not unusual these days for retirement plans to include a lot more than just traditional mutual funds as investment options.

In the case of Smithfield Foods, which labored to coordinate its 17 401(k) plans, the new kid on the block was an annuity product, Mary Fisher, corporate benefits manager, Smithfield Foods, told attendees at a discussion panel on alternative investment options for larger plan sponsors.

Her participants have been warm to the idea. “We’ve had a great response from employees,” said Fisher, a panelist at PLANSPONSOR’s Plan Designs 2006.  Smithfield recently implemented an investment option – designed by Genworth Financial – within their 401(k) that allows participants to invest in annuities as an investment option (see

Genworth Unveils Variable Annuity K Plan Investment Option ).

Lifestyle Alternatives

John Kinsley, vice president of BlackRock, pointed out that asset allocation funds such as lifecycle/lifestyle funds are rapidly also becoming key plan offerings. “They are becoming more robust every day,” Kinsley said. “I think they will continue and that’s a good thing.”   Exchange-traded funds (ETFs) are also gaining in popularity, panelists reported.

Jane Mason, vice president and senior investment manager of Wells Fargo Institutional Trust Services, said that trend of new plan products is particularly true with target date funds – also known as lifecycle funds – that are keyed to participants’ retirement time horizons.

Benchmarking

Don Stone, president of Plan Sponsor Advisors, told attendees at a second discussion panel that they may ultimately have to develop their own benchmark with asset allocation funds. “You may have to go back and so some stress testing on your own (benchmarking) process,” Stone told the second group.

Managed accounts are also growing In popularity among certain employees, Mason said. “A managed account is really for the participant who doesn’t understand investing,” she said. One that just says, “‘Tell me what to do.’.”

Fisher said she frets about the fact there is currently no widely used benchmark for lifecycle funds and Mason stressed concerns about the amount of available information on the money managers involved in running the underlying component funds.

Generally, regarding the availability about benchmarks, a panelist on another PLANSPONSOR conference panel, recommended that plan sponsors work with their advisors to opt for a particular benchmark and then find a money manager who can be measured by that yardstick.

Once a finalist money manager has been selected. Ruth Falck, senior consultant, for Watson Wyatt Worldwide, said they need to be evaluated for their:

  • Business
  • Process
  • People.

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