Week In Review
April 6, 2009
401(k) Consultants Focusing on Preservation, Risk Management, Target-Date Funds
Consultants to 401(k)s and other defined contribution plans are carefully analyzing, and in some cases replacing, the plans' money market, stable value, inflation-protection and target-date offerings, PIMCO found in a survey.
Sixty-one percent of those surveyed said they expect plans they advise to add a Treasury or government-only money market fund and a stable value fund.
Thirty-five percent said sponsors are looking at the asset allocation mix in their target-date funds, leaning toward more conservative and better diversified funds. The majority agreed that target-date funds will become the preferred investment default for DC plans, and two-thirds are promoting customized target-date portfolios.
Perhaps most interestingly, 78% believe that DC sponsors will consider adding guaranteed income options over the next two years.
"Given the extreme market volatility and significant decline in DC account balances over the past year, it's not surprising that DC plan sponsors are focused on reducing the risk that participants face," said Stacy Schaus, senior vice president and defined contribution practice leader at PIMCO. "Consultants are helping clients evaluate their DC plan investment structures, often to dial down risk and improve the likelihood that the plans will meet participants' retirement income goals."
Conservative Funds, Better Customer Service Expected to be New Focus
Conservative offerings and more focused customer attention will be the tenants of the fund industry going forward, according to speakers at the recent "Future of Fund Management" conference in London.
In a presentation called "Winning the War for Assets," M&G Securities Chief Executive Officer William Nott said that asset managers have to work hard to regain investors' trust by offering better transparency and improving long-term performance.
Edward Carter, chief executive officer of Jupiter Asset Management, agreed, saying, "Customers do not want volatility, complexity, excessive charges and disappointing returns. They want rising income, capital protection and, most importantly, value for money."
At Man Group, said CEO Peter Clarke, "During the year, we continued to see private investor demand for conservatively structured products offering transparency and liquidity, and which have demonstrated a track record of performance through these markets."
Treasury Extends Money Market Guarantees
The Treasury Department extended its $3 trillion temporary guarantee program for money market mutual funds through Sept. 19 to provide continued reassurance for investors.
The program, which was scheduled to expire on April 30, will continue to provide coverage for shareholders up to the amount they had invested in a participating fund as of Sept. 18, 2008. Funds that currently participate in the program must file for the extension by April 13 and meet certain requirements.
New funds will not be eligible for the program, Treasury said.
Money market funds will continue to pay the Treasury a fee for participation based on their net asset value as of Sept. 19, 2008, and relative to their size. The cost of participation should equal four or six basis points on an annualized basis of a fund's asset base for the entire program, the Treasury said.
The Treasury established the backstop on Sept. 18 to prevent a wave of investor withdraws from money market funds after the $65 billion Reserve Primary Fund "broke the buck" two days earlier.
96% of Variable Annuities Sold in 2008 Have GLBs
Guaranteed living benefits are driving sales of variable annuities, Milliman found, with 96% of those sold in 2008 including GLBs, up from 87% in 2004.
Existing policyholders also gravitated to GLBs, with 69% purchasing them in 2008, up from 52% in 2004.
There are four types of GLBs: guaranteed minimum income benefits (GMIBs), guaranteed minimum withdrawal benefits (GMWBs), guaranteed lifetime withdrawal benefits (GLWBs) and guaranteed minimum accumulation benefits (GMABs). GLWBs have been gaining in popularity, accounting for 93% of all GLB sales. Conversely, GMWBs have been decreasing in popularity.
Young Adults Keen On Financial Responsibility
Young adults between the ages of 23 and 28 are more worried about being "financially fit" than "physically fit," Charles Schwab found in a survey of 1,252 people conducted in January.
Fifty-two percent said that "making better choices about managing money" is the single most important issue for Americans today, outpacing the 18% that cited strengthening family relationships and 11% who said protecting the environment is the most critical issue. Only 9% cited improving personal nutrition and health.
In terms of education in school between kindergarten and grade 12, 51% said that financial education is the most important, followed by physical education (31%) and sex education (18%).
"This age group is clearly riveted by our weakened economy," said Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation. "When we see people in their 20s prioritizing responsible money management over personal nutrition and health, it seems clear that the need for individual accountability has penetrated deeply into the culture.
"Without diminishing the importance of good health, these results are very encouraging and could signal a new era of financial responsibility among American consumers," Schwab-Pomerantz continued.