The Markets August 27, 2019

Interest Rate Risk a Growing Concern for Boomers

This should be a focus when looking at target-date funds (TDFs) often used as the default investment in employer-sponsored defined contribution (DC) plans.

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Thirty-three percent of Baby Boomers are actively managing interest rate risk in their portfolio, up six percentage points from last quarter. This is according to “StreetWise,” E*TRADE’s quarterly tracking study of experienced investors.

Dividend-paying stocks are Boomers’ top choice, cited by 40%. Their interest in fixed income slipped seven percentage points since last quarter to 16%. Baby Boomers face challenges when searching for income.

Fifty-eight percent of Boomers say the traditionally defensive and dividend-heavy health care sector has the most potential this quarter, up three percentage points since last quarter.

“Investors approaching retirement traditionally turn to bonds to provide a steady stream of income for their portfolio,” says Mike Loewengart, vice president of investment strategy at E*TRADE Financial. “That said, with bond yields under pressure in this low-rate environment, it is forcing some to get a bit more creative. Defensive sectors like health care and dividend-paying stocks like blue-chips and large-cap companies could offer investors better yields right now.”

Loewengart says that even the highest-yielding equities can disappoint, so it is important for investors to delve into a stock’s fundamentals. Additionally, divided growth should not take a back seat to yield, and international dividend payers may offer opportunities, he says.

This should be a focus when looking at target-date funds (TDFs) often used as the default investment in employer-sponsored defined contribution (DC) plans. Recent J.P. Morgan research shows, as participants transition from the accumulation to the decumulation phase, the potential adverse effects of a market downturn on total lifetime wealth reach their peak. Simply put, as net spending continues to deplete balances, it becomes more and more difficult to recover from market losses, even with stronger returns in the later retirement years.

Anne Lester, head of retirement solutions for J.P. Morgan Asset Management, recently highlighted the deep analytical work her team has done regarding the optimal shape of TDF glide paths during investors’ retirement years. “We take the stresses of real-life participant saving and withdrawal behavior into account, and we rely on well-diversified glide paths to manage a range of participant-experienced risks associated with DC investing,” Lester explained. These include market, event, longevity, inflation and interest rate risks.

Client Service August 26, 2019

Recordkeeper Websites Need Updating: Corporate Insight

Specifically, they should offer intuitive plan health dashboards, the research company says.

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While defined contribution (DC) plan fees are plan sponsors’ top concern when selecting a recordkeeper, they are also greatly concerned about the websites they offer for both sponsors and participants, according to a survey by Corporate Insight.

“At the end of the day, more traditional topics such as fees and investment lineup accommodation will take precedence in these discussions, but in an ever-evolving industry that is undergoing consolidation and increasing parity in terms of fees and investment lineups, digital capabilities will increasingly make or break recordkeepers’ business,” Corporate Insight says.

A survey of 338 plan sponsors that the firm conducted in June found that 91% of employers say that their website experience is either equally or more important than participants’ experience. Sixty-eight percent of sponsors say they log onto the plan sponsor website at least once a week, and 18% do so daily, up from 10% in 2017. Seventy-six percent say they view the plan sponsor website either as very or extremely important in relation to their responsibilities to the plan.

Eighty-eight percent of sponsors say they are either satisfied or very satisfied with the sponsor website from their recordkeeper. However, only 31% said they are very satisfied, indicating, according to Corporate Insight, that there is room for improvement.

As to what, specifically, sponsors are looking for, Andrew Way, director of research, annuity, life and retirement at Corporate Insight, tells PLANADVISER, “first and foremost is website security, followed by plan level information and plan administrative capabilities, such as enrolling, updating participant data, completing requests such as distributions, and reporting functionality.”

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A few recordkeepers have created intuitive plan health dashboards, but five years ago, sponsors would have to go through laborious reporting procedures to extract each data point, Way says. Recordkeepers have put far more work into updating participant websites than they have sponsor websites, he says. “Many still have antiquated designs and user interfaces,” Way says. “Sponsors hold these websites up to the high quality service they get from non-financial websites, such as Google. If they don’t offer an intuitive plan health dashboard or haven’t updated it in a few years, they need to do so.”

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