In Practice August 8, 2008

One-Fourth of Sponsors Lack IPS

In a recent survey by Cowden Associates, 25% of defined contribution plan sponsors reported not having an investment policy statement (IPS).
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That number is a slight improvement, as the number of respondents who either did not have an IPS or did not know what their IPS contained dropped from 52% in 2007 to 41% in 2008, according to a press release of the results.

The survey also found the number of DC plan sponsors who implemented an automatic enrollment program jumped from 16% in 2007 to 25% in 2008. Automatic annual deferral rate increases also were more prevalent, jumping from 7% of employers who implemented the increases in 2007 to 10% in 2008.

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Top-Down Approach

Survey respondents said more senior executives are taking a direct role in decisions regarding their organizations’ 401(k) plans than in the past. According to the release, 94% of survey respondents indicated their senior executives are involved in the investment decisionmaking process, compared with 30% who said the same in 2007.

The survey also found more senior managers are serving on their organizations’ investment/retirement committees—taking responsibility for selecting and monitoring the investments offered in their plans, participating in any plan design changes, and overseeing plan service providers and their fees.

“Recent legislation, including the Pension Protection Act and the Supreme Court’s ruling that individuals can sue defined contribution plan sponsors who mismanage their funds, has been a real wake-up call for plan sponsors,” said Jim Bartoszewicz, executive vice president of Defined Contribution & Investment Advisory Services, in the release. “In just one year, we’re seeing a significant shift in the way defined-contribution plans are managed.”

More than 125 employers participated in the survey.

Products August 7, 2008

Principal Releases Retirement Income White Paper

A new white paper from the Principal Financial Group helps financial professionals guide their clients to a personalized retirement income strategy, the company said.
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The Principal said the white paper will give advisers an easy way to see the trade-offs and advantages of different retirement income methods to determine the best fit for a client. Sustaining Income through Retirement: Four Strategies for Retiring Clients compares and contrasts four key methods of turning retirement savings into an income stream:

  • mutual funds with automated income payments
  • variable annuities with guaranteed minimum withdrawal benefits (GMWB)
  • income annuities
  • combinations of mutual funds and income annuities

“Our analysis makes it clear there is no one-size-fits-all solution for creating and managing an income stream for life,’ said Drew Denning, vice president, Income Solutions at The Principal, in a press release. “Many financial professionals don’t have the time or tools to objectively and simply compare the myriad of income producing options. This white paper helps them determine which options—or combinations of options—best meet the unique needs of each of their clients.’

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The white paper evaluates each strategy against factors that impact income in retirement:

  • access to the account balance
  • potential for growth
  • inflation risk
  • market risk
  • guarantees (or lack thereof)
  • income predictability

The report is available at www.principal.com/research.

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