CitiStreet Reports Increasing Interest in Target Retirement Funds; Age-Based Funds Provide One-Stop Shopping for Retirement Plan Participants.

QUINCY, Mass. -- Along with a steady growth in the attraction for lifecycle (or lifestyle) funds in recent years, CitiStreet is now witnessing a dramatic surge of interest in target, or age-based, funds, the benefits company said.

"Target funds are gaining interest because they remove one more difficult decision the participant must make about his or her retirement plan investments," said Marianne Sullivan, CitiStreet senior vice president for investment client services who recently spoke on lifecycle and target funds at an Institute of Management and Administration conference.

She noted that with lifecycle funds, the participant must choose between a conservative, moderate or aggressive portfolio, and then must decide when it is prudent to move from one risk portfolio to another as retirement draws closer. No such decisions are needed with target funds because their portfolios target the date of retirement and the asset allocations change over the years toward conservative as retirement nears.

"This is one-stop shopping," she said of the funds, which are targeted, and named, for a specific year of retirement.

Sullivan said inquiries about target funds from plan sponsors have more than doubled in the past year, reflecting national averages. (Lipper reported earlier this year that assets in lifecycle funds rose 28 percent to $95.8 billion in 2004 while target retirement funds rose 65 percent to $43.9 billion(a)).

Sullivan said target fund plan assets now range between 1 percent and 6 percent of total assets where offered by CitiStreet clients. However, some clients who made early moves from lifecycle funds to target funds are seeing between 13 percent and 25 percent of assets in the funds.

While plan sponsors appreciate the benefits of offering such funds, well-focused communication/education efforts are needed for both target funds and lifecycle funds, said Sullivan of CitiStreet, which is overseeing formulation of an education program for the Federal Thrift Savings Plan's upcoming offering of lifecycle funds to federal employees.

"Employees for years have been hearing the messages about the need to diversify across different investment options, and now come these funds; they are supposed to be a participant's single investment choice. They don't really work if you only put part of your savings into them," said Sullivan.

She said target or age-based funds are for people who do not have the time or the desire to develop, monitor and rebalance their retirement investments.

She also noted that plan sponsors should check for fees, both for the expenses of the funds underlying the portfolio and any possible management or trust custody fees. And she added that such funds cannot factor in any investments outside the retirement plan that a participant might have.

"That is where managed accounts and advice can come in," she noted.

About CitiStreet

CitiStreet, one of the largest global benefits delivery firms in the United States, is headquartered in Quincy, Mass. CitiStreet, with 3,000 employees, has offices in Somerset, N.J., Jacksonville, Fla., Lewiston, Maine, Boston, and field offices around the nation. It also has a division, CitiStreet Australia, with offices in Sydney, Brisbane and Melbourne. CitiStreet serves more than 9 million participants and administers approximately $215 billion in assets in the United States for defined contribution, defined benefit and health and welfare plans of corporate, government, health care, Taft-Hartley and not-for-profit organizations. It also serves about 1 million participants and administers about $9 billion in assets outside the United States. CitiStreet is a 50/50 joint venture between State Street Corp. (NYSE:STT) and Citigroup (NYSE:C). For more CitiStreet information, visit the Web site at www.citistreetonline.com.

((a)Life Cycle Funds: Fit For Life, 3/14/2005, available at www.lipperweb.com.)