assessing investment advice provided to participants in defined contribution retirement plans n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Assessing Investment Advice Provided to Participants in Defined Contribution Retirement Plans PowerPoint Presentation
Download Presentation
Assessing Investment Advice Provided to Participants in Defined Contribution Retirement Plans

Loading in 2 Seconds...

play fullscreen
1 / 16

Assessing Investment Advice Provided to Participants in Defined Contribution Retirement Plans - PowerPoint PPT Presentation


  • 84 Views
  • Uploaded on

Assessing Investment Advice Provided to Participants in Defined Contribution Retirement Plans. Spring 2010 Brian Bell Christopher Denney Brian Quinn Lillian Shields Holden Weisman. Overview. In this presentation, we will... Explain our research question Provide background information

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Assessing Investment Advice Provided to Participants in Defined Contribution Retirement Plans' - colin


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
assessing investment advice provided to participants in defined contribution retirement plans

Assessing Investment Advice Provided to Participants in Defined Contribution Retirement Plans

Spring 2010

Brian Bell

Christopher Denney

Brian Quinn

Lillian Shields

Holden Weisman

overview
Overview

In this presentation, we will...

  • Explain our research question
  • Provide background information
  • Discuss our four key findings
  • Highlight recommendations for further research
slide3

Research Question

  • Study commissioned by the Government Accountability Office 
  • What is the status of investment advice available to participants in defined contribution retirement plans?
    • Sources of advice?
    • Level of participant comprehension?
    • Level of utilization of advice?
    • Extent to which advice affects investment outcomes?
slide4

Background

  • Recent shift from defined benefit plans to defined contribution plans 
  • Structure of a defined contribution plan
deficiencies in retirement savings
Deficiencies in Retirement Savings
  • Assumptions for determining “adequate” retirement savings
  • Average account balances lower than recommended
  • Why are balances low?
    • Low contribution rates and plan design
    • Mistrust of financial institutions 
    • Failure to rebalance
    • Responses to market shocks
legal structure
LegalStructure
  • Employee Retirement Income Security Act of 1974  (ERISA)
    • Fiduciary duties
    • Prohibited transactions
  • SunAmerica Opinion - 2001
  • The Pension Protection Act of 2006 (PPA)
      • Fee-leveling
      • Computer model
      • Regulations pending
findings
Findings
  • Goals of the report
    • Identify issues and concerns
    • Present opportunities for future research
  • Methodology
      • Interviews
      • Literature review
finding 1 participants receive advice from a variety of sources
Finding 1: Participants Receive Advice From a Variety of Sources
  • Lack of research on sources of investment advice
  • Participants receive advice from a variety of sources
    • Human Resources
    • Peers - informal advice
    • Online sources
    • Financial advisors
finding 2 women and participants with higher incomes are more likely to seek advice
Finding 2: Women and Participants With Higher Incomes Are More Likely to Seek Advice
  • Lack of research on participant willingness to seek advice
  • Demographic groups who are more likely to seek advice:
    • Women
    • Participants with higher incomes
    • Increases with age
    • Participants with more education
finding 3 most participants have a poor understanding of fees
Finding 3: Most Participants Have a Poor Understanding of Fees 
  • Most participants do not fully understand:
    • What fees are charged
      • - Fees are not itemized
      • - Fees are expressed as an expense ratio
    • The significant effect fees have on returns
finding 3 continued most participants have a poor understanding of fees
Finding 3 (continued): Most Participants Have a Poor Understanding of Fees
  • Many employers also do not fully understand vendor fees
  • Most plan sponsors do not use a level of services commensurate with the fees charged
  • Some evidence suggests that plan sponsors are attempting to reduce their fees
finding 4 effect of investment advice on plan outcomes is ambiguous
Finding 4: Effect of Investment Advice on Plan Outcomes Is Ambiguous
  • Hewitt Associates study: advice has a large, positive effect on outcomes
  • RAND: automatically provided advice has negligible impact
  • Long term effects of target date and target risk funds have yet to be determined
  • Some evidence suggests that plan sponsors are improving plan design to increase plan assets
conclusions the big picture
Conclusions: The Big Picture
  • Lack of data and standardized research methodology 
  • Lack of access to adequate advice
  • No standardized process for receiving advice
  • Many participants lack basic financial literacy skills including understanding the impact of fees
  • Automatically provided advice is not effective
  • The importance of plan design 
recommendations for further study
Recommendations for Further Study
  • Standardized methodological approach
  • Advice sources and effectiveness
  • Final Pension Protection Act regulations
  • Financial literacy
  • Post-retirement advice
    • Portability of DC plans
    • Effectiveness of changes at different levels
    • Plan sponsor vs. participant  
many thanks to
Many Thanks to...
  • Government Accountability Office
      • Sharon Hermes
      • Anjali Tekchandani
      • Amber Yancey-Carroll 
  • UW-Madison La Follette School of Public Affairs
      • Andrew Reschovsky
      • Karen Holden
      • Karen Faster
  • UW-Madison Department of Consumer Sciences
      • Rob McCalla
      • Michael Collins
  • Hewitt Associates
      • Yan Xu