Data & Research August 29, 2012

Survey Suggests No Expected Uproar About Fee Disclosures

One in five defined contribution (DC) participants surveyed by LIMRA said they rarely or never read retirement plan disclosures.
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The rest claimed to read disclosures at least some of the time, but the majority reported they are only skimming them or trying to see if they reveal something “important.”      

The most common reasons plan participants do not read disclosures are that they are too long, and that they are too technical or complicated, and hard to understand. Forty percent said they did not read disclosures because they would not change anything, anyway.     

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Reaction to fee disclosures could be muted in part because participants are not sure how to use the information. One in three plan participants reported they did not know what they would do if they discovered they pay higher-than-average fees. Nearly one- quarter (24%) said they would move their current assets into funds with lower fees, and one in five (21%) said they would speak to their employer about the fees they pay.     

Younger plan participants (ages 18 to 35) are more likely to report reading disclosures; this group is also more likely to reach out to their employer for information about their retirement account than older participants.

 

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Half of DC plan participants do not know how much they pay in annual fees and expenses, the survey found. Women and those with household assets under $100,000 are more likely to be unaware of how much they pay in fees and expenses each year.    

Many will be surprised with the information in the new disclosures—almost four in 10 (38%) said they did not pay any fees or expenses. Those who do not believe they pay any fees or expenses tend to have less in household assets and are less likely to have graduated college.   

Of the 12% who said they were able to estimate their fees, the most common estimate was less than 1% of the account balance (44%).Nearly three-quarters (74%) of those who estimated their plan fees believed that they were reasonable.     

Most consumers (62%) do not know how the fees charged within DC plans compare with those charged in individual retirement accounts (IRAs). Even among participants that are very or somewhat knowledgeable about investments and financial products, four in 10 do not know how DC and IRA fees compare.  

In May, LIMRA surveyed U.S. adults ages 18 to 84 who are involved in household financial decisions and currently work for pay, are retired or recently unemployed (i.e., have worked for pay in the past 12 months). Of 5,296 consumers, 974 defined contribution participants were randomly selected to answer questions about DC plan fee disclosure.

 

Products August 28, 2012

Investors Looking at Strategies to Combat Low Interest Rates

As investors struggle with low interest rates, some are looking for strategies to achieve high-yield corporate credit returns without the volatility associated with the asset class.  
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In January, credit hedge fund manager Phoenix Investment Adviser opened its JLP Institutional Credit Fund to outside investors. The strategy, which originally launched in 2011 with partner capital, aims to limit downside and volatility while generating an 8% return, according to Jeff Peskind, CIO of Phoenix.

Peskind told PLANADVISER, many plan sponsors have investments in the bond market, but with interest rates so low, they need a change. “Many investors are looking for yield and to generate returns in this low-interest rate environment without taking on equity, commodity or currency risk,” Peskind said. “It seems that most institutions need to have an 8% or higher rate of return to meet their actuarial assumptions.”

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As the Federal Reserve continues to signal a no-yield environment that will last possibly until 2014, Peskind noted that even conservative investors realize they need yield to meet obligations.

The JLP Institutional Credit Fund typically invests in B or BB-rated bonds that are senior or secured. These corporate bonds are often of the same or similar companies to those included in Phoenix’s flagship JLP Credit Opportunity Fund.   

 

 

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“We are seeing interesting opportunities in energy companies, as well as gaming and casino companies,” Peskind said.

The fund is offering founders’ round terms until it reaches a $200 million threshold. Investors are being offered the strategy at 50 basis points with 10% of profits over time and quarterly liquidity. There is also no lockup, so investors can exit at any time.

Phoenix recently received a $40 million investment from a European institutional investor for their JLP Institutional Credit Fund, bringing that fund’s total assets to approximately $60 million and pushing the firm’s total assets under management to more than $500 million.  

 

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