Russell to Plan Sponsors: Use a New Evaluation Framework to
Differentiate Among Target Date Funds
Traditional Approaches Fall Significantly Short
TACOMA, Wash. (Business Wire EON) July 1, 2008 --
Russell Investments released a paper to assist plan sponsors who, on the
heels of the Pension Protection Act, are increasingly evaluating and
selecting target date funds for their defined contribution plans. The
paper outlines twelve observations about target date funds that
highlight for plan sponsors how traditional fund evaluation approaches
fall short as these investment vehicles can look the same on the surface
but differ dramatically, and significantly, underneath.
The paper is authored by Josh Cohen, senior consultant, and integrates
his more than 12 years experience selecting and implementing investment
strategies for both large and small defined contribution plans, most
recently on the target date front.
“Target date funds are increasingly becoming a
critical part of most defined contribution plans, and a participant in a
target date fund is entrusting the plan sponsor to determine the best
investment solution on their behalf,” said
Cohen. “This is a serious responsibility and,
with so much choice available, plan sponsors need a thoughtful and
thorough approach to comprehensively evaluate the significant
differences between the choices available.”
A detailed version of Cohen’s 12 observations
is available at www.russell.com/dcinsights
In short, they are:
1. Target date funds should be designed with the objective of achieving
greater certainty of retirement income replacement - asset accumulation
is only one part of that
2. Glide paths generally slope down because of the pattern of
contributions, not because of time horizon
3. Risk should be measured in terms of not meeting retirement objectives
4. You should have high equity allocations at the beginning of the glide
path
5. You shouldn’t have high equity allocations
at the retirement end of the glide path
6. There is no clear investment rationale for the glide path to continue
to slope down after retirement
7. Target date solutions should provide diversified sources of return
8. Passive should not be considered the safe choice
9. Proprietary managers face headwinds
10. Building your own target date fund is harder than it sounds
11. Take care with performance comparisons
12. Target date funds can’t solve all your
problems
For more information, please visit www.russell.com.
About Russell
Russell Investments provides strategic advice, world-class
implementation, state-of-the-art performance benchmarks and a range of
institutional-quality investment products. With nearly $213 billion in
assets under management (as of 3/31/08), Russell serves individual,
institutional and advisor clients in more than 40 countries. Russell
provides access to some of the world's best money managers. It helps
investors put this access to work in corporate defined benefit and
defined contribution plans, and in the life savings of individual
investors.
Founded in 1936, Russell is a subsidiary of Northwestern Mutual Life
Insurance Company and headquartered in Tacoma, Wash. Russell has
principal offices in Amsterdam, Auckland, Johannesburg, London,
Melbourne, New York, Paris, San Francisco, Singapore, Sydney, Tokyo and
Toronto.
Copyright © Russell Investments 2001-2008. All
rights reserved.
Russell Investment Group is a Washington, USA corporation, which
operates through subsidiaries worldwide, including Russell Investments,
and is a subsidiary of The Northwestern Mutual Life Insurance Company.
RFD # 0486
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