Retirement Planning > Retirement Investing

Retirement income - Is it Nirvana or a bust?

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3/23/09 – San Diego, 4:30 pm PDT: Could have done better with the session’s title, but the content was spot on. Will the market we’re experiencing bring a sea change in how employees accumulate wealth for retirement? This was the question the panelists attempted to answer. But really it was more about an examination of target date funds and how they got it so wrong.

401(k)s are heavily involved with target date funds because they answer so many of the asset allocation needs required by participants, or so we thought. Take a look at 2010 funds, billed as relatively safe. They’re off by 27 percent in the past year. Tough to make back if retirement was the plan. As one panelist said, “Clearly, there are some accumulation issues that need to be dealt with, as well as distribution issues. [Target date funds ] are great chassis, but they need to be tweaked.” Clearly …

Highlights of the session include:

o It’s not about which product is right, but rather how a particular product is used in the plan. There’s no perfect product (obviously), so it must be built into the plan’s path to retirement, rather than something that will make the client rich at a defined period of time to be used as retirement income (the process, rather than product, argument).

o This is unquestionably a market defining moment. There’s a complex list of information contributing to the crisis. Fiduciary responsibility is something most plan sponsors know little about, let alone when it’s combined with product knowledge. This translates to an incredible opportunity for advisors, who can differentiate themselves in the value proposition they offer their clients by dissecting these complex issues.

o Three questions employees were supposedly not smart enough to answer; should I invest in the plan? How much should I invest in the plan? How do I allocate the investments in the plan? So regulators gave us automatic enrollment, automatic increases and QDIAs/target date funds. But the real issues deal with market and longevity risk; issues with which the investing public desperately needs help. Because regulators haven’t given safe harbor to products that address these issues, providers are sitting on the sidelines when it comes to their development. So regulators essentially got it backwards. They should have left the easier initial questions to the investing public, and given safe harbor to the more complex issues that address market and longevity risk.

Panelists included Fred Conley from Genworth Financial, Mark Fortier form Alliance Bernstein and James Lyday from Prudential Retirement. The moderator was National Retirement Partner’s Tim O’Brien. Overall, good panel.