Retirement Update – June 2018
✔ Discount rates were relatively flat during May.
✔ Markets saw more volatility in May due to heightened political risks around North Korea, trade and Italy’s new populist government. Despite this, fundamentals remained strong and inflation remained insignificant.
✔ Funded status should have increased slightly in May due to the positive equity returns and flat discount rates.
May 2018 Summary
Flat discount rates and equity gains will result in small funded status gains for plan sponsors during May. Year-to-date plans should be ahead of where they were at the beginning of 2018 due to rising interest rates. Discount rates continue to be the driving factor in funded status changes so far in 2018.
Discount Rates & Asset Returns
Discount rates decreased slightly last month (0.06%). However rates are higher than rates at this time last year and up over 0.40% since the end of 2017.
Political risks such as global trade, North Korea and Italy’s new populist government led to volatility and a risk-off sentiment. The Dollar appreciated 2%, causing international equities to decrease, while US equities increased 2.8%. Interest rates backed off recent highs and bond investments generally increased.
What’s New at River and Mercantile Solutions?
In an effort to more closely align all business units across the River and Mercantile Group, P-Solve has announced that, effective July 1st 2018, it will reposition its brand to River and Mercantile Solutions.
The alignment of a consistent brand reflects the increasing degree to which macro thinking across the business is used to develop the investment views and advice for all the Group’s clients.
For more information on the re-brand please feel free to contact Michael Clark at firstname.lastname@example.org.
Ask River and Mercantile Solutions!
I’ve read that 401(k) plan sponsors should consider “custom” Target Date Funds. What does this mean?
A “custom” target date fund (TDF) is one that is blended by an investment manager or consultant to exhibit specific risk behavior and achieve specific return goals, based on plan participant characteristics. For example, a plan with an older, more risk-averse population may not want the chance of loss inherent in many “off the shelf” TDFs, such as those managed by mutual fund companies, which tend to be stock-heavy. Instead, they may want a steeper “glide path” – that is, one that reduces stock exposure at a faster rate than TDFs on average, to reduce the possibility of older participants with shorter investment timeframes incurring large losses during bear stock markets. Also, many “off the shelf” TDFs do not offer adequate inflation protection; this may be of concern to 401(k) plan sponsors with significant retiree and near-retiree populations for whom inflation is a major threat. Ultimately, a plan sponsor should consider a custom TDF if their plan population is different from the broad averages that pre-packaged TDFs are designed for. Ideally, a plan sponsor would define an income replacement ratio objective for their plan (e.g., 50% of pre-retirement income in the form of an annuity for a typical participant age 65) and choose a TDF manager accordingly. As always, sponsors must follow a reasonably prudent process in selecting a TDF or other manager; they must monitor their choice over time; and they should document all decisions carefully.
Have a question for River and Mercantile Solutions? Please submit it to email@example.com and look for a possible answer in next month’s update!
SECURITY INDICES: This presentation includes data related to the performance of various securities indices. The performance of securities indices is not subject to fees and expenses associated. Investments cannot be made directly in the indices. The information provided herein has been obtained from sources which River and Mercantile LLC believes to be reasonably reliable but cannot guarantee its accuracy or completeness.
CONFIDENTIAL: For addressee use only, not to be disclosed to any other person without express consent from River and Mercantile LLC. Past performance cannot be relied upon to predict future results. River and Mercantile LLC is an investment advisor registered with the US Securities and Exchange Commission.
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