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Most 401(k) Consultants Support Additional ‘Retirement Tier’

New survey results show that a significant majority of 401(k) consultants support additional services in DC plans.

Nearly two-thirds (64%) of survey respondents said they believe plans should offer a “separate retirement income tier,” which may include retiree-focused services and products, according to PIMCO’s 12th annual Defined Contribution Consulting Support and Trends Survey. The 2018 survey captures data, trends and opinions from 77 consulting firms, representing 17,000 plan sponsors with over $4.4 trillion in plan assets.

The authors note that more research is needed to determine the “right” retirement income investment, but the majority of respondents said the most important attributes in a strategy were no additional fiduciary risk, liquidity and inflation protection.

For plan sponsors who would like to retain participants after they retire, the consultants recommend adding a retirement education tool (80%), allowing distribution flexibility (77%) and adding retiree-focused investment options (76%). Similar to last year, consultants place investment solutions, rather than insurance products, at the top of their retirement income suggested list, the report notes. Their top three suggestions are at-retirement target-date vintages, cash management and income/multi-sector fixed income strategies.

While noting that approximately two-thirds of DC assets are held by participants over 50 years old, Stacy Schaus, PIMCO Executive Vice President and DC Practice Leader, emphasizes that “as participants enter retirement, 401(k) plans will need to tailor their offerings further in order to support the distinct needs of those no longer working.”

Top Services

Meanwhile, the top five services that have grown the most over the past year are:


  • total plan cost/fee studies (65%);

  • recordkeeping searches (49%);

  • discretionary oversight of investment selection and monitoring (45%);

  • investment menu design (41%); and

  • evaluate/design financial wellness programs (39%).


This year’s findings also reveal a trend toward a greater number of consultants providing specific discretionary services. According to the report, the top five growth discretionary services are:

  • decide when to replace managers and conduct manager searches (90%);

  • decide investment default and investment menus (82%);

  • measure, monitor and negotiate fees (65%);

  • develop white label/multi-manager portfolios, including custom glide path for QDIA; and

  • monitor recordkeepers (43%).


Respondents also indicate that an average of 11% of their clients currently use their discretionary services, but they believe an average of 23% of clients will use discretionary services by 2020. In addition, the vast majority cite the “perceived mitigation” of fiduciary risk (90%), inadequate internal investment expertise (85%) and the ability to “hand over the reins” on investments (82%) are the dominant factors that drive plan sponsors to OCIO.

Plan Design

Perhaps not surprisingly, nearly all consultants recommend auto-enrollment (96%) and auto-escalation (93%), the findings show. At the median, respondents recommend a 6% starting contribution rate within auto-enrollment, which was unchanged from last year.

In addition, while the largest share of consultants (41%) continue to favor a 10% auto-escalation cap in 2018, 50% suggest a higher cap. The findings also show that more than half of consultants do not recommend that plan sponsors include a brokerage a window (59%), while nearly one-third of consultants (31%) do recommend a brokerage window in some capacity.

As to core menu construction, the majority of consultants (77%) believe that capital preservation strategies should remain active only, while 46% believe the same for the fixed-income asset class — up from 32% last year. For equity management, the vast majority (95%) recommend a combination of active and passive management.

Meanwhile, over two-thirds of consultants “strongly agree or agree” that managed accounts produce better-performing portfolios than do-it-yourself investors. Yet, only 31% strongly agree or agree the investment methodology used within managed accounts is equal or superior to that of TDFs. Moreover, only 13% believe managed accounts costs relative to TDFs are justified or reasonable given the value to participants.

Other findings include:


  • ESG strategies are recommended by 47% of consultants as an additional strategy to consider within the core lineup.

  • TDFs continue to be the preferred choice for QDIAs (87%).

  • For plans with assets at or above $1 billion, consultants’ first recommendation is a custom TDF, while the preferred TDF structure for all other segments is an active/passive blend.

  • Consultants continue to recommend 10 options as the optimal design of the core menu: six equity, two fixed income, one capital preservation, and one inflation-protection.

  • Stable value continues to be the top recommended capital preservation option.

  • For core fixed income strategies, 97% recommend a core or core plus strategy, followed by 56% of consultants recommending a foreign or global strategy and 50% for Income/Multi-sector bond.

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