BlackRock: Early Boomers Ripe for Target Date Fund Shake-Up

A full 72% of employees surveyed are auto-enrolled into target date funds

The world’s largest money manager, BlackRock Inc. (BLK), has news for America’s Early Boomers: you may think your employer’s target date fund will get you through retirement, but don’t expect your company to help you figure out how to spend all the money you’ve saved.

Nearly half, or 46%, of employees enrolled in company-sponsored defined contribution (DC) retirement plans believe they will rely heavily on those plans in their financial future, according to a BlackRock survey released Wednesday. A full 72% of employees auto-enroll into target date funds.

But while Early Boomer employees nearing retirement want help in figuring out how to spend their savings wisely, DC plan sponsors aren’t stepping up to the plate because they are looking for regulatory clarity around how to handle post-retirement issues, said Chip Castille, head of BlackRock’s U.S. and Canada Defined Contribution Group, at a breakfast Wednesday in the company’s New York headquarters.

Castille pointed to survey results showing that 67.7% of employees believed that their employers should care more about financially secure retirements, and 63.8% of employers believed, paternalistically, that their firms should indeed care more. But 57% of employees said their employers were not helpful in making sure that their money lasts all through retirement and only 17% of employers said they felt a great deal of responsibility about the issue.

The reforms of the Pension Protection Act (PPA) of 2006, including auto-enrollment of workers in DC plans, will benefit younger Americans, Castille said. But older Americans—especially Early Boomers—who missed out on the PPA’s advances will put tremendous pressure on plan sponsors to advise them on retirement income, he predicted.

“They are going to push the DC system in much the same way that the dot.com bubble pushed the PPA,” Castille said. “When we look at the community of providers, participants and consultants, there is a shared view that the DC plan is heading toward a major transformation.

Specifically, according to BlackRock’s calculations, that transformation will include a retirement income shift from complicated bond ladders to target date funds that transform into annuities. And as it happens, BlackRock has created a target date product, LifePath Retirement Income, that provides guaranteed retirement income.

To be sure, BlackRock is in a good position to respond to this major transformation that Castille anticipates. BlackRock has more than $325 billion in DC assets under management. And according to a June 2009 Bloomberg report, when the company bought Barclays Plc’s investment unit, including iShares, the world’s largest family of exchange traded funds, the purchase created a company overseeing $2.7 trillion in assets, more than the Federal Reserve.

BlackRock’s DC survey of 1,000 employees and 119 executives managing DC plans totaling at least $1 billion in assets was conducted online between Feb. 25 and March 31 by Boston Research Group.

Other survey results presented at the breakfast by Boston Research President Warren Cormier show that employees expect their most important retirement income sources to comprise 401(k) or 403(b) savings, at 45.5%, followed by Social Security, at 14%, investments outside the workplace, at 9%, full-time work, at 9%, and part-time work, at 6%.

Just 16% of employees felt confident that they would have enough money to live comfortably in retirement, while 50% were somewhat confident and 8% worried they would never be able to retire.

“Confidence in retirement is becoming a luxury,” Cormier said.

Read “BlackRock Creates Target Date Fund That Morphs Into a Post-Retirement Annuity” at AdvisorOne.com.

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