Dimensional Fund Advisors is unveiling its twist on the defined contribution plan: personalized individual managed accounts that make employee investment decisions for them — and nag them if they aren't saving enough.
“I've been critical of defined contribution plans,” said Robert C. Merton, a Nobel laureate in economics and finance professor at Massachusetts Institute of Technology Sloan School of Management, and the company's resident scientist. Mr. Merton spoke Wednesday at a DFA-sponsored conference.
In his own remarks, David G. Booth, DFA's chairman and co-chief executive, said the company wants to focus on retirement planning, and it's also working on a longevity insurance product and a plan for managing money in retirement.
The accounts already have gone through a pilot program in Europe. This year, OBS Financial Services Inc. will pilot the program in the U.S. to its client base of institutional clients.
Mr. Merton said the plan, which he helped develop, addresses shortcomings in traditional defined contribution plans. It takes in numerous personal details about participants, from age, gender and marital status to how much they put away in 401(k) accounts and what they can expect to get from Social Security.
DFA's plan takes an assertive role in hectoring participants to think about how much money they will need when they retire.
The firm crunches all that information to determine a retirement-income target and make the appropriate investment allocations. When participants log in to their account, they see their income target and get a report card on whether they are saving enough.
DFA has $230 billion in assets under management.
Lavonne Kuykendall is a reporter at InvestmentNews, a sister publication of Pensions & Investments.