Pensions Give Teachers an Incentive to Stay on the Job
Because of shared and predictable expenses, they also offer greater benefits than defined contribution plans, the National Institute on Retirement Security says.
Pensions are
a key tool for schools to offer to teachers, the National Institute on
Retirement Security (NIRS) says in a new report, “Win-Win: Pensions Efficiently
Serve American Schools and Teachers.” Pensions give teachers a tremendous
incentive to stay with their employer, benefitting the employer with a
professional with years of experience.
“Employers
looking for the best outcomes for their students thus should want to keep
dedicated and effective teachers in their jobs as long as possible,” NIRS says
in its report. “DB [defined benefit] pensions are a well-worn labor management
tool to achieve exactly this outcome.”
From the
teacher’s perspective, pensions offer higher and more balanced benefits than those
from a defined contribution plan, since expenses are shared and are predictable.
In addition, funds in the pension plan remain invested, even when a teacher
retires.
The higher benefits
are particularly true for lower-income and middle-income teachers, NIRS says. “The
data shows that income inequality is less for retirees with DBs than those
without DBs,” It adds, “DB pensions can help teachers prepare
for a decent standard of living in retirement, and they can do so more
effectively than DC plans. This is crucial, as Americans generally face a growing
retirement crisis” due to the fact that DC plans require Americans to take responsibility
to save for retirement.
The NIRS points out that
DB pensions in the public-sector encourage employees to save for their retirement; both employers and employees generally share
the cost, with both making contributions towards future benefits. The median employee
contribution rate was 6.0% in 2015 for state and local government employees who
also had Social Security, and 8.1% for those who were not covered by Social Security.
In comparison, in DC plans employees typically can choose how much to
contribute to a DC plan or they can choose to not contribute at all.
In addition, teacher
pensions make it easier to keep money in a retirement plan for retirement. In
most cases, teachers cannot access their retirement benefits before they are
retired. Only one state allows teachers to take out their own contributions in
a pension plan, but there are limits in doing so to ensure as much money as
possible goes towards retirement security. In comparison, DC plans often allow
for participants to take loans and hardship withdrawals.
Citing data from the National Retirement Risk Index (NIRI) from the Center for
Retirement Research at Boston College, NIRS notes that by 2013, the NIRI showed
that 52% of American households could expect to make cuts in their standard of
living in retirement.
NIRS says it issued this report as some school districts have moved partially
away from from DB plans. DC plans lead to higher turnover, NIRS says. However,
NIRS concedes that some public pension plans have been underfunded in recent years.
They have dealt with this by both increasing contributions and lowering
benefits, NIRS says.
In conclusion, NIRS says that schools should remain committed to DB plans while
managing “the long-term challenge [of] maintain[ing] these crucial benefits on
a sustainable basis by improving states’ pension funding through continued
increases in employer contributions.”
KBS Introduces Online Platform for Investment Trust; T. Rowe Price
Chooses Linedata to Oversee Net Asset Value; Columbia Threadneedle Presents
Target-Date Solution; and more.
KBS Introduces Online Platform for
Investment Trust
KBS debuted its
direct-access online platform—KBSDirect.com—for accredited investors and
advisers to invest in KBS Growth & Income Real Estate Investment Trust
(REIT), a professionally managed portfolio of institutional-quality commercial
real estate properties, with no load or upfront fees to investors. To date, the
REIT has three equity properties valued at approximately $150.4 million.
KBS
created KBSDirect.com to provide accredited investors and advisers
the opportunity to invest directly in KBS Growth & Income REIT, a
tax-efficient vehicle with access to risk-adjusted return profiles, the firm
says. With its 100% no-load feature and investor-aligned structure, KBS Growth
& Income REIT provides accredited investors and advisers with a real estate
investment vehicle that seeks to comply with the U.S. Department
of Labor (DOL) fiduciary rule.
“Across almost
every investment sector, online platforms have increased transparency and
reduced transaction costs,” says KBS Chairman Peter Bren. “KBSDirect.com
will save time for advisers and investors and opens a simplified, user-friendly
direct investment portal. This technology is a mega-shift in the investment
universe and makes KBS’s longstanding value proposition even more rapidly
accessible and appealing to advisers and accredited investors, with no upfront
loads or commissions to investors.”
The first investment
opportunity on the KBSDirect.com portal is KBS Growth & Income REIT
Inc., a public reporting, non-traded REIT with a targeted asset value
of $1 billion to $1.2 billion.
According to KBS CEO Chuck
Schreiber, the upfront fees and commissions have been eliminated
thanks to KBSDirect.com’s leading-edge technology.
