SSGA Merging TDF Series A Shares With I Shares

In a prospectus supplement filed with the Securities and Exchange Commission (SEC), State Street Global Advisors (SSGA) announced that effective upon the close of business on September 4, Class A shares of the State Street Target Retirement Funds will be closed to purchases by new shareholders; however, Class A shares of the funds may continue to be offered through financial intermediaries that currently have relationships with the funds and to current shareholders having accounts directly with the funds.

Effective upon the close of business on October 5, the funds will no longer accept orders from existing shareholders, including Intermediaries, to purchase additional Class A shares. According to the filing, effective on or about October 12, all existing Class A shares of each fund will be combined with Class I shares of the same fund by converting Class A shares to a number of Class I shares having a net asset value equal to the net asset value of the Class A shares subject to the conversion.

In a previous filing, the firm also announced waivers for A, I and K share classes of its Target Retirement fund series. The series included funds in 11 vintages as well as a Retirement Income fund.

Greg Porteous, head of defined contribution intermediary distribution at SSGA based in Boston, explains for PLANADVISER that for the K share class, which has no sub-TA fees or 12b-1 fees, the total expense ratio will be 9 basis points (bps) as of September 4, down from 13 bps. For the I shares, which have no 12-b1 fees but do have sub-TA fees, which are paid to recordkeepers to offset expenses, the total expense ratio as of September 4 will be 29 bps.

Another difference between K shares and I shares is the investment minimum. The K shares have an investment minimum of $10,000, while the I shares have an investment minimum of $1 million. But Porteous says these minimums can be waived for many recordkeeping partners based on way they trade.

Porteous notes that, in the defined contribution (DC) retirement plan market, there is a trend in providers lowering investment fees, offering no- or low-fee share classes. Fees are becoming more transparent to retirement plan participants. This is one impetus for SSGA’s move.

In addition, he says, in the four years since the State Street Target Retirement fund series has been available, they have generated $5.8 billion in assets, only $10 million of which are in A shares. He cites a Cerulli Associates report that found in 2017, A shares accounted for only 11% of assets in the institutional space in 2017, while I shares accounted for 84%.

Porteous agrees that most of State Street’s Target Retirement fund users are DC plan investors, but that is not to say some are not in individual retirement account (IRA) taxable account investors.

He sees all this as a way to attract more 403(b) plan clients for two reasons. “Up to four years ago, we couldn’t play in that market because we only used collective investment trusts, or CITs, which 403(b)s are not allowed to invest in, but in the past four years, since we’ve been using mutual funds in our Target Retirement fund lineup, we have been working in that market,” he says. “Also these plans struggle with having more expensive funds, and we can be super competitive on fees in that marketplace. Spending more time in [the 403(b) plan] market is a focus for us.”