They talk the talk; can they walk the walk?
A new whitepaper from Callan explores what the investment management industry, the stewards tasked with managing the investments of 401k plans for others, do for their own employee base.
Aptly titled The Cobbler’s Shoes: How Asset Managers Run Their Own 401(k) Plans, the paper analyzes U.S. Department of Labor data of 157 asset management firms and compares that dataset to a broader population of 55,000 plans.
Thankfully, investment managers have made employer contributions an important component of their benefits package, according to the authors—with all plans making some form of employer contribution to their plans in 2016 at a rate almost five times that of the broader population.
This, along with other factors, has contributed to relatively higher average balances.
Other findings about asset manager-sponsored 401k plans include:
Employee Ownership
There is an unexpectedly high correlation between high balances, high contribution rates, and employee ownership—8 of the top 10 firms in terms of average balances were privately held.
Belief in Active Management
Plans (and their participants) allocated a higher proportion of assets to active management strategies, likely reflecting the firms’ business models, as many of these firms oversee actively managed strategies.
Expense Management
Manager-sponsored plans generally have done a good job managing expenses (including fees), particularly given the allocation to active strategies relative to the broader population.
More Complexity
Plans generally embraced complexity over simplicity in their investment design, such as the breadth of options in their investment lineups and greater use of brokerage windows.
Participant Selection Differences
Asset allocation decisions of participants in manager-sponsored plans largely resembled the broader industry but with a few key differences:
Allocations to the “other” category and a lower adoption rate of target date funds relative to the broad industry (70% for the sample versus 91% for the broader industry)
Lower allocations to capital preservation funds (i.e., money market and stable value options), which could be suggestive of a longer-term investment perspective and appreciation for diversification
“We were curious about the investment management industry for a variety of reasons,” Callan CEO and Chief Research Officer Greg Allen said in a statement. “Their employees are investment professionals and presumably more engaged (and potentially vocal) about the design of their plans. They are also faced with the interesting question of employing products managed by their competitors, or in some cases, employing their own products. Ultimately, we were interested to see how these factors affected plan design and whether it resulted in meaningful differences from the broader population.”