Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. DEFINED CONTRIBUTION
May 18, 2020 12:00 AM

‘To vs. thru’ debate centers around level of risk plan sponsors want

Robert Steyer
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Brett Goldstein
    Putnam Investments' Brett Goldstein

    When sponsors consider offering target-date funds, one of their biggest concerns is risk.

    Are they worried that near-retirees' accounts might be eviscerated by a market or economic meltdown? Are they worried that investments are so conservative that participants could outlive their retirement income?

    Respectively, these broad characterizations are what distinguishes the "to" approach from the "through" approach. Even though the two camps differ in philosophy, strategies within each group can differ, too.

    Putnam’s ‘to’ approach

    "The primary goal of the glidepath near retirement should be to minimize sequence risk," said Brett Goldstein, Boston-based portfolio manager of two Putnam Investments target-date funds that use the "to" approach. 

    As participants approach retirement, Putnam is concerned that market volatility could damage their savings, and that's why the company created a "to" series in 2004 containing primarily mutual funds and a "to" series in 2008 based on collective investment trusts. The former has $1 billion in assets; the latter has $6 billion.

    "We periodically review the assumptions and construction, but we are confident in the 'to' strategy," he said.

    Like all target-date series, regardless of provider or strategy, the Putnam series start with a high equity component. For Putnam, it's 95% equity for both series. The ratio of equity to fixed income changes over time until reaching a landing point — the target-date fund closest to someone's retirement date — with 25% equity and 75% fixed income. Putnam pegs the average retirement age at 67.

    The Putnam series retain a heavy equity component until about five to 10 years before the landing point when the equity-fixed income ratio changes sharply, "We keep the equity high during the accumulation phase," Mr. Goldstein said. "We want to grow the portfolio as fast as possible, but we want to guard against volatility for near retirees."

    JPMAM expects roll outs

    Updated with correction.

    J.P. Morgan Asset Management uses a "to" approach to its target-date series because the company's research shows most participants in 401(k) plans move their money out within three years of retiring, said Daniel Oldroyd, New York-based portfolio manager and head of target-date strategies.

    Four company studies between 2009 and 2018 showed a range of 17% to 32% of participants stayed in their plans three years after retirement.

    "From our perspective, where it really matters is a certain level of risk, knowing they will likely be withdrawing" from their accounts, he said.

    JPMAM wants its target-date series to reduce the risk of market shocks for people nearing retirement "without losing sight of the need to grow retirement balances," he added.

    The company offers six versions, in which sponsors can choose from strategies that can include mutual funds, collective investment trusts, actively managed underlying investments, or a blend of index and actively managed underlying investments. Direct real estate is a component of the actively managed CIT-based series as well as the blend CIT-based series.

    Total assets were $81.5 billion as of March 31. The biggest are the actively managed mutual fund series ($36.7 billion), launched in May 2006 and the blended collective investment trust series ($18.2 billion) launched in June 2008.

    There are two glidepaths — for two options containing direct real estate and for the other four options — with the same landing point.

    The original landing point was 20% equity, which was raised to 30% equity in 2007. The landing point is now 32.5% equity, and Mr. Oldroyd said JPAM can "tactically deviate from the glidepath."

    JPMAM also has custom target-date arrangements with six clients with aggregate assets of $22.9 billion. Five of these series use a "to" approach. "We provide a glidepath to a sponsor, and they populate the managers," he said.

    Mr. Oldroyd said JPMAM periodically conducts research to determine if changes are needed. Mostly, it has been "tweaks" such as changing the mix of underlying U.S. and foreign equity investments or the ratio of equity to fixed income along the glidepath.

    "There are two key components of the glidepath," he explained. "Long-term capital markets assumptions — reviewed annually — and participant behavior — reviewed every two to three years."

    Mr. Oldroyd said he has "spent less time talking about 'to' vs. 'through'" to potential clients and more about how a target-date fund fits into their objectives.

