Post on 22-Jul-2020
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
In brief: ■ Target date fund risk profiles should align with evolving participant objectives along the retirement
savings journey and we believe fixed income plays a critical role in managing risk.
■ In our view, glide path construction should focus on managing risk and the distribution of potential future
returns, particularly for participants approaching retirement, as opposed to solely focusing on maximizing
returns. This more balanced approach should increase the likelihood of participants attaining their
desired outcomes.
■ Target date fund managers allocate fixed income along a glide path in many ways. We highlight this data
for sponsors and demonstrate how it can result in a wide variety of potential outcomes for participants.
■ We encourage sponsors to take another look — this time through a fixed income lens — at the plan's
target date glide path to ensure it aligns with the ultimate objectives of the retirement program.
Our 2019 white paper, "Rethinking the Role of Fixed Income Along the Retirement Savings Journey,"
portrayed the retirement savings journey as a framework that could help defined contribution (DC) plan
sponsors explore the types of fixed income exposure offered to participants. The paper established key
objectives for a participant's fixed income allocation and showed how these objectives evolve as a participant
ages, as outlined in Exhibit 1.
This paper takes the retirement savings journey from theory to practice by sharing our views on how
fixed income should evolve across a glide path, exploring both the absolute level of the fixed income
allocation and its composition in terms of fixed income sub-asset classes.
Exhibit 1: The retirement savings journey
For illustrative purposes only.
Accumulation Consolidation Decumulation
3 phases
Key participant goals Save and Grow Grow With Risk Awareness Protect and Generate Income
Key objectives for fixed income
Diversification from equities
Total return
Total return Lower the potential for capital losses Inflation risk management
Total return Lower the potential for capital losses Inflation risk management Income generation
Rethinking the Role of Fixed Income Along the Retirement Savings JourneyFrom Theory to Practice
MFS® White Paper
June 2020
Authors
Joseph C. Flaherty, Jr.Chief Investment Risk OfficerDirector of Quantitative Solutions
Natalie I. Shapiro, Ph.D.Portfolio Manager
Jonathan Barry, FSA, CFASenior Retirement Strategist
Jessica Sclafani, CAIADefined Contribution Strategist
2 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
Fixed income along a glide pathA typical glide path illustration highlights the level of equity along the path, which reflects the DC industry's
historical focus on the accumulation phase of the retirement savings journey. To shine a spotlight on the fixed
income allocation within a glide path, we took the current glide path paradigm and turned it on its head. When
viewed this way, we typically see an upward slope in the glide path as participants' fixed income exposure
increases while the number of years until retirement declines.
Exhibit 2: Reverse glide path illustration■ Min. fixed income allocation ■ Avg. fixed income allocation ■ Max. fixed income allocation
MFS Investment Management® analysis based on the 25 largest target date mutual fund series by assets under management as of 31 December 2019 as provided by Morningstar Direct. Fixed income allocation includes dedicated fixed income strategies, excluding asset allocation funds and including cash. Please see endnotes for a list of these fund series.1
0%
20%
40%
60%
80%
100%
7565554535
Accumulation Consolidation Decumulation
Fixe
d in
com
e al
loca
tion
Age
In keeping with our theme of taking the retirement savings journey from theory to practice, the following are
questions we hear from sponsors around how to structure fixed income exposure along a glide path in terms
of level and composition.
Evaluating the level of fixed incomeAs Exhibit 2 illustrates, there is a wide range of practices in the allocation to fixed income along glide paths.
Depending on how much or how little fixed income a participant has at different points along the glide path,
retirement outcomes can vary significantly. We encourage sponsors to consider the level of the fixed income
allocation and how it evolves along the glide path when selecting and monitoring a target date fund.
Should early-career participants have exposure to fixed income?
The US Department of Labor's 2007 Qualified Default Investment Alternatives (QDIA) guidance states that
for a fund to qualify as a QDIA it must provide a mix of equity and fixed income exposures.2 Within this
context, sponsors should consider just how much fixed income exposure early accumulation phase
participants really need.
