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Participant Preferences in Target Date Funds
Presenter Name, Title*Date, Presentation Location
*Broker / Dealer disclosure if presented by a registered representative
C12-0215-009 (2/2012)
C12-0104-058 (01/12)
This paper has been prepared by the ING Investment Management and the ING Institute for Retirement Research for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults (5) changes in laws and regulations and (6) changes in the policies of governments and/or regulatory authorities.
The opinions, views and information expressed in this commentary are subject to change without notice based on market conditions and other factors. The information provided is not a recommendation to buy or sell any security.
Products and services are offered through ING family of companies. Please log on to www.ING.com/us for information regarding other products and services offered through ING family of companies. Not all products are available in all states.
© 2012 ING Investments Distributor, LLC – 230 Park Avenue, New York, NY 10169 , ING North America Insurance Corporation , One Orange Way, Windsor, CT 06095
IMPORTANT INFORMATION
3
2011F 2015E
Other
Stable Value
Fixed Income
Equity
Balanced / Target Risk
Target Date
12%
16%
38%
10%
11%
13%5-7%
6-8%
20-25%
15-20%
35-40%
7-10%
Source: ICI, EBRI, PSCA, McKinsey; McKinsey projects traditional target-date funds will represent 35-40% of all DC assets by 2015, or 60% if balanced and target-risk suites are included.
$4.1T $5.4 - $6.0T
Defined Contribution Assets
PPA / QDIA: Targets become main dish on investment menus
4
Target Date Use
Intended Actual
5
Asset Allocation at “Target Date”
2020
2020
2020
6
Unique Look at a Unique Fund Option
Different Kind of Option
Participant View
7
Study Details
ING Investment Management and the ING Retirement Research Institute commissioned an online survey to better understand Defined Contribution (DC) plan participant preferences in and expectations of Target Date Funds
540 DC Plan Participants responded to the survey. • All respondents are currently contributing to an employer-sponsored retirement plan
(ESRP), age 25+ and are a primary/joint financial decision maker for their DC plan. • 212 use target-date funds within their ESRP (“Users”)• 328 do not use target-date funds (“Non-users”)
• Respondents who choose not to use a target-date fund within their plan (43)• Respondents who don’t have a target date available in their plan (285)
Data is weighted on household income and gender within the total sample.
The study was conducted in September, 2011, by Synovate
↑↓ Indicates significantly higher or lower Target Date-User vs. Non-user response at the 90% confidence level; at the 90% confidence level, the margin of error in the study was +/- 3%
Retirement - Insurance - Investments 8
Time, Comfort and Confidence
Many retirement plan participants – particularly those who do not use Target-date funds – indicate they lack the time, comfort and confidence to actively manage their retirement investment.
Target-date funds may provide a solution
9
TDF Users More Comfortable about Investment Allocation
TDF-users Non-users
13% 22%
49% 44%
19%9%
68%
53%
Agree Top Box Second Box
“I am comfortable deciding how much to invest in each investment option in my employer-sponsored retirement plan.”
↑
↓
↑
10
TDF Users Feel They Have Enough Time
TDF-users Non-users
27%38%
38% 28%
14%7%
52%
35%
Agree Top Box Second Box
↑
↓
↑
↑
“I have the time that’s required to keep an eye on my investment and to make changes as market conditions change”
11
TDF Users More Confident About Retirement
TDF-users Non-users
20%30%
41% 34%
12%7%
53%
41%
Agree Top Box Second Box
“I am confident that I will reach my retirement goals.” ↑
↓
↑
↑
↑↑
12
Investment Understanding vs. Action
Many participants report that they are not confident about their understanding of key investment terms; those who do not use Target Date Funds report lowest confidence for all key terms.
Increased confidence of Target Date-Users does not necessarily equate with appropriate Target Date use.
Diversification
Rebalancing
Time HorizonPotential opportunity to improve understanding of Target Date Funds, especially among Non-users
13
Understanding Key Target Date Concepts`
42%65%
14% 29% 28%48%
23% 39%64%
85%
58%35%
86% 71% 72%52%
77% 61%36%
15%
Confident Not very confident
Time Horizon
Diversification RebalancingRisk
ToleranceGlide Path
“How confident are you that you understand each of these investment terms?”
