Products September 24, 2009

Russell Unveils Target-Date Fund Family Performance Metrics

Russell Investments has developed a methodology to provide investors with a way to measure and compare target-date fund families.

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A Russell news release about its Russell Target Date Metric product said it offers a returns-based measure of how well a target-date fund family performed over a specific time period.

The offering’s methodology was designed to measure conventional performance universes over typical historical intervals, such as three months, one year, and three years, Russell said.

The company said it will measure the comparison of the retirement wealth generated by a family of target-date funds to the wealth generated by some selected benchmark over the selected time period. The metric will take into account all aspects of the family’s investment process, including active management, asset allocations within equity and fixed income, and glide path design.

According to Russell, a feature of the methodology measures the wealth generated by the family of funds as a weighted average of the returns of all the funds in the family.

The weight attached to each fund’s return is determined by where that fund is along the glide path and the pattern of cash contributions. The methodology results in the returns of the funds nearer their target dates having greater weights than the returns of funds more distant from their target dates.

“While target-date funds are designed to be easy to use, the design behind them is complex,” said Grant Gardner, director for portfolio strategies at Russell, in the news release. “Comparing one fund family to another tends to be subjective at best, but now defined contribution plan sponsors and others can select among the increasing variety of target date products with an objective, returns-based measure of performance that is appropriate for evaluating target date fund families.”

Russell initially aims to calculate the metric for 43 fund families and expects to begin making the comparisons available in the fourth quarter.

More information is available here.

The Markets September 24, 2009

S.C. Medical Center To Start New DC Program

A South Carolina hospital is restructuring its retirement savings program, including a freeze on its current defined benefit plan.  

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A news report in the (Orangeburg) Times and Democrat said that Regional Medical Center will also continue its 403(b) plan and introduce an employer-based defined contribution plan based on years of service. The freeze is to be effective January 1.

Officials said the pension plan is being restructured because, otherwise, the hospital would have seen the annual cost increase from about $2.8 million to $7.8 million beginning October 1.

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A switch in the hospital’s investment portfolio cut its return from about 8% to about 5.5%, according to the news report. A portion of the hospital’s pension fund was previously invested in stocks and hedge funds, drawing criticism from some Orangeburg County Council members and hospital trustees, who said the investments were not allowed by state law.

As part of the new, employer-funded DC plan, the hospital will contribute about 1% of an employee’s salary for the first four years of service and 5% of the salary for 20-plus years of service. The percentage will increase for every four years of an employee’s service. The company’s 403(b) plan remains unchanged.

 

 

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