We encourage sponsors to consider the
level of the fixed income allocation
and how it evolves along the glide path
when selecting and monitoring a
target date fund.
3 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
The average fixed income allocation for a participant invested in a 2050 target date fund is approximately
9.1%; however, the minimum and maximum allocations range between 1.5% and 19.9%, respectively. While a
larger fixed income allocation in far-dated vintages might feel "conservative," and therefore more comfortable
for some sponsors, it can potentially inhibit participants' ability to grow and compound their savings.
Exhibit 3: Top-25 largest target date mutual fund series — total dedicated fixed income allocation in 2050 funds
0%
5%
10%
15%
20%
Avg. fixed income allocationMax. fixed income allocationMin. fixed income allocation
1.5%
19.9%
9.1%
MFS Investment Management® analysis based on the 25 largest target date mutual fund series by assets under management as of 31 December 2019 as provided by Morningstar Direct. Fixed income allocation includes dedicated fixed income strategies, excluding asset allocation funds and including cash. Please see endnotes for a list of these fund series.1
In the accumulation phase of the retirement savings journey, which includes participants in their early 20s
through mid-40s, the most important objectives are to save as much as possible, maximize employer-
matching contributions and grow these savings through compounding investment returns. Accordingly, we
believe participants in this phase should have minimal fixed income exposure and seek to maximize capital
appreciation through the higher growth potential of equity and other higher-returning asset classes. With a
long time horizon until retirement, these participants have time to recover from market downturns and can
generally withstand the greater volatility associated with more risk exposure. A higher allocation to equities in
this phase can help build a larger retirement account balance, which can allow for participants to potentially
take less risk later.
By emphasizing capital appreciation through a relatively small fixed income allocation early in the glide path,
we can also begin to address longevity risk, one of participants' greatest concerns in retirement. Longevity risk
seems to be a topic most talked about as retirement approaches, but we believe this risk should be an explicit
objective across the retirement savings journey. Growing capital early on is as important as growing it and
protecting it later in life.
Participants in the accumulation
phase should seek to
maximize capital appreciation.
4 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
How much fixed income exposure should participants have in the later years of the consolidation
phase and into the decumulation phase?
As discussed above, too much fixed income in the accumulation phase can inhibit a participant's ability to
benefit from compounding investment returns. In the consolidation and decumulation phases, we believe
too much equity exposes participants to excess drawdown and sequencing risk. We prioritize lowering the
potential for capital losses above capital appreciation in the later years, which requires greater exposure to
fixed income.
The range between the minimum and maximum fixed income allocations is significantly wider in near-dated
vintages when a participant is close to retirement age, indicating less agreement among target date managers
on how much to allocate to fixed income. While an analysis of the 2050 vintages shows a range of 18.4%
between the minimum and maximum fixed income allocations, the 2020 vintages exhibit a range of 47.2%.
These data illustrate the varying views of target date fund managers in determining an appropriate level of
fixed income exposure.
Exhibit 4: Top-25 largest target date mutual fund series — total dedicated fixed income allocation in 2020 funds
0%
20%
40%
60%
80%
100%
Avg. fixed income allocationMax. fixed income allocationMin. fixed income allocation
MFS Investment Management® analysis based on the 25 largest target date mutual fund series by assets under Management as of 31 December 2019 as provided by Morningstar Direct. Fixed income allocation includes dedicated fixed income strategies, excluding asset allocation funds and including cash. Please see endnotes for a list of these fund series.1
39.8%
87.0%
52.7%
We often hear the argument that participants nearing and in retirement should continue to hold a significant
allocation to return-seeking assets because they need a higher level of return for their savings to last through
a long lifespan. It is also sometimes argued that participants who have not saved enough must maintain a
return-seeking posture, which implies that late-career and retired participants can invest their way out of
suboptimal savings behavior. We believe that longevity risk can be managed in a number of different ways
and that higher equity allocations are not necessarily the most effective way to accomplish this. Furthermore,
participants who have been unable to save enough are generally more financially fragile and have less ability to
weather a market downturn, making a high-equity allocation late in the retirement savings journey potentially
even less appropriate.
