Investors who entrust their retirement portfolio to a lifecycle fund
often do so because they're busy, confused, or overwhelmed by investment choices.
But the move can throw a delicately allocated lifecycle fund
PPA allows employers to default participants' assets into a managed account, lifecycle fund
, or a lifestyle fund in order to ensure that plan participants are in a proper asset allocation based on age.
Most lifecycle fund
offerings in today's market are too aggressive in their equity exposures: The appropriate range of equity allocation in retirement is between 5% and 25% (if an investor's primary goal is to not outlive his or her assets);
This enhancement enables producers to offer an appropriate Lifestyle or Lifecycle fund
to clients or can put together a series of fund choices from the John Hancock Trust that would meet the client's needs," Mr.
The enhancements adjust the initial asset allocation and the investment allocation "glide path," or the manner in which the lifecycle fund
will slowly be reallocated over time, across all target retirement dates and are effective immediately.
One option that could make this easier is a target-date lifecycle fund
, which is becoming an increasingly popular option in workplace retirement plans.
The Pension Protection Act includes provisions for automated plan features like automatic deferrals into a default investment option such as a strategic allocation or lifecycle fund
, and automatic annual increases in an employee's salary deferral rate that take effect for plan years beginning in 2008 provided certain requirements are met.
Findings on lifecycle funds
, including target-date funds and target-risk funds, show the focus shifting from asset maximization to liability matching.
Qualified default investment alternatives--known as lifecycle funds
or pre-mixed funds--are a positive way to simplify portfolio allocation decisions.
A recent survey of more than 200 large employers by Aon Hewitt shows 83% offer either targetdate or lifecycle funds
in their 401(k)s, and more than a third of the remaining companies are considering doing so.
To gain access to alternative asset classes in a plan that doesn't provide a direct option for investing in them, he suggests looking at target-date, target-risk or lifecycle funds
, some of whose models include alternative asset classes.