UK/US - Pensions education as a solution to the lack of DC scheme enrolment does not work and is a total waste of money, delegates at UK's National Association of Pension Funds (NAPF) Annual Conference were told yesterday.
Davies said US policy makers had realised they had failed American retirees, evidenced by low participation rates, and said individuals were saving far less than they should.
He said: "The US has gone from [being] a defined benefit system and now 65% of Americans are totally dependent on DC and specifically 401(k) plans.
"Americans, left to their own devices, are pretty terrible investment managers. They hold far too much, their portfolio construction is poor, they have a tremendous home country bias."
He explained that even after the implosion of Enron and other huge US companies, individuals still continued to hold significant amounts of their own employer's stock.
Davies went on to say the implementation of the Pension Protection Act in 2006 had changed the legislative and regulatory landscape, putting in place provisions to help move DC forward.
He said: "Autoenrolment is key. For the first time, asset allocation defaults are being endorsed.
"Historically, trustees were were only putting money into cash. There are now safe harbours for plans to auto-enrol and auto-escalate contributions."
Davies also said new regulations from the Department of Labor were expected shortly, which would, for the first time, require the sponsor to fully disclose the true cost they were paying for 401(k) plans annually.
He concluded risk had now effectively been shifted back onto plans, as it is in the DB world, and said the most important tool to improving investment outcomes was to have a target-based structure.
"This is what will simplify decision making, improve participant investment selections and address a fiduciary concern for plan sponsors, not education."
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