Focused on Keeping Your participants on target
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Focused On Keeping Your Participants On Target Target Retirement Funds tate Street Global Advisors Target Retirement Funds offer plan S sponsors an ideal default fund option for their plan’s investment menu. A thoughtfully calibrated glidepath, strategic forecasts and broadly diversified sub-asset class exposure are key elements in a well-designed target date solution that can help your participants achieve their retirement goals.
Target Retirement Funds
The Cornerstone of
Your Investment Menu
While saving for retirement can be simple,
investing those savings can be more complex. As
86%
a plan sponsor, you recognize the importance of
effectively managing the key investment risks
associated with retirement—shortfall, longevity,
volatility and inflation. Next it is important to
of dc plan sponsors offer establish and maintain a proper asset allocation
target date funds that is aligned with an individual’s investment
time horizon and risk tolerance. You know this.
But do your participants know and understand
this? And can they do it?
Finding the Right Funds
Now that defined contribution plans are replacing defined
benefit plans as the primary retirement savings vehicle,
for Your Plan
most individuals bear the responsibility to both save and
invest for their retirement. At State Street Global Advisors
(SSGA), we believe that target date funds can help address
most of the complex and challenging investment decisions A full 86% of DC plan sponsors offer target date funds.1 While
participants must face as part of their retirement planning. there is a wide selection of target date funds available in the
While participants must take responsibility for setting marketplace today, funds with similar retirement horizons
their retirement goals, a well-designed target date fund have taken very different approaches to asset allocation design.
solution can help them get there by effectively managing Performance results during the financial crisis that began in
against the key retirement risks, ensuring a disciplined 2008 revealed significantly different risk profiles among
approach to asset allocation and delivering diversified target funds, especially those designed for participants
portfolios for participants. nearing retirement.
2 1 AON Hewitt: 2013 Trends & Experience in Defined Contribution Plans.Managing Risk in a Down Market
performers. When managing risk was most important, some
funds did a much better job.
With all of this in mind, we believe that plan sponsors who offer
The market crisis of 2008 reinforced the need for glidepath target date funds, or are considering adding them to their plans,
designs and asset allocation strategies that effectively balance must focus more time and attention on understanding the
preserving wealth and maximizing wage replacement potential design and structure of the funds to ensure that they are aligned
as participants approach retirement. Among the Morningstar with the plan’s investment philosophy. You also need to be able
universe of 2000 to 2010 target date funds designed for to explain to your participants how these funds work and how
participants on the cusp of retirement, there was a 16 percentage individuals can select a fund that best meets their needs.
point difference separating the top decile and bottom decile
Morningstar Universe of 2000–2010 Target Date Funds
2008 Performance by Decile
Investment Performance (%)
0
-5
-10
-14.90
-15
-19.20
-22.43 -24.96
-20
-25.81 -27.06
-25 -27.73 -29.76 -30.72
-30
-35
TOP DECILE BOTTOM DECILE
Source: FactSet Research Systems-Morningstar. Period January 2008 to December 2008. Past performance is not a guarantee of future results.
The information contained here is intended for illustrative purposes only. © 2011 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary
to Morningstar and/or its content providers; (2) may not be copied or distributed; (3) does not constitute investment advice offered by Morningstar; and (4) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Target Date Funds Fit for Retirement
At SSGA, our Target Retirement Funds are designed to:
• Manage the key risks that participants face over time, • Create diversified portfolios for participants with exposure
which include shortfall, longevity, volatility and inflation. to a broad range of cost-effective equity and fixed income
asset classes.
• Ensure a disciplined approach to asset allocation with
strategic forecasts and rebalancing.
3Target Retirement Funds
Designed with Your
Participants’ Needs in Mind
Selecting a default investment option is one of the most important
decisions you’ll make as a plan sponsor. At State Street Global Advisors,
our starting point for designing target retirement funds was to put
ourselves in the shoes of retirement plan participants. By focusing on
participants’ evolving investment objectives, we arrived at a strategic
balance between capturing market returns and managing risk.
Ultimately, the goal is to help participants replace the income from
their working wages in retirement.
