LifeStage and the Extended Term Fixed Income Fund Q & A
Wespath Innovation Continues
Wespath Benefits and Investments (Wespath) will introduce a new fund, the Extended Term Fixed Income Fund (ETFIF), for institutional clients, and participants who elect to manage their investments using LifeStage or who self-manage their accounts. The LifeStage Investment Management Service (LifeStage) offers the opportunity to manage Wespath-administered retirement accounts sensibly and effortlessly. The service provides customized target fund allocations by using information about you—such as your age, risk tolerance, whether you will qualify for Social Security, and whether you will withdraw your account balance at retirement or invest your balance through retirement.
Q1 Why is Wespath making enhancements to LifeStage?
Wespath is making these enhancements to provide:
Enhanced customization of the allocation across the fixed income funds managed by LifeStage.
Exposure to a selection of publicly traded fixed-income securities for participants with long investment time horizons. The securities held by the Extended Term Fixed Income Fund (ETFIF) will typically have longer terms than securities that are held in other Wespath fixed income investment options. Longer term fixed income securities typically provide higher yields than shorter term securities but are more sensitive to changes in market interest rates.
Streamlined rules for rebalancing LifeStage accounts back to participant target fund allocations, which are expected to reduce transaction frequency over the long term and potentially reduce administrative costs incurred by the funds. However, participants may initially see increased transactions related to implementation of these enhancements.
Q2 What enhancements are being implemented in LifeStage?
Three main enhancements are being made to LifeStage:
ETFIF, the new investment fund option, will be a core LifeStage fund
More personalized target fund allocations for LifeStage’s allocation to fixed income investments
Streamlined rules for rebalancing LifeStage accounts back to participant target fund allocations
Q3 Who will be impacted by the LifeStage enhancements?
These enhancements will impact participants who elect to manage their investments using LifeStage, as well as clergy who have a balance in the Ministerial Pension Plan (MPP), since MPP accounts are generally managed by LifeStage.
Q4 When will the changes to LifeStage take place?
Wespath will begin implementing these enhancements in the second quarter of 2015.
Q5 Will there be changes involving any of the other funds used by LifeStage?
Yes. The total amount that LifeStage will invest in the Stable Value Fund (SVF) will be significantly reduced after implementing the LifeStage enhancements. As a result, we will be making several changes to the structure and management of SVF. We will communicate these changes in the coming months. Wespath plans to continue offering SVF to participants who self-manage their accounts.
Q6 Why will LifeStage significantly reduce the amount invested in the SVF?
There are two main reasons that LifeStage will reduce the amount invested in SVF:
Many participants whose accounts are managed through LifeStage have longer investment time horizons. They are expected to benefit from exposure to higher current income available through ETFIF. They also are more able to accept the higher levels of risk associated with ETFIF’s greater sensitivity to changes in market interest rates.
Ministerial Pension Plan (MPP) participants are required to convert 65% of their MPP balance to an annuity at retirement. The monthly benefit payment from the annuity is determined based on market interest rates. ETFIF provides these participants with some protection against changes in market interest rates, which could adversely affect their monthly benefit payment amount.
SVF will continue to be used in fixed income investment allocations for LifeStage participants who have shorter investment time horizons.
Q7 How will the rebalancing process be streamlined?
LifeStage offers automatic rebalancing, a proven strategy for ensuring that your investment allocation does not significantly drift from your LifeStage-determined target allocation. This helps ensure that your investments continue to have appropriate levels of diversification based upon your personal circumstances. A disciplined rebalancing approach seeks to manage your overall risk, leading to better risk-adjusted investment performance compared to programs without disciplined rebalancing.
Recently, a leading third-party consultant to Wespath completed a review of industry research examining rebalancing approaches. Based on recommendations identified through this research, we decided to enhance the LifeStage rebalancing approach. We will now evaluate all participant accounts quarterly and, when warranted, fully rebalance accounts to LifeStage target fund allocations.
Q8 What is the Extended Term Fixed Income Fund (ETFIF)?
ETFIF is a new fund offering that seeks to earn current income while preserving capital and providing exposure to long term interest rates by investing in a diversified mix of fixed income securities. The performance objective of ETFIF is to outperform the investment returns of its performance benchmark, Barclays Capital U.S. Long Government/Credit Index, by 0.50% on average per year over a market cycle of five to seven years, net of fees.
Q9 How will ETFIF differ from the Fixed Income Fund (FIF)?
ETFIF will be managed similarly to the Fixed Income Fund in regards to its underlying investment strategies with one critical difference: ETFIF will seek exposure to longer term fixed income security yields while accepting the higher risk associated with market interest rate changes. At its inception and for a period of time thereafter, Wespath will seek to reduce the risk of market interest rate changes, but not eliminate them. For more information, see the Supplement to the Investment Funds Description related to ETFIF.
Q10 Who can invest in ETFIF?
ETFIF will be available to annual conferences, plan sponsors and other organizations affiliated with The United Methodist Church (institutional investors) and eligible individuals (participants) in the Clergy Retirement Security Program, Horizon 401(k), Retirement Program for General Agencies and the United Methodist Personal Investment Plan.
Q11 When can I invest in ETFIF?
The ETFIF inception date is May 29, 2015. The fund will be available through Benefits Access or by calling Wespath’s Call Center at 1-800-851-2201 beginning June 1, 2015. Transactions submitted after 3:00 p.m., Central time on June 1 will be processed on the next business day.
Q12 How do I select—or invest in—ETFIF?
LifeStage allocations to ETFIF for enrolled participants will be based on key information about you—including age, a risk tolerance that you specify and whether you will qualify to receive Social Security benefits. You can personalize your LifeStage variables by completing your Personal Investment Profile. LifeStage currently allocates account balances among five Wespath investment funds: the Stable Value Fund (SVF), Inflation Protection Fund (IPF), Fixed Income Fund (FIF), U.S. Equity Fund (USEF) and International Equity Fund (IEF). The inclusion of ETFIF in LifeStage will allow the service to tailor fixed income investment allocations more closely to each participant’s unique life circumstances.
Participants who do not manage their accounts using LifeStage may change their investment elections at any time online at Benefits Access (www.benefitsaccess.org) or by calling Wespath’s Call Center at 1-800-851-2201. Representatives are available Monday through Friday from 8:00 a.m. to 6:00 p.m., Central time.
Q13 Where can I find more information on ETFIF?
Information about ETFIF—including the investment strategy, benchmarks, fees and investment manager—is included in the Supplement to the Investment Funds Description related to ETFIF.
Q14 What do I need to do as a result of these enhancements?
No action is required of you as a result of these enhancements. If you have questions, Wespath provides access to confidential, objective assistance at no charge through EY Financial Planning Services.* EY financial planners can explain the benefits of LifeStage and help you determine if it continues to meet your needs, or answer other questions related to investing, budgeting, saving and other financial topics. To speak with a financial planner, call EY directly at 1-800-360-2539, Monday through Friday from 8:00 a.m. to 7:00 p.m., Central time.
* Costs for these services are included in Wespath’s administrative expenses that are paid for by the funds. Services are available to active participants and surviving spouses with account balances, and to retired and terminated participants with account balances of at least $10,000.