A growing number of plan sponsors are embracing the notion of a “custom” target date fund for their plan, rather than an off-the-shelf offering – but the rationales for and against such options remain varied.
When looking at plan size, smaller plans are less likely to have a custom TDF in place today, but more than half (52%) of respondents with plans over $5 billion already have a custom TDF, according to the Rocaton/Pensions & Investments 2015 Survey of Defined Contribution Viewpoints. That said, sizable minorities (27% overall) say that it is “very unlikely” that they will offer a custom TDF in the next two years, and another 15% say it is somewhat unlikely they will do so. The survey responses were drawn from more than 400 defined contribution plan sponsors and industry professionals at asset management, record keeping and consulting firms.
Industry professionals feel that custom solutions may be appropriate, though nearly two-thirds (63%) say it depends on the plan.
There was some variance between what plan sponsors and other industry professionals — those at asset management, recordkeeping and consulting firms — see as the most compelling reason to offer the option. While plan sponsors were more likely (50%) to selected plan demographics as the main reason to do so, industry professionals were inclined (80%) to believe the ability to use the plan’s core investment lineup was the most compelling reason (though 67% concurred with the plan demographics option).
Four in 10 plan sponsors also cited that rationale, though it came in just behind the 41% who said that the fees for such offerings are “compelling relative to off the shelf options (a sentiment shared by 53% of those in the “industry professional” category).
Managed Account
Asked if they could choose from more than one managed account provider at their record keeper, 38% of plan sponsors said they currently could, and when asked if they would like additional choice among managed account providers, 17% of plan sponsors indicated they either already have that option, while 23% said they would like to have that additional choice. Of course, that means that most (60%) are satisfied with their current arrangements.
Just over half (55%) of plan sponsors say the industry does not need more managed account providers, and 44% of non-plan sponsors agreed. On the other hand, 27% of plan sponsors and 17% of non-plan sponsors didn’t know.
If there were to be a newly launched managed account solution, 56% of plan sponsors indicated it would need to have $1 billion or more in assets before it could be considered a viable choice for their plan, though 27% set that bar at $500 million or more.
