With the continued decline of the defined benefit
(pension plan) the defined contribution plan has become the sole source of
retirement for more and more Americans. While many believe plan participants
should be given complete control of the investment choices within their plan,
most participants are ill prepared to reach their retirement goals. They must
become actuaries, investment experts and remain disciplined to their process.
Most participants, if not all, find this task nearly impossible to follow.
The next generation retirement plan includes the
attributes of the defined benefit plan and the defined contribution plan to
assure participants reach their retirement security goals. Although most prefer
more investment options in their plans, this is not a recipe for success. The
retirement plan must include professionally managed portfolios exclusively. By
including individual funds within the plan, participants may make choices based
solely on past performance. The results will be very disappointing as the hot
asset class or fund of today becomes the poor performing asset class or fund of
Only by allocating retirement funds in globally
diversified portfolios with systematic rebalancing will participants reach
their goals. These portfolios must be risk adjusted as the participant ages,
ie, the closer to retirement the more conservative the portfolio should
become. A pension fund like plan will
give the participant more confidence and in turn they will contribute more.
Remember in your investment strategy, if you do not know two numbers, expected
return and expected volatility, you are speculating. The retirement plan must
not empower their employees to speculate to make up for a lack of saving.
The end result will be reduced fiduciary burden for the
plan sponsor and an improved retirement outlook for the plan participant.
- Traditional Pensions Hit Record Low (money.usnews.com)
- Need to Catch Up on Retirement Savings? (401kplanadvisors.com)