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Canada
Toronto, 7 August 2009

Today, Mercer announced the release of its Target-Date Fund Universes, a first in Canada.  Employers that sponsor defined contribution (DC) pension plans for employees now have access to an important new tool to monitor and compare the returns of Target-Date fund products.

Target-date products are structured in series of funds with different maturity dates. Typically, each plan member selects the fund closest to his or her expected retirement date. The fund’s asset allocation automatically adjusts as the target-date approaches.

Mercer’s seven target-date fund universes are called Retirement, 2015, 2020, 2025, 2030, 2035 and 2040. 

“Target-date funds (TDFs) are a relatively new addition to the Canadian marketplace so the number of products with a long track record is limited,” said Oma Sharma, Mercer’s defined contribution investment consulting leader. “Our Target-Date Fund Universes highlight material differences in performance from one TDF product to another.”

“Monitoring and benchmarking is essential for sponsors to understand how the TDFs are performing. The assessment should be both against the funds’ own benchmarks and against the performance of other TDFs,” added Sharma.

The underlying asset allocation and diversification of funds maturing the same date may be quite different across products, and can lead to materially different performance from one product to another.

“There is a misconception among some plan sponsors that TDF products are all the same,” said Sharma. “In many cases, sponsors are not being presented with a wide range of TDF funds and may not fully understand the differences between products and their inherent risks.”

“In 2008, US TDFs showed an especially wide dispersion in their performance,” noted Neil Lloyd, Mercer’s Global DC intellectual capital leader. “The wide range of returns in the US has attracted a lot of attention from investors and regulators alike.”

“The Canadian and US analysis has shown that the variation in performance cannot solely be attributed to the proportion of assets invested in equities,” Lloyd added.  “Foreign exposure currency hedging, inclusion of asset classes such as REITs, infrastructure, real–return bonds, are some of the other factors that contributed to variations in performance.”

Looking forward, plan sponsors will need to understand the design of, and the risks inherent in, the TDF funds and be able to explain the performance of the TDFs selected for their DC plan members.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefits outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges.
 
For more information, visit www.mercer.ca.

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