Lowering the potential for
capital losses should be prioritized
above capital appreciation in the later years
of the retirement savings journey.
5 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
We believe that near-dated vintages should hold a relatively high allocation to fixed income, with the goal
of lowering the potential for capital losses and managing sequence of returns risk. This can help to mitigate
the impact of significant market declines as participants approach their retirement date, when there is
less time to recover and a sharp drop in assets could have major implications, such as a postponement of
retirement and/or a reduction of a participant’s standard of living in retirement. In other words, a larger fixed
income allocation in near-dated vintages positions participants more conservatively at this crucial stage of the
retirement savings journey.
Theory to practice — The impact of fixed income allocations on participant outcomes
To explore this question of how much fixed income exposure participants approaching and in retirement
should have, we analyzed the impact of differing fixed income allocations on potential retirement outcomes
for two hypothetical participants under two hypothetical glide paths:
1) Glide Path 1, which starts with a fixed income allocation of 10%, reaches a 55% fixed income allocation at
age 65 and continues to increase throughout retirement
2) Glide Path 2, which starts with a fixed income allocation of 5% and reaches a 70% fixed income
allocation at age 65 that is held constant throughout retirement.
Source: Glide Path 1 with a 55% fixed income allocation at retirement is informed by MFS Investment Management® analysis of the top-25 largest target date mutual fund series by assets under management as of 31 December 2019 as provided by Morningstar Direct and represents an approximate average of these glide paths. See endnotes for the mutual fund series used in this analysis.1 “At retirement” is defined as age 65. See assumptions and methodologies for more details.
Exhibit 5: Glide Path 1 with a 55% fixed income allocation at retirement versus Glide Path 2 with a 70% fixed income allocation at retirement■ Glide Path 1 with 55% fixed income allocation at retirement ■ Glide Path 2 with 70% fixed income allocation at retirement
Accumulation Consolidation Decumulation
Fixe
d in
com
e al
loca
tion
as
a pe
rcen
tage
of t
otal
por
tfol
io
0%
10%
20%
30%
40%
50%
60%
70%
80%
7573716967656361595755535149474543413937353331292725Age
Glide Path 2 begins with a lower level of fixed income exposure and a correspondingly higher level of equity
exposure throughout the accumulation phase and into the consolidation phase. This relationship reverses
midway through the consolidation phase and into the decumulation phase, with Glide Path 1 landing at 55%
fixed income at age 65 versus 70% fixed income for Glide Path 2. All things being equal, Glide Path 2 should
A larger fixed income allocation
in near-dated vintages positions participants more conservatively at this crucial stage of the retirement savings journey.
6 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
offer more opportunity for account growth in the accumulation phase while Glide Path 1 should offer the
opportunity for asset growth in the later phases of the retirement journey, when account balances are typically
larger and the effects of compounding investment returns more dramatic. Again, all things being equal, Glide
Path 1 should offer reduced volatility in the accumulation phase while Glide Path 2 should lower the potential
for capital losses in the consolidation phase, when account balances would typically be larger and the impact
of drawdowns more dramatic.
Using the glide paths illustrated in Exhibit 5, we simulated the range of potential outcomes for two
hypothetical participants — both age 45; with an initial account balance of $200,000; earning $80,000 per
year and receiving annual increases of 2.5%; and saving 10% of their earnings per year to see how their
account balance might look at age 65. In Exhibit 6 below, we show the results for each participant.3
Exhibit 6: Comparing hypothetical retirement outcomes
Participant X Retirement at age 65 Invested in Glide Path 1 with 55% fixed income allocation at retirement
Participant Y Retirement at age 65 Invested in Glide Path 2 with 70% fixed income allocation at retirement
Median projected account balance at 65 $1,053,000
Value at Risk (VaR) $111,000
What does this mean?
