Innovative Partnership with Wilmington Trust, BNY Mellon and PGIM Fixed Income Will Bring Low-Cost Product to Market
Washington, D.C.—The AFL-CIO, the nation’s largest federation of labor unions, consisting of 56 affiliate unions representing some 12.5 million working people, today announced its partnership with three major financial institutions—Wilmington Trust, BNY Mellon and PGIM Fixed Income—to launch an innovative target date fund suite specifically suited for defined contribution plans. Target date funds provide a diversified investment mix based on an investor’s age and expected retirement date, shifting from higher equity exposure to higher fixed income exposure throughout an investor’s working life. With more than three-quarters of 401(k) investors using target date funds, such products are a central component of many workers’ retirement savings.
The product is designed to bring meaningful benefits to qualified investors, including the members of participating labor unions. “The AFL-CIO believes that retirement security is a three-legged stool,” said AFL-CIO President Richard Trumka. “Social Security, defined-benefit pension plans and personal savings, of which 401(k) plans represent a significant portion, provide Americans with the stability and certainty they deserve to enjoy a financially sound retirement.”
Low-cost products are an essential piece of this complex puzzle. A low-cost product meant to track broad market performance can position individuals to maximize their retirement savings and work toward financial security.
The collective investment fund suite will be a collaboration between some of the industry’s most well-regarded firms. Wilmington Trust, a leader in wealth management and corporate and institutional services, will serve as trustee. The Bank of New York Mellon (“BNY Mellon”) will serve as an underlying fund manager. Those underlying funds managed by BNY Mellon will be organized as bank-maintained collective investment funds that are managed by employees of Mellon Investments Corporation, a subsidiary of BNY Mellon, in their capacity as dual officers of BNY Mellon.
In addition, PGIM Fixed Income, the public fixed income unit of PGIM Inc., the global investment management business of Prudential Financial Inc., will manage the fixed income sleeve for the product.
The options available to participants in the target date fund industry remain limited—with the top five managers controlling 79% of the assets. The AFL-CIO’s new target date fund will provide alternative options for defined contribution plans. “Wilmington Trust is pleased to sponsor the AFL-CIO Target Date Fund. The collaboration represented here brings the best thinking of a number of managers to offer a product that is distinct from, but competitive with, the current offerings in the target date fund marketplace,” said Rob Barnett, head of Intermediary Sales Distribution at Wilmington Trust. Wilmington Trust, N.A., provides institutional trust services for clients worldwide.
The product’s key features reflect the AFL-CIO’s commitment to retirement security for all Americans. The suite of products, to be offered in five-year increments, will bring low-cost “democratic pricing” to the target date fund marketplace. Defined contribution plans of all sizes, and beneficiaries of all ages, will pay 12 basis points in total fees for the product, resulting in meaningful savings for many defined contribution investors. Despite significant reductions in the average fee in target date funds over the past five years, the asset-weighted average fee remained at 58 basis points in 2019, according to Morningstar.
Mellon Investments Corporation (“Mellon”), a global multi-specialist investment manager dedicated to serving its clients with a full spectrum of active and passive research-driven solutions, will manage all the underlying equity allocations. Earlier this year, Mellon entered into a partnership with the AFL-CIO to launch a complete suite of low-cost, passive domestic equity index products, three of which will serve as underlying funds in the suite. Each of these funds offer best-in-class pricing, while also voting proxies are in conformance with the AFL-CIO’s Proxy Voting Guidelines through an independent proxy voting fiduciary. These equity index products promote corporate accountability by voting at shareholder meetings and advocating for corporate governance reforms.
“BNY Mellon is extraordinarily proud to partner with the AFL-CIO on this exciting and important initiative,” said Stephanie Hill, head of Index for Mellon, a BNY Mellon Investment Management investment firm. “Our four decades in index investing has been one of continual evolution and innovation for the benefit of our clients, and we are delighted to be in a position to support AFL-CIO members in achieving their long-term investing goals.”
Since the 1960s, the AFL-CIO has chosen to put our name on a small number of key products to offer best-in-class, pro-worker investments. In the past 35 years, this philosophy has been expanded and now has some $20 billion of assets under management. “The target date fund is a welcome addition to the lineup of financial products which carry the AFL-CIO name,” noted Trumka. “Defined benefit plans remain the bedrock of a secure retirement. However, the labor movement’s philosophy, that all Americans are entitled to retire with dignity and financial security, dictates that we must also work to ensure that defined contribution investors’ interests are protected. This product brings this proposition to life. We are grateful to our partners for sharing our values and making good on that commitment.”
Contact: Carolyn Bobb (202) 637-5018