Successful Defined Contribution Investment Design

Inhaltsverzeichnis

Acknowledgments xv
Introduction 1
How This Book Is Organized--and How to Use It 3
A Continuing Commitment to Meet the Need for Information 6
Why Should You Read This Book? 7
PART ONE DC Plans: A Cornerstone of Retirement 9
CHAPTER 1 DC Plans Today 11
Preface: A Career and a New Form of Pension Plan Are Born 11
DC Plans: Becoming the New Reality . . . No Turning Back 13
Setting Goals for Success: Income Replacement Targets 14
Reducing DC Litigation Risk: Process and Oversight 16
Who's a Fiduciary? 17
How to Approach Outsourcing DC Plan Resources 19
Hiring an Investment Consultant 20
Getting Started: Setting an Investment Philosophy and Governance Structure 20
PIMCO Principles for DC Plan Success: Building and Preserving Purchasing Power 25
Maximizing DC Savings: Just Do It! 27
In Closing 32
Questions for Plan Fiduciaries 33
CHAPTER 2 Aligning DC Investment Design to Meet the PRICE of Retirement 35
Begin with the End in Mind 37
What Is a Reasonable Pay Replacement Target? 39
Calculating the Income Replacement Rates 42
Historic Cost of Retirement: PRICE Is a Moving Target 44
A Focus on Income, Not Cost 47
PRICE-Aware: Applying PRICE to Consider DC Assets and Target-Date Strategies 48
Evaluating Glide Paths 50
Tracking DC Account Balance Growth Relative to PRICE 54
Summary: The Importance of Knowing Your PRICE 55
In Closing 55
Questions for Plan Fiduciaries 56
Note 56
CHAPTER 3 Plan Investment Structure 57
Tiers and Blends: Investment Choices for DC Participants 60
Tier I: "Do-It-for-Me" Asset Allocation Investment Strategies 61
Tier II: "Help-Me-Do-It" Stand-Alone or "Core" Investment Options 67
Tier III: "Do-It-Myself" Mutual-Fund-Only or Full Brokerage Window 90
Considering an Outsourced Chief Investment Offi cer 91
In Closing 93
Questions for Plan Fiduciaries 94
Notes 94
CHAPTER 4 Target Date Design and Approaches 95
Target-Date Structures Vary by Plan Size 100
Custom Target-Date Strategies 101
Semicustom Target-Date 102
Packaged Target-Date 103
Target-Date Selection and Evaluation Criteria 104
No Such Thing as Passive 105
Low Cost and Low Tracking Error Does Not Equal Low Risk 106
Framework for Selecting and Evaluating Target-Date Strategies: Three Active Decisions Plan Sponsors Must Make 107
Active Decision #1: How Much Risk Can Plan Participants Take? 108
Active Decision #2: How Is the Risk Best Allocated across Investment Choices? 114
Active Decision #3: Should Risk Be Actively Hedged? 119
Tail-Risk Hedging Strategies 119
Insurance 120
Target-Date Analytics: Glide Path Analyzer (GPA) and Other Tools 120
Global DC Plans: Similar Destinations, Distinctly Different Paths 121
In Closing 123
Questions for Plan Fiduciaries 124
Notes 125
PART TWO Building Robust Plans: Core Investment Offerings 127
CHAPTER 5 Capital Preservation Strategies 129
Capital Preservation: Importance 130
Capital Preservation: What Is Prevalent and What Is Preferred? 131
The $1 NAV: Shared by Stable Value and MMFs 132
Stable Value Offers More Opportunity in a Low-Interest-Rate Environment 135
Looking Forward: The Changing Role of Stable Value 138
Making Low-Risk Decisions: Views from the Field 140
White Labeling: A Capital Preservation Solution 143
An Analytic Evaluation of Capital Preservation Solutions 144
Short-Term, Low-Duration, and Low-Risk Bond Strategies 146
Inclusion of Stable Value in Custom Target-Date or Other Blended Strategies 149
In Closing 152
Questions for Plan Fiduciaries 152
Note 153
CHAPTER 6 Fixed-Income Strategies 155
What Are Bonds, and Why Are They Important for Retirement Investors? 157
What Are the Different Types of Bonds in the Market? 158
What Types of Bonds Should Be Offered to DC Participants? 161
Investment-Grade and High-Yield Credit 165
Bond Investment Strategies: Passive versus Active Approaches 166
Analytic Evaluation: Comparing Bond Strategies 176
Fixed Income within Target-Date Glide Paths 178
Observations for Fixed Income Allocation within Target-Date Strategies 179
In Closing 181
