Products January 14, 2008

Fidelity Unlocks Popular Magellan Fund for New Investors

January 14, 2008 (PLANSPONSOR.com) - Fidelity Investments will reopen its widely known Magellan Fund to new investors as of Tuesday for the first time in a decade, the Boston financial services firm announced.
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A Fidelity news release said the company made the move to generate new sales to offset redemptions from retiring Baby Boomers starting to tap their retirement nest eggs. Some 85% of the fund’s assets are earmarked for retirement, Fidelity said.

Magellan Fund seeks capital appreciation by normally investing primarily in common stocks of domestic and foreign issuers, and may invest in either growth stocks or value stocks, or both. On October 31, 2005, Harry Lange assumed management of the fund that had been shuttered to new accounts since September 30, 1997, Fidelity said.  

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The firm also outlined the changes in the market environment and alterations in its internal operations affecting Magellan since the fund was closed.  The market capitalization of the U.S. market has grown by 117%, while the world’s market capitalization has grown by 143%.

In addition, over the past two and a half years, Fidelity has implemented several large-scale initiatives within its equity research unit. During that period, the firm:

  • Hired more than 120 new research analysts.  Globally, more than 400 equity analysts now support Fidelity’s equity funds, up from 193 when the Magellan Fund closed.
  • Created a longer-term equity analyst career track.   This has allowed analysts to potentially remain in the equity research group   and remain with their coverage assignmentsfor longer periods.
  • Created a diversified analyst position.  These analysts are embedded in the portfolio management teams at the discretion of the teams’ portfolio managers.
  • Added several managing directors of research.  They come from both inside Fidelity and outside the firm, and have brought key managerial resources and expertise to the research organization.
Benefits January 11, 2008

Participation Increased Via Auto Enrollment, but Savings Rates Low

January 11, 2008 (PLANSPONSOR.com) - An analysis of about 50 plans in Vanguard's recordkeeping system that have adopted automatic enrollment suggests it does improve participation rates, but deferral rates for those using automatic enrollment remains too low to generate adequate retirement savings.
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According to a report on the analysis, “Measuring the Effectiveness of Automatic Enrollment,” by the Vanguard Center for Retirement Research, new employees hired under automatic enrollment designs have participation rates dramatically higher than new employees hired under voluntary enrollment designs (86% versus 45%). Automatic enrollment raises participation rates across most demographic groups, but most significantly among low-wage and younger employees, Vanguard said.

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However, overall plan contribution rates under automatic enrollment fall because many new participants who would have chosen a higher contribution rate under a voluntary enrollment plan design remain at the low-default levels. Four of 10 plans have implemented automatic enrollment designs where total employer and employee contributions are less than 9% of income after five years – a level Vanguard said is too low to generate adequate retirement savings.

The report noted that plans with automatic contribution increase features achieve much higher rates of savings.

Further adding to the problem of inadequate savings, Vanguard’s analysis found new hires in plans featuring automatic enrollment are three times more likely to allocate 100% of their contributions to the default investment fund than new hires in voluntary enrollment plans (67% versus 21%).

Employees are more likely to change plan contribution rates than plan default investments. Vanguard found that after approximately 24 months, 30% of eligible employees remain at the plan default contribution rate and 51% stayed with the plan default investment.

In the Vanguard analysis, more than 90% of plans adopting automatic enrollment implemented it for new hires only. Half of plans automatically enroll employees at a 3% deferral rate, and 22% use a higher initial rate. Half of plans have implemented automatic annual contribution rate increases of 1%. Nine in 10 plans use a life-cycle or balanced fund as the default investment.

The Vanguard report is here .

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