Helping plan participants reach their retirement income goals
Adaptive Retirement Accounts (ARA) is an innovative default solution designed to increase the likelihood that retirement plan participants will reach their retirement income goals. ARA meets the criteria for a qualified default investment alternative (QDIA), as an alternative to target date funds.
Adaptive Retirement Accounts is a managed accounts solution customized to individual participants that leverages technology to integrate with recordkeepers and plan sponsor data. Adaptive 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), Adaptive Retirement Accounts (ARA):
- Builds a customized portfolio using asset allocation models, Russell Investments’ capital markets forecasts, and the investment options in the plan’s core menu
- Automatically adjusts and manages the portfolio as the participant’s situation or the capital markets change
- Includes an innovative tool (the Adaptive Retirement Planner) to help participants keep track of their progress toward their retirement income goal
How Adaptive 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.
Adaptive 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, ARA 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.
Adaptive Retirement Accounts are different than target date funds in several areas:
- Accumulation risk: 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
- Asset aggregation: 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
- Retirement spending support: Post-retirement withdrawal advice and the option to incorporate third-party retirement income solutions
- 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. ARA recognizes that participants are unlikely to be on a direct path to their retirement goals and must adjust as circumstances evolve.
Adaptive Retirement Accounts (ARA) explained
This short video shows how ARA creates customized investment portfolios designed to help defined contribution plan participants reach their specific retirement income goals.
Key stakeholders align to deliver Adaptive Retirement Accounts
Adaptive Retirement Accounts seek to position key stakeholders in a way that emphasizes the interests of plan sponsors and participants.
While Russell Investments serves as fiduciary with respect to the asset allocation advice offered through ARA, financial advisors are able to leverage their strength in selecting and monitoring the investment options that will fund ARA’s asset allocation advice from the plan’s core menu. Plan sponsors benefit through enhanced reporting to better understand the overall retirement health of their employees. Since the ARA system collects specific information about participants (without personally identifiable information such as Social Security numbers), we are able to report on critical participant sub-populations based on age, salary ranges and other key attributes and support targeted communications and plan design changes to help improve readiness for cohorts that are falling behind. In addition, the participant tool can lead to more effective one-on-one conversations between benefits professionals and participants.
Adaptive Retirement Planner
Our Adaptive Retirement Planner is an online financial planning tool for those participants who wish to enter more data and obtain additional advice on savings rates, asset allocation, and retirement age.
With our planner, participants can:
- Consider advice for improving the outcome of their plan.
- Model and compare different savings rates and retirement dates and make changes to their plan if desired.
- Automatically account for retirement assets that are outside of the plan, as well as include other retirement income sources.
- Increase their contribution rate automatically and gradually over a timeframe that works for them..
Explore more with these related links:
Research: Managed accounts, the other QDIA
Overview: Russell Investments at-a-glance
Research: The human element of OCIO
Brochure: Defined contribution solutions
Infographic: Winds of change
Research library: View defined contribution-specific research