Questions for Plan Fiduciaries 181
CHAPTER 7 Designing Balanced DC Menus: Considering Equity Options 183
What Are Equities and How Are They Presented in DC Investment Menus? 184
Getting the Most out of Equities 190
Consider Dividend-Paying Stocks 194
Evaluating Equity Strategies 194
Less Is More: Streamlining Equity Choices 197
Shift to Asset-Class Menu May Improve Retirement Outcomes 197
Active versus Passive--The Ongoing Debate 197
Strategic Beta: Consider Adding Fundamentally Weighted Equity Exposure 204
Currency Hedging: An Active Decision 205
Observations for Equity Allocations within Target-Date Strategies 210
In Closing 212
Questions for Fiduciaries 212
Note 213
CHAPTER 8 Inflation Protection 215
What Is Inflation and How Is It Measured? 216
Why Inflation Protection in DC? 217
History of Inflation: Inflation Spikes Underscore Need for Inflation-Hedging Assets 218
Inflation Protection When Accumulating and Decumulating, and in Different Economic Environments 219
Economic Environments Change Unexpectedly--and Reward or Punish Various Asset Classes 221
Consultants Favor TIPS, Multi-Real-Asset Strategies, REITs, and Commodities 223
How Should Plan Sponsors Address Inflation Risk in DC Portfolios? 226
Implementation Challenges 228
Evaluating Real Asset Strategies 229
Summary Comparison of Individual and Multi-Real-Asset Blends 232
Inflation-Hedging Assets in Target-Date Glide Paths 235
Observations for Inflation-Hedging Assets in Target-Date Glide Paths 236
In Closing 238
Questions for Fiduciaries 238
CHAPTER 9 Additional Strategies and Alternatives: Seeking Diversification and Return 239
What Are Alternative Assets? 240
A Wider Lens on Alternatives 242
Consultant Support for Additional Strategies and Alternatives 244
Back to Basics: Why Consider Alternatives? 247
Liquid Alternatives: Types and Selection Considerations 252
Important Characteristics in Selecting Alternatives: Consultant Views 256
Illiquid Alternatives: Types and Considerations 259
Contrasting Liquid Alternative Strategies with Hedge Fund and Private Equity Investments 261
In Closing 263
Questions for Plan Fiduciaries 264
PART THREE Bringing It All Together: Creating Retirement Income 265
CHAPTER 10 Retirement Income: Considering Options for Plan Sponsors and Retirees 267
Advisor and Consultant Retirement Income Suggestions 268
Why Don't Retirees Leave Their Assets in DC Plans at Retirement? 272
Retaining a Relationship with Your Employer in Retirement: An Innovative and Caring Plan Sponsor 277
Mutual Benefits: Retaining Retiree Assets May Help Both Retirees and Plan Sponsors 279
Turning DC Assets into a Lifetime Paycheck: Evaluating the DC Investment Lineup for Retiree Readiness 280
Evaluating Portfolio Longevity 285
Turning Defined Contribution Assets into a Lifetime Income Stream: How to Evaluate Investment Choices for Retirees 286
Guarding Retiree Assets against a Sudden Market Downturn: Sequencing Risk 288
Ways to Manage Market and Longevity Risk . . . without Adding In-Plan Insurance Products 289
Living beyond 100: Planning for Longevity 290
Managing Longevity Risk: Considerations for Buying an Annuity 292
Immediate and Deferred Annuities: Why Out-of-Plan Makes Sense 292
In Closing 298
Questions for Plan Fiduciaries 298
Notes 299
CHAPTER 11 A Global View 301
DC Plans: Becoming the Dominant Global Model 302
Retirement Plan Coverage and Participation 305
Investment Default and Growth of Target-Date Strategies 315
Retirement Income: The Global Search for Solutions 319
Defined Ambition in the Netherlands 321
New Solutions in Australia and Beyond: Tontines and Group Self-Annuitization 323
"Getting DC Right": Lessons Learned in Chapters 1 through 10 326
Analytic Factors to Consider: Summary by Asset Pillar 333
In Closing 333
Note 335
Closing Comments 337
Priority 1: Increasing Plan Coverage and Individual Savings Rates 338
Priority 2: Moving to Objective-Aligned Investment Approaches 338
Priority 3: Broadening Options for Retirement Income 341
Nudging One Another along a Path to Success 341
Index 343

