Many corporations and financial institutions have recently faced lawsuits in which plaintiffs have alleged harm to 401(k) plan participants by the inclusion of high-fee actively managed mutual funds in plan offerings, instead of low-cost index funds. The goal of our study is to compare the performance of actively managed and passive index funds. Using a large dataset of more than 11,000 mutual funds, we find that, on average, actively managed funds do have higher fees than their index fund counterparts. However, a portfolio of active funds chosen based on certain key characteristics, such as low expense ratio, low turnover, high Sharpe ratio etc., have better net-of-fees returns than passive index funds in the categories of US equity, international equity, fixed income, and mixed assets. The findings in our study imply that inclusion of a higher-fee active fund in a 401(k) plan does not necessarily imply an inferior or imprudent choice. TOPICS: Retirement, mutual fund performance, performance measurement
{"title":"Are Actively Managed Mutual Funds Per Se Imprudent Choices for 401(k) Plans?","authors":"Atanu Saha, Heather Roberts","doi":"10.3905/jor.2019.1.054","DOIUrl":"https://doi.org/10.3905/jor.2019.1.054","url":null,"abstract":"Many corporations and financial institutions have recently faced lawsuits in which plaintiffs have alleged harm to 401(k) plan participants by the inclusion of high-fee actively managed mutual funds in plan offerings, instead of low-cost index funds. The goal of our study is to compare the performance of actively managed and passive index funds. Using a large dataset of more than 11,000 mutual funds, we find that, on average, actively managed funds do have higher fees than their index fund counterparts. However, a portfolio of active funds chosen based on certain key characteristics, such as low expense ratio, low turnover, high Sharpe ratio etc., have better net-of-fees returns than passive index funds in the categories of US equity, international equity, fixed income, and mixed assets. The findings in our study imply that inclusion of a higher-fee active fund in a 401(k) plan does not necessarily imply an inferior or imprudent choice. TOPICS: Retirement, mutual fund performance, performance measurement","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"7 1","pages":"58 - 77"},"PeriodicalIF":0.0,"publicationDate":"2019-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43839941","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Over the years, actuaries as well as demographers have devoted much time to the construction of mortality models that fit the age pattern of mortality in many countries. However, the emphasis has been on data-rich developed countries with little attention to the special characteristics and challenges associated with rapidly growing populations in developing countries. These include a relative lack of mortality data as well as the need to account for other factors, such as the availability of health care, reporting rate, and type of religion in the area (e.g., Christian or Muslim). In this work, the authors construct a mortality model that directly addresses cases with limited mortality histories and factors that affect mortality reporting. Using a covariate (v) to represent the effect of additional factor permit the authors to compare different mortality categories such as gender and region. When this model is fitted to the 2010 population and housing census mortality data from Ghana, a key finding is that male and female mortality rates for ages above 50 years diverge, indicating that male mortality above the age of 50 years is higher than female mortality. The authors also use the model to show that the Greater Accra region has lower overall mortality rates than the Ashanti region. Finally, by borrowing mortality data from South Africa the authors were able to introduce a time dimension to forecast mortality changes in Ghana during a period of six years. Using this kind of approach will allow researchers and policymakers to get a better picture of developing countries’ demographics and to improve the design of health, retirement, business, and other programs calibrated to each country’s evolving population characteristics. TOPICS: Retirement, statistical methods
{"title":"Mortality Modeling Using Covariates with Ghana Census Data","authors":"Samuel E. Assabil, D. McLeish","doi":"10.3905/jor.2019.1.053","DOIUrl":"https://doi.org/10.3905/jor.2019.1.053","url":null,"abstract":"Over the years, actuaries as well as demographers have devoted much time to the construction of mortality models that fit the age pattern of mortality in many countries. However, the emphasis has been on data-rich developed countries with little attention to the special characteristics and challenges associated with rapidly growing populations in developing countries. These include a relative lack of mortality data as well as the need to account for other factors, such as the availability of health care, reporting rate, and type of religion in the area (e.g., Christian or Muslim). In this work, the authors construct a mortality model that directly addresses cases with limited