Reviewing plan fees and investment options will be a top fiduciary priority for plan sponsors in 2024, but the importance of financial wellness and managed accounts has increased compared to last year, according to investment consulting firm Callan’s 2024 DC Trends Study. It is said to be increasing.
In a survey of 132 DC plan sponsors conducted in late 2023, Curran found that reviewing plan fees is a top fiduciary initiative in 2024 for 74% of respondents. The subsequent consideration of the investment policy statement and investment menu structure was similar to the trustee’s focus last year. region.
jamie mcallister
According to the company, fee considerations range from administrative fees, participant trading fees, compliance, custody, correspondence, managed accounts, brokerage windows, and indirect revenues such as revenue shared with record keepers from IRA rollovers. It includes various costs. However, the company revealed that investment management fees proved to be a top focus area, as they are often the subject of litigation.
Curran said two-thirds of plan sponsors are somewhat or very likely to conduct a rate study this year, and 6 in 10 plan sponsors have completed a 12-month period by the time they have reviewed their rate structure. It is said that Of the plan sponsors that reviewed their rates, less than half kept them the same, and nearly half ended up reducing them. Notably, more than half of plan sponsors said they planned to move from the R6 share class to lower-cost investment vehicles, such as collective investment trusts, a number Curran said was up from last year. This is an increase from 42% in the survey.
Jamie McAllister, Callan’s senior vice president and DC consultant, said the company recommends digging deeper into fees every three years and checking in annually. He also noted that plan sponsors are moving toward more nuanced fee evaluations, in part because of increased fee transparency.
“I think we’re becoming more sophisticated when it comes to rate evaluation,” she says.
McAllister also noted this year’s findings that more plan sponsors are trying to retain participants in their plans at higher rates than in the past. Approximately 81% of plan sponsors want to keep retirees’ assets as planned and 61% want to keep their terminated assets. This is a “180-degree turn” from the past, when plan sponsors generally wanted people to leave their plans.
“So many plan sponsors have brought together this best-in-class fund lineup and plan features all at a low cost from an administrative standpoint, and we want our participants to continue to benefit from that. ” she says. “On the flip side, there is also the fact that keeping the plan larger overall results in larger account balances, creating more economies of scale. There are benefits to maintaining cash flow within the plan rather than rolling over assets. there is.”
Also, for the first time in the survey, Curran asked plan sponsors whether they encourage participants to accumulate other defined contribution assets, and only 22% said they encourage account consolidation. Ta. For McAllister, this relatively low number was interesting, especially from the perspective of plan sponsors trying to keep people on plan.
“We see a lot of benefits to storing assets in one place, so we expect this sector to increase in the coming years,” she says.
Trends in financial education and services
While pricing remains an area of focus, advisory services and offerings for participants are on the rise. According to McAllister, the desire for financial wellness tools will reach 70% of respondents in 2023, a significant increase compared to the past. But she points out that some of that change may be due to people taking the term in a broader sense and saying “yes” if it offers participants some financial education and advice options.
Plans, on the other hand, received the highest satisfaction ratings for investment advisory services, and complete financial planning received the highest market satisfaction, with 100% of respondents being very or somewhat satisfied with these services.
The use of managed accounts, which offer more personalized investment management along with advice, has “significantly increased” with 58% of plan sponsors offering the service. Among companies offering managed accounts, 70% monitored accounts by reviewing participant usage and interactions, and just over 60% reviewed pricing and services.
While managed accounts are gaining in popularity, they also rank highest in terms of complaints from plan sponsors. McAllister believes that when planning sponsorships, you may question the commitment to the services being provided and how well the provider is doing in getting participants to benefit from the service.
“Are participants using it?” [the managed account] Do I use it correctly or do I use it to the fullest to justify the cost?” she says. “If participants are using it, we know the cost is justified, but often it’s because participants aren’t adding information and aren’t using the tool as actively. I understand.”
Providing retirement income options was also a focus for plan sponsors in 2023, but most offered installment (78%) and They offered management through distribution (76%). Recorder of today’s market.
Investment menu movement
When it comes to investment menus, target-date funds remain the dominant default for plan sponsors, with 94% of plans offering a target-date suite and 90% non-participant-driven, according to Curran. The company says it uses TDF as its default for savings. Index strategies are the most popular among these options, with nearly 8 out of 10 sponsors using at least partially indexed funds, and active strategy usage at about 21%. For context, Curran noted that this 21% is up from 15% in 2022, the lowest active usage rate in the study’s history.
Meanwhile, the use of TDF option mutual funds in DC plans continues to decline, due in part to the rise in CIT. Only 28% of plan sponsors said they used mutual funds for TDFs, down from 67% in 2019. 2010.
Researchers say that while TDFs remain popular, plan sponsors are increasingly scrutinizing their offerings. All respondents said they benchmarked their TDF, but nearly 8 in 10 said they used multiple benchmarks. Meanwhile, more than 7 in 10 took at least one action to change to his TDF suite in 2023, most commonly evaluating the suitability of the underlying fund and glide path. .
Finally, although environmental, social, and governance investments continue to dominate headlines, more than three-quarters of plan sponsors offer ESG-labeled funds in their core fund lineups. Only 9% said no and would consider such an option in the future. And he already does 15%.
Callan’s research has been conducted for 17 years and incorporates responses from both Callan Plan sponsor customers and other organizations across a variety of industries, with nearly 90% of plans holding assets of $200 million or more. However, 58% had more than 10,000 participants. . More than two-thirds of respondents were corporate organizations, followed by public organizations (16%) and tax-exempt organizations (15%).