Hypothetical annual reduction in retirement income under a 1st
percentile market event
Participant X could lose 11% or more of account value in a 1st percentile market event, e.g., an extreme equity market correction
$1,042,000
$73,000
Participant Y could lose 7% or more of account value in a 1st percentile market event, e.g., an extreme equity market correction.
approximately $4,600
See assumptions and methodologies for more details.
Participant X has a Value at
Risk almost 50% greater than that of Participant Y
approximately $6,900
We can see that the Participant X has a slightly higher median account balance at retirement than Participant
Y, which is a reflection of Participant X's higher allocation to return-seeking assets in the latter stages of the
retirement journey. However, simply comparing account balances at age 65 does not tell the whole story.
What is value at risk (VaR) and why is it important?
Value at risk is calculated using account balance and asset allocation data for individual
participants at a given point in time. Using this information, an expected return and standard
deviation is calculated for the participant. The VaR represents the estimated loss at the first
percentile of a normal distribution of outcomes, meaning that 1% of the time losses will be of
this magnitude or greater.
VaR can be an instructive metric in discussing a participant's potential experience along
the retirement savings journey and is particularly relevant for participants approaching
retirement who are vulnerable to sequence of returns risk.
7 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
Looking at the results in Exhibit 6 from a risk perspective, Participant X has a value at risk4 approximately 50%
greater than that of Participant Y, which is a result of Participant X having a larger equity allocation. Comparing
the VaR of the participants reminds us that a glide path should not seek solely to maximize expected returns
but also account for managing the distribution of potential future returns. In this scenario, Participant X’s
annual retirement income is reduced by approximately $6,900 versus about $4,600 for Participant Y. While
both participants experience a decline in their retirement income in this scenario, Participant X would see a
larger impact in terms of standard of living during retirement.
These hypothetical scenarios are intended to help sponsors explore how their plan's glide path aligns with
the ultimate goals of their retirement program and how their unique participant population might view and
understand risk. Behavioral finance studies show that the pain of a dollar lost often outweighs the benefit of
a dollar gained. While the slightly greater upside potential of Glide Path 1 may be appealing, sponsors should
ask whether the benefit of that upside is worth the pain of potential downside outcomes for their participants
and the resulting impact on their ability to retire on time. The latter point also has an important impact on the
sponsor's ability to rotate the workforce, maintain employee productivity and morale.
Deconstructing the fixed income allocationThe retirement savings journey (Exhibit 1) illustrates the many objectives a participant's fixed income
allocation must achieve. We believe participants' fixed income exposure should offer diversification from
equities but also contribute to total return, lower the potential for capital losses, help manage inflation risk and
ultimately support income generation. Meeting these objectives can be a tall order for plans that rely primarily
on a core fixed income allocation for participants' exposure to bond markets. We encourage sponsors to
explore how incorporating fixed income strategies beyond a core fixed income allocation can help meet
participants' evolving needs.
What are the underlying strategies that could comprise the total fixed income allocation?
We believe in the broad diversification of fixed income throughout the glide path. Accordingly, we consider six
fundamental building blocks when constructing fixed income allocations along that path (see Exhibit 7). The
goal of constructing a diversified fixed income allocation is not to replace core bonds but rather to supplement
the core bonds allocation, which acts as a foundation to address additional participant objectives.
For illustrative purposes only.
Exhibit 7: Fixed income building blocks
Treasury Inflation-Protected
Bonds(TIPS)
Short-Term Bonds
High- Yield
Bonds
Emerging Markets
Debt (EMD)
Global Bonds
Core Bonds
We believe in the broad
diversification of fixed income throughout the
glide path.
8 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
While participants do not always have exposure to every building block and the relative size of the allocation
depends on the participant's position along the retirement savings journey, we feel that this diversified
approach to fixed income exposure provides additional levers that can be employed to meet multiple
objectives.
