According to the paper, a fact sheet tells NYC DCP participants: “When a portfolio reaches its horizon, it will roll into the Static Allocation Fund, where it will remain for the duration of your payout.”The Static Allocation Fund is invested 20% in equities and 80% in fixed-income. The report author alleges the NYC DCP Pre-Arranged Portfolio Investment Profiles sheet clearly shows the plan’s target-date funds (TDFs) do not roll into the Static Allocation Fund upon reaching the target date.
The 2005 Fund, for example, still has 34.1% of a participant’s portfolio invested in the equity asset class after approximately six years of retirement. The 2010 Fund has an equity asset class allocation of 44.2% for the NYC DCP participant who has been retired for nearly two years.
The report says a graph from the NYC DCP 2011 Annual Report displaying the reduction of equity asset class exposure of the target-date funds over time shows a TDF is not rolled over into the Static Allocation Fund until approximately 15 years after the target date has been surpassed. “For many NYC DCP participants and investors in general that may be too long of a time period to be overly allocated in the equity asset class,” the report author wrote.
The paper notes that if a NYC DCP participant retires in 2015 at age 65 and remains in the 2015 target-date fund, the allocation to the equity asset class will still be approximately 30% at age 75. An allocation of 30% in the equity asset class may be appropriate for a 75-year-old with significant wealth and a high-risk tolerance, but these are generally not common characteristics of most NYC DCP participants, the paper contends.
The report author is Peter Thomann, EA, CFP, MS, the owner of Thomann Tax & Asset Management Inc. (TTAM), which provides tax preparation services, retirement planning and investment advice to active/retired NYC employees.More information is at http://www.thomanntax.com.