In an apparent first for the retirement industry, John Hancock Retirement Plan Services is now offering 401(k) participants a choice between target date funds that plan for investments “to” retirement and “through” retirement.
In an apparent first for the retirement industry, John Hancock Retirement Plan Services is now offering 401(k) participants a choice between target date funds that plan for investments “to” retirement and “through” retirement.
Until now, fund providers have provided plan sponsors with either a lineup of target date funds that go “to retirement,” meaning they maintain a conservative allocation with the expectation that the assets will be managed only until the retirement date; or a series of “through retirement” funds, which are managed as far as 25 years beyond the retirement date and have a higher equity allocation.
John Hancock today announced the launching of a “to” suite of funds, called “Retirement Choices,” which will go along with the firm's already established “through” funds, called “Retirement Living.”
“We have participants with different needs, so we introduced a choice with a purpose,” said Ed Eng, senior vice president for product development at John Hancock RPS.
The new “to” suite of funds have asset mixes comprised of index funds, and are designed to reach their lowest allocation to equities at the investor's retirement date, with about 90% of the funds in fixed income and 10% in equities. Forty years from the target retirement date, the allocation is 18% fixed income and 82% equities.
In contrast, the allocation at retirement in the “through” series is 48% fixed income and 52% equities. It's also more aggressive than its “to retirement” counterpart 40 years out from retirement, with an allocation of 5% fixed income and 95% equities.
The new target date fund offering is also 20 to 25 basis points cheaper than the “through” product. The “to” products' total fees are near 80 basis points, while the “Retirement Living” suite runs at about 100 basis points, according to John Hancock.
Participants can choose between the two options during their 410(k) enrollment periods. Mr. Eng said the decision comes down to two basic questions: Would participants prefer to select their own investment strategy after retirement (to)? Or would they prefer to keep their assets in the same portfolio and draw retirement income (through)?
While participants who select the “to” option could take their savings at retirement and seek out the help of an adviser, Mr. Eng said John Hancock still has the opportunity to grab those rollover assets.
“Participants get a lump sum at retirement and we can help them figure out what to do with it: They can roll it into a retail fund, an IRA, a fixed annuity or a [guaranteed minimum withdrawal benefit],” Mr. Eng added.
It remains to be seen how successful pairing the two types of funds will be.
“I think they must have been feeling some pressure in the marketplace that their glide path was too aggressive for the plan sponsors, so they'd have to adjust it or come out with a separate option,” said Josh Charlson, senior mutual fund analyst with Morningstar Inc.
Though choices are great for plan sponsors, a key issue will be whether plan participants can adequately understand the differences between the two series of funds, he added.
“I'm sure people are going to look and see how successful they can be with it and whether they can get assets into both,” Mr. Charlson said.