A Better Investment Solution for
SSGA Target Retirement Funds gradually move from a wealth
accumulation focus during the working years to a wealth
Participants
preservation strategy as retirement approaches. Five years
after the retirement date, the SSGA Target Retirement Funds
emphasize income generation and wealth protection with a fixed
Our glidepath is designed to better manage the primary index allocation of 65% bonds, 26.5% stocks, 3.5% commodities
investment risks that participants may face over time, including and 5% global real estate (REITs).
shortfall, longevity, volatility and inflation. We also employ
strategic forecasts to ensure a disciplined approach to asset
allocation and ensure that as markets evolve, so will our
product design. Finally, our index-based approach to building A Value-Added Relationship for
institutional-quality portfolios is designed to keep costs low
while offering participants the attractive growth potential of
domestic and international markets.
Plan Sponsors
To help you provide the best possible plan to your participants,
As a result, we believe our funds are among the most well-
we also offer the support you need for plan design and
diversified suites of all index-based target date funds in the
participant communications when considering any changes
marketplace today. We launched our first target retirement
to your investment lineup. The selection of target date funds
funds in 1995; as of September 30, 2014, we manage $137.6
must be made within the context of your overall investment
billion in multi-asset class portfolios. Our extensive experience
menu and your participants’ needs. To maximize participation
working with plan sponsors and institutional investors
in your plan, we offer a results-driven communication approach.
translates into meaningful results for participants. We provide
It engages and motivates your participants and helps them select
access to top-quartile target date funds that manage risk at
the right funds based on their retirement goals. We maintain an
crucial points in participants’ savings trajectories, helping to
ongoing relationship with your firm, your investment committee
keep them on track to meet their retirement goals.2
and your benefits team for the life of your relationship with State
Street Global Advisors.
4 2
SSGA Target Retirement Performance Update, March 2014.GlidePath Construction: Optimal at All Points
5 Years
30 Years after Retirement
Investment Mix Percentage (%) from Retirement (Income Strategy)
100
90
80
70
60
50
40
30
20
10
0 -45 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10
Years to Retirement Years after Retirement
■ U.S. Large Cap Equities ■ Real Estate (REITs) ■ High Yield Bonds
■ U.S. Small/Mid Cap Equities ■ Commodities ■ Long-Term Government Bonds
■ International (ACWI-ex US IMI) ■ TIPS ■ Barclays Aggregate Bond Index
■ Intermediate TIPS ■ 1-3 Government/Credit Bonds
Percentages are effective as of July 1, 2014. The information contained here is for illustrative purposes only.
Managing Fiduciary Risk by Focusing on Participant Needs
Initial Investment Working Years Nearing Retirement and Beyond
What is the right portfolio for young How do we evolve risk in a measured What is the right portfolio for those
investors? How do we maximize way while increasing the probability nearing retirement? How do we reduce
return and account for the duration of achieving retirement security? volatility, protect against inflation and
of future liabilities? support extended withdrawals?
5Target Retirement Funds
Risk-Managed Portfolios
Keep Participants on Track
The design and construction of your target date funds can play a
significant role in helping your participants achieve their ultimate
objective—enjoying a comfortable retirement. The overall objective
of our target retirement funds is to provide a high level of real income
replacement in retirement while easing the impact of short-term
volatility on those at, or near, retirement. Our funds are designed to
help participants stick with their selected target date funds over time
and through a broad range of market conditions.
Graduated Approach Maximizes Broad Sub-Asset Class Exposure
Risk-Adjusted Wealth Creation to Better Manage Risk
Our glidepath is designed to address the most common risks In terms of managing our glidepath, we not only adjust the
that participants face in their workforce savings plans, including equity/fixed income mix over time, we also adjust our exposure
shortfall, longevity, volatility and inflation. We target higher to key sub-asset classes to create more efficient portfolios. With
levels of growth when the time horizon is long and participants access to a wider range of asset classes, participants benefit
are able to weather short-term market downturns. Then, in from a truly institutional approach to diversification. Greater
their later years, when wealth and consumption preservation diversification typically offers participants significant benefits,
are increasingly important, we strive to manage volatility and including reducing risk, dampening volatility and providing the
inflation more aggressively while achieving more moderate potential to maximize returns over time.
levels of growth.
Strategic Forecasts Offer Better Management Over
Optimized Asset Allocation Equity Risks
Rather than using a broad-based index, we carefully manage
Asset allocation is the primary driver of long-term investment our equity market cap exposures for each strategy, targeting
performance. Recognizing the importance of identifying the overweights and underweights for small-, mid- and large-cap
optimal asset mix, we generate strategic forecasts for each stocks at various points along the glidepath. In the early years,
asset class and incorporate those forecasts into our portfolios. the equity portion of our funds is structurally weighted toward
Combining extensive proprietary macroeconomic research more growth-oriented equity capitalizations, such as small-
with decades of managing institutional portfolios helps us and mid-cap stocks. In the later years, as participants approach
determine the most efficient long-term asset allocation for retirement, we systematically reduce risk within the equity
our target retirement funds. portion of our funds by underweighting our exposure to small-
and mid-cap stocks.
