Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
May 19th, 2015
Editor’s Note
Today, PLANSPONSOR is pleased to bring you a special NewsDash sponsored by Morningstar’s Investment Management group focused on improving retirement plan participant outcomes.
Education & Advice
The Impact of Expert Guidance on Participant Behaviors
Determining how much to save for retirement and how to invest those savings is a complex problem, and the growth of 401(k) and similar defined contribution plans has shifted the responsibility to individuals. But evidence suggests that, as a whole, people aren’t great savers or investors. Does professional online retirement saving and investment advice help individuals improve their chances for better retirement outcomes?Read more >
A new TIAA-CREF survey shows that 63% of women who have received professional financial advice say they feel confident about their personal retirement readiness. The annual Advice Matters Survey reveals that while women continue to report lower rates of confidence in their retirement readiness compared with men (56% vs. 63%), receiving financial advice can help eliminate the gender gap. In addition to feeling more confident, 81% of women who receive financial advice say they feel informed about retirement planning and retirement savings, compared with 63% who have not received advice.Read more >
Plan participants increasingly realize they are responsible for generating their own retirement income, but many still pass over investment advice offerings, a survey from Schwab Retirement Plan Services finds. Nine in 10 participants surveyed indicated they are relying on themselves for the money needed to live in retirement, and most use a 401(k) as their primary or sole source of retirement savings. Despite this, respondents say they are much more likely to have someone change the oil in their car (87%) than have someone help them choose their 401(k) investments (24%).Read more >
Special Offer from Morningstar
Download White Paper: How Can You Help Your Employees Retire? Choosing the right investment solution can make all the difference. Read more >
New Retirement Bill Amending ERISA Introduced in Congress
Data and Research
More Concern on the Doorstep of Retirement
Pensions Will Recoup Losses From Allianz Structured Alpha Investments
Cost of Retirement
Estimating the True Cost of Retirement
There are common assumptions that many software tools and financial advisers use to develop an investor’s retirement savings goal—a 70% or 80% replacement rate based on pre-retirement income, an income need that rises with inflation, and a 30-year retirement time horizon. When Morningstar’s Investment Management group looked at actual retiree spending patterns and life expectancy, however, they found that these assumptions don’t hold true for many people, and, on average, can significantly overestimate how much people will actually need to fund their retirements.Read more >
There is a pretty long list of elements people commonly forget to consider in their retirement savings effort, David Blanchett, head of retirement research for Morningstar’s Investment Management group, tells PLANSPONSOR. “First, I think there is still a serious misunderstanding of life expectancy that exists today—especially how life expectancy will change in the next 20 or 30 years, as that will impact even the older generations of people in the 401(k) system right now,” he says.Read more >
Sharon Carson, a retirement strategist at J.P.  Morgan Asset Management, tells PLANSPONSOR the financial advisory industry is starting to pay closer attention to health care and other specific costs clients face in retirement. She says it’s an encouraging trend in terms of improving participant retirement outcomes, but more engagement and innovation is clearly required to ensure retired plan participants will be able to pay for the health care they’ll inevitably need.Read more >
The Employee Benefit Research Institute (EBRI) tracked the latest available data, through 2011, and found that housing-related costs topped the list as the largest spending category for those between 50 and 64 years old. Maintaining their home is the biggest expense for these Americans and consistently takes up 40% to 45% of their household budget as they age, even as the actual dollar amount spent on their home decreases over time.Read more >
Plan Design Defaults
The Optimal Default for Defined Contribution Plans
The introduction of investment defaults has likely led to significant improvements in performance for defined contribution (DC) plan investors. Given the differences that exist across providers, plan sponsors, and participants, though, it is unlikely there is a single solution that will be best for every plan. Before participant self-direction, DC assets were generally pooled with a single allocation. While target-date funds (TDFs) are the most popular default in DC plans today, managed accounts will challenge their popularity in the future, especially as the costs associated with implementing managed accounts decline.Read more >
“There are two big ways plan sponsors are helping participants diversity at present,” Joe Ready, director of institutional retirement and trust at Wells Fargo, tells PLANSPONSOR. “The first is to use a diversified investment, such as a target-date fund, as the default investment [for the plan].” The rising diversification of participants over the past few years has been primarily fueled by this tactic, as many people are willing to go with whatever defaults are set up in a plan, he notes.Read more >
One-fifth of defined contribution (DC) plan sponsors surveyed by AllianceBernstein lack a default investment altogether—more so among the smallest plans (37%) than the largest (13%). According to preliminary results from an upcoming survey report, another 30% of plans still use a stable value or money market fund as their default investment.Read more >
Seven out of 10 (70%) companies offer automatic enrollment features in their 401(k) plans, according to an Aon Hewitt pulse survey covering the fourth quarter of 2014. The retirement and health solutions company surveyed approximately 100, primarily large, companies with defined contribution (DC) plans, finding 29% of employers auto-enroll their employees in the company plan at a savings rate that is at or above the full company match threshold. Another 27% auto-enroll their employees below the full match rate, but automatically escalate contributions over time, enabling workers to save enough to receive the full match.Read more >
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Copyright © Asset International, Inc., 2015.

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Editorial: Alison Cooke Mintzer


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