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DB Plans Are Waning — What’s on the Horizon?

The death of DB plans is not greatly exaggerated, according to a Vanguard survey of DB plans. Though most do not anticipate any major changes in design or status going forward, based on surveys with 169 plans encompassing $167 billion in plan assets, 57% of plans closed or froze their plans. In fact, the number of frozen plans was more than twice the 2010 total. And 59% of plans were open and active in 2010, compared with only 43% in 2012.

Liability driven investment (LDI) looks like a popular strategy, with two-thirds of plans employing it — most of whom indicated that they will probably use it in the future. Domestic bonds grew from 30% to 35% over the past two years, with equities remaining stable at 49%. Fixed income funds should increase, Vanguard expects.

In all, this is another good news/bad news report for advisors who are focused on DC or participant directed retirement plans. The good news: More people will be relying on DC plans for retirement in the future, making advisors who are trained and knowledgeable in even greater demand. The bad news: Plan sponsors will continue to minimize risk and involvement with retirement planning for employees, which will make it harder for advisors to significantly improve participant outcomes. And one DB trend that should spill over into DC plans: the move to LDI and fixed income/capital preservation.

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