mortality histories and factors that affect mortality reporting. Using a covariate (v) to represent the effect of additional factor permit the authors to compare different mortality categories such as gender and region. When this model is fitted to the 2010 population and housing census mortality data from Ghana, a key finding is that male and female mortality rates for ages above 50 years diverge, indicating that male mortality above the age of 50 years is higher than female mortality. The authors also use the model to show that the Greater Accra region has lower overall mortality rates than the Ashanti region. Finally, by borrowing mortality data from South Africa the authors were able to introduce a time dimension to forecast mortality changes in Ghana during a period of six years. Using this kind of approach will allow researchers and policymakers to get a better picture of developing countries’ demographics and to improve the design of health, retirement, business, and other programs calibrated to each country’s evolving population characteristics. TOPICS: Retirement, statistical methods","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"7 1","pages":"78 - 87"},"PeriodicalIF":0.0,"publicationDate":"2019-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49035980","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-31DOI: 10.3905/jor.2019.7.1.024
Ganlin Xu, H. Markowitz, J. Guerard
The article studies the portfolio selection problem in the retirement phase by using the habit formation utility function in the context of traditional utility maximization. The habit formation utility can be further simplified to a linear combination of shortfall risk and shortfall duration. A retiree who can easily adapt to a new spending level should emphasize shortfall duration whereas a retiree who is rigid in spending should emphasize shortfall risk. The article provides the conditions in which current practitioners favorite choices of shortfall risk, as a criterion to choose retirement portfolios, are consistent with utility maximization. TOPICS: Retirement, wealth management, long-term/retirement investing
{"title":"Shortfall Risk and Shortfall Duration for Portfolio Choice in Decumulation","authors":"Ganlin Xu, H. Markowitz, J. Guerard","doi":"10.3905/jor.2019.7.1.024","DOIUrl":"https://doi.org/10.3905/jor.2019.7.1.024","url":null,"abstract":"The article studies the portfolio selection problem in the retirement phase by using the habit formation utility function in the context of traditional utility maximization. The habit formation utility can be further simplified to a linear combination of shortfall risk and shortfall duration. A retiree who can easily adapt to a new spending level should emphasize shortfall duration whereas a retiree who is rigid in spending should emphasize shortfall risk. The article provides the conditions in which current practitioners favorite choices of shortfall risk, as a criterion to choose retirement portfolios, are consistent with utility maximization. TOPICS: Retirement, wealth management, long-term/retirement investing","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"7 1","pages":"24 - 34"},"PeriodicalIF":0.0,"publicationDate":"2019-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45747963","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using data from the Survey for Income and Program Participation (SIPP), this study investigates the relationship between withdrawals from 401(k) and IRA accounts and household-level economic shocks such as job loss, job change, divorce, and the onset of poor health. Workers in low-wage households are more likely to withdraw from their accounts than those in middle and high-income households, in part because they are more likely to withdraw when they experience a shock and also experience more shocks. Shocks are associated with about 20% of all retirement account withdrawals and exacerbate pre-existing inequalities in financial preparation for retirement. TOPICS: Retirement, legal/regulatory/public policy
{"title":"New Evidence on the Effect of Economic Shocks on Retirement Plan Withdrawals","authors":"T. Ghilarducci, Siavash Radpour, A. Webb","doi":"10.3905/jor.2019.1.046","DOIUrl":"https://doi.org/10.3905/jor.2019.1.046","url":null,"abstract":"Using data from the Survey for Income and Program Participation (SIPP), this study investigates the relationship between withdrawals from 401(k) and IRA accounts and household-level economic shocks such as job loss, job change, divorce, and the onset of poor health. Workers in low-wage households are more likely to withdraw from their accounts than those in middle and high-income households, in part because they are more likely to withdraw when they experience a shock and also experience more shocks. Shocks are associated with about 20% of all retirement account withdrawals and exacerbate pre-existing inequalities in financial preparation for retirement. TOPICS: Retirement, legal/regulatory/public policy","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"6 1","pages":"19 - 7"},"PeriodicalIF":0.0,"publicationDate":"2019-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44508215","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
