>Stacy L. Schaus
Successful Defined Contribution Investment Design
The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation, and financial instrument analysis, as well as much more. For a list of available titles, visit our Web site at www.WileyFinance.com.
Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding.
Successful Defined Contribution Investment Design
How to Align Target-Date, Core, and Income Strategies to the PRICE of Retirement
STACY L. SCHAUS, CFP® with
YING GAO, Ph.D., CFA, CAIA
Cover image: palm trees © mervas/Shutterstock; beach © Mikadun/Shutterstock
Cover design: Wiley
Copyright © 2017 by Pacific Investment Management Company LLC, Writer, Stacy L. Schaus, CFP. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
ISBN 978-1-119-29856-4 (Hardcover/)
ISBN 978-1-119-30254-4 (ePDF)
ISBN 978-1-119-30256-8 (ePub)
Disclosure
The author of this book is employed by Pacific Investment Management Company, LLC (PIMCO) at time of publication. The views contained herein are the author’s but not necessarily those of PIMCO. Such opinions are subject to change without notice. This publication has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
This publication contains a general discussion of defined contribution plans and is intended for plan sponsors of such plans. The analysis contained herein does not take into consideration any particular investor’s or plan’s financial circumstance, objectives, or risk tolerance. Investments discussed may not be suitable for all investors or plans.
This book may contain hypothetical simulated data and is provided for illustrative purposes only. Hypothetical and simulated examples have many inherent limitations and are generally prepared with the benefit of hindsight. There are frequently sharp differences between simulated results and actual results. There are numerous factors related to the markets in general or the implementation of any specific investment strategy that cannot be fully accounted for in the preparation of simulated results and all of which can adversely affect actual results. No guarantee is being made that the stated results will be achieved.
Nothing contained herein is intended to constitute accounting, legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This book includes discussions of financial concepts that are theoretical in nature such as the “risk-free rate” or “risk-free asset”; readers should be aware that all investments carry risk and may lose value. The information contained herein should not be acted upon without obtaining specific accounting, legal, tax, and investment advice from a licensed professional.
Acknowledgments
This volume was brought into being as a result of countless conversations about the increasing importance of defined contribution pension plan design for workers around the globe. My first volume, Designing Successful Target-Date Strategies for Defined Contribution Plans: Putting Participants on the Optimal Glide Path, was published in 2010 and focused on designing and implementing custom target-date strategies within DC plans. This volume, in turn, broadens and deepens the dialogue about plan design – looking not only at custom target-date strategies, but also the whole of DC investment design from governance to investment defaults, through the core lineup and ending with retirement income. My goal in preparing this book is to further contribute to plan sponsors’, consultants’, and other professionals’ understanding of how to design a DC plan to help participants succeed in building adequate and sustainable retirement income.
Like its predecessor, this book is the result of extensive collaboration and participation among a very long list of colleagues, plan sponsors, consultants, lawyers, and investment and other DC professionals. Among my colleagues, Ying Gao, PhD, CFA, CAIA is noted on the cover as she has worked tirelessly over the past six years in developing and enhancing the PIMCO DC analytic toolset,