“The innovative
structure of KBS Growth & Income REIT offered on KBSDirect.com ensures that
100% of the investor’s capital will be invested directly into the REIT,”
Schreiber says. “KBSDirect.com is consistent with our 25-year commitment to
deliver investment products that are aligned with the best interests of our
investors and that capitalize on our deep expertise and established track
record in local real estate markets nationwide. KBS, a national real estate
company, will be one of the first institutional-grade sponsors to offer
investors and advisers the opportunity to invest directly, through KBS’ online
portal, in real estate investments similar to those that have been made
available to KBS institutional investors for more than 25 years. These include
public pension funds, corporate pension funds and sovereign wealth funds.”
Accredited
investors in KBS Growth & Income REIT will participate in KBS’ national
real estate platform, which targets well-located assets in markets with strong
population and job growth, the firm says.
NEXT: T. Rowe Price Chooses Linedata to Oversee Net
Asset Value
T. Rowe Price Chooses Linedata to Oversee
Net Asset Value
Global solutions provider
Linedata announced that it has been selected by T. Rowe Price to deliver
comprehensive oversight to enhance T. Rowe Price’s net asset value (NAV)
across its range of investment offerings.
T. Rowe Price’s current
oversight processes and expertise will be further enhanced by automated
controls that systematically highlight exceptions and are scalable as its
business evolves, the two companies say says.
Linedata Navquest will offer
oversight, validation, testing and contingency for the full range of middle
office and fund accounting functions, developed from more than 70 customizable
controls, using a client’s own rules. Linedata Navquest will also have the
ability to highlight the specific NAV component that may be responsible for a
discrepancy, supporting remediation.
Cathy Mathews, treasurer of T.
Rowe Price funds, says, “NAV accuracy is of paramount importance.
Selection of Linedata Navquest reflects our commitment to provide accurate NAVs
to our customers by implementing an automated, scalable tool that will allow us
to target risks and continuously refine our oversight processes.”
Arnaud Allmang, head of asset management
North America at Linedata, says, “Linedata Navquest is in demand by leading
mutual fund managers because its robust, scalable and highly configurable
technology and tools for middle office and fund accounting oversight are
designed to flexibly solve the challenges of NAV control that today’s complex
investment firms must navigate.”
NEXT: Columbia Threadneedle Presents Target-Date
Solution
Columbia Threadneedle Presents Target-Date Solution
Columbia
Threadneedle Investments announced the launch of a new target-date solution for
the retirement marketplace, the Columbia Adaptive Retirement Series. Based on
the firm’s proprietary adaptive risk allocation methodology, the solution aims
to provide investors with capital appreciation and current income consistent
with the target retirement year while seeking to smooth the ride through
volatile markets.
In developing
this new retirement solution, Columbia Threadneedle says, it employed its
investment approach that allocates risk rather than capital in multi-asset
portfolios to provide stronger diversification benefits than does a traditional
target-date portfolio.
Risk allocation
seeks to distribute risk across four major asset classes: global equity, global
inflation-hedging assets, global interest rates and global spread assets.
Columbia Threadneedle incorporates this into several investment solutions, most
notably the Columbia Adaptive Risk Allocation Fund. According to the firm, the
methodology employs a rules-based market state classification designed to
identify exceptions to normal market conditions and offers the ability to
reallocate risk systematically and meaningfully as market conditions change.
Aligning portfolio allocations with the current market environment provides
investors with a potentially superior risk-return profile, the firm says.
The Adaptive
Retirement Series currently consists of five target-date funds (TDFs), spanning
the 2020, 2030, 2040, 2050 and 2060 vintages; five-year vintage funds may be
added at a later date. The funds seek exposure to a global portfolio of stocks,
bonds and inflation-hedging assets—commodities, TIPS [Treasury
inflation-protected securities] and real estate investment trusts (REITs). The
target-date funds offer competitive pricing, with a net expense cap of 0.50%
for zero-revenue-sharing Institutional 3 Class shares and 0.68% for Advisor
Class shares through July 31, 2019. The Adaptive Retirement Series is
available initially in a mutual fund and may become available subsequently in a
collective investment trust (CIT).
“We believe that
a risk-allocated investment offers a potentially superior risk-return profile
relative to a capital-allocated investment,” says Jeff Knight, global head of
investment solutions and senior portfolio manager at Columbia Threadneedle. “We
have designed a systematic process that determines when and how the investment
will respond to changing market conditions.”
