You may know about the “butterfly effect” — essentially an action that ends up resulting in an unintended consequence, affecting things not originally in the line of fire. So goes the effort to reduce plan fees. It saves plans money, but it also is resulting in an increasing number of retirement plans turning to passively managed investment options.
So says an annual survey of 107 plan executives that Callan Associates conducted and recently released, Pensions & Investments reports. Part of the drive to cut the fees plans pay for services rendered to them is attention to the cost of lawsuits related to fees, Callan’s Lori Lucas says.
The survey of 107 retirement plan executives, 80% of whom represent DC plans, shows that twice as many expect to increase their use of passively managed investment options than in 2013. Last year, 12.5% did so; 24.1% said they plan to do so this year. In addition, Callan says, the number of plans whose major asset classes are represented by passive funds in addition to active funds is growing.
The assets and number of participants involved are significant: More than half of the 107 plans have assets of $1 billion or more, and 20.4% have at least 50,000 participants.
