The Retirement Plan Solution: The Reinvention of Defined Contribution (Wiley Finance)

The Retirement Plan Solution: The Reinvention of Defined Contribution......Page 7
Contents......Page 11
Preface......Page 17
THOUGHTS ON THE MARKET TURMOIL OF 2008–2009......Page 19
Acknowledgments......Page 23
INTRODUCTION: The Great American Retirement System?......Page 27
DEFINED BENEFIT AND DEFINED CONTRIBUTION......Page 28
THE DYNAMICS OF THE RETIREMENT PLAN......Page 29
ROOM FOR IMPROVEMENT IN THE ACCUMULATION PHASE......Page 30
THE RIGHT SORT OF EDUCATION......Page 31
OTHER WAYS OF RUNNING DEFINED CONTRIBUTION PLANS......Page 32
THE INDIVIDUAL’S ROLE IN DECUMULATION......Page 33
THE PLAN SPONSOR’S ROLE......Page 34
A FINAL THOUGHT: FROM BIGGEST TO BEST......Page 35
CHAPTER 1: DC Version 2.0......Page 37
COMING OF AGE......Page 38
THE NEW RETIREMENT SUPERPOWER......Page 39
COMING SOON TO A DICTIONARY NEAR YOU: DBization......Page 40
INCOME REPLACEMENT......Page 41
IS THIS THE FIRST NAIL IN THE COFFIN OF DEFINED CONTRIBUTION?......Page 42
“HOLD ON A SECOND…”......Page 43
PART ONE: The Dynamics of the Retirement Plan......Page 45
WHAT IS “LIFE EXPECTANCY”?......Page 47
HOW LIFE EXPECTANCY HAS CHANGED......Page 48
BUT AN INDIVIDUAL’S LIFE SPAN IS UNCERTAIN......Page 49
LONGEVITY DISTRIBUTIONS: LET’S TAKE A LOOK......Page 52
WHAT DOES THIS MEAN?......Page 55
AND WILL LONGEVITY IMPROVE EVEN MORE?......Page 56
CHAPTER 3: Retirement Is Expensive......Page 57
THE GOAL IS A TARGETED LEVEL OF INCOME REPLACEMENT......Page 58
THE FUNDAMENTAL PENSION EQUATION AND THE DEFINED BENEFIT SYSTEM......Page 59
BASE CASE RESULTS......Page 60
WHEN TO START SAVING......Page 63
THE BASE CASE MAY NOT BE A RELIABLE GUIDE......Page 64
HOW TO ACT IN THE FACE OF UNCERTAINTY......Page 65
APPENDIX: FURTHER ANALYSIS OF THE UNCERTAINTY ASSOCIATED WITH INVESTMENT RETURNS......Page 67
CHAPTER 4: Investment Returns Are All-Important......Page 69
THE 10/30/60 RULE......Page 70
GAMES AT A VIRTUAL CASINO......Page 72
INVESTMENT ANALOGS......Page 74
HISTORICAL RETURN PATTERNS......Page 75
WHAT ARE THE LESSONS?......Page 78
HOW MUCH INVESTMENT RISK CAN YOU TOLERATE?......Page 80
LIFETIME ANNUITIES......Page 83
SIMULATIONS......Page 84
APPENDIX: THE MULTIPLE......Page 87
PART TWO: Opportunities in the Accumulation Phase......Page 89
EMPLOYERS WITH NO PLAN......Page 91
EMPLOYEES WHO DO NOT ENROLL......Page 93
EMPLOYEES WHO START SAVING TOO LATE......Page 95
EMPLOYEES WITH LOW SAVINGS RATES......Page 96
EMPLOYEES WITH GAPS IN CONTINUOUS PARTICIPATION......Page 98
CASHING OUT......Page 101
LOANS......Page 102
HARDSHIP WITHDRAWALS......Page 103
EVIDENCE OF WASTE......Page 107
THE IMPORTANCE OF A GOOD DEFAULT OPTION......Page 109
THE “TARGET DATE” SOLUTION......Page 110
AND FOR THE INVESTMENT EXPERTS?......Page 115
THE IMPACT OF FEES......Page 117
LOOKING FOR FEE LEAKAGE......Page 118
FEE-SHARING ARRANGEMENTS......Page 119
INSTITUTIONAL VERSUS RETAIL FEES......Page 120
ACTIVE MANAGEMENT......Page 121
RECORD-KEEPING FEES......Page 123
PART THREE: We Need the Right Sort of Education......Page 125
OVERCONFIDENCE IN RETIREMENT PLANNING......Page 127
BEHAVIORAL FINANCE......Page 128
LOW PARTICIPATION AND SAVINGS RATES......Page 129
POOR INVESTMENT RESULTS......Page 132
WHAT TO DO?......Page 134
