From: Ron Surz [mailto:ron@ppca-inc.com] 

Sent: Monday, November 29, 2010 8:18 PM 

To: EBSA, E-ORI - EBSA 

Subject: RE:Proposal on target date funds

Dear DOL,

Proposals that focus on participant enlightenment are misguided for two

reasons: participants don’t choose target date funds (TDFs) and they don’t read

disclosures.  Fiduciaries, namely plan sponsors and their advisors, choose target

date funds, and they should read disclosures, although it would seem that they

don’t. So why is this an important distinction? You wield the stick of potential

litigation, probably best focused on fiduciaries rather than fund companies. The

carrot ought to be employee morale. Both can & should be served by stipulating

that fiduciaries clearly state the objectives for their TDFs. In doing so, they

should recognize that pay replacement and managing longevity risk are not

reasonable in a one‐size‐fits‐all‐set‐and=forget‐it vehicle, even though these are

being set forth by fund companies. Rather, reasonable objectives are (1) safety of

principal especially at the target date and (2)  reasonable growth, especially when

the target date is distant.  

Fiduciaries need to write and sign sensible investment policy statements, like the

attached sample.       

Most TDF investments are made by default as a Qualified Default Investment

Alternative (QDIA). In the few instances where participants actually elect TDFs

their choices are limited to the selections of the plan fiduciaries, since the fund

has to be on the platform before it can be selected by the participant. Fiduciaries

can and should set the objectives and policies for TDFs but they are not. Who is

driving this bus?  

PPCA Inc

& our newest subsidiary: Target Date Solutions

78 Marbella

San Clemente, CA 92673

949/488‐8339

www.ppca‐inc.com
www.TargetDateSolutions.com

Two of my papers are in the Top 10 on SSRN at: http://ssrn.com/author=658221 and

http://papers.ssrn.com/abstract=1534084
Statement of Investment Policy for Fiduciaries

Adopting the Safe Landing Glide Path®

Objectives and Risk

We, the fiduciaries to the retirement plan, regard risk as

the possibility of failing to achieve objectives.

Accordingly, the purpose of this statement is to

document our goals and how we plan to achieve them.

The objectives and risks of the Safe Landing Glide Path

(SLGP) are:

1. Deliver at least accumulated contributions plus

inflation at the target date. Strive to achieve this

objective with high conviction (i.e. low risk).

2. Grow assets as much as possible without

jeopardizing the primary preservation objective.

We’d like a high probability of achieving this

objective when the horizon (term to target date) is

long, but will sacrifice growth for safety as the target

date nears.

We’ve duly considered the objectives set forth by the

providers of other target date funds (TDFs) and have

rejected them as unrealistic. The objectives of managing

longevity risk or replacing pay cannot be taken seriously

in a one‐size‐fits‐all TDF because TDFs have no

influence on, or relationship to, mortality or savings. At

best these TDFs can target the  ʺaverageʺ  participant,

whatever that means.    Because each individual’s

situation is unique, these commonly stated objectives are

best suited to one‐on‐one managed accounts rather than

TDFs.

Policies

The policies for achieving these objectives employ a 2‐

asset growth‐preservation separation principle. In the

early years, a very broadly diversified growth portfolio

serves to increase wealth, but then about 15 years from

target date SLGP employs Liability‐Driven investing

(LDI) principles to defend, moving monies aside into a

“Reserve” lock‐box of TIPS and Treasuries.  

These policies differ materially from current industry

practices, as demonstrated in the next exhibit. The S&P

Target Date indexes are an aggregation of all target date

funds – the peer aggregate of the industry.

As you can see in the exhibit, the SLGP differs from the

industry in the following ways:

Safe Landing Glide Path Differs

from Industry Practices

• SLGP is substantially more conservative at the target

date, holding only 5% in equities, versus the

industry average of 35%.

• At distant dates, SLGP has similar equity exposures

to the industry but is more broadly diversified, as

evidenced by their higher allocation to “Other”,

which for the SLGP includes foreign stocks and real

assets like commodities, timber and real estate, and

opportunistic investments like infrastructure and

bear funds.

Importantly, the SLGP is accumulation only, also known

as a “to” fund. Unlike most other “to” funds, the SLGP

ends almost entirely in safe assets – Treasury Inflation

Protected Securities (TIPS) and short term US treasuries.

This is critical to achieving the primary objective set

forth above. We want high confidence in preserving the

purchasing power of contributions.

Glide Path

The glide path controls risk through time and is

designed to emphasize growth in the early years and

then move to defend fairly quickly as the target date

nears. The following graph and table describe this path.

As shown in the graph, there is a “Risk Zone” that starts

ten years prior to the target date during which account
balances are at their highest and lifestyles are at stake.

The SEC and DOL understand this. The focus of their

hearings and proposals has always been on risk at the

target date. There is no fiduciary upside to taking risk

during this critical period.

Safe Landing Glide Path Asset Allocations

Years to

Target

Equity Alter‐

natives

Bonds TIPS and

T‐bills

0 5 0 0 95

10 42 15 20 23

20 57 21 22 0

30 63 23 14 0

40 68 25 7 0

Architecture and Expenses

The SLGP is entirely open architecture, meaning no

proprietary funds are employed. Furthermore, most of

the underlying funds are broadly diversified and

passive, which lowers costs. The high water mark on

underlying fund expenses occurs at about 15 years to

                                                

target and is usually less than 30 basis points. When

management fees, custody, administration and other

associated costs are added in, the all‐in costs are

generally less than 60 basis points.

Experience and Credentials of the SLGP

Architect

Ronald Surz is the designer and developer of the Safe

Landing Glide Path. Ron has 35 years of experience in

investment program design and investment policy

setting. He served for a decade as Senior Vice President

of Investment Policy for A.G. Becker, the premier

institutional consulting firm in the 1970s and 1980s. Ron

also wrote the book used to teach Certified Investment

Management Analysts (CIMAs) about investment policy

statements. Ron earned an MS in Applied Mathematics

with Honors from the University of Illinois and an MBA

in Finance from the University of Chicago.

Performance Expectations

In normal (positive) stock market environments we

expect near‐dated SLGP funds to lag in performance

relative to the industry, as represented by the S&P

Target Date Index. This is the opportunity cost of

emphasizing safety near the target date. Regarding all

SLGP funds the usual risk‐reward trade‐offs will apply,

so we expect that the reward‐to‐risk ratios of the SLGP

will dominate those of the industry at all target dates.

We also expect that over a full market cycle the longer‐

dated SLGP funds will dominate the industry on both a

return basis and a reward‐to‐risk basis because of the

broader diversification employed by the SLGP.

The Safe Landing Glide Path is a patent pending registered trademark of PPCA Inc, San Clemente CA.  It’s an ideal for target date

fund glide paths.