Investment Menus Static – For Now

Most plan sponsors didn’t change the number of funds on their plan menu – but the proportion of those who did was the highest since 2012, according to a new survey.

Perhaps more significantly, those making a change (35%) more often decreased the number of funds (20.2%) than increased them (14.6%) according to the survey by Callan Associates. Moreover, the researchers said the trend could be shifting, as more intend to increase those offerings in 2018 (12.5%) than decrease them (7.5%), according to the survey of 152 plan sponsors.

In general, there is a lot of activity around U.S. small/mid cap equity funds, which were not only the top fund type that was added in 2017, but, according to the survey, are also the most likely to be eliminated in 2018 (along with balanced and global equity funds).

A number of respondents indicated that they added (4.4%) or intend to add (7.7%) target date funds, although Callan said this was likely a reference to the addition of a new vintage, such as a 2060 series.

Collective Shifts

Use of collective trusts increased from 43.8% in 2011 to 65.0% in 2017, though this might be related to shifts in the survey respondent demographics over that period. The results in the Callan survey skew toward larger plans, and this year more than 60% of the respondents have more than $1 billion in plan assets (twice as many as a year ago), and more than 90% have in excess of $100 million in assets. There was also a significant increase in the number of Section 457 plans in the survey (from 7.9% in 2016 to 21.7% in the current survey), which augurs caution in drawing conclusions about trends – a point that Callan points out in its analysis.

More than a quarter of plan sponsors (27.4%) reported that they offered a stable value collective trust, while over half (56.4%) offered a collective trust that was not a stable value fund. Use of separate accounts increased and coincided with an increase in the use of unitized or private label funds, although most plans with unitized funds have assets in excess of $1 billion (92%), and more than half have assets greater than $5 billion (52%).

Structure Evaluations

The majority of plan sponsors (58.2%) conducted an investment structure evaluation within the past year, although the survey also found that nearly 1 in 10 plans (9.8%) either conducted a structure review more than five years ago or do not recall their last review – an increase from prior years.

While regular due diligence slipped from 2016, it still maintained its position as the most common motivation for undergoing an investment structure evaluation, according to the survey. Beyond regular due diligence, the two most common reasons given for the recent investment structure evaluation were to identify overlaps and gaps in the fund lineup (39.1%) and to streamline the fund lineup (27.3%).

Filling a style or strategy gap took over as the most important attribute. Investment performance, previously the top-ranking attribute, fell to second place in the survey. Fees came in third, close behind investment performance, while brand name and participant requests continue to be low-ranking attributes.

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