More than half of US states are working to establish programs that would automatically enroll workers who are not offered a retirement plan by their employer in Individual Retirement Accounts (IRAs). These programs are designed to address a perceived shortfall of retirement saving, particularly among low-wage workers who are less likely to be offered an employer-sponsored plan. But the designers of state-run auto-IRA plans fail to consider three questions: Do the poor need to save more for retirement? Will state-run auto-IRA plans increase net household savings? And, after accounting for interactions with means-tested government transfer programs, will state-run auto-IRA plans make the poor better off? The answer to all three questions may well be “no.” First, tax data indicate that most low-income retirees have incomes adequate to maintain their pre-retirement standard of living. Second, employees who are automatically enrolled in retirement plans may accrue additional debts that offset their own contributions. Third, income and asset tests for federal and state transfer programs could reduce benefits to low-earners in substantially greater amounts than they could save in auto-IRA accounts. In light of these issues, policymakers should reconsider the design of state-run auto-IRA programs. One potential improvement is to exempt truly low-earning workers, such as those with earnings below $12,000, from automatic enrollment in these plans while leaving open the option to voluntary participate. TOPICS: Pension funds, portfolio theory
{"title":"How Hard Should We Push the Poor to Save for Retirement?","authors":"Andrew G. Biggs","doi":"10.3905/jor.2019.1.045","DOIUrl":"https://doi.org/10.3905/jor.2019.1.045","url":null,"abstract":"More than half of US states are working to establish programs that would automatically enroll workers who are not offered a retirement plan by their employer in Individual Retirement Accounts (IRAs). These programs are designed to address a perceived shortfall of retirement saving, particularly among low-wage workers who are less likely to be offered an employer-sponsored plan. But the designers of state-run auto-IRA plans fail to consider three questions: Do the poor need to save more for retirement? Will state-run auto-IRA plans increase net household savings? And, after accounting for interactions with means-tested government transfer programs, will state-run auto-IRA plans make the poor better off? The answer to all three questions may well be “no.” First, tax data indicate that most low-income retirees have incomes adequate to maintain their pre-retirement standard of living. Second, employees who are automatically enrolled in retirement plans may accrue additional debts that offset their own contributions. Third, income and asset tests for federal and state transfer programs could reduce benefits to low-earners in substantially greater amounts than they could save in auto-IRA accounts. In light of these issues, policymakers should reconsider the design of state-run auto-IRA programs. One potential improvement is to exempt truly low-earning workers, such as those with earnings below $12,000, from automatic enrollment in these plans while leaving open the option to voluntary participate. TOPICS: Pension funds, portfolio theory","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"6 1","pages":"20 - 29"},"PeriodicalIF":0.0,"publicationDate":"2019-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48726503","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Halloween candy problem is faced by millions of American households each October 31, as they choose a strategy for giving out Halloween candy—it’s the trade-off between not wanting to run out of candy versus having too much candy left over at the end of the evening. This article argues that this problem has similarities to the more complex problem retirees face of managing the spend-down of retirement assets, where the trade-off is essentially the same. The Halloween candy problem may be an intuitively appealing story to tell to retirees to explain the basic principle of how to manage the spend down of their assets. Further, understanding how people manage the Halloween candy problem may provide insights for how people might solve the more complex asset spend-down problem. The commonly suggested 4% rule is at odds with commonly used approaches for solving the Halloween candy problem, with the Halloween candy approach being more pragmatic, dynamic, and intuitively appealing. TOPICS: Legal/regulatory/public policy, retirement
