PLANADVISER - May/June 2019 - 15

Experts Consider LDI for 401(k)s
How a strategy from the pension plan space speaks to retirement income
WHEN Aaron Meder first joined Legal
& General
Investment Management
America (LGIMA) in 2010, as head
of U.S. solutions, the liability-driven
investing (LDI) marketplace was still
undeveloped.
Now CEO of LGIMA, Meder says
the company-and its competition-is
assessing how LDI could be of service
to defined contribution (DC) plans. He
says the complement for defined benefit
(DB) liability-driven investing on the DC
plan side is the discussion of " in-plan
guaranteed retirement income. "
" So, on the pension LDI side, the
objective is to have the liquid assets in
hand when you need them to pay your
pension liabilities, " Meder says. " It's
really kind of the same idea on the DC
side-a successful outcome is about
having sufficient money available
when you need it and for as long as you
need it. Pension plans are managing
this goal for a whole population of
people, while DC plans are serving
individual account holders. "
One important caveat, Meder
points out, is that LDI strategies must
be informed by a plan sponsor client's
goals for its DC plan. In other words, an
LDI approach will look different based
on whether the plan is designed to be
the main source of retirees' income or
if it is supplemental.
" Full
income replacement
is not
the goal of every DC plan, " Meder
notes. " Many are designed to be more
supplementary in nature. The defining
of goals is an important discussion to
have when thinking about LDI, both for
DB and DC plans. "
Practically speaking, in the near
term, Meder says, using LDI in defined
contribution plans could mean doing
a re-evaluation of the fixed-income
investments offered. Just as DB plans
have reconsidered holding a basic core
fixed-income portfolio, which does
not match their liability duration, and
instead have embraced longer-duration
fixed income, DC plan investors
may consider doing the same, he says.
" Once you redefine what retirement
income looks like, you start to
redefine what the fixed-income portfolio
looks like, including in targetdate
fund [TDF] glide paths, " he adds.
TALKING POINTS
Stressed!
Seventy percent of American workers say
they've felt anxious about their finances
in the past year, and 65% expect that to
continue over the next 5 years.
Source: Prudential, American Workers Survey
Falling Flat
Large majorities of women say they
prioritize planning for their retirement
and their family's future-90% and 84%,
respectively-yet over 70% say they
don't do a very good job at either.
Source: Lincoln Financial, 2018 Love and Responsibility Survey
A Hand Extended
Managed accounts and target-date
funds continue to gain ground, and
over one-third of companies now offer
investment advice for their retirement
plan participants.
Source: Plan Sponsor Council of America, 61st Annual Survey of Profit Sharing and 401(k) Plans
planadviser.com May-June 2019 | 15
" In my opinion, the next 10 years will
bring a massive shift from core fixed
income in DC plans to something
that
looks more like liability-driven
investing, just like we saw in the DB
plan market. " -John Manganaro

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PLANADVISER - May/June 2019

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