While it’s not always true, what happens in the large market usually migrates down market. So, according to a recently released study by Callan Associates of nearly 150 larger plans (most of which were 401(k) plans), the percentage of plans offering custom TDFs almost doubled in 2014, from 11.5% to 22.3%.
The growth came at the expense of record keepers’ proprietary TDFs, which dropped from 47.5% to 28.7%. Index TDFs remained steady at 42%, with nearly 75% of plans using TDFs as their default.
There seems to be no stopping TDFs — although word is that record keepers with prop TDFs are looking very hard at managed accounts, eyeing the success of Financial Engines.
Other highlights from the Callan survey included:
Fees
- Twice as many plans changed the way fees are paid, moving to per-participant versus asset-based as the stock market increases.
- Nearly half are likely to switch to lower-cost share classes, with some using CITs.
- The highest priority for next year will be ensuring that fees are reasonable, with lowest priority fee equalization.
Auto Features
- More plans are using them, but not aggressively.
- While about two-thirds use auto-enrollment, only one-third combine auto escalation.
- The average auto-deferral rate is 4.3% and 1%/year for auto-escalation.
- “Wait and see” is the most common approach to the retirement income issue.
Unitized custom TDFs may be too costly for smaller plans, so look for third-party asset allocation models, 3(38) and maybe managed accounts using funds offered in the plan implemented by accommodating record keepers.