6SSGA Systematic Risk Reduction Policy
Forecast Risk
16
12
8
Graduated slope to account for
estimation error around projected Meets longevity targets
retirement date and maximize and seeks to protect past
4 wealth accumulation the point of recovery
0 45 40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30
Investment Time Horizon
GRADUATED RISK (SSGA) LINEAR RISK
SSGA looks to maximize return in early years and preserve capital as a participant Approaches that reduce risk linearly assume that an investor’s tolerance
nears retirement by following a graduated approach to risk reduction for risk is a constant function of age
Actual returns and risks will vary. The information contained here is for illustrative purposes only.
Laddered Approach to
Managing Duration
We are equally attentive to our fixed income holdings. Rather
than using an aggregate bond index, we manage duration in
our fixed portfolios based on participants’ time horizons
and need for capital preservation. As the funds move toward
their target retirement dates, the duration level of the fixed
income allocation is gradually reduced. For additional risk
protection, we also increase the sector diversification within
our fixed income allocation as the funds approach their target
retirement dates.
7Target Retirement Funds
Asset Allocations: SSGA Target Retirement Funds
Target Retirement Fund 2055 2050 2045 2040 2035 2030 2025 2020 2015 2010 Income
Years to retirement 40.5 35.5 30.5 25.5 20.5 15.5 10.5 5.5 0.5 -4.5 -5.0
US Large Cap stocks
35.9 35.9 35.9 35.7 35.0 33.7 31.3 27.0 20.6 14.5 13.8
S&P 500® Index
US Small/Mid Cap Stocks
16.0 16.0 16.0 15.3 13.0 10.9 8.8 6.5 4.1 2.7 2.6
Russell Small Completeness® Index
International stocks
34.6 34.6 34.6 34.0 32.0 29.7 26.7 22.0 15.7 10.6 10.1
MSCI ACWI ex USA IMI Index
Equities 86.5 86.5 86.5 85.0 80.0 74.3 66.8 55.5 40.4 27.8 26.5
US Aggregate Bonds
– – – 1.5 6.5 11.0 13.3 18.0 25.0 20.5 20.0
Barclays U.S. Aggregate Bond Index
Long Term Government Bonds
10.0 10.0 10.0 10.0 10.0 10.0 10.0 5.5 0.5 – –
Barclays U.S. Long Gov't Bond Index
Short Term Government Credit Bonds
– – – – – – – – 1.3 17.5 20.0
Barclays U.S. 1-3 Yr Gov't/Credit Bond Index
High Yield Bonds—Barclays U.S. High Yield Very
– – – – – 0.8 3.8 6.0 6.8 7.0 7.0
Liquid Bond Index
TIPS—Barclays U.S. Treasury Inflation Protected
– – – – – 0.4 2.7 9.2 – – –
Securities (TIPS) Index
Intermediate TIPS—Barclays 1-10 Year U.S.
– – – – – – – – 17.8 18.8 18.0
Treasury Inflation Protected (TIPS) Index
Fixed Income 10.0 10.0 10.0 11.5 16.5 22.3 29.8 38.7 51.4 63.8 65.0
Real Estate (REITs)
– – – – – – – 2.3 4.8 5.0 5.0
FTSE EPRA/NAREIT Developed Liquid Index
Commodities
3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5
Bloomberg Roll Select Commodity Index
Alternatives 3.5 3.5 3.5 3.5 3.5 3.5 3.5 5.8 8.3 8.5 8.5
Allocations are as of July 1, 2014, are subject to change, and should not be relied upon as current thereafter.
8Common Risks
Facing Participants
Shortfall Risk
Will participants have
enough money to fund
their retirement?
Longevity Risk
Will participants outlive
their assets in retirement?
Volatility Risk
Will market downturns affect
the value of participants’
retirement portfolios?
Inflation Risk
Will participants lose purchasing
power from their retirement
portfolios over time?
9Target Retirement Funds
Preserving Wealth
When it Matters the Most
Our funds have been road tested in extreme market conditions. Building
on this experience, we are sensitive to the risks facing participants in the
critical post-retirement years. As highlighted below by the disparity in
2008 performance between the top and bottom quartile target date funds
in the Morningstar universe, managers have taken varying approaches to
glidepath and asset allocation design.
