Many institutional investors use “watch lists” as part of their process for monitoring investment managers. Although watch lists typically don’t require automatic termination of underperforming managers, they often orient fiduciaries toward considering termination. At the same time, there is significant evidence that investors have destroyed value through excessive manager turnover.
The criteria in watch lists are often misaligned with the views of the fiduciaries. One of our greatest concerns is that many watch lists over-emphasize short- and medium-term performance. This can focus the fiduciaries’ attention away from other, more important factors. In such situations, watch lists do not serve their intended purpose well.
Based on recent guidance from the Department of Labor and a desire to improve investment offerings for participants, many plans sponsors are considering adopting custom target date funds.
We focus on one (but not the only) potential advantage of custom target date funds: the potential for plan demographics to warrant a customized glide path. We find that the prevalence of defined benefit accruals—even if frozen—can have a significant impact on the preferred glide path for a plan population.
Pension plans sponsored by health care organizations affiliated with churches face serious risks as a result of recent lawsuits challenging the church plan status of these plans. Hospitals that have treated their pension plans as church plans will want to understand the changes in contributions and administrative practices that would be required if these plans were subject to ERISA. In addition, some health care organizations may find that recent lawsuits not only put ERISA-compliance risks to the forefront but also highlight implications for enterprise financial risks.
Within defined contribution (DC) plans, the past ten years can be described as the decade of the target-date fund (TDF). Aided in part by the Pension Protection Act of 2006, sponsors added TDFs to plans in droves and participants flocked to them. With their “all-in” investment simplicity and automated de-risking glide path, TDFs were seen as a panacea to the investing woes of DC plan participants.
However, with years of usage data under our belt, we find that TDFs are a blunt instrument. Few would argue that they are worse for participants than stable value or money market funds—long the default investment options for plans before TDFs arrived. At the same time, TDFs are not being used as the turnkey solution they were designed to be. This paper shares data from over 1.5 million TDF users across roughly 100 large DC plans to show the profile of a typical TDF user, the prevalence of partial TDF users in plans, and the impact of automatic enrollment on TDF usage. It is our hope that this data will help plan sponsors and the DC industry determine if TDFs are a long-term ideal solution for plan participants.
This research examines how high yield fallen angels have significantly outperformed original issue high yield (in both absolute and risk-adjusted terms) with fairly high consistency, across regions and currencies. We attribute the superior past performance of fallen angels to both structural factors (such as forced selling) and human behavior—factors which we believe are still valid today.
After more than five years, on April 6, 2016 the U.S. Department of Labor (“DOL”) issued the final regulations defining what it means to be an investment advice fiduciary. This regulatory process started in 2010 and included two sets of proposed regulations, days of testimony and more than 3,000 comment letters. Under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (“Code”), a person will be treated as an investment advice fiduciary as a result of receiving a fee or other compensation for providing investment advice to an employee benefit plan or an individual retirement account, or its participants or beneficiaries (jointly “participants”), or IRA owners.
The final fiduciary rules expand the scope of who may be considered investment advice fiduciaries under ERISA and the Code and require that such advisers act in the best interest of those who are the beneficial owners of the plans and IRAs.
In this paper, we estimate how the global market has allocated its collective wealth among competing investment opportunities from a U.S.-based investor point of view.
Roth accounts within a defined contribution plan have become the norm, not the exception. According to Aon Hewitt’s 2015 Trends & Experience in Defined Contribution Plans report, 58% of employers currently allow employees to make Roth contributions, an increase from only 11% in 2007. This paper explores participant use of these plans.
What’s Going On With Health Care? That question is being asked every day as the health care industry continues to adjust to a changing health care system. The Affordable Care Act introduced significant financial challenges for virtually all health care organizations, especially hospitals. As multiple hospitals and related service providers band together, they are faced with the challenge of choosing the “right” retirement program for the new organization. The purpose of this white paper series is to provide insight and strategy for health care organizations in the midst of such dramatic change.
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Seven years after the U.S. stock market bottomed in the global financial crisis, U.S.-qualified defined benefit (DB) pension plans continue to run significant deficits. At year-end 2015, we estimate the aggregate pension deficit for S&P 500 companies to be $445 billion. One might expect that the prolonged underfunded position would result in significant required contributions on the horizon. However, two key themes have emerged from regulatory activity over this period.
This paper focuses on today's low-return environment, effective spending policy development, return enhancement opportunities and peer group analysis.
Retirement plans established for certain tax-exempt organizations under Section 403(b) of the Internal Revenue Code are commonly referred to as tax-sheltered annuities (TSAs) or 403(b) retirement plans. Many of these plans are structured differently from the defined contribution (DC) plans of for-profit entities. As a result, the 403(b) market currently is unique, resulting in distinctive challenges for its sponsors and participants.
This whitepaper revisits a whitepaper published by our organization in 2001 that challenged the widely held assumption that the U.S. small cap equity market is more attractive for active management than the U.S. large cap equity market. Our updated research resulted in a conclusion consistent with our research in 2001.
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