Successful Defined Contribution Investment Design - Gao Ying

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success of workers today and tomorrow, and who have shared the details of their plan design through our PIMCO DC Dialogues and in the various summits, forums, conferences, and other ways in which they keep the DC conversation alive. My gratitude extends to Karin Brodbeck at Nestlé, USA; Judy Mares, formerly of Alliant Techsystems Inc. (now part of Orbital); Stuart Odell at Intel Corporation; Brad Leak, CFA of The Boeing Company; Sharon Cowher and Christine Morris at Halliburton; Cindy Cattin at Exelon Corporation; Karen Barnes of McDonald’s Corporation; Gary Park at Schlumberger; Dan Holupchinski formerly of Deluxe Corporation; Dave Zellner at Wespath Benefits and Investments (formerly United Methodist Church); Georgette Gestely at New York City Deferred Compensation Program; David Fisser formerly of Southwest Airline Pilots’ Association; and Pete Apor at Fujitsu.

      Each chapter of this book delves into a specific topic and I have called upon the insights and expertise of many experts to review and comment on the content. For this volume, my appreciation for their assistance and global plan pension design insights, both in the opening and close of the book, extends to Brigitte Miksa, Head of International Pensions, and Greg Langley, Editor-in-Chief, Allianz PROJECT M, both of Allianz Asset Management AG; Sabrina Bailey, Global Head of Defined Contribution at Northern Trust Asset Management; and former PIMCO colleague Will Allport. For plan and investment design, I’m thankful for the expertise and careful review by Lori Lucas, DC Practice Leader at Callan Associates; Matthew Rice, Chief Investment Officer at DiMeo Schneider and Associates, LLC; Kevin Vandolder, DC Client Practice Leader, Partner, Investment Consulting, and Bill Ryan, Associate Partner at Aon Hewitt Investment Consulting; Ross Bremen, Rob Fishman, and Tim McCusker, partners at NEPC; Thomas Idzorek, Chief Investment Officer at Ibbotson Associates; Mark A. Davis, Senior Vice President, Financial Advisor at CAPTRUST Financial Advisors; Philip Chao, Pension Consultant and Chief Investment Officer at Chao & Company; Donald Stone, Director of DC Strategy and Product Development and Senior Consultant at Pavilion Advisory Group Inc.; Josh Cohen, Head of Defined Contribution at Russell Investments; Chris Lyon and Lisa Florentine, partners at Rocaton Investment Advisors, LLC; Tim Burggraaf, DC Leader at Mercer in the Netherlands; Jody Strakosch, Founder of Strakosch Retirement Strategies, LLC; Kelli Hueler, Founder of Hueler Companies; Susan Bradley, Founder of Sudden Money Institute; and Lee Baker, Financial Planner at Apex Financial Services.

      In addition, I’m deeply appreciative of the extensive research, writing, and insights from many of the world’s most noted academic thought leaders, including Harry Markowitz, Nobel Prize winner, recognized Father of Modern Portfolio Theory, and professor of finance at the Rady School of Management at the University of California, San Diego (UCSD); Zvi Bodie, retired Norman and Adele Barron Professor of Management at Boston University; Richard Thaler, Charles R. Walgreen Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago Booth School of Business; Shlomo Benartzi, professor at University of California at Los Angeles; Brigitte Madrian, Aetna Professor of Public Policy and Corporate Management at the Harvard Kennedy School; Olivia S. Mitchell, Professor of Insurance and Risk Management, International Foundation of Employee Benefit Plans, also Executive Director, Pension Research Council, and Director, Boettner Center on Pensions and Retirement Research, The Wharton School; Jeffrey R. Brown, the Josef and Margot Lakonishok Professor of Business and Dean of the College of Business at the University of Illinois in Urbana-Champaign, Illinois; Joshua Grill at University of California at Irvine; Michael Drew, Professor of Finance at Griffith Business School, Griffith University, and Partner at Drew, Walk & Co.; and Julie Agnew, Associate Professor of Finance and Economics at The College of William and Mary.