FACTS THAT SURPRISED US......Page 135
ENTHUSIASTIC INITIATIVES......Page 136
WHAT EXACTLY CAN BE TAUGHT?......Page 138
A LITERATE DEFAULT SYSTEM......Page 141
A FINAL ANECDOTE......Page 142
PART FOUR: Other Ways of Running Defined Contribution Plans......Page 143
CHAPTER 12: Case Study—Australia......Page 145
SOME FEATURES OF THE AUSTRALIAN DEFINED CONTRIBUTION SYSTEM......Page 146
CONSEQUENCES FOR COVERAGE......Page 147
CONSEQUENCES FOR ADEQUACY......Page 148
CONSEQUENCES FOR EMPLOYER ATTITUDES......Page 149
LESSONS FOR THE UNITED STATES......Page 150
CONSEQUENCES FOR INVESTMENT CHOICES......Page 151
THE BANK SAVINGS MODEL......Page 153
THE RETIREMENT INCOME MODEL......Page 155
AN EXAMPLE OF A PARTICIPANT STATEMENT IN THE RETIREMENT INCOME MODEL......Page 156
THE PRINCIPLES......Page 159
BROADER APPLICATIONS BY THE DUTCH AND CANADIANS......Page 161
THERE’S MORE THAN ONE WAY TO SKIN A CAT......Page 163
PART FIVE: The Perspective of the Individual in Decumulation......Page 165
CHAPTER 15: The First Dial: Your Personal Spending Policy......Page 167
STEP ONE: HOW TO KEEP SCORE—THE CURRENT POSITION......Page 168
STEP TWO: WHAT ABOUT THE FUTURE?......Page 170
STEP THREE: THE PROJECTED OUTFLOW—THE FIRST ATTEMPT TO QUANTIFY YOUR SPENDING PLAN......Page 171
STEP FOUR: HOW LONG WILL YOUR ASSETS SUSTAIN YOUR SPENDING PLAN?......Page 173
CHECKPOINT: IS THERE A GAP TO BE BRIDGED?......Page 174
NEXT UP......Page 176
HOW AN IMMEDIATE ANNUITY WORKS......Page 177
THE BENEFIT OF BUYING A LIFETIME ANNUITY......Page 179
SHOULD EVERYONE BUY AN IMMEDIATE ANNUITY?......Page 180
REASONS WHY SOME PEOPLE DON’T LIKE TO BUY IMMEDIATE ANNUITIES......Page 182
APPENDIX: MORE ON ANNUITY-EQUIVALENT WEALTH......Page 183
A REMINDER OF OUR GOALS AND OUR CHOICES......Page 185
A FRAMEWORK......Page 186
TAKING OWNER-OCCUPIED REAL ESTATE INTO ACCOUNT......Page 187
MANY RULES OF THUMB ARE JUST PLAIN WRONG......Page 189
FOUR WEALTH ZONES......Page 190
HOW YOUR WEALTH ZONE DETERMINES YOUR CHOICES......Page 192
BEQUESTS......Page 195
VARIATIONS ON THE LIFETIME ANNUITY......Page 199
LONGEVITY PROTECTION PLUS LONG-TERM CARE INSURANCE......Page 200
GUARANTEED MINIMUM WITHDRAWAL BENEFITS......Page 201
ADVANCED LIFE DEFERRED ANNUITIES......Page 203
PURE DECUMULATION PRODUCTS......Page 204
WHICH TYPE OF PRODUCT IS BEST?......Page 205
PART SIX: The Plan Sponsor’s Role......Page 207
THE PURPOSE OF DEFINED CONTRIBUTION PLAN GOVERNANCE......Page 209
RISK MANAGEMENT......Page 210
A DEFINED CONTRIBUTION PLAN’S PURPOSE AND OBJECTIVES......Page 211
FIDUCIARY DUTY......Page 212
NEW CHOICES BASED ON NEW KNOWLEDGE......Page 215
IN SUMMARY......Page 216
CHAPTER 20: Defined Contribution Plan Effectiveness......Page 217
PARTICIPATION DELAY......Page 219
EMPLOYEE SAVINGS RATE......Page 220
MATCH MAXIMIZATION......Page 221
PARTICIPANT NET INVESTMENT RETURN......Page 222
HARDSHIP WITHDRAWAL USAGE......Page 224
LOANS AS DISTRIBUTIONS......Page 225
CONCLUSION......Page 226
CHAPTER 21: The Defined Contribution Plan Sponsor’s Role in Decumulation......Page 227
PROVIDING EDUCATION......Page 228
PROVIDING ACCESS TO FINANCIAL PRODUCTS: IN-PLAN OR OUT-OF-PLAN......Page 229
DESIGN FEATURES......Page 230
PRODUCT FEATURES......Page 231
PARTING THOUGHT......Page 232
Notes......Page 233
About the Authors......Page 249
Index......Page 251