The Adaptive
Retirement Series also offers an approach to the life-cycle concept of asset
allocation. Target-date strategies typically offer a glide path that
automatically reallocates assets to a more conservative profile as the target
retirement date approaches. Conventional target-date strategies reduce the
allocation to equities over time. This approach can lead to inferior
diversification at both ends of the glide path, with high concentration to
equity risk at one end and high exposure to interest rate risk at the other,
the firm explains. The Columbia Threadneedle solution is said to maintain a
diversified risk allocation throughout the life cycle, reducing aggressiveness
along the glide path without sacrificing asset-class diversification.
NEXT: Fidelity Debuts Short-Term Bond Funds and Share
Classes
Fidelity Debuts Short-Term Bond Funds and
Share Classes
Fidelity
Investments announced the launch of
the Fidelity Short-Term Bond Index Fund, a short-duration bond fund. The
company also introduced two lower-priced share classes—Institutional and
Institutional Premium classes—to three existing Fidelity bond index funds: Fidelity
Long-Term Treasury Bond Index Fund, Fidelity Intermediate Treasury Bond Index
Fund and Fidelity Short-Term Treasury Bond Index Fund.
“Fidelity
is committed to providing a choice of low-cost index options, and we continue
to build out that offering to meet investors’ needs, “says Colby Penzone, head
of investment product, Fidelity Investments. “With this new fund and the
addition of these two lower-priced share classes, we are reinforcing our
message to shareholders that we are firmly committed to providing them with
high‐quality index funds
that are among the lowest-cost in the market.”
According
to the company, Fidelity Short-Term Bond Index Fund seeks a high level of
current income consistent with preservation of capital by attempting to
replicate the performance of the Bloomberg Barclays U.S. 1 – 5 Year
Government/Credit Bond Index. It normally invests at least 80% of assets in
securities included in the index. Fidelity Short-Term Bond Index offers four
classes: Investor, Premium, Institutional and Institutional Premium.
Brandon
Bettencourt and Jay Small, who manage Fidelity’s existing bond index funds,
will also co-manage the Fidelity Short-Term Bond Index Fund.
With the launch of the new fund,
Fidelity now offers 22 competitively priced stock and bond index mutual funds,
the company says.
The investment minimums for
each of Fidelity’s four index mutual fund share classes are:
Investor: $2,500
Premium: $10,000
Institutional: $5 million
Institutional Premium: $100 million
NEXT: Victory Capital ETF Gives Exposure to High-Dividend
Emerging Market Stocks
Victory
Capital ETF Gives Exposure to High-Dividend Emerging Market Stocks
Victory Capital launched the VictoryShares Emerging
Market High Div Volatility Wtd ETF [exchange-traded fund] (CEY), which began
trading on the Nasdaq Stock Market today. The new ETF offers
exposure to high dividend-yielding emerging market stocks and seeks to provide
investment results that track the performance of the CEMP Emerging Market High
Dividend 100 Volatility Weighted Index, before fees and expenses.
“The CEMP index methodology
combines fundamental criteria and volatility weighting in an effort to
outperform traditional cap-weighted indexing strategies,” Victory Capital
explains. “Rather than weighting stocks by size, which results in concentration
in the largest companies in the index, the CEMP methodology weights stocks
based on volatility—standard deviation over the past 180 trading days. The goal
is to offer investors a more balanced approach to achieving broad market
exposure,” Victory Capital says. To be included in the index, a company must have
been profitable over the past four quarters.
“Investors seeking income now have the option to
further diversify their portfolios with dividend-yielding emerging market
stocks,” says Mannik Dhillon, president of VictoryShares and solutions. “With
many emerging market companies currently out-yielding their U.S. counterparts,
we believe it’s an appropriate time to consider a risk-conscious, tax-efficient
approach to investing in high income-producing emerging market equities.”
The VictoryShares platform includes 14 strategic beta
ETFs, 12 of which use a volatility weighted approach. VictoryShares’ three
inaugural volatility weighted ETFs achieved their three-year track record in
July and have earned 5-Star Overall Morningstar RatingsTM in their
respective categories as of September 30. The three inaugural ETFs are:
VictoryShares US 500 Volatility
Wtd ETF (CFA)
VictoryShares US 500 Enhanced
Volatility Wtd ETF (CFO)
VictoryShares US EQ Income
Enhanced Volatility Wtd ETF (CDC)
“We believe the simplicity
and efficacy of our volatility weighted methodology has resonated with
investors and contributed to AUM [assets under management] growth of
approximately 107% for our VictoryShares ETF platform year-to-date,” Dhillon
says.