Defined Contribution Insights
November 2017 | FEATURING Jeanell Novak & Rich Lang
DEFINED CONTRIBUTION INSIGHTS | October 2017
In this video clip from the Asset TV Masterclass Best Practices for Defined Contribution Plan Design, American Funds senior retirement strategist John Doyle discusses how to measure investment success for a defined contribution plan:
In this Video from the AssetTV Masterclass, American Funds portfolio manager Jody Jonsson explains why it is important for a target date fund to be designed to build and protect wealth through retirement.
In its 2013 guidance on target date funds, the U.S. Department of Labor stressed the importance of thoroughly understanding a series’ asset allocation, fees and results. Yet evaluating target date funds can be complex given the diversity of offerings in the marketplace. An online tool, Target Date ProView, aims to make that process easier by providing insightful, objective data to compare target date series. In this video, Capital Group investment specialist Rich Lang and portfolio manager Wesley Phoa outline key criteria for evaluating target date funds and explain how Target Date ProView can help. Learn about:
American Funds Target Date Retirement Series® celebrated its 10-year anniversary this year. In this video, Jim Lovelace, member of the Portfolio Oversight Committee, and Rich Lang, target date investment specialist, share their thoughts on:
The Pension Protection Act took effect 10 years ago, leading to a surge of assets into target date funds. In this video, principal investment officer of American Funds Target Date Retirement Series® Brad Vogt shares his thoughts on what we’ve learned over the past 10 years, including:
DEFINED CONTRIBUTION INSIGHTS | June 2017
What have we learned about target date funds in the 10 years since the Pension Protection Act took effect, driving a surge in target date assets? Brad Vogt, principal investment officer of American Funds Target Date Retirement Series®, provides some insights to help plan sponsors and advisors evaluate target date funds. He discusses:
DEFINED CONTRIBUTION INSIGHTS | October 2016
The Rise of Foreign Markets More than half of global market capitalization is non-U.S.
Home bias (a significant over investment in one’s home country) has been a long-entrenched pattern in self-directed defined contribution (DC) plans. A decade of efforts by plan sponsors in the U.S., including the addition of international funds to retirement plan menus, has failed to successfully spur participants to increase their exposure to non-U.S. assets; the result is that participants are missing out on potentially attractive investment opportunities abroad, including in emerging markets. At the same time, plan sponsors are grappling with the phenomenon of choice overload, as more than a decade of behavioral finance research has shown that the expansion of menu options has proved overwhelming for participants, creating confusion and inertia.
DEFINED CONTRIBUTION INSIGHTS | November 2017
American Funds Target Date ProView® tool provides a fast, powerful online platform to help analyze and compare target date fund series for a defined contribution retirement plan. It also provides you, as a retirement plan intermediary, with a way to differentiate yourself and increase the value you can deliver to your clients.
DEFINED CONTRIBUTION INSIGHTS | September 2016
DEFINED CONTRIBUTION INSIGHTS | August 2016
DEFINED CONTRIBUTION INSIGHTS | August 2016
We believe that target date series should feature not only a gradual reduction in equities over time, but also a gradual shift in the nature of that equity exposure. This transition, which we call recharacterizing the equity exposure, effectively creates a “glide path within a glide path” that can help lower volatility.
American Funds portfolio manager Brad Vogt explains the importance of the right target date series to help investors pursue their retirement goals. Beyond the glide path, a good evaluation process should include an examination of the underlying funds and the purpose each serves over the long-term.
DEFINED CONTRIBUTION INSIGHTS | July 2016
The decline of defined benefit plans and the rise of defined contribution plans have created dilemmas for both plan sponsors and participants. Although they had their own disadvantages, DB plans make saving fairly easy for participants; DB participants are automatically enrolled and don’t have to make any investment decisions. With the growth of DC, much of that responsibility has shifted to participants, with mixed results. However, there are steps DC plan sponsors can take to seek the best of both the DB and DC worlds. By incorporating aspects of defined benefit plans into a DC plan design, plan sponsors can strive to address the following problems that many DC participants face:
DEFINED CONTRIBUTION INSIGHTS | March 2016
Exhibit 3: American Funds (R-3) vs. relevant index
While sponsors should compare their plan’s investments at least once a year with the appropriate benchmarks and peer investments and over a series of different time horizons, the key question remains: How long should those time horizons be to ensure that the resulting decisions are prudent?
