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More Plan Sponsors Seeking to Retain Retiree Assets

Industry Trends and Research

A new survey of large 401(k) plan sponsors finds that an increasing number want participants to keep assets in their plans after they retire. 

Consultants who participated in the survey said that 74% of 401(k) sponsors prefer to keep participant assets in plan after they enter retirement, up from less than half in 2015, according to PIMCO’s 15th Annual Defined Contribution Consulting Study. 

Of this group, 36% said they are actively seeking to retain assets, up from 14% in 2015, while 38% said they prefer to retain assets but do not actively encourage doing so. Only 7% said they would prefer that participants move retiree assets out. 

PIMCO notes that allowing flexibility in income distribution, adding retirement education and tools, and communicating the value of staying in plan, were among the most popular consultant recommendations for plans seeking to hold onto retiree assets.

According to the findings, three-quarters of sponsors have already provided retirement education and tools and about half have also improved distribution flexibility. Only 8%, however, have added retiree-focused investment options, while 28% indicate that they plan to implement such options. 

“Demand for income will only increase as more Americans enter retirement and it is clear from the survey that plan sponsors are changing how they view 401(k)s from what historically had been a vehicle for savings to one that will generate income for participants,” says Rene Martel, PIMCO’s Head of Retirement.

The findings are based on a survey of 47 consulting and advisory firms who serve more than 33,000 clients with aggregate DC assets in excess of $6.7 trillion. All responses were collected from Jan. 4, 2021 through Feb. 26, 2021, with published results based on responses from firms with more than $10 billion in DC assets under management.

Additional Priorities

Not surprisingly, sponsor priorities are seen as differing by market served. More than two-thirds of institutional consultants said reviewing target date funds (TDFs) was a top priority, indicating they are keeping a close eye on fees and performance, PIMCO notes. Institutional priorities also include evaluating retirement income. So-called leading-edge clients are also evaluating retirement income and a portion of them are setting up a retirement tier. 

By contrast, aggregators report more emphasis on wellness and navigating new regulations. Leading clients also focused on retirement income, as well as HSAs and liabilities. Nearly half of aggregators also indicate that top priorities include expanding custom investment solutions capability; providing new service offerings; and merging or acquiring other firms. 

The study further notes that the highest growth areas encompass total plan cost studies, discretionary oversight and retirement income evaluations, while a majority of firms are seeking to expand up (over $250 million) and/or down market (under $250 million). 

When asked about advisor managed accounts, nearly three-quarters of aggregator firms said they participate today, while 69% of institutional consultants said they are unlikely to participate. PIMCO also found greater than 50% usage for plans between $1 million and $500 million. 

TDFs, QDIAs and ESG 

TDFs remain the most recommended Qualified Default Investment Alternative (QDIA), with all consultants and advisors surveyed ranking it their number one choice. Beyond presuming a glide path aligns with a plan’s demographics, the level of drawdown risk near or at retirement is the next most important factor, the study notes. The top reasons cited to replace a TDF are to reduce fees, poor performance and a desire for passive or an active/passive blend strategy. 

As for core investments, most consultants report that they recommend a blend of actively managed and passive funds, with more than 90% preferring an active/passive blend for equities and 87% favoring all-active for capital preservation. Of the survey respondents, 67% preferred an active/passive blend in fixed income, with the others favoring all-active.

Interest in ESG investment options continues to grow. While greater regulatory clarity was reported as a top priority for implementing ESG, over half of respondents are adding or plan to add ESG in 2021 following DOL final rule. Still, 54% of those surveyed said they needed to have greater regulatory/legal comfort before implementing an ESG solution.