Only a few years ago, less than half of large 401k plan sponsors cared about keeping participant assets in-plan after they retire. That’s changing, as now about 75% say they want to keep those assets in-plan.
Initially a vehicle to help Americans save for retirement, 401k plans could become an important source of income for retirees when they stop working, according to the 15th Annual Defined Contribution Consulting Study conducted by Newport Beach, Calif.-based PIMCO, one of the world’s premier fixed income investment managers.
Consultants who participated in the survey said approximately three-fourths of 401k sponsors prefer to keep participant assets in-plan after they enter retirement, up from less than half in 2015. Allowing flexibility in income distribution, adding retirement education/tools and communicating the value of staying in plan, were among the most popular consultant recommendations for plans seeking to hold onto retiree assets.
“Demand for income will only increase as more Americans enter retirement and it is clear from the survey that plan sponsors are changing how they view 401ks from what historically had been a vehicle for savings to one that will generate income for participants,” said Rene Martel, PIMCO’s Head of Retirement.
PIMCO surveyed 47 consultants and advisory firms who serve over 33,000 clients with $6.7 trillion in total assets in defined contribution plans as part of the firm’s effort to capture the breadth of views in the industry as well as services available amid rapidly changing demographics of plan participants. Published results were based on responses from firms with more than $10 billion in DC assets under management.
“The survey’s findings reflect the ongoing changes in defined contribution—a pivot to solutions for retirement income, best practices for default fund/target date funds, evaluation of ESG products, etc.—and provide invaluable insights for sponsors and consultants who want to best serve end investors,” says Julie Meggers, PIMCO’s Global Head of Consultant Relations.
Other survey findings:
- Target-date funds remain the most recommended Qualified Default Investment Alternative (QDIA), with all consultants and advisors surveyed ranking it their No. 1 choice. More than two thirds of institutional consultants said reviewing TDFs was a top priority, indicating they are keeping a close eye on fees and performance.
- The majority of consultants recommend a blend of actively managed and passive funds for core investments, with more than 90% preferring an active/passive blend for equities and 87% favoring all-active for capital preservation. Of the survey respondents, 67% preferred an active/passive blend in fixed income, with the others favoring all-active.
- Interest in ESG investment options continues to grow, with over a half of consultants already or planning to recommend sustainable options; however, 54% of those surveyed said they needed to have greater regulatory/legal comfort before implementing an ESG solution.
A full summary of the survey’s key findings can be found here: www.pimco.com/dc-survey.
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