Why DB Plans? Lesson # 237

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Few people in our industry are working as hard as Ron Surz, President, of Target Date Solutions, to raise concerns about one of the industry’s most frequently used default options – target date funds (TDFs). In his most recent article, he points out that current near-retirees are losing more than those in their 20s. This is both shocking and unacceptable, and it is one more reason why DB pensions must be preserved for the masses.

As the chart above highlights, those in their 20s (the retirement year 2060), have lost “only” -7.9% during the last 12 months, while those retiring now or hoping to, have suffered an unacceptable -11.6% loss. Since the median account balance for those 55-64 (according to Vanguard) is only $84,714, a loss of -11.6% equates to a nearly $10,000 reduction in an already very inadequate retirement account. Asking untrained individuals to fund, manage, and then disburse a “retirement” benefit with little knowledge is just poor policy. However, when relying on the pros (TDF architects) doesn’t provide a superior outcome, we need to rethink that entire operation! Anything short of a monthly benefit paid through a pension-like system will continue to prove inferior.

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