Major 401k consultants and advisors believe plan sponsors want to retain and continue to serve individual savers once they retire.
That’s up 14% from the previous year, as aging Baby Boomers confront the challenge of managing their savings once they enter retirement.
Seen as a renewed focus on the importance of retirement income, and specifically turning accumulated assets into incomes streams that will last, a new study from PIMCO also finds that two-thirds of large and mid-sized consultants and advisors recommend plan sponsors offer a retirement income tier to serve retirees, populated with a variety of retirement income solutions as opposed to a single all-in-one solution.
The 13th Annual Defined Contribution Consulting Study said adding distribution flexibility, providing access to education and tools and adding retiree-focused investment options are key strategies to retain DC plan participants once they’ve reached retirement.
Retirement income design
In terms of retirement income design, large and mid-sized consultants and advisors recommend both single and multi-asset solutions, with limited support for insurance guarantees.
Over three-quarters prefer an equity exposure of less than 40% at retirement, while tolerance for drawdown risk declined further compared to last year.
Nearly three-quarters recommend monthly distributions, while all the consultants and advisors preferred a distribution yield greater than 4%.
The study also found a significant shift in plan sponsor priorities, with most large and mid-sized consultants and advisors now ranking reviews of target-date funds as the highest priority, followed by evaluation of investment fees and administration fees, and simplification of investment menus.
For plans of $1 billion or less, the preferred target date design is a blended strategy that combines active/passive management compared to pure passive or pure active, while custom solutions are most recommended for plans over $1 billion in size.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
