Consultants See Litigation, Fee Focus By Plan Sponsors

As plan sponsors consider their DC plans, which factors drive decisions the most?

Well, the good news, at least according to PIMCO’s 11th Annual Defined Contribution Consulting Support and Trends Survey, is that meeting participant retirement goals garnered the largest support – 29% cited it as a top driver. On the other hand, managing litigation risk at 25% was a close second. Other factors – the cost of an investment (14%), performance (14%) and managing organizational costs (9%) were considerably less impactful, according to the survey of 69 U.S. consulting firms. Collectively those firms serve more than 12,000 clients, with aggregate DC assets in excess of $4.0 trillion.

Asked to name the top five actions that plan sponsors can take to manage their fiduciary risk, respondents cited:

84% – Benchmark plan costs
78% – Hire an investment consultant
68% – Document investment reviews
59% – Conduct fiduciary training
55% – Move away from revenue sharing

‘High’ Five

The five priorities for their clients for the next year were – well, largely fee-focused:

77% – Review target-date funds
73% – Evaluate investment fees
63% – Evaluate how plan costs are paid
58% – Evaluate administration fees
45% – Simplify core lineup

And, not surprisingly, asked which five DC services have grown the most over the past year, the consulting/advisory firms cited:

75% – Total plan cost/fee studies
57% – Investment default asset-allocation creation/management (e.g., target dates, balanced fund)
51% – Investment menu design
49% – Recordkeeping searches
46% – Discretionary oversight of investment selection and monitoring
35% – Governance reviews

Service Stations

As for the five discretionary services that have grown the most over the past year, survey respondents noted:

64% – Conduct/document due diligence on managers
64% – Decide menu of investment choices
55% – Conduct manager searches
55% – Decide investment default
55% – Measure, monitor and negotiate fees

Just 38% cited deciding mapping policy, and even fewer (33%) noted the opportunity to develop custom glide paths.

Asked to cite the factors that might drive DC outsourced CIO growth or discretionary oversight of DC assets, perceived mitigation of fiduciary risk (e.g., litigation) topped the list at 85%, followed by:

82% – Ability to hand over reins on investments
79% – Insufficient/inadequate internal investment expertise
50% – Clients outsource DB already and wish to do the same with DC
47% – Desire multi-manager custom strategies and prefer to fully delegate this outside

Ironically, litigation risk topped the list of consultant concerns with offering those services, cited by 52%, followed by marketing ability to win clients/build assets (42%), potential perceived conflict of interest (38%) and distraction from consulting services (29%).

Not surprisingly, 98% recommend automatic enrollment. However, nearly as many (94%) said they touted auto-escalation (and 88% did so at 2%), and just over half (54%) promoted auto catch-up.

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