Investing December 18, 2015

New DCIIA Guide on Retirement Income Design

The Defined Contribution Institutional Investment Association issued a white paper to help sponsors do a better job of preparing participants for retirement. 

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As the Defined Contribution Institutional Investment Association (DCIIA) writes in a new paper, “Retirement Income Solutions: A Guide for Plan Sponsors,” helping participants improve their financial security in retirement should be a primary goal of defined contribution (DC) plans.

“Retirement income strategies can be a key part of achieving this goal,” DCIIA says.

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The reasons why sponsors are interested in offering income products include wanting to help employees transition to retirement at the appropriate age, rather than having them remain at the company longer than the employer would want. Sponsors also view pension-like income streams as a reward for employees and as a way to attract talent, according to DCIIA. Furthermore, some retirement income solutions retain retirees’ assets in the employer plan—an objective of some sponsors. Retirement income solutions are also very useful when an employer transitions from a defined benefit (DB) plan to a DC plan. 

DCIAA suggests retirement income solutions mitigate the many risks that participants face when saving for retirement. These include longevity risk, market risks, inflation risks and consumption risks related to overspending and unanticipated expenditures.

NEXT: Retirement income solutions

Retirement income solutions can either be offered in-plan as investments or as a group annuity contract that guarantees returns, or out-of-plan, invested with an insurance company, mutual fund company or brokerage in either a guaranteed or non-guaranteed product.

DCIIA says that in-plan non-guaranteed solutions include annuities tracking asset classes, managed accounts, managed payout funds, systemic withdrawal programs and target-date funds. In-plan guaranteed solutions include deferred income annuities, guaranteed lifetime withdrawal benefits and immediate income annuities. Out-of-plan solutions include immediate income annuities, deferred income annuities and qualified longevity annuity contracts.

DCIIA advises sponsors to partner with the recordkeeper to provide participants with lifetime income disclosures, along with calculators and retirement income projection tools.

DCIIA concludes the report by saying: “Determining whether to offer a retirement income solutions, and, if so, which type of product to select, requires a clear understanding of your plan’s goals and demographics. With that foundation, you can determine how to develop a retirement income plan that works for your company and your unique participant base.” 

The full report can be downloaded here.

Investing December 18, 2015

Volatility Aside, Global Markets Still Look Promising

Central bank policies around the world are diverging, which could cause volatility spikes, according to Goldman Sachs Asset Management—but that doesn’t mean it’s time to turn off risk.
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Joining the annual chorus of year-end market reporting, Goldman Sachs Asset Management (GSAM) has published a cautiously optimistic guide to global markets trends taking shape for 2016.

From a global perspective, GSAM expects the long expansion to keep getting longer, suggesting the world’s major economies will likely grind out another year of modest returns. Zooming in on the U.S. markets, the firm thinks the economy is “strong enough to warrant a gradual increase in interest rates in 2016,” but the combination of tighter financial conditions and weak global demand will probably keep growth in the low 2% area.

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“Rising debt loads in the U.S. corporate sector and emerging markets create security-specific risks,” the report suggests, “but we don’t view them as a global growth risk for 2016.” It’s been a long time coming, GSAM observes, but global institutional investors are now facing an environment of truly divergent central bank policies—likely to increase volatility and even lead to “policy related volatility spikes” during the year.

Still, GSAM predicts volatility will be manageable and that investors will do better to stay in the game—especially long-horizon retirement plan investors. Even factors such as China’s ongoing slowdown likely won’t bring enough drag to stifle growth for globally diversified investors: “After a turbulent 2015, we expect China to remain a source of market volatility, but for policymakers to prioritize growth and stability. We also expect the impact of its economic transition to become more nuanced across emerging economies.”

NEXT: Time for fresh strategies

Considering key markets outside the U.S., GSAM puts its topline China growth prediction for 2016 “somewhere north of 6%,” aided in part by further targeted stimulus by the People’s Bank of China.

In the U.K., GSAM predicts growth is likely to “remain in the low 2% range in 2016, with contributions from consumption and business investment. We think the Bank of England may raise interest rates in the first half of the year.” In the Eurozone more broadly GSAM expects growth in 2016 will be well below that in the U.S. and U.K., probably closer to 1.4% with inflation struggling to top 1%—all of this despite continued heavy policy stimulus.

In Japan, “strengthening domestic demand should help growth recover modestly in 2016,” with inflation still well below target. “We think the Bank of Japan (BoJ) may ease policy further in the first half of the year,” the report concludes.

When it comes to building portfolios, GSAM “expects another year of modest market returns in equity and fixed income, underscoring the potential roles of high-conviction views, alternative strategies and focused security selection.”

More in-depth findings and helpful infographics are presented here. 

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