Morningstar Universe of Target Date Funds: 2008 Performance
Investment Performance (%)
15
10 6.60% 9.21%
5 3.11%
0
-5
-10
-15 -13.78%
-20
-25 -21.67% -22.99%
-30
-28.27%
-35
-40 -37.60%
-45 -40.71%
2050 UNIVERSE 2010 UNIVERSE INCOME UNIVERSE
■ Top Quartile ■ Bottom Quartile ■ (+/-%)
Source: FactSet Research Systems-Morningstar. Period January 2008 to December 2008. Past performance is not a
guarantee of future results.
The information conveyed here is intended for illustrative purposes only. © 2011 Morningstar, Inc. All Rights Reserved.
The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied
or distributed; (3) does not constitute investment advice offered by Morningstar; and (4) is not warranted to be
accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses
arising from any use of this information.
This chart represents the extreme end points of the Morningstar universe of target date funds, with 2050 funds
typically the most aggressive, and 2010 and income funds typically the most conservative.
10Protection for Participants Indexing Keeps Costs Low
Approaching Retirement Keeping investment management fees low helps your
participants keep more of what their portfolios earn over
To protect participants’ income potential as they begin making time. With a broad range of fees associated with target date
withdrawals, we continue to make adjustments to our asset funds in the marketplace today, we are committed to offering
allocation strategies as participants approach their expected plan sponsors low-cost, high-quality investment strategies.
retirement dates. Beginning seven years before the retirement
date and continuing for five years after, stock allocations are
more rapidly reduced while bond durations continue to be
shortened. The goal is to protect accumulated wealth and
position the portfolio for long-term fixed withdrawals without
the benefit of further contributions.
The Higher the Savings Rate, the Greater the Opportunity Cost of Higher Fees
context A participant begins her career at a starting salary of $45,000, which grows at an annual rate of 2% until retirement 40 years later. The chart illustrates the difference
in accumulated savings from saving 4%, 8% or 12% each year and annual returns of 7% in a 17-basis point (bps) fee product versus one with 103 bps.
Savings Rate
12% $271,866
8% $181,244
4% $90,622
$0K $200K $400K $600K $800K $1,000K $1,200K $1,400K $1,600K
■ Balance with Industry High Fee (103 bps) ■ Balance with Industry Low Fee (17 bps) ■ Opportunity Cost
Actual results may differ by individual. The information contained here is for illustrative purposes only.
11Target Retirement Funds
Ensuring the Right Fit
for Your Plan
Our standard target retirement funds provide plan sponsors of all
sizes with cost-efficient, proven investment solutions. If you’d like
a more tailored approach to fund design to serve the specific needs
of your employees, we can help you assess if customized target date
solutions may be appropriate for your plan.
The Support You Need
facing nearly all plan sponsors. That’s why we’re available to
collaborate with your benefits team to take a close look at the
to Meet Your Goals
needs of your employees and design communication campaigns
that produce results. Incorporating an understanding of
behavioral finance with our creative approach produces
After listening carefully to what you want to accomplish, we’ll communication campaigns that really speak to the different
work with you to determine how to best construct target date needs of your employees and motivate immediate action.
funds that align with your plan’s investment philosophy and
the needs of your participants. Our dedicated client engagement
team will help ensure a smooth conversion to, or introduction
of, target date funds in your plan. Once new funds have been Evaluating Your
introduced to your menu, we maintain an ongoing dialogue
with you about your needs and help you assess when updates
to your investment menu may be worth considering.
Target Date Fund Needs
As a plan sponsor, you expect best-in-class investment solutions
for your defined contribution retirement plan. If you’re
Empowering Participants to
considering adding or replacing target date funds in your
investment menu, find out how SSGA Target Retirement
Make Informed Choices
Funds can help your participants better meet their retirement
objectives. Offering a distinct glidepath design and asset
allocation strategies, broad diversification and low-cost,
When it comes to measuring the success of your plan, index-based solutions, SSGA Target Retirement Funds may be
participant communications are just as important as your an ideal choice to meet your plan’s objectives and the needs of
investment menu. At SSGA, we recognize that engaging, your participants. Contact SSGA today to learn more about our
motivating and empowering employees is a universal challenge target date fund solutions.
