Helping plan participants reach their retirement income goals
Personalized Retirement Accounts (PRA) is an innovative default solution designed to increase the likelihood that retirement plan participants will reach their retirement income goals. PRA meets the criteria for a qualified default investment alternative (QDIA), as an alternative to target date funds.
Personalized Retirement Accounts is a managed accounts solution customized to individual participants that leverages technology to integrate with recordkeepers and plan sponsor data. Personalized Retirement Accounts offer plan sponsors and their participants an objective-based solution that adapts over time to help get and keep participants on track to meet retirement income goals.
Based on each participant’s unique information (as provided by the recordkeeper and plan sponsor), Personalized Retirement Accounts (PRA):
Automatically adjusts and manages the portfolio as the participant’s situation or the capital markets change
Includes an innovative tool (the Personalized Retirement Planner) to help participants keep track of their progress toward their retirement income goal
Builds a customized portfolio using asset allocation models, Russell Investments’ capital markets forecasts, and the investment options in the plan’s core menu
Plan sponsors are looking to offer a default option that is simple and easy to implement and that seeks to provide better outcomes for plan participants. With Personalized Retirement Accounts (PRA), plan sponsors can have both.
How Personalized Retirement Accounts work
With deep experience providing glide paths, we created the adaptive investing methodology in 2011. Since 2014, we have provided a solution customized to individual participants that leverages technology to integrate with recordkeepers and plan sponsor data. These connections allow us to collect relevant characteristics for each participant without any additional effort on his or her part. With the ability to pull participant-level information automatically and frequently from recordkeepers, it is possible to provide participants with asset allocation advice that is designed around the specific situation of each without limiting the opportunities of participants by the “average” circumstances of their same-age peers.
Personalized Retirement Accounts automatically collect information about each participant in a plan, applies the adaptive retirement methodology and builds a model asset allocation for each individual participant. The data used to describe each participant are the same that are needed to create a glide path: participant age, contribution rate, current account balance, current and assumed future salary, gender and availability of other retirement resources including defined benefit (DB) plan benefits (if applicable). We combine these with plan-level data regarding the contribution match that each participant receives and determine whether each is eligible for any non-matching employer contributions or other programs that are only available for certain employees. With this information, PRA creates a retirement income goal and develops an asset allocation most appropriate for each participant to reach that goal. This means that participants are not tied to the “one-size-fits-all” strategy of target date funds.
Customized investment solutions for diverse retirement plan participant needs
Target date funds are designed for the “typical” participant with a “typical” investment profile, where age is the only factor used for portfolio selection. Additionally, the asset allocations within target date funds are predetermined and therefore do not take each participant’s market experience into consideration. Participants who are the same age may have different experiences and could benefit from a more customized investment strategy designed to increase their likelihood of achieving their replacement income.
Personalized Retirement Accounts are different than target date funds in several areas:
Can reduce risk and improve reward for a given level of equity exposure, as compared with target date funds, by being responsive to an individual participant's situation.
Able to easily incorporate outside personal and household assets and incomes to receive more precise asset allocation and participant communications.
Retirement income focus
Individualized reporting and tools convey progress toward meeting individual retirement income goals and advice on improving retirement readiness for each participant.
Personal tracking over time
Personal situations change over time. Salaries increase faster or slower than expected, savings rates ebb and flow (as immediate expenses battle with the goal of long-term savings) and markets rally or disappoint. Asset allocations should not remain static as these critical drivers of current and future retirement resources change. PRA recognizes that participants are unlikely to be on a direct path to their retirement goals and must adjust as circumstances evolve.
Personalized Retirement Accounts (PRA) explained
This short video shows how PRA creates customized investment portfolios designed to help defined contribution plan participants reach their specific retirement income goals.
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