This site uses cookies.  By continuing to browse this site you are agreeing to our use of cookies.   Find out more.

Retirement Reset

October 2013

Robert G. Capone

Executive Vice President, BNY Mellon Retirement
BNY Mellon Investment Management

What if defined contribution (DC) plans were to adopt more of the strategies that have been working for defined benefit (DB) plans?

Rob Capone, Head of Retirement for BNY Mellon, thinks such a development would benefit DC plan participants, especially in a low-yielding, highly correlated marketplace. The correlation between assets — how they move together, up or down in a market — can have a significant effect on performance results. "There are three significant challenges that go with that kind of marketplace," Rob says. "First of all, managing the downside risk within the portfolio. Secondly, achieving better diversification. And third, managing volatility within the portfolio."

Applying best practices from the institutional defined benefit world makes sense: "Looked at historically over the last 10 years," he says, "defined benefit plans have outperformed defined contribution plans by over 180 basis points, and that's significant." Important differences include:

  • Home-Country Bias – DC plans tend to have a much higher allocation to domestic securities compared with DB plans, at a time when investors need to expand their investment universe to find return
  • True Diversification – DB plans have much higher allocations to non-traditional strategies, such as real assets, emerging markets and liquid alternatives to increase diversification and better manage portfolio volatility and downside risk
  • Investment Expertise – DB plans are managed by experienced investment professionals, while individual DC plan participants often feel ill-prepared for the task of choosing appropriate investments, even with existing education tools

Next-Generation DC Plans

With DC plans fast becoming the only retirement vehicle for U.S. workers, and with more retirees living longer in retirement, Rob Capone suggests DC plan sponsors think about ways to:

  • Expand the opportunity set to non-traditional investments
  • Consider the stability of returns over a longer life span with better downside risk management
  • Preserve the purchasing power of retirement plans with inflation-hedging real assets

These suggestions may require a paradigm shift on the part of DC plan sponsors. However, Rob believes these changes are important to helping the next generation of DC plan participants achieve their retirement goals.

Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested.

While the information in this video is not intended to be investment advice, it may be deemed a financial promotion in non-U.S. jurisdictions. Accordingly, where this video is used or distributed in any non-U.S. jurisdiction, the information provided is for use by professional investors only and not for onward distribution to, or to be relied upon by, retail investors.

BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.

The statements and opinions expressed in this video are those of the author(s) as of the date of the video, are subject to change as economic and market conditions dictate, and do not necessarily represent the views of BNY Mellon, BNY Mellon Asset Management International Limited or any of their respective affiliates. This video is of general nature, does not constitute legal, accounting, tax, other professional counsel or investment advice, is not predictive of future performance, and should not be construed as an offer to sell or a solicitation to buy any security, product or services or make an offer where otherwise unlawful. The information has been provided without taking into account the investment objective, financial situation or needs of any particular person. BNY Mellon Asset Management International Limited and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This video should not be published in hard copy, electronic form, via the web or in any other medium accessible to the public, unless authorized by BNY Mellon Asset Management International Limited.

Products or services described in this video are provided by BNY Mellon, its subsidiaries, affiliates or related companies and may be provided in various countries by one or more of these companies where authorized and regulated as required within each jurisdiction. Not all products and services are offered at all locations. This video may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized, or where there would be, by virtue of such distribution, new or additional registration requirements. Persons into whose possession this video comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this video in their jurisdiction. The investment products and services mentioned here are not insured by the FDIC (or any other state or federal agency), are not deposits of or guaranteed by any bank, and may lose value.

In Australia, this video is issued by BNY Mellon Asset Management Australia Limited (ABN 56 102 482 815, AFS License No. 227865) located at Level 6, 7 Macquarie Place, Sydney, NSW 2000. Authorized and regulated by the Australian Securities & Investments Commission.

In Brazil, this video is issued by BNY Mellon Serviços Financeiros DTVM S.A., Av. Presidente Wilson, 231, 11th floor, Rio de Janeiro, RJ, Brazil, CEP 20030-905. BNY Mellon Serviços Financeiros DTVM S.A. is a Financial Institution, duly authorized by the Brazilian Central Bank to provide securities distribution and by the Brazilian Securities and Exchange Commission (CVM) to provide securities portfolio managing services under Declaratory Act No. 4.620, issued on December 19, 1997.

Securities in Canada are offered through BNY Mellon Asset Management Canada Ltd., registered as a Portfolio Manager and Exempt Market Dealer in all provinces and territories of Canada, and as an Investment Fund Manager in Ontario.

In Dubai, United Arab Emirates, this video is issued by the Dubai branch of The Bank of New York Mellon, which is regulated by the Dubai Financial Services Authority. This material is intended for Professional Clients only and no other person should act upon it.

If this video is used or distributed in Hong Kong, it is issued by BNY Mellon Investment Management Hong Kong Limited, whose business address is Level 18, Three Pacific Place, 1 Queen's Road East, Hong Kong. BNY Mellon Investment Management Hong Kong Limited is regulated by the Hong Kong Securities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities, and its registered office is at 6th floor, Alexandra House, 18 Chater Road, Central, Hong Kong.

In Japan, this video is issued by BNY Mellon Asset Management Japan Limited, Marunouchi Trust Tower Main Building, 1-8-3 Marunouchi Chiyoda-ku, Tokyo 100-0005, Japan. BNY Mellon Asset Management Japan Limited is a Financial Instruments Business Operator with license no 406 (Kinsho) at the Commissioner of Kanto Local Finance Bureau and is a Member of the Investment Trusts Association, Japan and Japan Securities Investment Advisers Association.

In Korea, this video is issued by BNY Mellon AM Korea Limited for video to professional investors. BNY Mellon Korea Limited, 29F One IFC, 10 Gukegeumyung-ro, Yeongdeungpo-gu, Seoul, 150-945, Korea. Regulated by the Financial Supervisory Service.

In Singapore, this video is issued by The Bank of New York Mellon, Singapore Branch for video to accredited investors, institutional investors and family offices that are expert investors as defined under the Securities and Futures Act. The Bank of New York Mellon, Singapore Branch, One Temasek Avenue, #02-01 Millenia Tower, Singapore 039192. Regulated by the Monetary Authority of Singapore.

This video is issued in the UK and in mainland Europe by BNY Mellon Asset Management International Limited. BNY Mellon Asset Management International Limited, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorized and regulated by the Financial Conduct Authority.

This video is issued in the United States by BNY Mellon Investment Management. Unless otherwise noted, BNY Mellon Asset Management International Limited and any other BNY Mellon entity mentioned above are all ultimately owned by BNY Mellon.

THIS PROGRAM IS NOT TO BE REPRODUCED IN WHOLE OR IN PART WITHOUT THE AUTHORIZATION OF BNY MELLON.

Trademarks, service marks and logos belong to their respective owners.

© 2013 The Bank of New York Mellon Corporation. All rights reserved.