Successful Defined Contribution Investment Design

How to Align Target-Date, Core, and Income Strategies to the PRICE of Retirement

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Successful Defined Contribution Investment Design

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Gebundene Ausgabe

Erscheinungsdatum

10.02.2017

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23.5/15.7/2.5 cm

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Details

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Gebundene Ausgabe

Erscheinungsdatum

10.02.2017

Verlag

John Wiley & Sons

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384

Maße (L/B/H)

23.5/15.7/2.5 cm

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  • Successful Defined Contribution Investment Design
  • Acknowledgments xv
    Introduction 1
    How This Book Is Organized--and How to Use It 3
    A Continuing Commitment to Meet the Need for Information 6
    Why Should You Read This Book? 7
    PART ONE DC Plans: A Cornerstone of Retirement 9
    CHAPTER 1 DC Plans Today 11
    Preface: A Career and a New Form of Pension Plan Are Born 11
    DC Plans: Becoming the New Reality . . . No Turning Back 13
    Setting Goals for Success: Income Replacement Targets 14
    Reducing DC Litigation Risk: Process and Oversight 16
    Who's a Fiduciary? 17
    How to Approach Outsourcing DC Plan Resources 19
    Hiring an Investment Consultant 20
    Getting Started: Setting an Investment Philosophy and Governance Structure 20
    PIMCO Principles for DC Plan Success: Building and Preserving Purchasing Power 25
    Maximizing DC Savings: Just Do It! 27
    In Closing 32
    Questions for Plan Fiduciaries 33
    CHAPTER 2 Aligning DC Investment Design to Meet the PRICE of Retirement 35
    Begin with the End in Mind 37
    What Is a Reasonable Pay Replacement Target? 39
    Calculating the Income Replacement Rates 42
    Historic Cost of Retirement: PRICE Is a Moving Target 44
    A Focus on Income, Not Cost 47
    PRICE-Aware: Applying PRICE to Consider DC Assets and Target-Date Strategies 48
    Evaluating Glide Paths 50
    Tracking DC Account Balance Growth Relative to PRICE 54
    Summary: The Importance of Knowing Your PRICE 55
    In Closing 55
    Questions for Plan Fiduciaries 56
    Note 56
    CHAPTER 3 Plan Investment Structure 57
    Tiers and Blends: Investment Choices for DC Participants 60
    Tier I: "Do-It-for-Me" Asset Allocation Investment Strategies 61
    Tier II: "Help-Me-Do-It" Stand-Alone or "Core" Investment Options 67
    Tier III: "Do-It-Myself" Mutual-Fund-Only or Full Brokerage Window 90
    Considering an Outsourced Chief Investment Offi cer 91
    In Closing 93
    Questions for Plan Fiduciaries 94
    Notes 94
    CHAPTER 4 Target Date Design and Approaches 95
    Target-Date Structures Vary by Plan Size 100
    Custom Target-Date Strategies 101
    Semicustom Target-Date 102
    Packaged Target-Date 103
    Target-Date Selection and Evaluation Criteria 104
    No Such Thing as Passive 105
    Low Cost and Low Tracking Error Does Not Equal Low Risk 106
    Framework for Selecting and Evaluating Target-Date Strategies: Three Active Decisions Plan Sponsors Must Make 107
    Active Decision #1: How Much Risk Can Plan Participants Take? 108
    Active Decision #2: How Is the Risk Best Allocated across Investment Choices? 114
    Active Decision #3: Should Risk Be Actively Hedged? 119
    Tail-Risk Hedging Strategies 119
    Insurance 120
    Target-Date Analytics: Glide Path Analyzer (GPA) and Other Tools 120
    Global DC Plans: Similar Destinations, Distinctly Different Paths 121
    In Closing 123
    Questions for Plan Fiduciaries 124
    Notes 125
    PART TWO Building Robust Plans: Core Investment Offerings 127
    CHAPTER 5 Capital Preservation Strategies 129
    Capital Preservation: Importance 130
    Capital Preservation: What Is Prevalent and What Is Preferred? 131
    The $1 NAV: Shared by Stable Value and MMFs 132
    Stable Value Offers More Opportunity in a Low-Interest-Rate Environment 135
    Looking Forward: The Changing Role of Stable Value 138
    Making Low-Risk Decisions: Views from the Field 140
    White Labeling: A Capital Preservation Solution 143
    An Analytic Evaluation of Capital Preservation Solutions 144
    Short-Term, Low-Duration, and Low-Risk Bond Strategies 146
    Inclusion of Stable Value in Custom Target-Date or Other Blended Strategies 149
    In Closing 152
    Questions for Plan Fiduciaries 152
    Note 153
    CHAPTER 6 Fixed-Income Strategies 155
    What Are Bonds, and Why Are They Important for Retirement Investors? 157
    What Are the Different Types of Bonds in the Market? 158
