Senate Examines Risks Of Target-Date Funds

The Senate Special Committee on Aging held a hearing Wednesday to examine the risks and potential conflicts of interest inherent in target-date funds.

For 401(k) administrators that offer their own target-date funds, comprised of their own offerings, in plans that automatically enroll workers, "it's the easiest money to get and the hardest money to lose," testified John Rekenthaler, vice president of research at Morningstar.

Last year, even as investors redeemed money from nearly every mutual fund category, target-date funds reaped $57 billion in inflows, and they are on pace to attract another $60 billion this year. Nearly 86% of the assets in target-date funds are held in retirement plans.

Because the glidepaths and risk allotment of target-date funds vary so greatly, even for funds with the same retirement target, their performance is all over the map, experts testified. With equity exposure ranging from 26% to 72% in the 2010 target-date group, for instance, those funds lost anywhere between 23% and 38% last year.

46% of Unemployed in '08 Cashed Out of Their 401(k)

Forty-six percent of those leaving a job in 2008 tapped into their 401(k), maintaining an "alarmingly high" rate of people cashing in since 2005, Hewitt Associates said. Sixty-percent of those cashing in were in their 20s, and 33% were in their 50s.

However, those with more money saved tended to appreciate the importance of its purpose, with only 8% of those with balances of $100,000 or more dipping into their 401(k), and 85% of those with balances of $1,000 or less running with the money.

51% at Risk of Struggling in Retirement

The percentage of Americans at risk of having to cope with lower living standards in retirement has risen to 51%, seven percentage points higher than the 44% last measured in 2007, the Center for Retirement Research at Boston College found. And the figures would be even higher if they accounted for healthcare and long-term care, the center said. Among low-income households, the percentage at risk is 60%, among middle-income it's 47%, and for high-income it's 42%.

And Nationwide Mutual Insurance, which underwrote the research for this National Retirement Risk Index, has found that many investors are becoming disengaged about planning for retirement. Twenty-five percent fewer people say they would seek advice before making investment decisions, and 60% less agree that retirement income is important.

"We are clearly facing a retirement crisis, one that will continue to grow as younger workers age," said center Director Alicia H. Munnell. Both the center and Nationwide are calling on investors and their advisers to proactively prepare for retirement, particularly for advisers to empathize with their clients' frustration and cynicism. Specifically, the organizations recommend that people save and invest more, reduce debt and work longer.

6.6 Million Americans Age 65+ Looking for Work

While the recession has forced many Americans to delay retirement, one of the hardest hit are those already retired in search of work. There are 6.6 million Americans age 65 or older who have lost their jobs in the recession, 61% more than the 4.1 million unemployed in this age group in 2000.

This is five times the number of people in this age bracket who were unemployed in the Great Depression. Making matters worse, many older Americans still owe money on their mortgages.

In terms of percentages, 6.7% of older Americans are out of work. While that's below the 9.8% national average, it's far higher than the 1.9% who were unemployed earlier this decade. And among those who successfully find other gainful employ, it takes an average of 36.5 weeks, or more than nine months. That's 40% longer than other unemployed folks.

As AARP Legislative Policy Director David Certner puts it, "It's a big deal for a lot of these people not to find a job. That so many of them are still trying to find work shows how bad the economic situation is. A lot of people normally give up at that age."

According to the Congressional Research Service, the median income for those 65 and older is $18,208, with nearly 25% of this population living on $11,139 or less a year. The average Social Security benefit is currently $12,437 a year.

Franklin's Profit Rises 22% To $367.4 Million

Franklin Resources reported profits for its fiscal fourth quarter ended Sept. 30 rose 22% to $367.4 million, or $1.60 a share, up from $300.5 million, or $1.28 a share, a year ago. That beat analysts' expectations of earnings of $1.32 a share.

While revenue fell 6.3% to $1.2 billion, the firm reduced expenses by 6.1% to $854.2 million.

Assets under management rose 16% to $523.4 billion, up from $451.2 billion as of June 30, with most of the $12.2 billion in inflows going to Franklin's bond funds. That boosted assets in the firm's fixed income funds to 33% of all assets, up from 28% a year ago.

