Russell to Plan Sponsors: Use a New Evaluation Framework to Differentiate Among Target Date Funds -- Traditional Approaches Fall Significantly Short

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Russell Investments released a paper to assist plan sponsors who, on the heels of the Pension Protection Act, are increasingly evaluating and selecting target date funds for their defined contribution plans. The paper outlines twelve observations about target date funds that highlight for plan sponsors how traditional fund evaluation approaches fall short as these investment vehicles can look the same on the surface but differ dramatically, and significantly, underneath.

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This is a serious responsibility and, with so much choice available, plan sponsors need a thoughtful and thorough approach to comprehensively evaluate the significant differences between the choices available.

The paper is authored by Josh Cohen, senior consultant, and integrates his more than 12 years experience selecting and implementing investment strategies for both large and small defined contribution plans, most recently on the target date front.

"Target date funds are increasingly becoming a critical part of most defined contribution plans, and a participant in a target date fund is entrusting the plan sponsor to determine the best investment solution on their behalf," said Cohen. "This is a serious responsibility and, with so much choice available, plan sponsors need a thoughtful and thorough approach to comprehensively evaluate the significant differences between the choices available."

A detailed version of Cohen's 12 observations is available at http://www.russell.com/dcinsights In short, they are:

1. Target date funds should be designed with the objective of achieving greater certainty of retirement income replacement - asset accumulation is only one part of that

2. Glide paths generally slope down because of the pattern of contributions, not because of time horizon

3. Risk should be measured in terms of not meeting retirement objectives

4. You should have high equity allocations at the beginning of the glide path

5. You shouldn't have high equity allocations at the retirement end of the glide path

6. There is no clear investment rationale for the glide path to continue to slope down after retirement

7. Target date solutions should provide diversified sources of return

8. Passive should not be considered the safe choice

9. Proprietary managers face headwinds

10. Building your own target date fund is harder than it sounds

11. Take care with performance comparisons

12. Target date funds can't solve all your problems

For more information, please visit http://www.russell.com.

About Russell

Russell Investments provides strategic advice, world-class implementation, state-of-the-art performance benchmarks and a range of institutional-quality investment products. With nearly $213 billion in assets under management (as of 3/31/08), Russell serves individual, institutional and advisor clients in more than 40 countries. Russell provides access to some of the world's best money managers. It helps investors put this access to work in corporate defined benefit and defined contribution plans, and in the life savings of individual investors.

Founded in 1936, Russell is a subsidiary of Northwestern Mutual Life Insurance Company and headquartered in Tacoma, Wash. Russell has principal offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Singapore, Sydney, Tokyo and Toronto.

Copyright © Russell Investments 2001-2008. All rights reserved.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.

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