10 essential steps that 401(k) plan sponsors need to take in 2013 to put clients on the right road to retirement
Developing white-label and spend-down strategies for all DC plans is important and carefully explained here
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April 10, 2019 at 11:05 PM
Mercer Consumer
Insurance
Elmer Rich III
These are some good standard steps. More concerning is some research we have been studying suggesting the serious problems in administrator and participant fund selection – precisely the problem advisors can help plan sponsors and participants with. In brief, here is some of what we learned with more coming as we go thru the research papers:
“....It is interesting to note why these differences in return occurred. The bulk of the differences in Sharpe ratios occurred because the plans had much more risk than a portfolio comprised of the 8 RB indexes. The problem lies not in plans selecting individual mutual funds that perform badly, but rather: in plans offering too few investment choices, choices with high risk, choices that are too highly correlated.
This means that, for 62% of the plans, the plan participants would be better off with additional investment choices. In fact, if these plans spanned the 8 RB indexes, participants’ average return would improve by 3.2% per year, which is 42% of the return on an 8-index portfolio with the same level of risk. While significant on a 1-year basis, over a 20-year period (a reasonable investment horizon for a plan participant), the cost of not offering sufficient choices makes a difference in terminal wealth of over 300%...”
More is posted on our blog – http://wp.me/pXvvI-k2. We are glad to share the papers and citations and will be writing a full review.