{"title":"The Halloween Candy Problem: An Intuitive Model for the Drawdown Phase of the Life Cycle","authors":"J. Turner","doi":"10.3905/jor.2019.1.050","DOIUrl":"https://doi.org/10.3905/jor.2019.1.050","url":null,"abstract":"The Halloween candy problem is faced by millions of American households each October 31, as they choose a strategy for giving out Halloween candy—it’s the trade-off between not wanting to run out of candy versus having too much candy left over at the end of the evening. This article argues that this problem has similarities to the more complex problem retirees face of managing the spend-down of retirement assets, where the trade-off is essentially the same. The Halloween candy problem may be an intuitively appealing story to tell to retirees to explain the basic principle of how to manage the spend down of their assets. Further, understanding how people manage the Halloween candy problem may provide insights for how people might solve the more complex asset spend-down problem. The commonly suggested 4% rule is at odds with commonly used approaches for solving the Halloween candy problem, with the Halloween candy approach being more pragmatic, dynamic, and intuitively appealing. TOPICS: Legal/regulatory/public policy, retirement","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"6 1","pages":"60 - 67"},"PeriodicalIF":0.0,"publicationDate":"2019-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48953574","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Social Security system has two distinct goals: first, to provide insurance provisions such as disability benefits and survivor benefits for children and widow(er)s and, second, to provide retirement income to workers. There are good reasons to separate the insurance portion of the system from the retirement-income portion. In this article, suggestions are made pertaining to the insurance portion of the system, and recommendations are then made pertaining to the retirement-income portion of the system. The key principle behind reforms of the retirement-income portion of the system is that it should be primarily a required-savings program, and not primarily an income-redistribution program. Reform proposals are then evaluated with this guiding principle in mind. TOPICS: Retirement, legal/regulatory/public policy
{"title":"Social Security Reforms","authors":"William R Reichenstein","doi":"10.3905/JOR.2019.1.051","DOIUrl":"https://doi.org/10.3905/JOR.2019.1.051","url":null,"abstract":"The Social Security system has two distinct goals: first, to provide insurance provisions such as disability benefits and survivor benefits for children and widow(er)s and, second, to provide retirement income to workers. There are good reasons to separate the insurance portion of the system from the retirement-income portion. In this article, suggestions are made pertaining to the insurance portion of the system, and recommendations are then made pertaining to the retirement-income portion of the system. The key principle behind reforms of the retirement-income portion of the system is that it should be primarily a required-savings program, and not primarily an income-redistribution program. Reform proposals are then evaluated with this guiding principle in mind. TOPICS: Retirement, legal/regulatory/public policy","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"6 1","pages":"30 - 44"},"PeriodicalIF":0.0,"publicationDate":"2019-04-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42300704","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
B. Stangle, D. Heavner, Yao Lu, Alex Iselin, Priyanka Singh
By some estimates, underfunded public retirement systems in the United States represent liabilities that could impose $4 trillion on taxpayers and municipal employees, depending on how governments choose to respond to shortfalls resulting from a system’s inability to meet its pension obligations. While there has been a wide range of responses (and nonresponses) to state and local pension underfunding, it is instructive to examine Massachusetts, where in 2007, the state government enacted legislation to identify underperforming local systems and require them to cede control of their pension investments to the state’s Pension Reserves Investment Management (PRIM). The decade that has passed since enactment of this reform provides an opportunity to evaluate its economic impact. This article evaluates and quantifies the effect that PRIM management has had on the investment returns received by the local systems that transferred assets to PRIM after 2007, with a focus on within-system effects. Results indicate that underperforming local systems received substantial benefits from the shift to PRIM’s investment management. These findings provide lessons for other states in which locally managed pensions have fallen into a position of severe underfunding. TOPICS: Long-term/retirement investing, pension funds, performance measurement, retirement, wealth management Key Findings • After the Massachusetts state government enacted legislation (“Chapter 68”) in 2007 to identify underperforming local retirement systems, a substantial number of local systems transferred all, or nearly all, of their pension assets to the state’s Pension Reserves Investment Management (PRIM). • It is estimated that, on average, local systems that transferred assets to PRIM experienced an increase in annual gross returns of 8.9 basis points for every 10% of their assets transferred to PRIM. • In dollar terms, it is conservatively estimated that these local systems collectively gained $321 million (nearly 7% of their total unfunded liability in 2016) as a result of transferring their assets to PRIM after the implementation of Chapter 68.
