Lawsuits, legal exposure, regulatory sanction and other forms of 401k plan sponsor angst are driving certain behaviors in 2017, none more so than those involving target date funds.
Indeed, reviewing target date strategies is now the top priority for 401k plan sponsors, at least according to retirement plan consultants.
More than three-quarters of those consultants surveyed said target date fund reviews are the top priority over the next year for their plan sponsors clients, closely followed by an evaluation of investment fees, PIMCO reports.
The House that Bill Built (and left) adds that nearly all (97 percent) of consultants recommend target date funds as the qualified investment default alternative (QDIA).
A packaged active/passive blend for target date allocations was recommended by the largest block of respondents for plans with less than $1 billion in assets.
For larger plans, nearly half of the consultants recommend custom target date strategies that enable tailoring of both the glide path and the investment manager line up, while just over a quarter recommend packaged active/passive funds even for these mega plans.
Assets in custom target-date strategies continue to grow, with consultants reporting nearly $200 billion in custom target-date AUM. At the median, consultants expect an additional 10 percent of clients to implement these strategies in the next 3 years.
“Nearly all consultants (98 percent) recommend that plan sponsors consider a target date fund’s glide path as the most important factor in evaluating and selecting an investment default strategy,” Stacy Schaus, PIMCO executive vice president and author of the survey, said in a statement. “Consultants also note fees as an important consideration, which helps explain broad support for active and passive blend target date fund strategies.”
The vast majority of consultants view active management as an important or very important investment approach for emerging market equity, non-U.S. bonds, U.S. bonds, infrastructure/MLPs, U.S. small cap equity and non-U.S. developed market equity.
Nearly all consultants (97 percent) recommend core or core plus fixed income as a stand-alone core investment option, with the majority also supporting a second core bond choice such as a foreign or global fixed income or a multi-sector bond fund.
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.
