TARGET-DATE FUNDS - A FIDUCIARY PERSPECTIVE

Presented by: Jeff Hale, AIFA® Senior Consultant Pentegra Retirement Services June, 2011

TARGET - DATE FUNDS

 Target-date funds found prosperity with the Pension Protection Act of 2006 (PPA) -PPA created a simple and elegant plan design that addresses two critical issues of 401(k) plans - Low participation - Proper asset allocation of investments -For low participation, PPA validates automatic enrollment -For asset allocation, PPA provides target -date default funds based on age

POSITIVE OUTCOMES FOR PARTICIPANTS & PLAN SPONSORS

 PPA helps participants overcome the disconnect  Target-date fund selection based on age ensures proper asset allocation  Gives participants a greater chance of meeting retirement income needs  PPA offers a safe harbor design of automatic enrollment  Qualified Automatic Contribution Arrangement  Target-date funds are now a QDIA  Provides fiduciary protection

TARGET-DATE FUNDS WIDESPREAD USE

 The 53rd Annual PSCA survey shows 57% of plans with auto enrollment utilize target-date funds  2010 study of 2,000 DC plans indicate 29% of participants investing 100% into TDFs or similar funds  $270 billion invested in TDFs  Key issues raised based on the recent market downturn  Question plan fiduciaries need to ask

“TO” VS. “THROUGH”

 Does the TDF manage “to” a retirement date or “through” a retirement date  Recent market downturn caught many by surprise  A “to” strategy works best for those who withdraw their money out of the plan at retirement  A “through” strategy works best for those who leave the money in the plan at retirement  Understand the equity landing point

INVESTMENT MANAGEMENT APPROACH

 What style of management is utilized?

 Active vs. Managed  Tactical vs. static allocation  Focus on Market Risk or Inflation Risk

AN EYE ON FEES

 Early on, fund of funds got a bad name  Double dipping of fees  Reasonable fees relative to peers

MANAGEMENT CONCENTRATION

 Focus on the quality of the manager  Indexed based TDFs have less risk associated with management concentration  Looking under the hood  Evaluating the underlying investments

BENCHMARKING

 Tricky proposition for plan fiduciaries  TDFs are relatively new and lack long-term track records  Variance in glide paths make it difficult to find the right benchmark  Variance in underlying asset classes cause a similar problem  Many firms working on new benchmarks  Blended benchmark approach  Focus on risk adjusted return

WHICH TDF IS RIGHT FOR YOUR PARTICIPANTS

 Understanding the demographic of your participants  Do they cash out at retirement or keep money in the plan  How are the plan assets distributed among the single asset class funds?

 A plan fiduciaries biggest sin ………  Not engaging in the process - Organize - Finalize - Implement - Monitor

THE PENTEGRA ADVANTAGE

 As ERISA-named plan administrator and principal fiduciary for more than six decades  Pentegra offers comprehensive fiduciary relief and consulting services to help your organization cultivate a culture of fiduciary responsibility  Think about how your company handles its fiduciary responsibility

ABOUT THE SPEAKER

Jeff Hale, AIFA®

is a Senior Consultant in Southeast Region for Pentegra Retirement Services. Prior to this position, Jeff was an Assistant Vice President for a leading benefits consulting group where he successfully managed $250 million dollars in corporate and public pension plans. Prior to that, Jeff spent nearly a decade as a Vice President at a large Wall Street brokerage firm and provided global account leadership for $1.2B in retirement plan assets. Jeff has more than 15+ years of experience in all aspects of employee benefits and retirement planning, with special emphasis on the design, funding, security, administration and implementation of qualified and nonqualified retirement programs. Jeff has worked with many public and private corporations on the coordination of retirement benefits and fiduciary compliance. Jeff holds an M.A. in Organizational Communication from the University of Wisconsin, a B.A. in Psychology from the University of South Florida. He is an Accredited Investment Fiduciary Analyst and holds the FINRA 7, 63 and 66 licensures, among other distinctions.