    What Types of Bonds Should Be Offered to DC Participants? 161
    Investment-Grade and High-Yield Credit 165
    Bond Investment Strategies: Passive versus Active Approaches 166
    Analytic Evaluation: Comparing Bond Strategies 176
    Fixed Income within Target-Date Glide Paths 178
    Observations for Fixed Income Allocation within Target-Date Strategies 179
    In Closing 181
    Questions for Plan Fiduciaries 181
    CHAPTER 7 Designing Balanced DC Menus: Considering Equity Options 183
    What Are Equities and How Are They Presented in DC Investment Menus? 184
    Getting the Most out of Equities 190
    Consider Dividend-Paying Stocks 194
    Evaluating Equity Strategies 194
    Less Is More: Streamlining Equity Choices 197
    Shift to Asset-Class Menu May Improve Retirement Outcomes 197
    Active versus Passive--The Ongoing Debate 197
    Strategic Beta: Consider Adding Fundamentally Weighted Equity Exposure 204
    Currency Hedging: An Active Decision 205
    Observations for Equity Allocations within Target-Date Strategies 210
    In Closing 212
    Questions for Fiduciaries 212
    Note 213
    CHAPTER 8 Inflation Protection 215
    What Is Inflation and How Is It Measured? 216
    Why Inflation Protection in DC? 217
    History of Inflation: Inflation Spikes Underscore Need for Inflation-Hedging Assets 218
    Inflation Protection When Accumulating and Decumulating, and in Different Economic Environments 219
    Economic Environments Change Unexpectedly--and Reward or Punish Various Asset Classes 221
    Consultants Favor TIPS, Multi-Real-Asset Strategies, REITs, and Commodities 223
    How Should Plan Sponsors Address Inflation Risk in DC Portfolios? 226
    Implementation Challenges 228
    Evaluating Real Asset Strategies 229
    Summary Comparison of Individual and Multi-Real-Asset Blends 232
    Inflation-Hedging Assets in Target-Date Glide Paths 235
    Observations for Inflation-Hedging Assets in Target-Date Glide Paths 236
    In Closing 238
    Questions for Fiduciaries 238
    CHAPTER 9 Additional Strategies and Alternatives: Seeking Diversification and Return 239
    What Are Alternative Assets? 240
    A Wider Lens on Alternatives 242
    Consultant Support for Additional Strategies and Alternatives 244
    Back to Basics: Why Consider Alternatives? 247
    Liquid Alternatives: Types and Selection Considerations 252
    Important Characteristics in Selecting Alternatives: Consultant Views 256
    Illiquid Alternatives: Types and Considerations 259
    Contrasting Liquid Alternative Strategies with Hedge Fund and Private Equity Investments 261
    In Closing 263
    Questions for Plan Fiduciaries 264
    PART THREE Bringing It All Together: Creating Retirement Income 265
    CHAPTER 10 Retirement Income: Considering Options for Plan Sponsors and Retirees 267
    Advisor and Consultant Retirement Income Suggestions 268
    Why Don't Retirees Leave Their Assets in DC Plans at Retirement? 272
    Retaining a Relationship with Your Employer in Retirement: An Innovative and Caring Plan Sponsor 277
    Mutual Benefits: Retaining Retiree Assets May Help Both Retirees and Plan Sponsors 279
    Turning DC Assets into a Lifetime Paycheck: Evaluating the DC Investment Lineup for Retiree Readiness 280
    Evaluating Portfolio Longevity 285
    Turning Defined Contribution Assets into a Lifetime Income Stream: How to Evaluate Investment Choices for Retirees 286
    Guarding Retiree Assets against a Sudden Market Downturn: Sequencing Risk 288
    Ways to Manage Market and Longevity Risk . . . without Adding In-Plan Insurance Products 289
    Living beyond 100: Planning for Longevity 290
    Managing Longevity Risk: Considerations for Buying an Annuity 292
    Immediate and Deferred Annuities: Why Out-of-Plan Makes Sense 292
    In Closing 298
    Questions for Plan Fiduciaries 298
    Notes 299
    CHAPTER 11 A Global View 301
    DC Plans: Becoming the Dominant Global Model 302
    Retirement Plan Coverage and Participation 305
    Investment Default and Growth of Target-Date Strategies 315
    Retirement Income: The Global Search for Solutions 319
    Defined Ambition in the Netherlands 321
    New Solutions in Australia and Beyond: Tontines and Group Self-Annuitization 323
    "Getting DC Right": Lessons Learned in Chapters 1 through 10 326
    Analytic Factors to Consider: Summary by Asset Pillar 333
    In Closing 333
    Note 335
    Closing Comments 337
    Priority 1: Increasing Plan Coverage and Individual Savings Rates 338
    Priority 2: Moving to Objective-Aligned Investment Approaches 338
    Priority 3: Broadening Options for Retirement Income 341
    Nudging One Another along a Path to Success 341
    Index 343