Building a well-diversified fixed income allocation along a glide path
Many sponsors agree with the investment case for including exposures to fixed income strategies with higher
risk and return profiles, such as emerging markets debt or high yield, but refrain from doing so on the core
menu due to concerns that participants are not equipped to effectively allocate across these strategies. These
concerns, however, are alleviated when the fixed income allocation is packaged within a target date fund glide
path. We encourage sponsors to review the fixed income allocation within their target date fund and how it
evolves across the glide path.
Do off-the-shelf target date managers offer diverse fixed income exposure for participants?
Some of the largest target date managers rely predominantly on core bonds allocations — especially in near-
dated vintages (e.g., a 2020 fund) when the fixed income allocation is approximately equal to or greater than
half of the participant's total portfolio.
Source: MFS Investment Management® analysis based on the 25 largest target date mutual fund series by assets under management as of 31 December 2019 as provided by Morningstar Direct. Fixed income allocation includes dedicated fixed income strategies, excluding asset allocation funds and including cash. Core bonds includes the following categories: US Fund Intermediate Core Bond, US Fund Intermediate Core Plus Bond and US Fund Intermediate Government. Please see endnotes for a list of these fund series.11
Exhibit 8: Top-25 largest target date mutual fund series — Core bonds as a percentage of total dedicated fixed income allocation in 2020 funds
53%75%
18%
8%
53%
30%
11%
18%
19%
8%
4%4% 8%
Avg. core bonds as % of total FI
Max. core bonds as % of total FI
Min. core bonds as % of total FI
49.9%
36.7%
76.2%
We encourage sponsors to
review the fixed income allocation within their target date fund and how it evolves across the glide path.
9 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
When we analyze the fixed income allocations of the 2020 vintages of the 25 largest target date mutual
fund series, we see that the number of underlying fixed income strategies employed ranges from three to
nine strategies. Furthermore, ten target date fund managers have more than half of their total fixed income
exposure invested in core bond strategies. Participants with high allocations to core bonds and limited
exposure to other fixed income strategies are potentially missing out on the diversification that could be
attained through broader access to the fixed income building blocks. We encourage sponsors to look at the
fixed income exposure in the target date fund and determine if it is appropriately diversified.
Conclusion
We believe that target date fund risk profiles should align with evolving participant objectives along the
retirement savings journey and that fixed income plays a critical role in managing risk. Glide path construction
should focus on managing risk and the distribution of potential future returns, particularly for participants
approaching retirement, as opposed to solely focusing on maximizing returns. This more balanced approach
should increase the likelihood of participants attaining their desired outcomes.
Target date fund managers allocate fixed income along a glide path in many ways. We highlight that for
sponsors and demonstrate how this can result in a wide variety of potential outcomes for participants. We
encourage sponsors to take another look — this time through a fixed income lens — at the plan's target date
glide path to ensure it aligns with the ultimate objectives of the retirement program.
We encourage sponsors to
look at the fixed income exposure
in the target date fund and determine if it
is appropriately diversified.
10 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
Assumptions and methodologies
Returns, risk and correlations used in Exhibit 6
US Large-
Cap Equities
Non-US Equities
US Aggregate
Bonds
Global Aggregate
Bonds
Global High- Yield
Bonds
Emerging Market
DebtUS TIPS
Short- Term Bonds
Geometric Return (%) 7.1% 7.1% 3.7% 3.5% 5.3% 6.0% 3.8% 2.7%
Risk (%) 13.8% 16.4% 3.2% 2.6% 8.8% 7.8% 5.5% 2.0%
Correlation
US Large-Cap Equities 1.00
Non-US Equities 0.87 1.00
US Aggregate Bonds (0.02) 0.08 1.00
Global Aggregate Bonds (0.08) 0.01 0.93 1.00
Global High-Yield Bonds 0.71 0.77 0.26 0.16 1.00
Emerging Market Debt 0.53 0.65 0.59 0.51 0.81 1.00
US TIPS 0.13 0.22 0.77 0.66 0.42 0.64 1.00
Short-Term Bonds (0.06) 0.02 0.04 0.02 (0.10) (0.03) 0.02 1.00
Source: MFS Long Term Capital Market Expectations, as of January 2020. Forward-looking expectations are annualized geometric total return and risk for a 30-year time horizon. Risk is defined as annualized monthly standard deviation. Equity forecasts are unhedged in USD. Fixed Income forecasts are hedged in USD. References to future expected returns and performance are not promises or estimates of the actual performance realized by an investor, and should not be relied upon. The forecasts are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation, or be guarantees of performance. The forecasts are based on subjective estimates and assumptions that have yet to take place or may occur. The projections have limitations because they are not based on actual transactions but instead on the models and data compiled by MFS. The results do not represent or indicate actual results that may be achieved in the future. Individual investor performance may vary significantly.
