The Markets November 24, 2009

T. Rowe Reaffirms Target-Date Strategy

Target-date funds with high equity allocation at retirement have come under fire lately, but T. Rowe Price is sticking with its strategy.

Reported by

Speaking at a press briefing today in New York City, Christine Fahlund, a senior financial planner at T. Rowe Price, said the company revisited its research and determined that the funds are “still on track.” T. Rowe’s target-date funds have a 65-year-old in about 55% equities, which is a riskier allocation than some competitors.

Fahlund said she still believes in having equities at retirement, and advocates that retirees stay flexible with retirement dates and what they do in retirement. With “too much cash there’s no return,” Fahlund said. Although participants high in equity at their retirement date risk a significant loss (such as the last year), she contended they can see a worse result just from an unexpected expense in retirement. “We almost have to put on the blinders to what the market’s going to do,” she said.

Target-date funds have also been under the microscope in Washington, specifically because of their differing strategies among financial firms. Cynthia Egan, president of T. Rowe Price Retirement Plan Services, Inc., said that more clarity around education in target-date funds is important, such as a standardization of disclosure so participants understand whether a target-date fund is meant to go “to” or “through” retirement.

As far as tackling retirement income, there is no silver bullet to a specific product solution, Egan said. T. Rowe is continuing to analyze and look at features such as a guaranteed minimum withdrawal benefit (GMWB), but they see “very little interest amongst plan sponsors” for annuitization, she said. “We just at the moment don’t see an enormous appetite; when you think about it, it’s an enormous fiduciary responsibility.”

Participants Hold Their Ground

T. Rowe Price saw most participants didn’t make changes during the downturn. Participation rates did not drop off and have even increased slightly. Outstanding loans and hardship withdrawals did not see significant increases. "We’re not seeing the 401(k) being use as an ATM,” said Egan.

Furthermore, while there was a lot of conversation from participants, there wasn’t a lot of activity, said Egan, noting that 96% of participants did nothing to their accounts. Of the 4% of participants who did make transactions, most did transfer their money to more conservative assets.

Egan also said the number of plans offering target-date funds grew slightly. In 2008, 78% of T. Rowe’s plans offered target-date funds; in 2009, more than 80% offer them. Participants are also gravitating more to target-date funds, with about 58% of participants enrolled in target-date funds in 2009, compared to 52% in 2008.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Data & Research November 23, 2009

Variety is Valuable When Communicating about Benefits

Employees who rate their benefits communications as ‘highly effective’ reported having access to a wider range of communication options, from group meetings to e-mail messages to videos, according to research from Prudential Financial.

Reported by

The Prudential research report, “Show Them the Value,” also asserted that the form of the communications is as important as the number of communications opportunities. Plan participants most prefer group meetings/seminars held during the work day (52%), followed by e-mail received at the workplace (45%), mail received at home (43%), and one-on-one meetings held during the work day (33%). Least preferred are individual or group meetings/seminars held during non-work hours (7% and 5%, respectively).

Prudential said a “clear linkage” exists between the effectiveness of employee communications and the perceived value of benefits, with employees rating their benefits communications as ‘highly effective’ also being able to see greater value in their benefits package.

The study found more workers feel their employers are cutting back on benefits, a perception that hurts their attitudes toward the value of the benefits.

“Employees must first be aware of the benefits, and really understand them to appreciate the value of those benefits,” said Lori High, president of Prudential’s Group Insurance business, in the news release. “For benefits to have a positive effect on an employer’s recruiting and retention results, they must be thoroughly explained and promoted throughout the organization.”

According to Prudential, the research also found:

  • Communications can have as much impact on worker satisfaction with benefits as the range of benefits offered or the perceived dollar amount of employer contributions.
  • Those who give high marks to their benefits communications are also more favorable toward voluntary benefits or benefits where the employee pays 100% of the cost.
  • A majority of employers and workers agree that existing communication efforts are not highly effective.




Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

«