Administration April 21, 2010

DC Consultants Say Custom Target-date Funds Keep Growing

April 21, 2010 (PLANSPONSOR.com) – A new PIMCO survey of defined contribution consultants finds the trend of clients requesting custom target-date funds continues to grow.
Reported by

A PIMCO news release about its “4th Annual Defined Contribution Consulting Support and Trends Survey” said 90% of the consultants polled are offering such custom target-date products, and 82% are offering to act as a fiduciary for their custom services such as managing a plan’s asset-allocation (i.e., glide-path).  Consultants also identify over 20 recordkeeping firms that support custom strategies.

“Custom target strategies provide plan sponsors ultimate control of their DC plan, including best-in-class investment management, glide-path design flexibility, institutional pricing, as well as optimal fiduciary oversight and transparency,” said Stacy Schaus, senior vice president and leader of PIMCO’s Defined Contribution Practice, in the news release. “It’s not surprising to know that consultants and recordkeepers are supporting more of their clients with custom strategies.” 

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Consultants said that many plans are still using “off-the-shelf” target-date funds instead of a custom product tailored to their employee demographics. Nearly half of consultants surveyed believe existing glide paths are too aggressive, especially in light of how these strategies performed during the recent market crisis.

To mitigate risk, consultants suggest that plan sponsors add diversifying assets beginning with treasury-inflation protected securities (TIPS), which they also note as the most effective hedge against inflation. The majority of consultants identified tactical asset allocation as a somewhat important to critical component of glide-path management, PIMCO said.

Other findings from the survey include:

  • 75% of consulting firms report that their clients prefer retaining retiree assets. Yet most consultants report that most sponsors do not actively encourage retirees to keep their assets in the plan.  However, a fifth of the consultants noted clients are somewhat likely to add a “deemed IRA” to their DC plan to allow retirees and their spouses to consolidate assets within the DC plan.
  • 80% of consulting firms believe their clients will add a retirement income option within the next two years. Fixed annuities, living benefit, and longevity insurance are the top three products of interest.
This year’s survey captures data, trends, and opinions from 30 consulting firms across the U.S., which serve nearly 2,000 plan sponsors with aggregate DC assets of $1.7 trillion. For more information, call (888) 845-5012 or email pimcodcpractice@pimco.com.

Benefits April 21, 2010

Supporting Grown Kids Competes with Retirement Plans for Some

April 21, 2010 (PLANSPONSOR.com) – More than four-in-ten so-called “sandwich generation” parents (41%) continue to provide at least some financial support to their young adult children, according to the 2010 Families & Money Survey by Charles Schwab & Co., Inc.
Reported by

Baby Boomer parents have often been referred to as the “sandwich generation,” reflecting the combined pressures of raising children and caring for aging parents, yet the Schwab survey found that the most significant layers of the sandwich seem to be the pressures of retirement planning combined with helping adult children, according to a press release. Not surprisingly, the biggest worries for mid-life parents are not being able to retire (29%), outliving their retirement money (22%) as well as not saving enough (22%), followed by the worry that their children won’t become financially independent (11%).  

When choosing between priorities, parents report that saving for retirement (56%) and helping their children financially (44%) are near-equivalent priorities.  

Get more!  Sign up for PLANSPONSOR newsletters.

Only 6% of respondents provide financial support to both an adult child and an aging parent, and only 1% worries about supporting their own parents(s) out of the 85% that say they are at least a little worried about their financial future.   

Two-thirds of people surveyed (66%) believe there was a silver lining to the recent economic recession. Top lessons learned include “learning to live within my means” (49%) and being “much more involved now with my finances” (43%).   

Among the top behavioral changes people made were:

  • being more cautious about credit card use (62%);
  • asking more questions when it comes to financial decisions (59%);
  • reviewing financial statements more closely (59%);
  • reading the fine print in financial documents more closely (54%); and
  • talking to kids more about money management (54%).

The press release said women are more likely than men to have made recent, positive changes in their financial behaviors and habits, including talking to their children more about money management (59% vs. 47%, respectively). Men are more likely than women to say there hasn’t been any silver lining to the economic recession (38% vs. 29%). 

Among those worried about their financial future, fewer women than men are worried about outliving their retirement money (19% vs. 26%).

Lessons for the Younger Generation  

According to the 2010 Families & Money Survey by Charles Schwab & Co., parents of 20-somethings recognize that they could perhaps have done more to foster their children’s independence by teaching them about saving and budgeting and not helping them as much financially. While 57% of parents see themselves as a “good financial role model to their children,” they also admit that their children’s spending habits don’t necessarily reflect this perception.   

Respondents said the top three areas of money management where their children need to improve are:

  • how to stick to a budget and live within their means (48%);
  • how to save money (42%); and
  • how to invest wisely (33%).

Respondents also worry their kids will repeat some of their own financial missteps, most notably not starting to save for retirement early enough (43%), not saving money for emergencies (42%), and carrying credit card debt from month to month (30%).   

Parents cite college debt (32%) and unemployment (31%) as top reasons their children are relying on them more. However, they also believe that some contributing financial pressures fall squarely within the kids’ control, such as overspending (25%) and consumer debt (19%).   

Interestingly, despite the ongoing financial support they provide their adult children, nearly half of survey respondents (49%) believe their kids will eventually be even more successful than they themselves are today, and another third (33%) believe their kids will be equally as successful. More women than men believe their kids’ ultimate financial success will surpass their own (56% vs. 42%, respectively), while more men than women believe their kids will be less successful (23% vs. 14%).   

The survey found that parents whose children regularly did more household chores growing up are more likely to view their young adult children as “very financially responsible” (53%) as compared to those whose children did fewer or no household chores (46% and 39%, respectively). Parents of children who didn’t do any regular chores also see themselves as having been poorer financial role models.   

The 2010 Families & Money survey was conducted by Lieberman Research Worldwide on behalf of Charles Schwab & Co., Inc. in February 2010. The nationally representative online survey polled 1,000 people who are parents of at least one child, ages 23-28, and who have at least one living parent.  

A detailed fact sheet is available at http://www.schwabmoneywise.com.

«