Successful Defined Contribution Investment Design. Gao Ying

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      Stacy L. Schaus

      Successful Defined Contribution Investment Design

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      Successful Defined Contribution Investment Design

       How to Align Target-Date, Core, and Income Strategies to the PRICE of Retirement

      STACY L. SCHAUS, CFP^® with

      YING GAO, Ph.D., CFA, CAIA

      Cover image: palm trees © mervas/Shutterstock; beach © Mikadun/Shutterstock

      Cover design: Wiley

      Copyright © 2017 by Pacific Investment Management Company LLC, Writer, Stacy L. Schaus, CFP. All rights reserved.

      Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

      Published simultaneously in Canada.

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       Library of Congress Cataloging-in-Publication Data:

      ISBN 978-1-119-29856-4 (Hardcover/)

      ISBN 978-1-119-30254-4 (ePDF)

      ISBN 978-1-119-30256-8 (ePub)

This book is dedicated to all of the plan sponsors and defined contribution professionals who inspire us with your commitment to improve retirement security; to my husband, John, and children, Robert and Julia, and to all of our families and yours

      Disclosure

      The author of this book is employed by Pacific Investment Management Company, LLC (PIMCO) at time of publication. The views contained herein are the author’s but not necessarily those of PIMCO. Such opinions are subject to change without notice. This publication has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

      This publication contains a general discussion of defined contribution plans and is intended for plan sponsors of such plans. The analysis contained herein does not take into consideration any particular investor’s or plan’s financial circumstance, objectives, or risk tolerance. Investments discussed may not be suitable for all investors or plans.

      This book may contain hypothetical simulated data and is provided for illustrative purposes only. Hypothetical and simulated examples have many inherent limitations and are generally prepared with the benefit of hindsight. There are frequently sharp differences between simulated results and actual results. There are numerous factors related to the markets in general or the implementation of any specific investment strategy that cannot be fully accounted for in the preparation of simulated results and all of which can adversely affect actual results. No guarantee is being made that the stated results will be achieved.

      Nothing contained herein is intended to constitute accounting, legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This book includes discussions of financial concepts that are theoretical in nature such as the “risk-free rate” or “risk-free asset”; readers should be aware that all investments carry risk and may lose value. The information contained herein should not be acted upon without obtaining specific accounting, legal, tax, and investment advice from a licensed professional.

      Acknowledgments

      This volume was brought into being as a result of countless conversations about the increasing importance of defined contribution pension plan design for workers around the globe. My first volume, Designing Successful Target-Date Strategies for Defined Contribution Plans: Putting Participants on the Optimal Glide Path, was published in 2010 and focused on designing and implementing custom target-date strategies within DC plans. This volume, in turn, broadens and deepens the dialogue about plan design – looking not only at custom target-date strategies, but also the whole of DC investment design from governance to investment defaults, through the core lineup and ending with retirement income. My goal in preparing this book is to further contribute to plan sponsors’, consultants’, and other professionals’ understanding of how to design a DC plan to help participants succeed in building adequate and sustainable retirement income.

      Like its predecessor, this book is the result of extensive collaboration and participation among a very long list of colleagues, plan sponsors, consultants, lawyers, and investment and other DC professionals. Among my colleagues, Ying Gao, PhD, CFA, CAIA is noted on the cover as she has worked tirelessly over the past six years in developing and enhancing the PIMCO DC analytic toolset, including the methodology for PRICE. We worked together in coauthoring a long list of DC design papers; analytic work from these papers is updated and woven into the analytic sections of the book. Outside of PIMCO, I worked closely with talented financial editor Alexandra Macqueen CFP^®, who skillfully guided the project and helped shape, refine, and polish every chapter. Her financial depth of understanding, coupled with superb writing skills, eased the process and improved the book’s readability.

      Once again I extend my deepest gratitude to the plan sponsors whose passionate work to “get DC right” has paved the way for increasing