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Post-Plan Asset Analyzer Is Developed


Over the next 15 to 20 years, 77 million baby boomers will retire and attracting assets from their retirement plans is a major concern of mutual fund companies, said Duff Meyer, senior vice president at Delaware Investments of Philadelphia.

"$10 trillion will be up for grabs in the next decade or two," she said. "This is a huge issue and we're talking about a lot of money."

Ibbotson Associates of Chicago will soon begin actively promoting new investment software that it believes will help companies attract that money. Ibbotson has added two new capabilities to its line of investment planning products that address the disbursement of assets after retirement. The new tools use simulation or "Monte Carlo" models - models that are being used for the first time for post-retirement calculations, according to Michael Henkel, president of Ibbotson.

"When you look at all of these mutual fund companies, they're spending a lot of time and energy getting 401(k) assets," said Henkel. "They keep, when a client leaves [the retirement plan], only 10 to 20 percent of those assets."

"Most employees don't know their retirement plan provider or adviser well," said Meyer. "[The Spectrem Group of Philadelphia] estimates that 85 percent of participants who rolled [over their retirement plans] did not stay with their retirement plan provider. That's a huge issue for those of us in this business because what we're seeing is assets go out the door."

"We wanted to go beyond the 401(k) arena and we thought there was a lot of advantage to get into this disbursement arena and to do it before anybody else saw it as an issue," said Henkel.

"We've done some things in the past to help people understand what the risks are at various probability levels...but, at the end of the day, they really don't do a very good job of taking into account cash flows, taxes, different products and all kinds of other things," he said. "Most of those short cut statistical techniques don't work really well when you start to get into these other real world issues that arise after the plans are over."

There are two products being released. The more advanced of the two is an improvement of Ibbotson's Wealth Forecasting Engine, web-based software that uses simulation models to help calculate risk and asset allocation in 401(k) plans. The simulation models differ from standard forecasts in that they generate thousands of potential outcomes of data instead of assuming constant figures, like return and inflation.

Companies other than Ibbotson use these types of models for retirement plans, but no one is using them on the disbursement side, said Henkel. The variables for post-retirement planning are more complicated as tax issues, withdrawal rules, and a wider array of products to choose from come into play, according to Henkel.

Using the engine, investors would like to be able to fill in their own variables such as assets, age, spending, savings, risk tolerance, and hypothetical products to determine their financial position at various stages of their retirement, said Henkel.

"We've found that [Ibbotson's simulation engine] is very well received by plan sponsors and is an extremely good way for investors to calculate risk and to figure out how to allocate their funds," said Ian Glew, senior vice president of Cigna Retirement and Investment Services of Hartford, Conn., which uses the Ibbotson provided service with plan assets. "I would think it would definitely be effective [on the disbursement side] as well."

The second tool being released is an offshoot of the first. Ibbotson has created tables that provide projections based on set variables.

The data is less precise and less customized, but is much easier for companies to offer because it is not software-based, according to Henkel. The tables serve as quick

references to the information the engine provides and can be incorporated easily into a company's website or even in marketing materials, according to Henkel.