In the United States, defined benefit pension plans are largely fading from view as defined contribution (DC) plans take their place. Instead of looking forward to a regular pension, more and more workers will have to rely on nest eggs they have accumulated – since DC plans rely on participants to take an active role in saving for their future – and invested. Target date funds are one popular solution, but investment expert James Sia says the methodology their managers use for asset allocation may leave participants with a shortfall in retirement. He outlines a better way for plan sponsors to handle DC schemes that will build wealth for retirees. getAbstract recommends this instructive paper to future retirees, plan sponsors and those who run corporate retirement schemes.
In this summary, you will learn
- How defined contribution plans have replaced defined benefit pension plans,
- What role target date funds play in retirement savings, and
- Why an unconventional approach to target date allocations works better than traditional solutions.
About the Author
James Sia is head of defined contribution efforts for the global client relations team at GMO, a global investment management firm.