{"title":"State vs. Local Management of Pension Assets: Effects of the Massachusetts Chapter 68 Public Pension Reform","authors":"B. Stangle, D. Heavner, Yao Lu, Alex Iselin, Priyanka Singh","doi":"10.2139/ssrn.3381988","DOIUrl":"https://doi.org/10.2139/ssrn.3381988","url":null,"abstract":"By some estimates, underfunded public retirement systems in the United States represent liabilities that could impose $4 trillion on taxpayers and municipal employees, depending on how governments choose to respond to shortfalls resulting from a system’s inability to meet its pension obligations. While there has been a wide range of responses (and nonresponses) to state and local pension underfunding, it is instructive to examine Massachusetts, where in 2007, the state government enacted legislation to identify underperforming local systems and require them to cede control of their pension investments to the state’s Pension Reserves Investment Management (PRIM). The decade that has passed since enactment of this reform provides an opportunity to evaluate its economic impact. This article evaluates and quantifies the effect that PRIM management has had on the investment returns received by the local systems that transferred assets to PRIM after 2007, with a focus on within-system effects. Results indicate that underperforming local systems received substantial benefits from the shift to PRIM’s investment management. These findings provide lessons for other states in which locally managed pensions have fallen into a position of severe underfunding. TOPICS: Long-term/retirement investing, pension funds, performance measurement, retirement, wealth management Key Findings • After the Massachusetts state government enacted legislation (“Chapter 68”) in 2007 to identify underperforming local retirement systems, a substantial number of local systems transferred all, or nearly all, of their pension assets to the state’s Pension Reserves Investment Management (PRIM). • It is estimated that, on average, local systems that transferred assets to PRIM experienced an increase in annual gross returns of 8.9 basis points for every 10% of their assets transferred to PRIM. • In dollar terms, it is conservatively estimated that these local systems collectively gained $321 million (nearly 7% of their total unfunded liability in 2016) as a result of transferring their assets to PRIM after the implementation of Chapter 68.","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"8 1","pages":"50 - 75"},"PeriodicalIF":0.0,"publicationDate":"2019-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48604779","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The article describes and showcases a framework to analyze life-cycle, or target-date, investment strategies with intuitive, practical metrics. Anchored in the complex theory of life-cycle investing, we propose a comprehensive collection, or “dashboard,” of measures to capture various aspects of the problem: wealth-focused versions of return and risk concepts; the link between retirement contributions and portfolio returns; the strategy’s ability to support income in retirement; and behavior around retirement, a period when risk to invested wealth is greatest. These metrics are synthesized into one holistic view based on investor-specific preferences, highlighting the connection between investor characteristics and the life-cycle investment problem. TOPICS: Wealth management, long-term/retirement investing, pension funds
{"title":"How to Evaluate Target-Date Funds: A Practical Guide","authors":"R. Gabudean, Richard A. Weiss","doi":"10.3905/jor.2019.1.048","DOIUrl":"https://doi.org/10.3905/jor.2019.1.048","url":null,"abstract":"The article describes and showcases a framework to analyze life-cycle, or target-date, investment strategies with intuitive, practical metrics. Anchored in the complex theory of life-cycle investing, we propose a comprehensive collection, or “dashboard,” of measures to capture various aspects of the problem: wealth-focused versions of return and risk concepts; the link between retirement contributions and portfolio returns; the strategy’s ability to support income in retirement; and behavior around retirement, a period when risk to invested wealth is greatest. These metrics are synthesized into one holistic view based on investor-specific preferences, highlighting the connection between investor characteristics and the life-cycle investment problem. TOPICS: Wealth management, long-term/retirement investing, pension funds","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"6 1","pages":"68 - 81"},"PeriodicalIF":0.0,"publicationDate":"2019-04-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46176056","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
京公网安备 11010802042870号
京ICP备2023020795号-1
扫码关注我们
求助内容：
应助结果提醒方式：