Designing Successful Target-Date Strategies for Defined Contribution Plans

STACY L. SCHAUS, CFP, is a senior vice president and the defined contribution practice leader at PIMCO, which manages over $130 billion in DC assets. Prior to joining PIMCO in 2006, she was a founder and president of Hewitt Financial Services LLC, where she created the Hewitt 401(k) Index. Ms. Schaus has nearly thirty years of investment experience. She has written extensively on defined contribution issues, including PIMCO DC Dialogue, and has been named by 401kWire as one of the fifty most influential leaders in defined contribution for 2010. Stacy is the Founding Chairperson of the Defined Contribution Institutional Investment Association, as well as a board and research committee member for the Employee Benefit Research Institute. She also is a former board member of the Financial Planning Association.

"...the book is chock-full of interviews with more than 55 experts including consultants, plan executives, academics, financial planners, lawyers and others." (Pensions & Investments, April 5, 2010)

• Foreword. Introduction.Acknowledgments.PART ONE DC Plan Evolution and Design Trends.CHAPTER 1 DC Plans in the American Retirement System.Evolution of DB and DC Plans.Making the Move from a DB Plan to a DC Plan.How Do We Measure DC Plan Success?What Is a Qualified Default Investment Alternative?Is Automatic Enrollment Enough?Auto-Escalation: How Much Is Enough?How Much Should We Save to Beat Inflation?Preparing for Retirement in an Economic Downturn.What the Future May Hold for DC Plans.In Closing.CHAPTER 2 Evolving DC Plan Design.Investment Structure of Defined Contribution Plans.Future of DC Plan Investment Design.Tier I: Qualified Default Investment Alternatives—Asset-Allocation Strategies.Tier II: Core Investment Offerings in DC Plans.Tier III: Brokerage or Mutual Fund Window.Tier IV: Passive Investment Strategies?Evolving Structures and Alternative Investment Strategies.Bringing It All Together: DC Investment Structure and Guarantees.In Closing.CHAPTER 3 Target-Date Strategies: Packaged versus Custom.Why Plan Sponsors Create Custom Target Retirement-Date Strategies.Intel: Building Is Better than Buying.Verizon: Well Worth the Effort.In Closing.PART TWO Development of Custom Target-Date Retirement Strategies.CHAPTER 4 Legal and Fiduciary Considerations.Common Legal Questions Regarding DC Plans.Investment Policy Statements and Governance.Target-Date Strategies on the Hot Seat.What May Lie Ahead in Legislation of Target Strategies.In Closing.CHAPTER 5 Record Keeping and Trust.Two Basic Approaches to Setting Up Record Keeping.Custom Target Strategies Lead to New Record-Keeping Approaches.Pros and Cons of Alternative Operational Approaches.Questions to Pose to Your Record Keeper.Key Considerations to Determine Which Approach to Choose.Establishing and Maintaining Operations.Conversion of Target Risk to Target Date.Fee Allocations and Disclosures.Rebalancing the Target-Date Strategies.Deluxe Corporation: Seamless Operational Setup and Rollout Communication.How Record Keepers and Trustees Support Operations.In Closing.CHAPTER 6 Communication Challenges and How to Meet Them.Common Myths Surrounding Custom Target-Strategy Communication.Communicating the Benefits of Target-Date Strategies.Communication: Strategies to Keep It Simple.Communication Tools.Helping Plan Participants to Visualize Their Postretirement Future.Communications and the Switch to DC Custom Strategies.Communication Challenges during an Economic Downturn.In Closing.CHAPTER 7 Evaluating Costs in Custom Strategies.Why Costs Matter.Have You Calculated and Reduced Total Plan Cost?Keeping Fees Reasonable.Unbundling Can Keep Down Costs.Custom Strategies and the Value of Unitizing.Experts Discuss Fee Transparency.ERISA Section 404(c) and Fee Disclosure.Costs of Implementing and Running Custom Target Strategies.In Closing.PART THREE Designing and Benchmarking Custom Target-Date Strategies.CHAPTER 8 Glide-Path Design.An Academic Look at Creating Optimal Asset-Allocation Strategies.A Practitioner’s Look at Creating Optimal Asset-Allocation Strategies.DC Plan Success Requires a New Approach.Evaluating the Probability of Meeting DC Retirement-Income Goals.Evaluating Risk-Factor Exposures in Target-Date Glide Paths.Plan Sponsor Approaches to Custom Target-Date Strategies.In Closing.CHAPTER 9 Asset Classes and Alternatives.Clearing the Decks: Offering a Brokerage Window to Participants.Typical DC Core Investment Offerings.Simplify, Simplify, Simplify.Simplify yet Diversify.Suggested Core Investment Lineup.Adding Alternatives to Target-Date Strategies.In Closing.CHAPTER 10 Helping Protect DC Assets from Risk.How Do We Experience Risk?.2008 Market Impact on DC Participant Accounts.No Place to Hide.What Are the Main Types of Risk?.Helping Protect DC Participant Assets from Risks.Importance of Tail-Risk Hedging.In Closing .CHAPTER 11 Approaches to Benchmarking.Introduction to Target Date Benchmarking and the Measure of Success.Common Approaches to Benchmarking Target-Date Strategies.Benchmarking Managed Accounts.In Closing.PART FOUR Looking to the Future.CHAPTER 12 Financial Education, Advice, and Retirement Planning.Why Plan Sponsors Provide Education and Advice.Is Advice Needed When a Plan Has Auto-Enrollment and Target-Date Strategies?Education and Advice Offered by Plan Sponsors.Evolution from Education to Managed Accounts.Comparison of Managed Accounts and Custom Target-Date Strategies.Advice beyond Asset Allocation.Advice beyond Advice Models.What Is Financial Planning?Financial Planning Process.Financial Planning Fees.In Closing.CHAPTER 13 Retirement Income and Guarantees.Encourage Participants to Stay in the Plan or Go?In-Plan Guaranteed Income Solutions.Plan Sponsors Exploring Guarantees.Allowing Consolidation of Outside Assets into the Plan.In Closing.Conclusion.Notes.Index.