Data & Research May 4, 2012

Real Assets Can Help Participants Achieve Goals

A research paper from Russell Investments explores the impact of adding "real assets" to a defined contribution (DC) plan menu.
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“[To] achieve true diversification, DC plan sponsors now need to move beyond the practice of simply diversifying holdings within the traditional asset classes. By introducing ‘real assets’— assets such as commodities, real estate and listed infrastructure—in their DC investment menu, plan sponsors can better help participants achieve their goals,” Mark Teborek, defined contribution analyst, and Josh Cohen, defined contribution practice leader, wrote in the paper.  

The paper says that in the past several years, Russell has observed an increasing supply of institutional-quality managers who invest in more marketable and liquid real assets categories, giving DC investors access to real assets in ways previously unavailable. The authors contend that stocks and bonds alone cannot be expected to always produce a long-term real return.  

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The main principles of the authors’ argument for including real assets in DC plans are: 

  • Real assets are typically under-represented in a typical portfolio, and their addition broadens portfolio diversification because of their modest correlation to a typical asset class; 
  • Real assets increase the potential to achieve a consistent real return above the rate of inflation over time; and 
  • Real assets provide a way to enhance potential long-term returns by taking advantage of global trends. 

“Real assets for the defined contribution menu” can be downloaded here.

 

Data & Research May 4, 2012

Most Future ‘Retirees’ Will Still Be Working

U.S. workers and their employers have different views about whether employees will have to work for income in retirement.
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More than half (55%) of defined contribution (DC) plan sponsors think most of their workplace retirement plan participants will have to work either full- or part-time in retirement, according to polls of workers and companies released by BlackRock Inc. By contrast, just 15% of workers participating in DC plans anticipate needing to work for income in retirement.

Nearly eight of 10 DC plan sponsors polled by BlackRock agree (and 30% strongly agree) that “the days of working until the age of 65, retiring, and then never having to work again are generally over for most workers.”

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According to survey results, 30% of participants plan to retire between ages 64 and 66.

“One thing that’s very clear to us is that the landscape [of retirement] is fundamentally changing,” Robert Fairbairn, head of BlackRock’s global client group, said during a press briefing about the surveys.

For some retirees, choosing to stay employed will be a choice; for others, it will be a financial necessity, said Chip Castille, managing director and head of BlackRock’s U.S. & Canada Defined Contribution Group. Nine percent of participants say they plan to keep working in retirement because of personal preference, but 7% say they will have to keep working because of finances.

 

(Cont...)

Only 43% of corporate retirement plan sponsors are confident that their workers are saving enough now to get the monthly income they want in retirement. About 67% of workers, on the other hand, are confident they are saving enough. Four in 10 sponsors think the greatest financial challenge their employees will face is “not having enough money to last through retirement.”

Sponsors take their responsibility seriously—even more than workers expect. About two-thirds of sponsors strongly agree an employer should educate employees on the realities of longevity in retirement, compared with just 25% of workers. Similarly, four in 10 sponsors agree they should warn employees if they are not saving enough money for retirement, but just 22% of workers strongly agree.

Workers and sponsors do agree on the importance of secure income-generating options in their workplace retirement plan. Nearly nine out of 10 (86%) sponsors agree (and 20% agree a “great deal”) that their participants would benefit from an in-plan guaranteed solution, and 89% of workers agree on the importance of these income options.  

Despite these numbers, just 11% of DC plan sponsors say they offer an in-plan guaranteed income solution, and of the companies not offering this solution, just 19% say they will likely add it to their plan in the next 12 months.

“As traditional pensions wane, American retirees face a growing retirement income gap, and there is growing belief among participants and sponsors alike that DC retirement plans can—and should—help fill the gap,” Castille said.

The poll of 118 plan sponsors was conducted on the Internet during March 2012 by Boston Research Group on behalf of BlackRock's U.S. Defined Contribution business. The plan sponsor sample represents major DC plans with more than $351 billion in plan assets and more than 3.4 million plan participants.

BlackRock also released the findings of two other interlinked polls of 1,002 workers and 1,035 retirees. A copy of those findings can be found at www.BlackRock.com/RetirementSurvey.

 

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