DEFINED CONTRIBUTION INSIGHTS | March 2015
Wesley Phoa, portfolio manager, target date and fixed-Income funds, 21 years of experience.
Jason Bortz, ERISA attorney, 17 years of experience.
Toni Brown, CFA senior defined contribution specialist, 25 years of experience.
John Doyle, senior defined contribution specialist, 28 years of experience.
Rich Lang, investment specialist, 21 years of experience.
Target date funds have enormous potential to make defined contribution plans more effective and straightforward for participants. But to capture the funds’ benefits — and to help meet fiduciary obligations — plan sponsors must implement thorough, well-documented evaluation procedures.
DEFINED CONTRIBUTION INSIGHTS | September 2014
Exhibit 3: American Funds (R-3) vs. Relevant Index
In these videos, portfolio managers Jim Lovelace, Wesley Phoa and Brad Vogt discuss the American Funds Target Date Retirement Series.
DEFINED CONTRIBUTION INSIGHTS | August 2014
American Funds Target Date Retirement Series Glide Path
All target date series feature glide paths that reduce equities and simultaneously increase fixed income over time. American Funds Target Date Retirement Series® is distinguished by also featuring shifts in the nature of both the equity and the fixed-income exposure.
DEFINED CONTRIBUTION INSIGHTS | March 2012
Aggregate Asset Mix of the Top 1,000 DC Plans as of September 30, 2011
Most defined contribution participants have minimal exposure to investments outside the U.S. and are not exposed to the long-term growth potential of some of the world’s most dynamic companies and industries. Just as defined benefit (DB) plans did in the 1990s, defined contribution (DC) plans should consider moving away from a largely U.S.-centric investment view to pursue potentially better absolute and risk-adjusted returns. Plan sponsors can encourage this by providing a balanced menu of investment choices that include international, global and even emerging markets equity options in their DC lineups.
Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and/or returns will vary, so investors may lose money. Investing for short periods makes losses more likely. View fund expense ratios and returns.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing.
Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks.
The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. Investments in mortgage-related securities involve additional risks, such as prepayment risk, as more fully described in the prospectus. While not directly correlated to changes in interest rates, the values of inflation-linked bonds generally fluctuate in response to changes in real interest rates and may experience greater losses than other debt securities with similar durations.
Each target date fund is composed of a mix of the American Funds and is subject to the risks and returns of the underlying funds. Underlying funds may be added or removed during the year. Although the target date funds are managed for investors on a projected retirement date time frame, the funds' allocation strategy does not guarantee that investors' retirement goals will be met. The target date is the year in which an investor is assumed to retire and begin taking withdrawals. American Funds investment professionals manage the target date fund's portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the fund gets closer to its target date. Investment professionals continue to manage each fund for 30 years after it reaches its target date.
Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor's, Moody's and/or Fitch, as an indication of an issuer's creditworthiness.
Fund shares of U.S. Government Securities Fund are not guaranteed by the U.S. government.
There may have been periods when the fund(s) lagged the index(es). Certain market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.
Because Class R-6 shares do not include any recordkeeping payments, expenses are lower and results are higher. Other share classes that include recordkeeping costs have higher expenses and lower results than Class R-6.
Investment results assume all distributions are reinvested and reflect applicable fees and expenses.
For the following funds, the investment adviser is currently reimbursing a portion of the funds' fees or expenses, without which the results would have been lower and net expenses higher.
- American Funds U.S. Government Money Market Fund is currently reimbursing a portion of the fund's fees and expenses. Please see the Financial Highlights table in the fund’s most recent prospectus for details.
- American Funds Corporate Bond Fund, American Funds Emerging Markets Bond Fund, American Funds Strategic Bond Fund, American Funds Retirement Income Portfolio Series funds and American Funds 2060 Target Date Retirement Fund are currently reimbursing a portion of other expenses through at least April 7, 2018.
The investment adviser may elect at its discretion to extend, modify or terminate the reimbursements at that time. Please see each fund's most recent prospectus for details.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice. Investors should consult their tax or legal advisors.
Expense ratios are as of each fund's prospectus.
The American Funds are distributed by American Funds Distributors, Inc.
The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.
Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.
Allocation percentages and underlying funds are subject to the Portfolio Oversight Committee's discretion and will evolve over time. Underlying funds may be added or removed at any time.
Past results are not predictive of results in future periods.
Capture ratios reflect the annualized product of fund vs. index returns for all months in which the index had a positive return (upside capture) or negative return (downside capture).