Legg Mason Earns $45.8M In Second Fiscal Quarter

Legg Mason earned $45.8 million, or 30 cents a share, for the second fiscal quarter of 2010, compared to a loss of $108.7 million, or 77 cents a share, a year earlier. The firm's assets under management rose 7% from the previous quarter to $702.7 billion but were down 17% from a year earlier.

Mark R. Fetting, chairman and CEO, said, "In our second quarter, Legg Mason generated another quarter of improving cash income, as adjusted, continued to operate its business efficiently and further strengthened its balance sheet. This quarter, operating income has significantly increased over last quarter, driven by higher assets under management. Our excess cash position of $1.1 billion-combined with our significant cash tax benefits-puts us in a position to further reduce debt and to reinvest in our businesses."

In addition, Legg Mason will seek out acquisitions, Fetting said.

T. Rowe Price's Earnings Fall 13% to $132.4 Billion

T. Rowe Price reported its third quarter earnings fell 13% to $132.4 million, or 50 cents a share, down from $152.4 million, or 56 cents a share, in the third quarter of last year. Its revenue of $498.1 million narrowly beat analyst consensus of $496 million.

Assets under management increased 16% to $366.2 million, with $218.4 billion of that in mutual funds.

Janus' Third Quarter Profits Fall 68% to $8.2 Million

Janus reported third quarter earnings of $8.2 million, or five cents a share, a 68% decline from the $25.4 million, or 16 cents a share, it earned in the year ago. Revenue declined 17% to $227.6 million.

Janus said the results include $10.5 million in legal settlements and a $12.1 million severance payment to its former CEO.

Assets under management, however, rose 14% to $151.8 billion.

84% Stick With 401(k) If Automatically Enrolled

Eighty-eight percent of workers who are automatically enrolled in a 401(k) plan stick with the plan, up from 77% in 2007, Charles Schwab found. Participation among all plans rose to 77%, up from 73% in 2007.

"The good news is that most employees are sticking with their 401(k) plan, which continues to be one of the best vehicles to save for retirement," said Catherine Golladay, vice president of 401(k) participant education and advice at Schwab. "The even better news is that people are also contributing to their accounts at almost the same level as they were prior to the market downturn. In fact, the average contribution rate in our plans stayed around 7% from 2007 to 2008, which is a reflection of people getting more serious about saving."

In the 401(k) plans that Schwab administers, relatively few employers eliminated their 401(k) match. As of July of this year, a mere 9% stopped making matching contributions, although sponsors in industries hardest hit by the recession, such as manufacturing and retail, were more likely to suspend the match. Roughly 69% of employers offer a match.

"Our plan sponsor clients tell us that the employer match is one of the most important 401(k) plan features for employees and eliminating it is a last resort, even in difficult economic times," said Robyn Alcorta, vice president of 401(k) client services at Schwab.

Loan activity also showed commitment to 401(k) plans, with 5.67% taking loans in 2008, down from 5.91% the year before, and hardship loans barely rose to 0.91%, up from 0.8% in 2007.

European Asset Managers Embrace UCITS IV

Asset managers are embracing the UCITS IV directive in Europe, and are turning to master/feeder structures as the number of asset managers and funds decline, KPMG reports.

"The fund industry is currently facing numerous challenges in these turbulent economic times that have impacted assets under management and profitability across the industry," said Peter De Proft, director general of the European Fund and Asset Management Association. "One of the important strategic steps for players in the UCITS industry is to fully explore how to take advantage of UCITS IV."

Vincent Heymans, a partner with KPMG in Luxembourg, added, "The current economic environment has presented the fund management industry with numerous challenges. It is therefore crucial now, more than ever, that fund managers fully realize the efficiency and consolidation opportunities found within UCITS IV, which allow for cost savings and improved efficiency of operations."

One of the key components of the updated directive is the Management Company Passport that allows an asset manager to operated from a single centralized location. Respondents to a survey said the most critical factor in selecting a location will be taxes (49%), followed by regulations (44%) and the availability of qualified personnel (33%).

CIBC Mellon Closes Felcom Data Services Deal

CIBC Mellon Global Securities Services completed the acquisition of the unitholder recordkeeping and fund administration business of Felcom Data Services.

The transaction includes the transfer of Felcom's client contracts and the majority of the company's employees.


(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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