↓
↑
↓
↑
↓
↑
↓
↑
↓
↑
TDF Non--users users
TDF Non--users users TDF Non-
-users users
TDF Non--users users
TDF Non--users users
14
Rebalancing
1% 0%9%
3%
38%
34%
39%
37%
13%25%
Never
Less than once a year
Once or twice a year
Monthly
Weekly
TDF Users Non-users
49% rebalance 1+ x / yr
37% rebalance 1+ x / yr
“Intended” TDF Use; funds rebalance themselves… so investors shouldn’t need to
↓
↑
15
Diversification (Target Date-Users Only)
1-10%
11-20%
21-31%
31-40%
41-50%
51-60%
61-70%
71-80%
81-90%
91-100%
15%
16%
14%
7%
9%
6%
3%
9%
2%
20%
% of plan balance invested in a TDF
~2/3
Diversification
To be more aggressive
To further customize my portfolio
To be more conservative
Other
None of the above, only invested in TDF
47%
32%
20%
20%
2%
16%
Reasons Target Date users further diversify
16
Understanding of Target Date Funds
They have a diversified mix of stocks and bonds
Asset allocation becomes more conservative over time
The stock/bond mix is automatically adjusted
Offers all-in-one, hands-off investing
At the target date, the assets are converted into a guaranteed income'
All Target Date Fund managers use the same asset allocation (mix of stocks and bonds)
At the target date, the money is returned to you
None of the above
63%
55%
44%
38%
17%
13%
10%
2%
51%
43%
36%
27%
21%
8%
9%
18%
Non-users
TDF-users
↑
↑
↓
↑
↑
~1/3 TDF users
17
Why NOT Invest in a Target Date Fund?
Is a TDF Available (non-Target Date users)?
Yes; 13%
No; 50%
Not sure; 37%
I want to select and monitor my investment options myself/feel I can do a better job se-
lecting investments
Other options were recommended by an advisor
Do not understand Target Date Funds
Too expensive
Other options were recommended by friends/colleagues/family members
Other
50%
20%
17%
12%
4%
14%
Reasons for NOT investing in TDF
Reasons participants choosenot to invest in a target date fund
18
Design Preferences
There are a number of considerations for Employers who are considering Target Date funds … whether as a standard menu option, or as a QDIA…
… Participant preference and interest may help guide these decisions.
19
Glide Path: “To” vs. “Through”
Please note: This chart is for illustrative purposes only. Actual equity allocations can vary significantly between target date managers before and after the retirement dates.
20
Preferred Investment Approach at / Near Retirement
TDF-users Non-users2% 3%8%
12%9%
19%
47%
38%
33%28%
I strongly prefer an approach which provides stronger pro-tection against investment loss
I prefer an approach which provides stronger potential for investment gain
No preference
I prefer an approach which provides stronger potential for investment gain
I strongly prefer an approach which provides stronger po-tential for investment gain
80%66%
↑
21
TDF-user Interest: Diversification
Multiple Asset Classes
11%
57%
33%
Multiple Investment Managers
16%
49%
35%
89% 84%
↑
22
More Information
TDF-users Non-users
8% 13%
43% 44%
17% 13%
Strongly agreeAgreeDo not agree
“I would like to get more information and education about Target Date Funds from my employer and plan provider.”
(Excludes neutral.)
23
Insight and Opportunity
Target Date Fund investors, generally, are more confident of their decisions and their retirement potential …
… but there is opportunity to educate both users and non-Target Date-users, and improve understanding and, potentially, behavior.
24
A Target Date Fund will Increase my Confidence
TDF-users Non-users
3%
10%
51%37%
19%
7%
71%
45%
Series4Top BoxSecond BoxBottom 2 Box
That I am making good investment decisions…
TDF-users Non-users
3%12%
51%34%
16%
9%
67%
43%
That I will have a successful retirement…
25
More Information…
INGRetirementResearch.com
INGIM.com