According to defined contribution (DC) top consultants representing $4 trillion covering 12,000 plans polled by PIMCO, fees and litigation along with target date funds (TDF) are top priorities for clients. And though the move to index funds seems overwhelming with more assets in passive strategies for the 1st time with larger DC plans, the consultants are still bullish on active investments for certain strategies including TDFs.
Though what happens with larger DC plans like 401ks and 403bs does not always migrates down market, it is usually true for investments. Ninety seven percent of consultants are recommending TDFs as the default option with analysis of these investments especially their glide path a top priority. Custom target dates account for $200 billion according to the consultants which is excepted to grow.
Services growing fastest are fee and cost studies with larger plans focused on litigation – key concerns cited by these plans are topped by litigation (67%) followed by fee pressure (58%). Meeting participants’ goals are top factors affecting decision making at 29% followed by litigation (25%) and investment costs (14%).
A mix of active and passive in TDFs is still preferred with certain sectors like emerging market equities as well as non-US bonds, small cap equities and internal equities as recommended active strategies. Stable value is being endorsed by the consultants at the expense of Money Market Funds for capital preservation.
Though the wave of litigation that has hit larger DC plans hard, it has not affected smaller plans or their advisors yet. There is growing concern, however, that the success of these lawsuits will inspire copy-cat cases. In addition, the DOL fiduciary rule makes it easier for participants to sue while raising the stakes for plans and advisors, more of whom will be considered fiduciaries under the rule. The concerns of larger plans are worth heeding and the steps being taken to protect themselves are prudent whether a plan is sued or not.
