If there is anything positive to be gleaned from the financial crisis, it is that 401(k) plan designs need to be revised so they are more resistant to extreme volatility and market downturns, Putnam Investments CEO Robert L. Reynolds told executives at the National Investment Company Service Association’s East Coast Regional Meeting in Boston.
Reynolds called for a “new generation” of workplace savings plans with lower volatility and lifetime income options. “We need to do more to protect working Americans from the inflation, volatility and longevity risks that can make lifelong security in retirement so hard to reach.
“The Pension Protection Act of 2006 has gone a long way toward solving the challenge of savings accumulation. Auto-enrollment, savings escalation and asset-allocation guidance all work—but we need to finish the job. The next challenge in workplace savings plans will be to offer guidelines, even guardrails, to ensure that workers’ savings are protected as they reach retirement age.”
Specifically, Reynolds asks sponsors, administrators, financial advisers and investors to consider lifetime income solutions, be they in an annuity or other design, relative-return strategies and absolute-return strategies.
“Preserving wealth is an active endeavor,” Reynolds said. “Index funds and other passive investments that track benchmarks are guaranteed to lose value when the markets they track sink, as we saw happen to the investments of many workers last year.”
Putnam recently unveiled its RetirementReady Funds, a suite of target-date funds that integrate absolute-return and traditional investment strategies.