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Posts Tagged ‘target date funds’

What is InvestMap?

May 1st, 2013 No comments

As we wrap up the first quarter of 2013, we are receiving several inquiries from plan sponsors regarding InvestMapTM, Milliman’s retirement glide path technology.

Let me start with some background. Model portfolios offer risk-based options to participants consisting of asset allocations comprising many of the core funds already in the plan. Target date funds are portfolios designed to achieve returns based on a participant’s target retirement date; those closer to retirement will typically have less exposure to equities and commensurate expectations of lower investment returns, while those further from retirement will be exposed to more risk and a higher potential investment return.

InvestMap is a great solution for participants and employers alike because it brings together the benefits of both target date funds and model portfolios. Conceptually, target date funds are a good idea, but product orientation and lack of customization have underscored their limitations. Specifically, target date funds take somewhat of a “catchall” approach at the plan level.

InvestMap is designed to work at the participant level, incorporating the best aspect of target date funds (the automated glide path for which equity exposure is reduced over a period of several years). However, personal risk attributes of individual participants are incorporated as well. This sophisticated “marriage” between risk-based models and an age-based target date glide path, coupled with an open architecture investment platform, provides the best of both worlds for plan sponsors and participants.

The core funds are still available for participants to select their own asset allocations if they choose not to participate in InvestMap.

Advantages to the plan sponsor:

• InvestMap offers fiduciary protection for the construction of the models
• Can be used as the plan’s qualified default investment alternative (QDIA)
• Investment management fee transparency and no additional costs

Advantages for participants:

• Investment education that is easily understood
• Personalized strategies for each participant’s individual risk tolerance
• Hands-off management from initial enrollment to retirement

Please contact your Milliman representative for more information on how InvestMap could benefit your plan.

Target-date funds: Know the risk

November 17th, 2011 No comments

An article at Workforce.com looks at the growing popularity of target-date funds. These funds have proven to be useful retirement vehicles for many plan participants, but they are not without certain risks. Here is an excerpt from the article:

For plan sponsors considering a target-date fund, knowing whether the fund goes to or through retirement is critical, experts say. Funds that go to retirement hit their most conservative asset allocation near the retirement date, while through funds don’t hit their most conservative point until after the fund date name.

“Plan sponsors really need to have a good understanding of what they have so they can clearly communicate and monitor” their target-date funds, says Jeff Marzinsky, principal and investment consultant for Milliman in the consulting firm’s Albany, New York, office. “If participants aren’t aware [of the type of plan they are in], they may be taking more risk than they thought.”

Target-date funds: Plan sponsor considerations

October 20th, 2011 No comments

Jeff_MarzinskyA new Milliman Benefits Perspective article goes deeper into the details of target-date funds (TDFs) and considerations for plan sponsors, which we looked at in a previous blog entry.

Some of the issues addressed in the article:

  1. Growth in TDFs, especially in retirement plans, can in part be attributed to the qualified default investment alternatives (QDIAs) regulations released in 2006 and 2007.
  2. In 2008 and 2009, many TDFs decline in value significantly, even though they were close to or at their target dates.
  3. More on the “To versus Through” difference between funds.
  4. Some considerations for sponsors as they include TDFs in their plans: required disclosures, communications, and ongoing benchmarking.

You can find the article in the October edition of the Milliman Benefits Perspectives.

The “To” versus “Through” distinction in target date funds

February 7th, 2011 No comments

Jeff_MarzinskyA follow-up to my last note on the proposed rule released recently by the Department of Labor (DOL) that would amend both the qualified default investment alternative (QDIA) regulation and the participant-level disclosure regulation: The DOL commented in its proposal that many target date funds, with dates of 2010 and 2015, still had up to half of their portfolios invested in equities. This allocation, coupled with the significant market volatility and decline in 2008, led investors who were nearing retirement to significant losses. The DOL goes further to note that many of the funds did not significantly reduce their equity allocations until five or more years after their target dates.

“To” versus “Through” target date funds

This concept is very important and is an area that must be understood by both the plan sponsor that introduces target date funds as an investment in a retirement plan as well as by the investor or plan participant. As a target date fund winds down to its terminal point, the allocation to equity should gradually reduce by design. A confusing area is that if the fund states its target is 2010, one would assume that 2010 is the date that the fund hits its most conservative allocation. Well, for some target date funds that is not exactly true.

Read more…

DOL proposes new 401(k), DC disclosure regulations

December 22nd, 2010 No comments

The Department of Labor (DOL) has issued a proposed rule designed to enhance the details of target date, life-cycle, or similar fund disclosures in 401(k) and other plans that give participants the right to direct their own investments. Read the Client Action Bulletin on this topic here.