PIMCO’s recent consultant survey reviews important trends in the DC market and, though focused on the large market, portends changes for the entire industry. Based on surveys with 51 firms (with a median plan of $75 million), the group included so-called “Tier 2” consulting firms like the Blue Prairie Group, traditional institutional consultants, specialty firms like CapTrust, and traditional FAs that have moved up market like Snook Housey, as well as firms like Morningstar and Mesirow.
Key takeaways that could be important to the small- and mid-sized DC market include:
• Almost all firms are serving as a 3(21) fiduciary, and a majority have taken on 3(38) responsibilities.
• Emerging market debt was the leading new strategy for asset allocation investment, with non-U.S. equities and TIPS as standalones.
• The optimal lineup has six equity funds, one capital preservation and two fixed income funds, as well as an asset allocation strategy.
• Larger plans are decoupling TDFs from record keeping.
• 74% view active management as very important in asset allocation strategies, and voiced a number of issues with index funds, including too much reliance on market cap weighted funds, tracking errors, poorly constructed indices, too much reliance on index funds as the sole risk strategy and the perception that they are a safeguard against litigation.
• While most plan sponsors want to retain assets of retiring workers, very few are actively encouraging retention.
• Low uptake on retirement income is primarily due to portability issues, lack of government support, operational complexity, cost, liquidity and control.
