Products April 21, 2008

Vanguard Releases Managed Payout Offerings

The Vanguard Group has unveiled the Vanguard Managed Payout Funds, designed to function much like an endowment by investing over the long-term to preserve or build capital while generating monthly payments.
Reported by

According to the company, the funds offer distinct objectives for investors with varying income needs and principal growth goals:

  • The Vanguard Managed Payout Growth Focus Fund seeks to make monthly distributions of cash while providing inflation protection and capital appreciation over the long term.
  • The Vanguard Managed Payout Growth and Distribution Fund seeks to make monthly distributions of cash while providing inflation protection and capital preservation over the long term.
  • The Vanguard Managed Payout Distribution Focus Fund seeks to make monthly distributions of cash while providing capital preservation over the long term.

The new products are structured as funds-of-funds and may invest in low-cost Vanguard domestic and international stock index funds, bond and REIT index funds, and inflation-protected securities and money market instruments. The funds may also allocate a portion of their assets to commodity-linked and market neutral investments that are expected to add diversification and result in a more consistent return pattern than a traditional balanced portfolio of stocks, bonds, and cash.

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In order to educate investors interested in the Managed Payout Funds, Vanguard has introduced two new tools at Vanguard.com:

  • A payout calculator to help estimate initial monthly payouts based on a specific investment amount or to estimate the investment amount needed to generate a specific initial monthly payout amount.
  • A “Which fund is right for me?” tool to help investors choose the Managed Payout Fund most appropriate for their needs and risk tolerance.

The company said investors can access their assets at any time. The minimum initial investment requirement is $25,000. The funds have no sales commission, and their annual expense ratios are expected to range between 0.57% and 0.58%.

In Practice April 21, 2008

Plan Sponsors Paying for Adviser Services Directly

The majority of retirement plan expenses are paid by the plan sponsor, but many plan sponsors do not review the fees paid to their adviser, a recent survey said.
Reported by

A survey of retirement plan sponsors by Grant Thornton, in conjunction with Drinker Biddle & Reath LLP and Plan Sponsor Advisors, LLC, said at 70% of plans, adviser and consultant fees are paid by the plan sponsor, while participants pay at 27% of plans.

Over one-third of plan sponsors (38%) review broker and adviser fees annually, but a large chunk of them (28%) reported never reviewing adviser and broker fees.

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Only 72% of plan sponsors indicated that they understood the fees their plans were paying and the revenue streams being earned by vendors, which is an increase from 65% last year. (Seventy-four percent of plan sponsors understand the fees for brokers and financial advisers.)

Investments

A large percentage of plan sponsors use a consultant or adviser to monitor investments and create investment policy statements (IPS), the survey said.

Eighty-two percent of sponsors reported having an investment policy statement (IPS), with 45% of them being created by a consultant or adviser. Four in 10 respondents said they regularly reviewed their IPS to make sure they are on target.

The survey also said 60% of plan sponsors are monitoring their investments quarterly and 12% are monitoring annually, in keeping with last year’s results. Nearly half perform this function internally, and 36% rely on a consultant or adviser.

In the latest sign of a hot market for asset allocation funds, 77% of plan sponsors thinking about changing their default options said they are moving toward risk-based or target-date funds.

“A sound investment policy is an invaluable tool for the effective management of a plan’s investment options with today’s supply of fund choices,” said Debbie Smith, an employee benefits practice partner with Grant Thornton LLP. “We’re encouraged by the sound practices of the plan sponsors we surveyed and the commitment shown to maintaining accurate records, which is vital to accountability of investment decisions. We’re interested to see the future effects of the PPA on default options in the coming years.”

The survey was conducted online from October through November 2007, with 183 independent plan sponsors participating. Participants in the survey primarily held chief financial officer (CFO) or human resources/benefits manager titles.

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