12Considerations
For Plan Sponsors Standard Approach Ssga’s Approach
Glidepath Linear Nonlinear, with more emphasis on risk management
and maximizing wage replacement potential
Asset class diversification Stock/bond mix Stock/bond mix, plus thoughtful diversification by
sub-asset classes
Inflation protection Marginal real asset exposure Meaningful exposure to TIPS, REITS and commodities—
increasing into retirement
Investment menu lineup Consider target date funds Consider how target date funds fit within your
as a stand-alone option entire investment menu
Matching participants with Time horizon Time horizon and risk tolerance
appropriate target date fund
The information shown in this chart is intended for illustrative purposes only.
13For more than three decades, State Street Global Advisors (SSGA) has been on a mission to help our clients and the millions who rely
on them achieve financial security. With more than $2.4 trillion* in assets, we partner on a daily basis with many of the world’s largest
and most sophisticated investors, providing a disciplined, research-driven investment process and powerful global platform spanning
asset classes across the indexing and active spectrums to help them reach their goals.
SSGA is the investment management arm of State Street Corporation.
*This AUM includes the assets of the SPDR Gold Trust (approx. $30.1 billion as of September 30, 2014), for which State Street Global Markets, LLC, an affiliate of State Street Global Advisors,
serves as the marketing agent. Please note that AUM totals are unaudited.
For more information about Defined Contribution email definedcontribution@ssga.com
For Plan Sponsor Use Only
ssga.com/definedcontribution
This material is solely for the private use of the Plan Sponsor and is not intended for The MSCI ACWI ex USA IMI Index is a trademark of MSCI Inc.
public dissemination. Standard & Poor’s (S&P) 500® Index is a registered trademark of Standard & Poor’s
Asset Allocation may be used in an effort to manage risk and enhance returns. It does Financial Services LLC.
not, however, guarantee a profit or protect against loss. Risk associated with equity Investing in REITs involve certain distinct risks in addition to those risks associated
investing include stock values which may fluctuate in response to the activities of with investing in the real estate industry in general. Equity REITS may be affected by
individual companies and general market and economic conditions. Although bonds the value of the underlying property owned by the REITs, while mortgage REITS may
generally present less short-term risk and volatility risk than stocks, bonds contain be affected by the quality of credit extended. REITs are subject to heavy cash flow
interest rate risks; the risk of issuer default; issuer credit risk; liquidity risk; and dependency, default by borrowers, and self liquidation, especially mortgage REITS,
inflation risk. Investments in mid-sized companies may involve greater risks than in are also subject to interest rate risk (i.e., as interest rates rise, the value of the REIT
those of larger, better known companies, but may be less volatile than investments may decline).
in smaller companies. Investments in small-sized companies may involve greater
Investing in high yield fixed income securities, otherwise known as junk bonds is
risks than in those of larger, better known companies.
considered speculative and involves greater risk of loss of principal and interest
Diversification does not ensure a profit or guarantee against loss. than investing in investment grade fixed income securities. These lower-quality
Source: Barclays POINT/Global Family of Indices. © 2013 Barclays Capital Inc. debt securities involve greater risk of default or price changes due to potential
Used with permission. changes in the credit quality of the issuer.
SSGA Target Date Funds are designed for investors expecting to retire around the Investing in foreign domiciled securities may involve risk of capital loss from
year indicated in each fund’s name. When choosing a Fund, investors should consider unfavorable fluctuation in currency values, withholding taxes, from differences in
whether they anticipate retiring significantly earlier or later than age 65 even if such generally accepted accounting principles or from economic or political instability
investors retire on or near a fund’s approximate target date. There may be other in other nations. Investments in emerging or developing markets may be more
considerations relevant to fund selection and investors should select the fund that volatile and less liquid than investing in developed markets and may involve exposure
best meets their individual circumstances and investment goals. The funds’ asset to economic structures that are generally less diverse and mature and to political
allocation strategy becomes increasingly conservative as it approaches the target systems which have less stability than those of more developed countries.
date and beyond. The investment risks of each Fund change over time as its asset The views expressed in this material are the views of SSGA Defined Contribution
allocation changes. through the period ended October 31, 2014 and are subject to change based on
Assumptions and forecasts used by SSGA in developing the Portfolio’s asset market and other conditions. This document contains certain statements that may
allocation glide path may not be in line with future capital market returns and be deemed forward-looking statements. Please note that any such statements
participant savings activities, which could result in losses near, at or after the are not guarantees of any future performance and actual results or developments
target date year or could result in the Portfolio not providing adequate income may differ materially from those projected.
at and through retirement.
© 2014 State Street Corporation. All Rights Reserved.
ID2605-DC-1811 1114 Exp. Date: 11/30/2015You can also read
