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September 17, 2004

Current Trend Directing Retirement Plan Participants to Managed and/or Lifecycle/Lifestyle Accounts is Highly Problematic

Chicago, IL – The Compass Institute study—The Fiduciary Trap™ – Plan Participants and The 4th Metric™—reveals that expected returns from Managed and/or Lifecycle/Lifestyle Account investment approaches will not allow most Plan Participants to reach needed Retirement Plan Value Goals. Even if a Plan is 404(c) compliant Fiduciaries must consider serious new questions given the ERISA standard that plan sponsors provide investment assistance appropriate to Participants’ needs.

Chicago, IL. Comprehensive studies by Compass Institute, a think-tank dedicated to research and analysis of investment strategies applied by Retirement Plan Participants to their existing Retirement Plans, reveal that the expected Average Annual Returns (AAR) of Managed and/or Lifecycle/Lifestyle Account approaches will not allow most Plan Participants to reach needed Retirement Plan Value Goals (RPVG). These studies are discussed and presented in Compass Institute’s report – The Fiduciary Trap™ – Plan Participants and The 4th Metric™.

Report Highlights:

      Recognizing that the AARs realized by most Plan Participants are ultimately insufficient for them to achieve needed RPVG, plan sponsors are considering or in some cases beginning to incorporate strategies that have the potential to improve Participants’ discouraging results.  Unfortunately these strategies are unlikely to produce high enough AARs to allow Participants to reach needed RPVG.

      The conventional industry assumption that an 8% AAR will allow the majority of Plan Participants to retire securely is no longer valid. In today’s Global Economy a minimum AAR of 11% is required.

      The strategies currently being considered (or adopted) do not yield AARs that reach the 11% threshold. Still, most companies’ existing Plans can yield an 11% or more AAR with extremely low risk. The report explains the supporting theory and shows actual results achieved in practice.

      The limitations of risk management based on the use of Asset Allocation models are reviewed and a fresh perspective on risk is presented.

      The potential AAR yield of a specific investment management strategy is Plan-specific: the same strategy applied to Company A’s Plan will yield a different AAR when applied to Company B’s Plan.

      Compass Institute provides a Structural Return Diagnostic™ to quantify the AAR yields for specific investment strategies applied to existing company Plans and to determine if superior AARs with low risk are possible.

Partial list of studies and concepts contained in the report:

      Numbers of years to reach RPVG scenarios

      AARs to be expected from the following investment approaches:

      Lifestyle/Lifecycle Funds

      Most commonly used and advocated Retirement Plan strategies

      Yearly and Quarterly Asset Allocation approaches

      Equity/Bond Index investing

      A low-risk strategy that typically obtains an 11% AAR

      Effect of Managed Account Fees on Plan Value and AAR

      Plan Index™ – a benchmark of a Plan’s structural return potential.

      True AAR versus Apparent AAR

      Comparison of increased AAR versus increased contribution level

Free copies of this 50-page report and/or a one-page abstract are available by sending an email to [email protected]. You can also contact Compass Institute to schedule an interactive individual or team web-based meeting summarizing the report highlights with a senior Principal of Compass Institute.

Contact Information

Elliot Fineman, Senior Vice President

[email protected]

Main Office: (866) 54-COMPASS

About Compass Institute, LLC

Compass Institute is a think-tank dedicated to the research and analysis of investment strategies for Retirement Plan Participants for their existing Plans. It was established 5 years ago (1999) in response to Plan Participant’s frustrations in both managing and growing their Retirement Plans.

Compass Institute created a sophisticated proprietary analytical model–Predictive Parameter Analysis™ (PPA)–that enables the complex study of investment management strategies. Compass Institute provides investment strategy Diagnostic Services to plan sponsors and has developed an optimized Participant investment strategy based on PPA for existing Retirement Plans called HORIZON™. Its affiliate, Compass Investors designed and provides the performance-backed HORIZON™ service to Retirement Plan Participants on a fixed-fee basis.

All Compass Institute Retirement Plan services are customized for each Plan Sponsor. To preserve our quality and integrity standards, Compass Institute provides limited seasonal capacity on a ‘first-come-first-served’ basis. All requests for services are time-stamped to establish priority.

Compass Investors can be found on the internet at www.compassinvestors.com.


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