    "We ask them: 'Who are you picking target-date funds for?'" he said. "What does your workforce look like? Is this a replacement for the DB plan? How many have a DB plan? Are there different salary and benefit structures across the employee base? Which one is the main target for your plan?"

    T. Rowe's ‘through' approach

    T. Rowe Price Group Inc. was one of the first providers of a "through" target-date series, starting at a time when "a majority of the marketplace was focused on what happens at retirement," said Wyatt Lee, Baltimore- based portfolio manager and head of target-date strategies for the company's multiasset division. "It took years of discussion with sponsors and the industry to convince them that retirement didn't stop at 65."

    Mr. Lee also said the company conducted "several years of analytical work" before it was ready to enter the marketplace.

    T. Rowe Price had a total of $242.2 billion in target-date assets as of March 31, including $132 billion in mutual funds, $103.1 billion in collective investment trusts and $7.1 billion in subadvised and separate accounts.

    Like their "through" advocate peers, T. Rowe Price officials say longevity risk is the key factor in target-date management.

    "From our perspective, we think a vast majority of plans should offer 'through' target-date funds," Mr. Lee said. "People are under-saving. They need to catch up."

    T. Rowe Price launched its first series in 2002 and another in 2013, both with mutual funds as the underlying investments. The former added a collective investment trust strategy in 2012; the latter offered a CIT strategy this year.

    The former strategy has a 55% equity landing point, with an equity-fixed income ratio that changes for 30 years past retirement. The latter has a landing point at 42.5%, also with a changing equity-fixed income ratio for 30 years. The final equity amount had been 20% for both series. Last month, T. Rowe Price began a two-year phase-in of higher equity to reach 30% as a final equity amount for both.

    Capital Group: Stay in plan

    Capital Group Group Cos., parent of American Funds, advocates the "through" approach as part of its effort to encourage sponsors to keep participants in their plans past retirement. Lower-cost shares, professional oversight of investments, the ability to consolidate outside retirement accounts and the diversification of age-appropriate investments are all part of Capital's pitch.

    "Participants oftentimes get the benefit of lower costs via institutional share pricing" by keeping their accounts in their DC plan after retirement, said Richard Lang, Los Angeles-based senior vice president and investment director for the company's target-date series. "Sponsors can also negotiate better fees with consultants (or) advisers as their plan size scales higher."

    His company offers two target-date options — a mutual fund series launched in February 2007 and a collective investment trust option inaugurated in May 2019. The former had assets of $135 billion as of March 31 and the latter had assets of $2 billion. An estimated 5 million-plus participants invest in these options, Mr. Lang said.

    The landing point, assuming a retirement age of 65, is 45% equity for both series. The equity-fixed income ratio continues to change for another 30 years past the landing point ending at 30% equity for both.

    Mr. Lang said the debate over "to" vs. "through" was a "big issue" when his company was developing its target-date strategy, adding that consultants and sponsors are now "paying closer" attention to the types of equity and fixed income in underlying investments.

    "If people are separating from the plan at retirement, it doesn't really matter the nomenclature of 'to' vs. 'through,'" he said. "What's more important is the volatility around retirement, which is meaningfully impacted by the amount and type of equity and fixed income. Not all 'to' providers have lower volatility around retirement than 'through' providers."

    Related Article
    No clear winner found in target-date ‘to vs. through’ debate
    Recommended for You
    pepsi_cans_shelf_1550-main.jpg
    PepsiCo to add 6% to 8% non-matching contribution for some 401(k) participants
    Malaysian ringgit banknotes
    Malaysia's EPF reports 18% drop in investment income
    ninth-circuit-appeals-courthouse-san-francisco_i.jpg
    Federal courts' rulings differ on how to treat an ERISA arbitration
    Strong Demand Drivers Underpin Private Credit
    Sponsored Content: Strong Demand Drivers Underpin Private Credit

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    June 20, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit