On Friday, September 26, Bill Gross, the portfolio manager of the PIMCO Total Return Bond Fund, left the company for another job. Many financial advisers, including me, believe that his departure is a positive for the Fund and PIMCO.

Why is this important to you as a retirement plan sponsor? At one point in time nearly every 401(k) plan in America featured the PIMCO Total Return Bond Fund in their fund line-up. Many, if not most plans, still offer the Fund as one of their fixed income options. Most plan participants close to retirement use the Fund as the cornerstone of their retirement investment strategy. If you offer the Fund in your plan, you will probably have some nervous participants, and may wish to share the following information:

  • Even with Mr. Gross' departure, PIMCO still has a strong team assigned to manage the Fund. As mentioned earlier, much of Mr. Gross' time recently has been spent attending to management of PIMCO as opposed to the Fund. Although the management change in the Fund may not be seamless, it shouldn't cause many ripples.
  • Given Mr. Gross' age (he is 70) there has been a succession plan in place for quite some time. PIMCO is a well-managed firm that is not likely to be caught flat-footed by his departure.
  • There will be scary rumors and stories in the media about the negative impact of Mr. Gross' departure from PIMCO. The reality will likely be much more subdued. The scary rumors will probably fade away within a short period of time.
  • Although Mr. Gross demonstrated a knack for managing fixed income investments in a falling interest rate environment, the jury is still out on whether he could exhibit the same level of skill in the coming rising interest rate environment. In fact, in recent years when interest rates have been flat, the Fund's performance has been underwhelming.

Talk with your investment adviser about how to best address this situation in your plan. Knee-jerk reactions to events like these are generally not the correct move. It is likely that most plans will continue to offer the PIMCO Total Return Fund in their investment line-ups.

Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC (lawtonrpc.com), an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at bob@lawtonrpc.com or 414.828.4015.

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