Glide path assumptions used in Exhibit 5 and Exhibit 6
Glide Path 1 with 55% fixed income allocation at retirement
AgeUS Large- Cap
EquitiesNon-US Equities
US Aggregate Bonds
Global Aggregate
Bonds
Global High-Yield Bonds
Emerging Market Debt
US TIPSShort- Term
Bonds
45 55.0% 30.0% 10.0% 1.0% 1.0% 1.0% 1.0% 1.0%
55 45.0% 22.5% 21.0% 2.5% 2.0% 1.0% 3.0% 3.0%
65 30.0% 15.0% 30.0% 4.0% 3.0% 1.0% 8.0% 9.0%
Glide Path 2 with 70% fixed income allocation at retirement
AgeUS Large- Cap
EquitiesNon-US Equities
US Aggregate Bonds
Global Aggregate
Bonds
Global High-Yield Bonds
Emerging Market Debt
US TIPSShort- Term
Bonds
45 65% 25% 2.5% 0.0% 2.5% 2.5% 2.5% 0.0%
55 47.5% 17.5% 15.0% 5.0% 5.0% 5.0% 5.0% 0.0%
65 20.0% 10.0% 30.0% 5.0% 2.5% 2.5% 10.0% 20.0%
Glide Path 1 is informed by an MFS Investment Management analysis of the top 25 largest target date mutual fund series by assets under management as of 31 December 2019 provided by Morningstar Direct and represents an approximate average of these glide paths. Glide Path 2 is similar though not identical to the MFS® Lifetime® Funds’ glide path. “At retirement” is defined as age 65.
11 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
Participant assumptions used in Exhibit 6 ■ The participant's retirement income need increases 2.5% annually.
■ The participant has a starting balance of $200,000 at age 45.
■ The participant earns $80,000 per year and receives a 2.5% raise annually, saving 10% of earnings per
year (a combination of participant savings and employer match).
■ The participant needs 70% income replacement at age 65. Life expectancy is 20 years from age 65.
Social Security provides 27% of final pay prior to retirement, with 401(k) account providing the
remaining 43%.
Investment returns were modeled using a Monte Carlo simulation generated by Oracle Crystal Ball software.
Asset returns, risks (standard deviations) and correlations noted above were used to generate a normal
distribution of outcomes for each asset class. 2,000 potential outcomes were generated to calculate the
various percentiles of account balances.
Endnotes1 The 25 largest target date mutual fund series by assets under management, as of 31 December 2019, provided by Morningstar Direct include
Vanguard Target Retirement Funds (including Vanguard Institutional Target Retirement assets), Fidelity Freedom Funds, American Funds Target Date Retirement Series, T. Rowe Price Retirement (including T. Rowe Price Retirement I assets), Fidelity Freedom Index Funds, JPMorgan SmartRetirement, BlackRock LifePath Index Funds, TIAA-CREF Lifecycle Funds, TIAA-CREF Lifecycle Index Funds, Principal LifeTime Funds, Fidelity Advisor Freedom Funds, American Century Once Choice Target Date Portfolios, KP Retirement Path Funds, JPMorgan SmartRetirement Blend, State Street Target Retirement Funds, John Hancock Multi-Index Preservation Portfolios, John Hancock Multimanager Lifetime Portfolios, Great-West Lifetime Funds, Voya Index Solution Portfolios, MassMutual Select T. Rowe Price Retirement Funds, USAA Target Retirement Funds, Fidelity Freedom Blend Funds, Schwab Target Funds, GuideStone MyDestination Funds, and MFS Lifetime Funds.
