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An Analysis of Defined Contribution (DC) Plans Great Plains Public Employee Retirement System Forum November 14, 2007

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Administered by 13 member Board of Trustees ... Member chooses fund closest to projected retirement date ... Up to member to consider assets outside of plan in ... – PowerPoint PPT presentation

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Title: An Analysis of Defined Contribution (DC) Plans Great Plains Public Employee Retirement System Forum November 14, 2007


1
An Analysis of Defined Contribution (DC) Plans
Great PlainsPublic Employee Retirement System
ForumNovember 14, 2007
  • Jon Forman, Vice Chair, Board of Trustees
  • Oklahoma Public Employees Retirement System
    (OPERS)
  • www.law.ou.edu/faculty/forman.shtml

2
Overview
  • OPERS and SoonerSave
  • Fees and Individual Accounts
  • Improving Asset Allocations for Individuals

3
ORGANIZATIONAL STRUCTUREOklahoma Public
Employees Retirement System
Board of Trustees
Advisors Consultants
Executive Director
General Counsel
Director of Member Services
Director of Information Technology
Chief Investment Officer
Director of Finance and CFO
Assistant CFO Financial Services
Administrator Defined Contribution Plans
Manager Communication Counseling
Administrator Member Services
4
OPERS Traditional DB Plan6/30/2006
  • Active OPERS Members 45,472
  • Retired OPERS Members 24,372
  • OPERS Plan Net Assets 5,817,165,538
  • OPERS Funded Ratio 71.4

5
SoonerSave
  • Division of the Oklahoma Public Employees
    Retirement System (OPERS)
  • Administered by 13 member Board of Trustees
  • One of the first deferred compensation plans for
    public employees
  • Top ten State plans in participation .
  • (67 as of 9/30/2007)

6
SoonerSave
7
SoonerSave - Contribution Limits for 2007
  • Regular 15,500
  • 50 Catch-Up 20,500
  • for employees age 50 and older
  • Standard Catch-Up 31,000
  • available 3 years prior to year of retirement

8
SoonerSave Investment Options
  • Bond
  • Balanced
  • Large-Cap
  • Mid-Cap
  • Small-Cap
  • International
  • Stable Value
  • Self-Directed Brokerage Option

9
SoonerSave
10
SoonerSave 457 Plan Review
As of12/31/06
11
Fees
  • Portfolio management, fund administration,
    shareholder service, and other miscellaneous
    costs.
  • GAO these investment fees make up 80 to 99
    percent of fees
  • Record-keeping fees associated with maintaining
    participant accounts, processing fund selections,
    and mailing account statements.
  • Fees associated with setting up a plan and
    explaining it to employees

Source U.S. Government Accountability Office,
Private Pensions Changes Needed to Provide
401(k) Plan Participants and the Department of
Labor Better Information on Fees (GAO-07-21,
2006)
12
Fees Hurt
  • Imagine a 45-year-old employee who plans to leave
    20,000 until age 65
  • _at_ 6.5 percent net annual return
  • 7 percent investment return minus ½ percent for
    fees
  • that 20,000 will grow to 70,500
  • If fees are 1.5 percent
  • that 20,000 will grow to just 58,400
  • additional 1 percent annual fee reduces account
    balance by 17 percent

13
DB Annual Rates of Return outpace DC Plans
1995-2002
(1.3)
Source Retirement Services Roundtable analysis
of Watson Wyatt data
14
Fees Recent Developments
  • Regulation
  • U.S. Department of Labor
  • ERISA Advisory Committee
  • Legislation
  • Rep. George Miller
  • Litigation
  • Breach of fiduciary duties

Source Jonathan Barry Forman, The Future of
401(k) Plan Fees, in New York University Review
of Employee Benefits and Compensation2007,
Chapter 9, pp. 9-1 to 9-18 (Alvin D. Lurie ed.,
2007).
15
Improving Asset Allocations for Individuals
  • Lifecycle Funds
  • Lifestyle Funds
  • Managed Accounts

16
Target Maturity Funds(LifeCycle Funds)
  • Member chooses fund closest to projected
    retirement date
  • Fund will allocate investments over time from
    aggressive to conservative
  • Average expense ratio 1.29
  • Meant to be one-stop shop for retirement
    investing.
  • Does not consider assets outside the fund or life
    expectancy
  • Does not offer employer fiduciary protection

Source Morningstar as of 12/31/06
17
Lifestyle Funds
  • Member selects fund reflecting their risk
    tolerance Conservative, Moderate, Aggressive
  • Meant to be one-stop shop for retirement plan
    investing
  • Up to member to consider assets outside of plan
    in selecting fund
  • Does not reflect age or other life changes
  • Does not offer employer fiduciary protection

18
Managed Accounts
  • Personalized to individual financial
    circumstances and retirement goals
  • Considers Assets outside the Plan
  • Reflects life and age changes
  • Employer Fiduciary Protection
  • Asset allocation based on information provided by
    member
  • Asset based fees
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