Earlier this year, the U.S. Department of Labor (DOL) issued additional guidance on target-date strategies, recognizing how widely they differ. As part of their guidance, the DOL suggested not only evaluation of performance and risk, but additional examination of how well a target-date strategy aligns with a plan’s employee demographics (see “EBSA Offers Tips for Selecting TDFs”).
In response to this need, PSA developed a proprietary diagnostic tool called the TDAnalyzer. With it, PSA’s investment team evaluates target-date options using plan specific demographics to determine the likelihood of realizing an income replacement objective.
“The financial crisis of 2008 shed light on how many plan sponsors and advisers were too focused on historical performance measures. Since then, more attention has certainly been given to risk measures; however, PSA believes that even more scrutiny is required,” stated Donald Stone, managing partner and CIO of PSA.
“Plan specific information such as age, salaries, current balances, deferral rates, and Social Security benefits are incorporated to determine a required retirement balance. PSA’s TDAnalyzer simulates potential wealth accumulations for various target date options and compares the output to the targeted required retirement balance,” said Preet Prashar, CFA, investment analyst for PSA. “We combine results from our TDAnalyzer with qualitative and quantitative analysis to select the most appropriate target date series for particular plans.”
TDAnalyzer seeks to answer questions such as:
- Is the glide path a good fit for your plan?
- Will your target date solution achieve its income replacement objective? And at what risks?
- Have the underlying managers added value to the asset allocation?
PSA is a Chicago-based retirement benefit consulting firm focused on helping plan sponsors to improve participant outcomes. For more information about the TDAnalyzer, call 312-348-1253 or e-mail firstname.lastname@example.org.