2 A DOL Field Assistance Bulletin issued in April 2008 addressed the question, "Can an investment fund or product with zero fixed income qualify as a QDIA?" by reiterating the view that a QDIA must include some fixed income exposure.
3 Estimated account balances for glide path with 55% fixed income allocation at retirement versus glide path with a 70% fixed income allocation at retirement.:
Percentile Glide Path 1 Glide Path 2Difference ($)
(Glide Path 1 – Glide Path 2)Difference (%)
5th percentile $595,000 $595,000 $0 0%
25th percentile $820,000 $821,000 -$1,000 -0.1%
50th percentile $1,042,000 $1,053,000 -$11,000 -1.0%
75th percentile $1,308,000 $1,333,000 -$25,000 -1.9%
95th percentile $1,800,000 $1,840,000 -$40,000 -2.2%
4 Value at risk is based on the account balance and asset allocation of each participant at his or her current age. An expected return and standard deviation is calculated for each participant based on his or her asset allocation, and the value at risk is the estimated return at the 1st percentile of a normal distribution of outcomes.
12 of 12
MFS®
White Paper Rethinking the Role of Fixed Income
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY MFSE-FIDC-WP-6/20 46146.1
Unless otherwise indicated, logos and product and service names are trademarks of MFS® and its affi liates and may be registered in certain countries.
Distributed by: U.S. – MFS Institutional Advisors, Inc. (“MFSI”), MFS Investment Management and MFS Fund Distributors, Inc.; Latin America – MFS International Ltd.; Canada – MFS Investment Management Canada Limited. No securities commission or similar regulatory authority in Canada has reviewed this communication; U.K. - MFS International (U.K.) Limited (“MIL UK”), a private limited company registered in England and Wales with the company number 03062718, and authorized and regulated in the conduct of investment business by the U.K. Financial Conduct Authority. MIL UK, an indirect subsidiary of MFS, has its registered offi ce at One Carter Lane, London, EC4V 5ER UK and provides products and investment services to institutional investors globally. This material shall not be circulated or distributed to any person other than to professional investors (as permitted by local regulations) and should not be relied upon or distributed to persons where such reliance or distribution would be contrary to local regulation; Singapore – MFS International Singapore Pte. Ltd. (CRN 201228809M); Australia/New Zealand – MFS International Australia Pty Ltd (“MFS Australia”) (ABN 68 607 579 537) holds an Australian fi nancial services licence number 485343. MFS Australia is regulated by the Australian Securities and Investments Commission.; Hong Kong – MFS International (Hong Kong) Limited (“MIL HK”), a private limited company licensed and regulated by the Hong Kong Securities and Futures Commission (the “SFC”). MIL HK is approved to engage in dealing in securities and asset management regulated activities and may provide certain investment services to “professional investors” as defi ned in the Securities and Futures Ordinance (“SFO”).; For Professional Investors in China – MFS Financial Management Consulting (Shanghai) Co., Ltd. 2801-12, 28th Floor, 100 Century Avenue, Shanghai World Financial Center, Shanghai Pilot Free Trade Zone, 200120, China, a Chinese limited liability company regulated to provide fi nancial management consulting services.; Japan – MFS Investment Management K.K., is registered as a Financial Instruments Business Operator, Kanto Local Finance Bureau (FIBO) No.312, a member of the Investment Trust Association, Japan and the Japan Investment Advisers Association. As fees to be borne by investors vary depending upon circumstances such as products, services, investment period and market conditions, the total amount nor the calculation methods cannot be disclosed in advance. All investments involve risks, including market fl uctuation and investors may lose the principal amount invested. Investors should obtain and read the prospectus and/or document set forth in Article 37-3 of Financial Instruments and Exchange Act carefully before making the investments.
The views expressed in this report are those of MFS and are subject to change at any time.