      I also am thankful for the research, insights, and contributions to DC by many extraordinary professionals and organizations, including Jack VanDerhei, Research Director at the Employee Benefit Research Institute (EBRI); Lew Minsky, Executive Director at Defined Contribution Institutional Investment Association (DCIIA); Chris J. Battaglia, Vice President and Group Publisher at Crain Communications, Inc.; Joshua Franzel, PhD, Vice President, Research Center for State and Local Government Excellence; Juan Yermo, Deputy Chief of Staff to the OECD Secretary-General; Helen Monks Takhar at the NEST Corporation; Gina Mitchell, President of the Stable Value Investment Association (SVIA); and Hattie Greenan, Director of Research and Communications at the Plan Sponsor Council of America (PSCA).

      I am grateful for the additions to content, thoughtful editing, and suggestions by ERISA legal professionals, including Marla Kreindler, Partner at Morgan, Lewis and Bockius; James Fleckner, Securities and Investment Management Litigator at Goodwin Procter LLP; David Levine, Principal at Groom Law Group, Chartered; R. Bradford Huss, Partner at Trucker Huss APC; and Sally Nielsen of Kilpatrick, Townsend and Stockton LLP.

      PIMCO colleagues also contributed significantly to the content development, review, and editing of all of the chapters. I would like to extend heartfelt gratitude to Joe Healy, DC institutional leader for his review and contribution to the entire book; and Steve Sapra, PhD, and Justin Blesy for meticulous review of the glide path and benchmarking content found in multiple chapters. By topic, we thank: Steve Ferber and former colleague Michael Esselman for review of investment structure; Brett Gorman, Brian Leach, Paul Reisz, Ronnie Bernard, and David Berg for capital preservation and fixed income; Nick Rovelli for shaping and editing the fixed income chapter, plus David Fisher and Loren Sageser for their careful edits; Andy Pyne, Raji Manasseh, and Markus Aakko for contribution to content and editing the equity section; Bransby Whitton, Klaus Thuerbach, and Kate Botting for contributing to and editing the inflation chapter; John Cavalieri, Ashish Tiwari, and Ryan Korinke, as well as Rob Arnott and Lillian Yu of Research Affiliates for review of additional strategies and alternatives; Mike Cogswell and Theo Ellis for review of the retirement income section; and Ken Chambers and Chantal Manseau for their review of the closing. I also appreciate the review by colleagues in Australia, including Adrian Stewart, Sara Higgins, and Manusha Samaraweera; in Canada by Stuart Graham; and in The Netherlands by Patrick Dunnewolt.

      PIMCO leadership, as well, stood behind the creation and fulfillment of this project, including Tom Otterbein, managing director and head of institutional Americas, and Rick Fulford, executive vice president and head of U.S. retirement. I also extend gratitude to PIMCO managing directors Susie Wilson; James Moore, PhD; Kim Stafford; and Candice Stack for their review of materials and support of discussions with consultants and plan sponsors.

      In addition, our highly professional team at PIMCO tirelessly and individually had a hand in producing this final work, including reviewing, adding to content, editing, designing, and confirming numbers, names, graphics, and figures. These include Daniel Bradshaw and Carla Harris, who reviewed the entire book from a compliance perspective; Blayze Hanson, who worked on all of the charts and graphs throughout the book; Barry Lawrence, who contributed to analyses and helped shepherd the project; and Candi Barbour, who served as marketing assistant to the project. In addition, I would like to thank our editors who contributed to materials, including Steve Brull and Matt Padilla.

      My partners at John Wiley & Sons, Sheck Cho, Judy Howarth, and Vincent Nordhaus assisted greatly in editing and publishing this book, and I owe them, too, my appreciation.

      And last but never least, I owe a continuing debt of thankfulness to my family, whose generous patience, support, and encouragement helped me produce this work – through many time zones, late nights, weekends, and other moments and hours dedicated to this project. Thank you, once again, for allowing me the time to continue to contribute to global defined contribution plan advancement.

      Introduction

      Today, workers around the globe are increasingly dependent on defined contribution plans to reach their retirement income goals. In the United States, fewer than one in five workers have access to a traditional defined benefit pension program. To retire financially secure, workers need well-designed defined contribution (DC) plans – as most will rely on such plans for at least a third of retirement income. Those who have access to a well-designed plan and are contributing at a sufficient level are likely to succeed. Unfortunately, not all workers are offered a DC plan.. and plans that are offered may have a less-than-optimal design.

      As of 2015, we estimate that only about half of U.S. workers have access to a DC plan; in particular, people working part-time or for small employers often lack plan access. Some countries such as the United Kingdom and Australia have addressed DC plan availability by mandating that employers must

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