Paycheck Bumps and Tax Reform Present Crucial, Brief Savings Opportunity
During a recent webinar hosted by Broadridge on the impacts of tax reform, experts urged advisers and sponsors to push participants to save—not spend—any extra pay coming in as a result of tax reform.
Americans’ monthly paychecks have increased by more than $130 on average as a result of the implementation of the Tax Cuts and Jobs Act of 2017, experts noted during the second tax reform education webinar hosted by Broadridge.
As a result, Americans are naturally feeling more financially confident. Many say they are going to use the extra money to pay down debt faster, while others are going to use the money to save more for retirement.
Broadridge experts stressed that the window of opportunity to encourage people to actually direct their additional take-home dollars into retirement plans is in an important sense quite brief. This assertion is based on a well-explored principle of behavioral finance research: People feel much less pain and hesitation about saving money from their paycheck when it is redirected into a tax-qualified account before it is put into the wallet, digital or otherwise. On the other hand, it takes a very short amount of time for an individual to feel entitled to a given stream of income, leading to greater pain and hesitation around decisions to save that are framed as a privation.
As the Broadridge speakers warned, it will only take a few pay cycles for folks to get used to seeing this extra money come in. Thus the impetus is on advisers and sponsors to act today to directly encourage employees to consider putting some or all of their additional take-home pay into the retirement plan.
Putnam Investments announced the availability of a new highly competitive pricing option on its Putnam Retirement Advantage Funds, a series of 10 target-date funds (TDFs) designed for the retirement marketplace.
Putnam class X shares have a management fee of 0.35% and are available to defined contribution (DC) plans that have a minimum of five million dollars invested in Putnam Retirement Advantage Funds. The new class X shares symbolize the 10-year anniversary of the suite, which has experienced noteworthy growth in recent years.
“We regularly evaluate our product offerings in an ongoing effort to provide retirement plans with an exceptional slate of actively managed investment strategies at competitive prices,” says Steven P. McKay, head of Defined Contribution Investment Only (DCIO) at Putnam Investments. “The addition of the new share class for our Putnam Retirement Advantages series underscores our commitment to deliver performance and value to plan sponsors—to ultimately help their participants meet their retirement goals.”
Putnam Retirement Advantage Funds are designed for plan participants who want the risk/return profile of their asset allocation glide path to reflect their projected retirement date. The funds are actively managed by Putnam’s Global Asset Allocation team, a highly-experienced group with a strong long-term track record of pursuing multi-asset investment strategies.
Putnam Retirement Advantage Funds, which currently have $3.8 billion in assets under management, are collective investment trusts, a pooled vehicle structure that can help to keep costs competitive by providing lower operational expenses and enhanced fee flexibility.
“Putnam is laser-focused on addressing the issues most important to plan sponsors and consultants, including fees, transparency and performance. We see our role as a critical piece of the equation, as we work closely with retirement plan sponsors and their advisers in providing an array of effective and innovative traditional and non-traditional investment strategies for participants,” adds McKay.
First Trust to Launch AI and Robotics ETF
First Trust Advisors announced that it expects to launch a new index-based exchange-traded fund (ETF), the First Trust Nasdaq Artificial Intelligence and Robotics ETF on February 22.
The fund seeks investment results that correspond generally to the price and yield, before the fund’s fees and expenses, of an index called the Nasdaq CTA Artificial Intelligence and Robotics Index. The index, which is developed by Nasdaq and the Consumer Technology Association (CTA), is designed to track the performance of companies engaged in artificial intelligence (AI), robotics and automation.
AI allows machines to complete various “human” tasks, enabling robots to solve problems and interact with their environments. “It is clear that the growing advances in AI and Robotics, while still in early days, are increasing the rate and impact of change,” says Dave Gedeon, vice president and head of Product Development for Nasdaq’s Global Indexes. “The Nasdaq CTA Artificial Intelligence and Robotics Index is a new way to benchmark the performance of the companies leading the charge in this dynamic sector.”
Vanguard Launches Factor-Based ETFs
Vanguard launched six new factor-based ETFs—the firm’s first actively managed ETFs in the U.S.—and one factor-based mutual fund.
Vanguard’s five single factor funds seek to achieve specific risk or return objectives through targeted factor exposures—minimum volatility, value, momentum, liquidity, and quality—and will have an estimated expense ratio of 0.13%. The sixth ETF and mutual fund follows a multi-factor approach and has an estimated expense ratio of 0.18%.
“The newly launched factor funds further broaden our active equity lineup and represent a differentiated approach – disciplined, rules-based, targeted exposure to factors – along with Vanguard’s low costs,” says Vanguard CEO Tim Buckley. “The funds are aimed primarily at financial advisers and institutional investors, who we believe understand the risks of potential underperformance and can effectively incorporate factor funds into their portfolios.”
The new funds will be managed by Vanguard Quantitative Equity Group (QEG).
To complement the launch of the funds, Vanguard Financial Advisor Services (FAS) introduced an Education Center—a website featuring product information, research, and education on factor funds and factor investing. The center features Vanguard’s latest research on factor investing, including Equity factor-based investing: A practitioner’s guide, How to use factor-based investing in client portfolios, and Drawing systematic value from the equity liquidity premium.