(Plan) Size Matters in TDF Practices

A new plan sponsor survey about target-date fund usage and practices finds a lot of uncertainty, and some disparity among plan sizes.

While larger plans were less likely to be unsure about their practices, striking minorities of respondents to a recent PLANSPONSOR/Janus Capital Group survey were unsure about:

  • 17.9% – which was the best QDIA option for their employees (31.4% among micro plans)
  • 31.1% – which type of TDF their recordkeeper/provider offered
  • 9.6% – how frequently their TDF was benchmarked to determine best fit for participant demographics
  • 22.1% – whether employees were using TDFs as a single, all-inclusive fund
  • 17.9% – whether employees are selecting the right TDF for them
  • 44% – whether their TDF was composed of all passive, all active, or a mix of strategies
  • 45.1% – whether their TDF series currently utilized alternative asset classes

Single-manager TDFs remain the norm, even among the largest plans. Indeed, mega plans (those with more than $1 billion in assets) are considerably more likely to have that structure in place than are smaller plans: 62.6% of mega plans do, compared with just 29.6% of micro plans. On the other hand, nearly a quarter (23.4%) of those micro plans say they don’t use a target-date fund for their QDIA.

For purposes of the survey, micro plans were defined as having less than $5 million in assets, small plans to range between $5 million and $50 million, mid-sized plans between $50 million and $200 million, large plans from $200 million to $1 billion, and mega plans above that.

Selection Criteria

Asked to name the most important consideration in choosing a QDIA, “best overall performance,” cited by 29.5%, dominated the list, followed by quality of fund/underlying funds, cited by 22%. Low fees, cited by 17.4%, was third on that list.

On the other hand, there was quite a bit of disparity in the ranking of considerations by plan size. Though performance was ranked the top consideration by micro (38.6%), small (29.8%) and large (25.8%) plans, mega plans cited investment allocation (30.9%) as the top consideration, followed by low fees (20.7%) and qualify of fund/underlying funds (20.1%). Mid-sized plans ranked quality of fund/underlying funds (23.7%) tops, just ahead of best overall performance (21.6%).

Benchmarking to assure “best fit” with their participant demographics is primarily an annual event (34.5%) among a plurality of respondents, with quarterly a distant second (17.7%). Nearly as many (14.4%) responded “never,” including 11.8% of mega plans.

Despite some uncertainty, for the most part, plan sponsor respondents to the survey seem pretty confident about their target-date selection; more than half (54.5%) are very confident that their plan’s QDIA is the best option for the majority of their workers. However, less than a third are very confident that the plan’s education about TDFs is effective, fewer than a quarter are very confident that employees understand the structure and intent of target-date funds, and less than 3 out of 10 (29.2%) are very confident that employees are selecting the right TDF for them. In fact, only 23.2% are very confident that employees are using target-date funds as a single, all-inclusive fund – and nearly as many (22.1%) say they don’t know if employees are using TDFs in that manner.

Single Best?

Target-date options remained limited, particularly among larger plans. More than half of the mega (56.9%), large (57.8%) and mid-size (55.6%) plan respondents said that their recordkeeper offered TDFs comprised of funds from a single firm. While only about a third (32.7%) of micro, and 42.2% of small plans indicated that limitation, 41.1% and 30.5%, respectively said they “didn’t know.” Not that ignorance of that structure was limited by plan size. As it turns out, “don’t know” was also the response of 26.8% of mega plan sponsor respondents, as well as 22.8% of large plans and 21.9% of mid-size plans.

Considered Actions?

While 13.3% already use a multi-manager TDF, 44.8% have not considered that option, and 8.4% have considered it but decided not to use it. Custom TDFs are in place at roughly one in eight respondents, but 42.7% haven’t considered them, and 11.7% have considered and decided to take a pass. Nearly one in five (18.1%) are using a participant-level professionally managed account, but 36.8% haven’t contemplated that option, while 1 in 10 have but decided not to adopt it.

On a somewhat more esoteric note, the survey asked whether plan sponsors were monitoring the duration of the fixed income component, and if so,whether they were taking action to address and adjust it. Just 11.8% were doing so, with another 15.8% monitoring but not taking action. A plurality (37%) were not monitoring, and nearly as many (35.9%) weren’t sure. Not surprisingly, mega plans were more likely to be monitoring (28% monitoring but not taking action, 7.9% monitoring and taking action) – but a full one-third (33.8%) were not monitoring – and again, nearly as many (30.2%) weren’t sure.

Post a Comment

Your email is never published nor shared. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Send this to a friend