The Markets January 28, 2013

Diversification Helps TDFs in 2012

Last year was good for target-date funds (TDFs), according to Morningstar.
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“[T]he funds’ highly diversified nature … gave the offerings an additional edge last year,” noted Josh Charlson, senior fund analyst with Morningstar. Charlson pointed out that although the more aggressive tendencies of some shorter-dated funds produced severe losses in 2008, all but one of the currently extant 2015 funds have recouped their losses, and most have produced double-digit positive gains.  

The target-date categories for investors at least 20 years from retirement (dated 2035 or later) produced average calendar-year returns of 14.7% and higher.  

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The average return of funds in the target-date 2011-2015 category was 10.7%. Those funds have an average strategic allocation to stocks of 52%, but the Barclays U.S. Aggregate Bond Index brought in only a 4.2% gain last year. According to Charlson, diversification into areas such as high-yield bonds, Treasury Inflation-Protected Securities (TIPS) and, in some cases, emerging-markets debt pushed returns ahead. “With high-yield bonds last year producing returns on par with those of the stock market, many target-date funds got some extra juice from their fixed-income sleeve,” Charlson said.  

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Compliance January 28, 2013

DOL Requests Input on Benefit Statement Surveys

The Department of Labor (DOL) is soliciting comments about a proposed information collection request to guide rulemaking about retirement benefit statements.
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The Department of Labor is planning to survey participants in an existing household Internet panel called the American Life Panel (ALP) and conduct four focus groups consisting of nonpanel members to explore whether information presented in retirement plan benefit statements can be presented in a manner that is understandable for participants and beneficiaries and that makes its audience better prepared for retirement.

The study results will be used to support the Department’s rule-making pursuant to section 105(a) of the Employee Retirement Income Security Act of 1974 (ERISA) as amended by the Pension Protection Act of 2006, which requires administrators of ERISA-covered individual account plans to furnish periodic benefit statements to participants and beneficiaries and requires the department to develop model benefits statements.  

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The department wants comments about whether the collections of information will have practical utility; the validity of the methodology and assumptions used; how to enhance the quality, utility and clarity of the information to be collected; and how to minimize the burden of the collection of information for those who are to respond.  

More information is here.

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